SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year
ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES ACT OF 1934
Commission File Number 1-8094
SEAGULL ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Texas 74-1764876
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1001 Fannin, Suite 1700
Houston, Texas 77002-6714
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 951-4700
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, par value $.10 per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 20, 1997, the aggregate market value of the outstanding
shares of Common Stock of the Company held by non-affiliates (based on the
closing price of these shares on the New York Stock Exchange) was approximately
$1,145,771,074.
As of March 20, 1997, 62,931,403 shares of Common Stock, par value
$0.10 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Form 10-K
(1) Annual Report to Shareholders for PARTS I and II
year ended December 31, 1996
(2) Proxy Statement for Annual Meeting PART III
of Shareholders to be held on May 13, 1997
<PAGE>
PART I
Item 1. Business
Seagull Energy Corporation (the "Company" or "Seagull") is an
international oil and gas company engaged primarily in exploration and
development activities in the United States, Canada, Egypt, Cote d'Ivoire,
Indonesia and the Russian Republic of Tatarstan. It also transports, distributes
and markets natural gas, liquids products and petrochemicals in the U.S. and
Canada. The Company was incorporated in Texas in 1973 as a wholly owned
subsidiary of Houston Oil & Minerals Corporation ("HO&M"). In March 1981, the
Company became an independent entity as a result of the spin-off of its shares
to the stockholders of HO&M. The growth in the Company's exploration and
development activities has been achieved primarily through acquisitions: HO&M in
1988, Houston Oil Trust in 1989, Wacker Oil Inc. in 1990, certain oil and gas
assets from Mesa Limited Partnership in 1991, Arkla Exploration in 1992, Novalta
Resources Inc. in 1994, and two Egyptian concessions purchased from units of
Exxon Corporation in 1996.
On October 3, 1996, the shareholders of Seagull and Global Natural
Resources Inc. ("Global") approved a merger of a wholly owned subsidiary of
Seagull into Global (the "Global Merger"). Pursuant to the Global Merger, each
share of Global common stock was converted into 0.88 shares of Seagull common
stock with approximately 26.3 million shares issued to the shareholders of
Global. The Global Merger was accounted for as a pooling of interests. Therefore
all financial information and statistics have been restated. The "Company" or
"Seagull" refers to Seagull and its consolidated subsidiaries, unless otherwise
indicated or the context otherwise suggests.
For financial information relating to industry segments, see Note 13 of
Notes to Consolidated Financial Statements of Seagull Energy Corporation and
Subsidiaries. The Consolidated Financial Statements of Seagull Energy
Corporation and Subsidiaries and the Notes related thereto (the "Consolidated
Financial Statements") are included in the Company's 1996 Annual Report to
Shareholders and as part of Exhibit 13 attached hereto.
Items 1, 3 and 7 of this document include forward looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Although Seagull
believes that its expectations are based on reasonable assumptions, it can give
no assurance that its goals will be achieved. Important factors that could cause
actual results to differ materially from those in the forward looking statements
include political developments in foreign countries, federal and state
regulatory developments, the timing and extent of changes in commodity prices,
the timing and extent of success in discovering, developing and producing or
acquiring oil and gas reserves and conditions of the capital and equity markets
during the periods covered by the forward looking statements.
OIL AND GAS OPERATIONS
Seagull's Oil and Gas Operations ("O&G") segment is the Company's
primary business segment and is comprised of the following material direct and
indirect wholly owned subsidiaries of the Company: Seagull Energy E&P Inc.;
Global Natural Resources Inc.; Seagull Midcon Inc.; Seagull Mid-
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South Inc., Seagull Energy Canada Ltd. ("Seagull Canada"), Seagull East Zeit
Petroleum Ltd. and various other subsidiaries.
Natural gas is stated herein in billion cubic feet ("Bcf"), million
cubic feet ("MMcf") or thousand cubic feet ("Mcf"). Oil, condensate and natural
gas liquids ("NGL") are stated in barrels ("Bbl"). MMcfe and Mcfe represent the
equivalent of one million and one thousand cubic feet of natural gas,
respectively. Oil, condensate and NGL are converted to gas at a ratio of one
barrel of liquids per six Mcf of gas, based on relative energy content. MBOE and
BOE represent one thousand barrels of oil equivalent and one barrel of oil
equivalent, respectively, with six Mcf of gas converted to one barrel of liquid.
As used in this Annual Report on Form 10-K, liquids means oil, condensate and
natural gas liquids, unless otherwise indicated or the context otherwise
suggests.
Revenues from the O&G segment accounted for 81%, 76% and 78% of the
Company's consolidated revenues for 1996, 1995 and 1994, respectively.
Production of gas and liquids for 1996 averaged 391.5 MMcf per day ("MMcf/d")
and 13,409 Bbl per day ("Bbl/d"), respectively, compared to 382.6 MMcf/d and
8,753 Bbl/d, respectively, in 1995. Oil production in 1996 increased from the
prior year primarily as a result of increased production in Egypt and Cote
d'Ivoire. In September 1995, the Company sold substantially all of its gas
gathering and processing assets. With the sale of these assets, Seagull's
former Exploration and Production segment and the Pipeline and Marketing segment
have been reclassified into Oil and Gas Operations.
Seagull's principal oil and gas producing properties include the
following:
<TABLE>
<CAPTION>
Proved Reserves at December 31, 1996
--------------------------------------------------------------------------------------
Gas (MMcf) Oil (Mbbl) MBOE
-------------------------- ------------------------- -------------------------
<S> <C> <C> <C>
UNITED STATES:
Arkoma Basin.................. 121,896 - 20,316
Arklatex Area................. 297,719 7,687 57,306
Mid-Continent Area............ 203,692 7,958 41,906
Offshore Gulf of Mexico....... 82,095 2,404 16,087
Gulf Coast Onshore............ 27,608 1,166 5,767
Other......................... 82,771 670 14,465
-------------------------- ------------------------- -------------------------
815,781 19,885 155,847
CANADA.......................... 233,744 3,725 42,682
EGYPT:
Qarun......................... 1,447 9,462 9,703
East Zeit..................... - 16,262 16,262
-------------------------- ------------------------- -------------------------
1,447 25,724 25,965
COTE D'IVOIRE................... 21,644 1,525 5,132
TATARSTAN....................... - 16,338 16,338
INDONESIA....................... 65,217 1,125 11,993
-------------------------- ------------------------- -------------------------
1,137,833 68,322 257,957
========================== ========================= =========================
</TABLE>
For additional information relating to the Company's oil and gas
reserves, based substantially upon reports of DeGolyer and MacNaughton,
Netherland, Sewell & Associates, Inc. and Ryder Scott Company, independent
petroleum engineers (collectively the "Engineers"), see Note 15 of the
Consolidated Financial Statements included in the Company's 1996 Annual Report
to Shareholders and as part of Exhibit 13 attached hereto. The Engineers
provided the estimates of "proved developed and undeveloped reserves" and
"proved developed reserves" at the beginning and end of each of the three years
included in Note 15. Under "Standardized Measure of Discounted Future Net Cash
Flows" in Note 15, the Engineers provided all information except "discounted
income taxes" and "standardized measure of discounted future net cash flows."
All information in Note 15 not provided by the Engineers
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was supplied by the Company. The Company's reserve estimates in Indonesia have
been obtained by the Company from a public source which, although not
independently verified, the Company believes to be reliable. As required,
Seagull also files estimates of oil and gas reserve data with various
governmental regulatory authorities and agencies. The basis for reporting
reserves to these authorities and agencies, in some cases, may not be
comparable. However, the difference in estimates does not exceed 5%.
The future results of this segment will be affected by the market
prices of natural gas and liquids and the degree of internal exploration and
exploitation success. The availability of a ready market for gas and liquids
products in the future will depend on numerous factors beyond the control of the
Company, including weather, production of other natural gas and liquids
products, imports, marketing of competitive fuels, proximity and capacity of gas
and liquids pipelines and other transportation facilities, demand for storage
refills, any oversupply or undersupply of gas and liquids products, the
regulatory environment and other regional, international and political events,
none of which can be predicted with certainty.
UNITED STATES
Most of the Company's proved oil and gas reserves and annual
production are contributed by properties in the United States. These properties
are generally located in three geographic areas -- the Mid-South region, the
Mid-Continent region and the Gulf Coast region. The Company's capital program
for 1997 is designed to hold domestic reserves and deliverability to
approximately year-end 1996 levels. In addition, Seagull will continue to pursue
small acquisitions to increase its domestic reserves and deliverability. Capital
expenditures, excluding small acquisitions, for the Company's domestic
activities are expected to be approximately $114 million for 1997, including $50
million for exploration, $57 million for development and $7 million for
leaseholds.
Mid-South Region
The Company's Mid-South properties are situated generally in the Arkoma
Basin of eastern Oklahoma and western Arkansas and the Arklatex area of east
Texas and northwest Louisiana. Combined, these two areas held proved reserves
totaling 77,622 MBOE at December 31, 1996, 30% of the Company's total proved
reserves. These proved reserves are contained in some 80 fields in which there
are approximately 1,300 producing wells. Production from these two areas at
December 31, 1996, averaged approximately 28 MBOE per day.
The Company's continuing expenditures in the Mid-South region are
devoted principally to exploitation activities. Such expenditures in 1996, which
totaled $34.0 million, were devoted to 81 development wells. Plans for 1997 call
for 69 development wells and capital spending of about $31 million. The Company
estimates that it held approximately 313 development drilling locations in the
area at the end of 1996.
Mid-Continent Region
The Company's Mid-Continent properties are situated generally in the
Anadarko Basin of the Texas Panhandle and western Oklahoma. This area held
proved reserves totaling 41,906 MBOE at December 31, 1996, some 16% of the
Company's total proved reserves. These proved reserves are
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contained in 20 fields in which there are approximately 900 producing wells.
Production from this area at December 31, 1996, averaged approximately 16 MBOE
per day.
The Company's continuing expenditures in the Mid-Continent region are
devoted principally to exploitation activities. Such expenditures in 1996, which
totaled $19.3 million, were devoted primarily to 39 development wells. Plans for
1997 call for 66 development wells and capital spending of about $21 million.
The Company estimates that it held 314 approximately development drilling
locations in the area at the end of 1996.
Gulf Coast Region
The Company's Gulf Coast region properties are located onshore in south
Texas and south Louisiana and offshore in the Gulf of Mexico off the coasts of
the same two states. As of December 31, 1996, the Company's holdings in the Gulf
Coast region totaled 21,854 MBOE of proved reserves, representing 8% of the
Company's total such reserves.
The Company at December 31, 1996, had 68 undrilled exploratory
prospects in its Gulf Coast region, some 60 of which were located offshore.
Further, the Company estimates that it held approximately 20 development
drilling locations at year-end 1996.
Both exploration and exploitation activities are conducted in this
region. In 1996 such activity consisted of 28 exploratory and 5 development
wells and cumulative capital spending of $86.4 million. The Company's capital
budget but also for development drilling and the acquisition of offshore leases
for 1997 anticipates spending of $62 million, primarily for 24 exploratory wells
but also for development drilling and the acquisition of offshore leases in the
Gulf Coast region.
CANADA
The Company's operations in Canada consist of interests in a small
number of fields located in Alberta, Canada. As of December 31, 1996, the
Company's holdings in Canada totaled 42,682 MBOE representing 17% of the
Company's reserves. Seagull's 1997 capital program includes approximately $15
million in exploratory and development capital expenditures for Canadian
operations.
EGYPT
The Company's Egyptian operations consist of working interests in two
producing (Qarun and East Zeit) and three exploratory (East Beni Suef, Darag and
South Hurghada) concessions. As discussed below, the East Zeit and South
Hurghada concessions were purchased in 1996. The Company's interests in Qarun,
East Beni Suef and Darag were owned by Global prior to the Global Merger.
Each concession is governed by a concession agreement (collectively,
the "Egyptian Concession Agreements") between the working interest partners and
the Egyptian national oil company ("EGPC"). Under the Egyptian Concession
Agreements, the working interest partners pay 100% of capital and
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operating costs and production is split between EGPC and the working interest
partners. Working interest partners recover costs from a percentage, which
varies by concession, of the oil and gas produced and sold from the applicable
concession ("cost recovery petroleum"). See the discussions of each concession
below for the applicable cost recovery percentage. Cost recovery petroleum forms
a single unified pool for the entire concession from which costs of all fields,
zones, products and types may be recovered without differentiation, except that
operating costs are recovered prior to the recovery of any capital costs.
Capital costs (which include exploration, development and other equipment and
facilities costs) are amortized for recovery over four to five years while
operating expenses are recoverable on a current basis. To the extent that the
costs eligible for recovery in any quarter exceed the amount of cost recovery
petroleum produced and sold in that quarter, such costs are recoverable from
cost recovery petroleum in future quarters with no limit on the ability to carry
forward such costs.
The remaining oil and gas produced and sold ("remaining oil" or
"remaining gas") is divided between EGPC and the working interest partners. See
the discussions of each concession below for the applicable remaining oil or gas
percentage. From EGPC's share of this remaining oil or gas, all Egyptian
government royalties as well as the applicable Egyptian income taxes of the
working interest partners are paid.
Qarun
The Company has a 25% non-operated working interest in the Qarun
Concession Agreement ("QCA"). The concession covers approximately 1.9 million
gross acres located 45 miles southwest of Cairo, Egypt. Exploratory drilling
activities began in mid 1994. Initial oil production, via trucking, began in
late 1995 while conventional development facilities were completed in late 1996.
These development facilities are expected to be fully operational in early 1997.
As required by the QCA, the Qarun Production Company was formed in 1995 to
operate the Qarun block and is jointly owned by the QCA partners and EGPC. Under
the QCA, cost recovery petroleum may be up to 40% of the oil and gas produced
and sold. Any portion of cost recovery petroleum not used to recover costs goes
to EGPC. The working interest partners receive 20%-30% of the remaining oil
depending upon production levels and 22% of the remaining gas. Up to 16
exploratory wells, as well as ongoing development activities, are scheduled on
the Qarun concession during 1997. Plans for 1997 include approximately $30
million in capital expenditures net to the Company's 25% working interest.
East Zeit
On September 10, 1996, Seagull purchased the East Zeit and South
Hurghada concessions from units of Exxon Corporation (the "Esso Suez
Acquisition") for a net purchase price of $74 million. The Company, as operator,
has a 100% working interest in the East Zeit concession which is located
offshore in the Gulf of Suez. Under terms of the concession agreement, cost
recovery petroleum may be up to 25% of the oil produced and sold. Any portion of
cost recovery petroleum not used to recover costs goes to EGPC. As the working
interest partner, the Company receives 15% of remaining oil (11.25% of total oil
production). However, the Company receives no allocation of gas production as
all such production is taken by EGPC. Plans for 1997 include approximately $30
million in capital expenditures, primarily for development activities and one
exploratory well.
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East Beni Suef
Seagull, as the operator, has a 50% working interest in the East Beni
Suef Concession Agreement. The concession covers approximately 6.8 million gross
acres lying adjacent and to the south of the Qarun concession. The working
interest partners have committed to drill one exploratory well in the initial
three year exploratory period. The exploration rights may be extended for an
additional six years by the assumption of additional drilling obligations. Up to
40% of the oil and gas produced and sold is available as cost recovery
petroleum. The working interest partners receive 15%-30% of the remaining oil
depending upon production levels and 25% of the remaining gas. Any portion of
cost recovery petroleum not used to recover costs is shared among the working
interest partners and EGPC in the same manner as remaining petroleum. The
Company has budgeted just over $3 million for 1997 capital expenditures in the
block, including its share of the first two exploratory wells.
Darag
The Company has a 50%, non-operated working interest in the Darag block
which is located in the northern portion of the Gulf of Suez, and covers 460,000
gross acres. Up to 40% of the oil and gas produced and sold is available as cost
recovery petroleum. Any portion of cost recovery petroleum not used to recover
costs is shared among the working interest partners and EGPC in the same manner
as remaining petroleum. The working interest partners receive 13%-30% of the
remaining oil based on the level of production and 25% of the remaining gas. The
Company's 1997 capital budget is just over $5 million, including its share of
two exploratory wells.
South Hurghada
As discussed above, the South Hurghada Concession Agreement, covering
over 61,000 million acres, was acquired on September 10, 1996. Seagull, as
operator, has a 100% working interest in the concession located onshore on the
coast of the Gulf of Suez approximately 250 miles south of Cairo. Up to 40%
of the oil and gas produced and sold is available as cost recovery petroleum.
Any portion of cost recovery petroleum not used to recover costs goes to EGPC.
The Company receives 12%-20% of the remaining oil depending upon production
levels and 20% of the remaining gas. While there are currently no producing
activities at South Hurghada, there are two existing oil discoveries. Projected
1997 capital spending in the block approximates $11 million, primarily for
geophysical data acquisition and evaluation, two exploratory wells and
installation of production facilities.
COTE D'IVOIRE
Seagull's operations in Cote d'Ivoire, West Africa consist of working
interests in three blocks- CI-11, CI-12 and CI-104. Each block is subject to a
Production Sharing Contract ("PSC") with similar terms for each of the blocks.
Under the terms of the PSCs, the working interest partners pay 100% of capital
and operating costs, and production is split between the Ivorian government and
the working interest partners. Working interest partners recover costs from a
percentage, which varies by concession, of the oil and gas produced and sold
from the applicable contract area ("cost recovery petroleum"). See the
discussions of each concession below for the applicable cost recovery
percentage. Cost recovery petroleum forms a single unified pool for the entire
PSC from which costs of all fields, zones, products and types may be recovered
without differentiation, except that operating and financing costs are recovered
prior to the recovery of any capital costs. Capital costs include exploration,
development and
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other equipment and facilities costs. To the extent that the costs eligible for
recovery in any calendar year exceed the amount of cost recovery petroleum
produced and sold in that quarter, such costs are recoverable from cost recovery
petroleum in future years with no limit on the ability to carry forward such
costs. Any portion of cost recovery petroleum not used to recover costs will be
split between the Ivorian government and the working interest partners in the
same manner as remaining petroleum.
The remaining oil and gas produced and sold is divided between the
Ivorian government and the working interest partners. See the discussions of
each concession below for the applicable remaining oil and gas percentage. From
the Ivorian government's share of remaining petroleum, all Ivorian government
royalties as well as the applicable Ivorian income taxes for the working
interest partners are paid.
CI-11
Pursuant to the CI-11 PSC, the Company has a 13.2% unitized working
interest in the area located from onshore to approximately eight miles offshore
Cote d'Ivoire. Under this PSC, 40% of the oil and gas produced and sold is
available as cost recovery petroleum. The working interest partners receive
10%-50% of the remaining petroleum based on the level of production and the
water depth location of the specific wellhead. The Company has budgeted
approximately $16 million as its share of 1997 capital spending, primarily
for development drilling and facilities.
CI-12
In April 1995, the Company signed a PSC for block CI-12 which lies
adjacent to the west of block CI-11. The Company acquired a 16.67% working
interest in the PSC which covers approximately 525,000 gross acres. The working
interest partners have committed to drill one exploratory well in the initial
two year period. The exploration rights may be extended for an additional four
years by the assumption of additional drilling obligations. The terms and
conditions of the CI-12 PSC are similar to those of CI-11, except that 50% of
the oil and gas produced is available to recover costs. The Company's capital
budget for 1997 includes just over $2 million for CI-12, primarily for its share
of two exploratory wells.
CI-104
In 1996, the Company received a 100% working interest in block CI-104,
which lies adjacent to the west of block CI-12 and covers approximately 250,000
gross acres. The Company has committed to drill one exploratory well in the
initial two year period. The exploration rights may be extended for an
additional four years by the assumption of additional drilling obligations.
While the terms and conditions of the CI-104 PSC are similar to those of CI-11,
75% of the oil and gas produced is available to recover costs. The Company
receives 30%-50% of the remaining petroleum depending upon production levels
and the water depth location of the specific wellhead. Seismic work is scheduled
to begin in 1997 with initial drilling beginning in 1998.
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TATARSTAN
Through its 90% owned subsidiary, Texneft, the Company has a net 45%
interest in a joint venture in Tatarstan, a republic in the Russian Federation
located west of the Ural Mountains and east of the Volga River. The joint
venture is with Tatneft, a Russian open joint stock company. The joint venture,
Tatex, operates various oil fields in Tatarstan. Under the terms of the joint
venture and various supplemental agreements, the funding for the joint venture
is supplied by Texneft and Tatneft through various credit agreements.
The joint venture's activities currently include three projects: (i)
vapor recovery, (ii) the development and operation of the Onbysk field and (iii)
the upcoming development and operation of the Suncheleevsky and Demkinsky
fields. Texneft's share of capital spending for 1997 is some $6 million,
primarily for development drilling and facilities.
INDONESIA
Seagull has a 1.714% interest in the Indonesia Joint Venture
("IJV") for the exploration, development and production of oil and gas in East
Kalimantan, Indonesia, under a production sharing contract with Perusahaan
Pertambangan Minyak Dan Gas Bumi Negara, the state petroleum enterprise of
Indonesia ("Pertamina"). The majority of the revenue derived from the IJV
results from the sale of liquefied natural gas ("LNG"). Under the terms of the
PSC with Pertamina, the IJV is authorized to explore for, develop and produce
petroleum reserves in an approximately 1.1 million acre area in East Kalimantan.
In accordance with the requirements of the PSC, which expires on August 7, 2018,
the IJV must relinquish 10% of the PSC area by August 7, 1998, 10% by December
31, 2000; 15% by each December 31, 2001, 2002 and 2004. However, the IJV is not
required to relinquish any of the PSC area in which oil or gas is held
for production.
Under the PSC, the IJV participants are entitled to recover cumulative
operating and certain capital costs out of the oil and gas produced each year,
and to receive a share of the remaining oil production and a share of the
remaining revenues from the sale of gas on an after Indonesian tax basis.
Through August 7, 1998, the share of revenues from the sale of gas after cost
recovery will remain at 35% to the IJV and 65% to Pertamina. After August 7,
1998, the split will be (i) 25 % to the IJV and 75% to Pertamina for gas sales
under various LNG sales contracts specified in the PSC to the extent that
production is committed from the Badak or Nilam fields and (ii) 30% to the IJV
and 70% to Pertamina for all LNG revenues from other fields. Based on current
and projected oil production, the revenue split from oil sales after cost
recovery through August 7, 2018 will remain at 15% to the IJV and 85% to
Pertamina. These revenue splits are based on Indonesian income tax rates of 56%
through August 7, 1998 and 48% thereafter.
OTHER INTERNATIONAL
The Company's other international operations consist of activities in
the United Kingdom and Malaysia. In the United Kingdom, Seagull has several
production licenses awarded to two exploration groups which include Seagull.
Although the Company currently has no producing properties in the
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United Kingdom, a well designed to delineate a 1994 discovery is scheduled for
late 1997. While Seagull currently has several minor interests in Malaysia,
exploratory efforts in 1993 and 1994 did not find commercial quantities of
hydrocarbons. The Company and its joint venture partners do not currently have
any additional plans for activities in Malaysia.
OIL AND GAS DRILLING ACTIVITIES
Seagull's oil and gas exploratory and developmental drilling activities
are as follows for the periods indicated. Totals shown in each category include
wells completed as productive wells and wells abandoned as dry holes. A well is
considered productive for purposes of the following table if it justifies the
installation of permanent equipment for the production of oil or gas. A well is
deemed to be a dry hole if it is determined to be incapable of commercial
production. The term "gross wells" means the total number of wells in which
Seagull owns an interest, while the term "net wells" means the sum of the
fractional working interests Seagull owns in gross wells. The number of wells
drilled refers to the number of wells completed during the fiscal years,
regardless of when drilling was initiated. Wells classified as "in progress" at
year-end represent wells where drilling activity is ongoing, wells awaiting
installation of permanent equipment and wells awaiting the drilling of
additional delineation wells.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------
1996 1995 1994
Gross Net Gross Net Gross Net
--------- --------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
UNITED STATES:
Exploratory Drilling:
Productive Wells................. 14 6.2 9 5.7 14 5.9
Dry Holes........................ 15 6.6 14 7.5 19 10.3
Development Drilling:
Productive Wells................. 123 54.2 64 29.0 137 71.5
Dry Holes........................ 13 8.2 4 1.1 11 5.1
CANADA:
Exploratory Drilling:
Productive Wells................. 5 0.8 3 1.0 5 1.7
Dry Holes ....................... 2 2.0 3 3.0 1 0.3
Development Drilling:
Productive Wells................. 17 8.6 7 1.9 110 55.0
Dry Holes ....................... 2 1.5 1 0.5 1 0.5
COTE D'IVOIRE:
Exploratory Drilling:
Productive Wells................. 2 0.3 - - 1 0.1
Dry Holes ....................... 1 0.1 - - - -
Development Drilling:
Productive Wells................. 1 0.1 4 0.6 1 0.1
EGYPT:
Exploratory Drilling:
Productive Wells................. 2 0.5 2 0.5 2 0.5
Dry Holes ....................... 5 1.3 1 0.3 - -
Development Drilling:
Productive Wells................. 14 3.5 4 1.0 - -
Dry Holes ....................... - - 1 0.3 - -
TATARSTAN:
Exploratory Drilling:
Dry Holes....................... - - 1 0.5 - -
Development Drilling:
Productive Wells................ 20 10.0 17 8.5 19 9.5
OTHER INTERNATIONAL:
Exploratory Drilling:
Dry Holes ....................... - - 2 0.4 2 0.5
TOTALS:
Exploratory Drilling:
Productive Wells................ 23 7.8 14 7.2 22 8.2
Dry Holes....................... 23 10.0 21 11.7 22 11.1
Development Drilling:
Productive Wells................ 175 76.4 96 41.0 267 136.1
Dry Holes....................... 15 9.7 6 1.9 12 5.6
</TABLE>
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The Company had 15 gross (8.3 net) exploratory wells and 34 gross (21.3
net) development wells in progress at December 31, 1996. The exploratory wells
in progress at year-end added 15.7 Bcfe to Seagull's proved reserves at December
31, 1996. The Company's capital expenditures for 1996 included $8.4 million
related to these wells.
PRODUCTION
The following table summarizes the Company's production, average sales
prices and direct operating costs for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1996 1995 1994
---------------- ----------------- --------------
<S> <C> <C> <C>
UNITED STATES:
Net Production:
Gas (MMcf).................................................... 116,238 113,482 118,804
Oil, condensate and NGL (MBbl)................................ 1,561 1,403 1,650
Average sales price (1):
Gas (per Mcf)................................................. $.2.17 $ 1.62 $ 1.88
Oil, condensate and NGL (per Bbl)............................. $19.03 $15.84 $15.08
Average direct operating costs (per Mcfe) (2)................... $ 0.49 $ 0.44 $ 0.43
CANADA(5):
Net Production:
Gas (MMcf).................................................... 21,203 22,057 19,755
Oil, condensate and NGL (MBbl)................................ 361 399 427
Average sales price:
Gas (per Mcf)................................................. $.1.27 $ 1.02 $ 1.55
Oil, condensate and NGL (per Bbl)............................. $16.77 $13.01 $11.57
Average direct operating costs (per Mcfe)....................... $.0.51 $ 0.45 $ 0.51
EGYPT:
Net Production:
Oil (MBbl).................................................... 1,305 25 -
Average Sales Price:
Oil (per Bbl)................................................. $21.56 $17.97 -
Average direct operating costs (per Mcfe)....................... $.0.49 $ 0.38 -
COTE D'IVOIRE:
Net Production:
Gas (MMcf).................................................... 1,445 203 -
Oil (MBbl).................................................... 511 261 -
Average sales price:
Gas (per Mcf)................................................. $ 1.77 $ 1.61 -
Oil (per Bbl)................................................. $20.04 $15.51 -
Average direct operating costs (per Mcfe)....................... $ 0.54 $ 0.57 -
TATARSTAN:
Net Production:
Oil (MBbl)..................................................... 1,117 1,062 842
Average Sales Price:
Oil (per Bbl).................................................. $13.98 $15.11 $14.21
Average direct operating costs (per Mcfe)........................ $ 1.18 $ 0.97 $ 1.55
INDONESIA:
Net Production:
Gas (MMcf)..................................................... 4,429 3,933 4,473
Oil (MBbl)..................................................... 51 45 47
Average sales price:
Gas (per Mcf).................................................. $ 3.36 $ 2.96 $ 2.45
Oil (per Bbl).................................................. $19.58 $17.38 $16.58
Average direct operating costs (per Mcfe)........................ - - -
</TABLE>
(1) Average sales prices are before deduction of production, severance, and
other taxes.
(2) Direct operating costs represent costs incurred to operate and maintain
wells and related equipment and facilities. These costs include, among
other things, repairs and maintenance, workover expenses, labor,
materials, supplies, property taxes, insurance, severance taxes and
transportation costs.
The following table sets forth information regarding the number of
productive wells in which the Company held a working interest at December 31,
1996. Productive wells are either producing wells or wells capable of commercial
production although currently shut-in. One or more completions in the same
borehole are counted as one well.
-10-
<PAGE>
<TABLE>
<CAPTION>
Gross Wells Net Wells
----------------------------------------------- ----------------------------------------------------
Multiple Multiple
Gas Oil Total Completions Gas Oil Total Completions
--------- --------- --------- -------------- ---------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States.... 2,385 1,574 3,959 269 957.3 160.9 1,118.2 133.0
Canada........... 748 9 757 515 399.4 1.8 401.2 281.9
Cote d'Ivoire.... 2 9 11 - 0.3 1.2 1.5 -
Egypt............ - 31 31 - - 15.3 15.3 -
Indonesia........ 317 195 512 388 5.4 3.4 8.8 4.8
Tatarstan........ - 174 174 35 - 87.0 87.0 17.5
--------- --------- --------- -------------- ---------- -------- ---------- ---------------
3,452 1,992 5,444 1,207 1,362.4 269.6 1,632.0 437.2
========= ========= ========= ============== ========== ======== ========== ===============
</TABLE>
For additional information relating to oil and gas producing
activities, see Note 15 of the Consolidated Financial Statements included in the
Company's 1996 Annual Report to Shareholders and as part of Exhibit 13 attached
hereto.
DEVELOPED AND UNDEVELOPED OIL AND GAS ACREAGE
As of December 31, 1996, the Company owned working interests in the
following developed and undeveloped oil and gas acreage:
<TABLE>
<CAPTION>
Developed Undeveloped
--------------------------------------- --------------------------------------
Gross Net (*) Gross Net (*)
---------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
UNITED STATES:
Onshore:
Oklahoma....................... 278,885 132,285 42,948 24,959
Texas.......................... 220,131 97,386 79,277 24,767
Arkansas....................... 214,156 71,971 5,282 2,447
Louisiana...................... 43,581 22,049 4,772 2,937
Montana........................ 1,159 68 174,922 160,937
Other.......................... 26,888 8,977 56,155 26,913
Bays and State Waters............ 8,975 2,810 16,472 10,047
Federal Offshore:
Texas.......................... 127,864 65,898 297,483 235,611
Louisiana...................... 66,284 33,352 221,915 115,081
ARCTIC ISLANDS..................... - - 752,293 33,364
CANADA............................. 375,753 196,166 409,548 258,739
COTE D'IVOIRE:
CI-11............................ 11,860 1,542 180,329 23,443
CI-12............................ - 525,000 87,517
CI-104........................... - - 250,300 250,300
EGYPT:
Qarun............................ 46,447 11,612 1,853,553 463,388
East Zeit........................ 6,672 6,672 - -
East Beni Suef................... - - 6,819,960 3,409,980
Darag............................ - - 459,606 229,803
South Hurghada................... - - 61,561 61,561
INDONESIA.......................... 97,000 1,663 1,156,780 19,827
MALAYSIA........................... - - 1,556,100 233,415
TATARSTAN.......................... 12,630 6,315 12,107 6,053
UNITED KINGDOM..................... - - 637,479 126,450
---------------- --------------- --------------- --------------
1,538,285 658,766 15,573,842 5,807,539
================ =============== =============== ==============
</TABLE>
(*) When describing acreage on drilling locations, the term "net" refers to
the total acres on drilling locations in which the Company has a working
interest, multiplied by the percentage working interest owned by the
Company.
Additionally, as of December 31, 1996, the Company owned mineral and/or
royalty interests in 584,430 gross (43,154 net) developed and 2,834,359 gross
(105,889 net) undeveloped oil and gas acres, located primarily in the United
States.
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<PAGE>
REGULATION
The availability of a ready market for oil and natural gas production
depends upon numerous regulatory factors beyond the Company's control. These
factors include regulation of oil and natural gas production, federal and state
regulations governing environmental quality and pollution control and state
limits on allowable rates of production by a well or proration unit. State and
federal regulations generally are intended to prevent waste of oil and natural
gas, protect rights to produce oil and natural gas between owners in a common
reservoir, control the amount of oil and natural gas produced by assigning
allowable rates of production and control contamination of the environment.
Regulation of Oil and Natural Gas Exploration and Production.
Exploration and production operations of the Company are subject to various
types of regulation at the federal, state and local levels. Such regulation
includes requiring permits for the drilling of wells, maintaining bonding
requirements in order to drill or operate wells, and regulating the location of
wells, the method of drilling and casing wells, the surface use and restoration
of properties upon which wells are drilling and the plugging and abandonment of
wells. The Company's operations are also subject to various conservation laws
and regulations. These include the regulation of the size of drilling and
spacing units or proration units and the density of wells which may be drilled
and unitization or pooling of oil and gas properties. In this regard, some
states allow the forced pooling or integration of tracts to facilitate
exploration while other states rely on voluntary pooling of lands and leases. In
addition, state conservation laws establish maximum rates of production
requirements regarding the ratability of production.
Natural Gas Marketing and Transportation. Although maximum selling
prices of natural gas were formerly regulated, the Natural Gas Wellhead
Decontrol Act of 1989 ("Decontrol Act") terminated wellhead price controls on
all domestic natural gas on January 1, 1993, and amended the Natural Gas Policy
Act of 1978 to remove completely by January 1, 1993 price and nonprice controls
for all "first sales" of natural gas, which will include all sales by the
Company of its own production. Consequently, sales of the Company's natural gas
currently may be made at market prices, subject to applicable contract
provisions. The FERC's jurisdiction over natural gas transportation was
unaffected by the Decontrol Act.
The Federal Energy Regulatory Commission (the "FERC") regulates
interstate natural gas transportation rates and service conditions, which affect
the marketing of natural gas produced by the Company, as well as the revenues
received by the Company for sales of such natural gas. Since the latter part of
1985, the FERC has endeavored to make interstate natural gas transportation more
accessible to gas buyers and sellers on an open and nondiscriminatory basis. The
FERC's efforts have significantly altered the marketing and pricing of natural
gas. Commencing in April 1992, the FERC issued Order Nos. 636, 636-A and 636-B
(collectively, "Order No. 636"), which, among other things, require interstate
pipelines to "restructure" to provide transportation separate or "unbundled"
from the pipelines' sales of gas. Also, Order No. 636 requires pipelines to
provide open-access transportation on a basis that is equal for all gas
supplies.
Additional proposals and proceedings that might affect the natural gas
industry are considered from time to time by Congress, the FERC, state
regulatory bodies and the courts. The Company cannot predict when or if any such
proposals might become effective, or their effect, if any, on the Company's
-12-
<PAGE>
operations. The natural gas industry historically has been very heavily
regulated; therefore, there is no assurance that the less stringent regulatory
approach recently pursued by the FERC and Congress will continue indefinitely
into the future. State regulation of gathering facilities generally includes
various transportation, safety, environmental, and nondiscriminatory purchase
and transport requirements, but does not generally entail rate regulation.
Offshore Leasing. Certain operations the Company conducts are on
federal oil and gas leases, which the Minerals Management Service ("MMS")
administers. The MMS issues such leases through competitive bidding. These
leases contain relatively standardized terms and require compliance with
detailed MMS regulations and orders pursuant to the Outer Continental Shelf
Lands Act ("OCSLA") (which are subject to change by the MMS). For offshore
operations, lessees must obtain MMS approval for exploration plans and
development and production plans prior to the commencement of such operations.
In addition to permits required from other agencies (such as the Coast Guard,
the Army Corps of Engineers and the Environmental Protection Agency), lessees
must obtain a permit from the MMS prior to the commencement of drilling. The MMS
has promulgated regulations requiring offshore production facilities located on
the Outer Continental Shelf ("OCS") to meet stringent engineering and
construction specifications, and has recently proposed additional safety-related
regulations concerning the design and operating procedures for OCS production
platforms and pipelines. The MMS also has issued regulations to prohibit the
flaring of liquid hydrocarbons and oil without prior authorization. Similarly,
the MMS has promulgated other regulations governing the plugging and abandonment
of wells located offshore and the removal of all production facilities. To cover
the various obligations of lessees on the OCS, the MMS generally requires that
lessees post substantial bonds or other acceptable assurances that such
obligations will be met.
In addition, the MMS is conducting an inquiry into certain contract
settlement agreements from which producers on MMS leases have received
settlement proceeds that are royalty bearing and the extent to which producers
have paid the appropriate royalties on those proceeds. The restructuring of oil
and gas markets has resulted in a shifting of markets downstream from the wells.
Deregulation has altered the marketplace such that lessors, including the MMS,
are challenging the methods of valuation of gas for royalty purposes.
The MMS has recently issued a notice of proposed rulemaking in which it
proposes to amend its regulations governing the calculation of royalties and the
valuation of oil and natural gas produced from federal leases. The principal
feature in the amendments, as proposed, would establish an alternative
market-index based method to calculate royalties on certain natural gas
production sold to affiliates or pursuant to non-arms'-length sales contracts.
The MMS has proposed this rulemaking to facilitate royalty valuation in light of
changes in the gas marketing environment. The Company cannot predict what action
the MMS will take on these matters, nor can it predict at this stage of the
rulemaking proceedings how the Company might be affected by amendments to the
regulations.
In Canada, exploration, production and development activities are
governed by federal and provincial laws which subject operators to extensive
controls and regulations. Exports of oil and gas across interprovincial borders
or on pipelines which connect to United States pipelines are governed by the
National Energy Board and each province has its own laws governing the
operations of producers and protection of the environment.
-13-
<PAGE>
PIPELINE, MARKETING AND OTHER
The Company's O&G segment also includes pipeline and marketing
operations involving (i) the transportation and marketing of Seagull's own and
third-party gas, oil and natural gas liquids; (ii) gas gathering and processing;
and (iii) pipeline engineering design, construction and operation.
The Company actively provides marketing services geared toward
matching gas supplies available in the major producing areas with attractive
markets available in the Midwest, Northeast, Mid-Atlantic, Appalachian and
Texas/Louisiana Gulf Coast areas. The matching process includes arranging
transportation on a network of open-access pipelines on a firm or interruptible
basis. Seagull contracts to provide oil and natural gas to various customers and
aggregates supplies from various sources including third-party producers,
marketing companies, pipelines, financial institutions and the Company's own
production. Marketing profit margins are often small due to competition, and
results can vary significantly from month to month. Large amounts of working
capital are involved for relatively small net margins, which makes working
capital management critical. The Company has policies and procedures in place
that are designed to minimize any potential risk of loss from these
transactions. These policies and procedures are reviewed and updated
periodically by the Company's management.
Most of the Company's natural gas is transported through gas gathering
systems and gas pipelines which are not owned by the Company. Transportation
space on such gathering systems and pipelines is occasionally limited and at
times unavailable due to repairs or improvements being made to such facilities
or due to such space being utilized by other gas shippers with priority
transportation agreements. While the Company has not experienced any inability
to market its natural gas, if transportation space is restricted or is
unavailable, the Company's cash flow from the affected properties could be
adversely affected.
In 1995, the Company initiated an active risk management program for
both its own E&P production and third party activities, utilizing such
derivative financial instruments as futures contracts, options and swaps. The
primary objective of the risk management program is as a hedging strategy to
manage commodity prices associated with oil and gas production sales and to
reduce the impact of price fluctuations. The Company's policy is to leave the
majority of its own E&P production either unhedged or protected only from price
decreases. The Company accounts for its commodity derivative contracts as
hedging activities and, accordingly, income or costs are included in revenues
when the commodities are produced. The risk management program is also an
important part of the Company's third party marketing efforts, allowing the
Company to convert a customer's requested price to a price structure that is
consistent with the Company's overall pricing strategy. See Note 2 to the
Company's Consolidated Financial Statements and Oil and Gas Operations in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, both of which are included in the Company's 1996 Annual Report to
Shareholders and as part of Exhibit 13 attached hereto.
Pipeline Operations and Construction
Seagull operates certain pipelines owned by other companies. In some
cases the operating agreements provide for reimbursement of expenses incurred in
connection with operations plus a profit margin. In other cases the Company
receives a negotiated annual fee. The Company also builds pipelines for other
companies for which it receives construction fees that are fixed, cost-plus or a
-14-
<PAGE>
combination of both. The Company currently has one ongoing construction project
and continues to pursue additional operating and construction opportunities as
they arise.
COMPETITION
The Company's competitors in oil and gas exploration, development,
production and marketing include major oil companies, as well as numerous
independent oil and gas companies, individuals and drilling programs. Some of
these competitors have financial and personnel resources substantially in excess
of those available to the Company and, therefore, the Company may be placed at a
competitive disadvantage. The Company's success in discovering reserves will
depend on its ability to select suitable prospects for future exploration in
today's competitive environment.
The Company actively competes with numerous other companies for the
construction and operation of short and medium length pipelines. The Company's
competitors include oil companies, other pipeline companies, natural gas
gatherers and petrochemical transporters, many of which have financial
resources, staffs and facilities substantially larger than those of the Company.
In addition, many of the Company's gas purchasers are also competitors or
potential competitors in the sense that they have extensive pipeline-building
capabilities and experience and generally operate large pipeline systems of
their own. Seagull believes that its ability to compete will depend primarily on
its ability to complete pipeline projects quickly and cost effectively, and to
operate pipelines efficiently.
The Company's gas marketing activities are in competition with numerous
other companies offering the same services. Some of these competitors are
affiliates of companies with extensive pipeline systems that are used for
transportation from producers to end-users. The Company believes its ability to
compete depends upon building strong relationships with producers and end-users
by consistently purchasing and supplying gas at competitive prices.
INTERNATIONAL OPERATIONS
Seagull's interests in countries outside the United States are subject
to the various risks inherent in foreign operations. These risks may include,
among other things, currency restrictions and exchange rate fluctuations, loss
of revenue, property and equipment as a result of expropriation,
nationalization, war, insurrection and other political risks, risks of increases
in taxes and governmental royalties, renegotiation of contracts with
governmental entities, changes in laws and policies governing operations of
foreign-based companies and other uncertainties arising out of foreign
government sovereignty over the Company's international operations. The
Company's international operations may also be adversely affected by laws and
policies of the United States affecting foreign trade, taxation and investment.
In addition, in the event of a dispute arising from foreign operations, the
Company may be subject to the exclusive jurisdiction of foreign courts or may
not be successful in subjecting foreign persons to the jurisdiction of the
courts of the United States. The Company seeks to manage these risks by
maintaining political risk insurance and concentrating its international
exploration efforts in areas where the Company believes that the existing
government is stable and favorably disposed towards United States exploration
and production companies.
-15-
<PAGE>
ALASKA TRANSMISSION AND DISTRIBUTION
The Company operates in Alaska through ENSTAR Natural Gas Company
("ENG"), a division of the Company, and Alaska Pipeline Company ("APC"), an
Alaska corporation and a wholly owned subsidiary of the Company. ENG and APC are
currently operated as a single business unit ("ENSTAR Alaska"), and are
regulated as a single operating unit by the Alaska Public Utilities Commission
(the "APUC"). APC engages in the intrastate transmission of natural gas in
South-Central Alaska. ENG engages in the distribution of natural gas in
Anchorage and other nearby communities in Alaska and is APC's only customer.
Revenues from the natural gas transmission and distribution segment accounted
for 19%, 24% and 22% of the Company's consolidated revenues for 1996, 1995 and
1994, respectively.
ENSTAR Alaska's predecessor was formed in 1959 and began serving the
Anchorage area with natural gas in 1961. Five years later, in 1966, the
predecessor became one of the original entities that formed Alaska Interstate
Company, a newly organized public company the shares of which were traded on the
New York Stock Exchange. Alaska Interstate Company changed its name to ENSTAR
Corporation in 1982.
In 1985, the Company purchased ENSTAR Alaska for $55 million in cash
plus $10 million in the form of a seven-year unsecured, 10% subordinated note.
At the time of the acquisition, APC had outstanding debt of approximately $65
million. The transaction received the final approval of the APUC in June 1985.
GAS TRANSMISSION SYSTEM
APC owns and operates the only natural gas transmission lines in its
service area that are operated for utility purposes. The pipeline transmission
system is composed of approximately 277 miles of 12 to 20-inch diameter pipeline
and approximately 72 miles of smaller diameter pipeline. The system's present
design delivery capacity is approximately 410 MMcf/d. The average throughput of
the system in 1996, 1995 and 1994 was 131, 122 and 121 MMcf/d, respectively.
In September 1995, APC entered into a 33-year agreement to lease a
60-mile, 8-inch diameter pipeline between Anchorage, Alaska and Whittier,
Alaska. Conversion of the pipeline to natural gas was completed in 1996. The new
pipeline is expected to account for nearly 1,000 new customers over the next two
to three years.
GAS DISTRIBUTION SYSTEM
ENG distributes natural gas through approximately 2,051 miles of gas
mains to approximately 94,100 residential, commercial, industrial and electric
power generation customers within the cities and environs of Anchorage, Eagle
River, Palmer, Wasilla, Soldotna, Kenai and the Nikiski area of the Kenai
Peninsula, Alaska. During the year ended December 31, 1996, ENG added
approximately 56 miles of new gas distribution mains, installed 2,500 new
service lines and added approximately 2,000 net customers. ENG anticipates
relatively modest growth in its residential customer base and will install
additional main and service lines to accommodate this growth.
-16-
<PAGE>
ENG distributes gas to its customers under tariffs and contracts which
provide for varying delivery priorities. ENG's business is seasonal with
approximately 65-70% of its revenues earned in the first and fourth quarters of
each year.
In 1996, purchase/resale volumes represented 56% of ENG's throughput
and 82% of ENG's operating margin. The remaining volumes are transported for
power, industrial and large commercial customers for a transportation fee.
ENG's five largest customers are the Municipality of Anchorage; ARCO
Alaska, Inc.; Aurora Gas, Inc.; the State of Alaska; and Unocal Corporation.
Together, they account for about $10 million in annual operating margin and
about 18.8 Bcf per year in volumes, which represent approximately 18% and 39%,
respectively, of ENG totals.
GAS SUPPLY
In May 1988, APC entered into a gas purchase contract (the "Marathon
Contract") with Marathon Oil Company ("Marathon") providing for the delivery of
approximately 450 Bcf of gas in the aggregate. The Marathon Contract is a
"requirements" contract with no specified daily deliverability or annual
take-or-pay quantities. APC has agreed to purchase and Marathon has agreed to
deliver all of APC's gas requirements in excess of those provided for in other
presently existing gas supply contracts, subject to certain exceptions, until
the commitment has been exhausted and without limit as to time; however,
Marathon's delivery obligations are subject to certain specified annual
limitations after 2001. The contract has a base price of $1.55 per Mcf plus
reimbursements for any severance taxes and other charges. The base price is
subject to annual adjustment based on changes in the price of certain traded oil
futures contracts. During 1996, the cost of gas purchased under the Marathon
Contract averaged $1.64 per Mcf, including reimbursements for severance taxes.
The Marathon Contract, as amended in 1991, has been approved by the APUC.
APC also has a gas purchase contract with Shell Oil Company and ARCO
Alaska, Inc. (the "Shell Contract") which provides for the delivery of up to
approximately 220 Bcf of gas through the year 2009. The Shell Contract provides
a base price of $1.97 per Mcf plus reimbursements for any severance taxes and an
annual adjustment based on changes in the price of certain traded oil futures
contracts from the relevant base price. The Shell Contract also provides that
certain portions of the gas purchased under the amendments may be priced under a
pricing term similar to the Marathon Contract. The 1996 price under the Shell
Contract, after application of contractual adjustments, averaged $1.63 per Mcf,
including reimbursements for severance taxes. The Shell Contract, as amended,
has been approved by the APUC.
Combined, the Marathon and Shell Contracts will supply all of ENSTAR
Alaska's gas supply requirements through the year 2001. After that time supplies
will still be available under the contracts in accordance with their terms, but
the annual limitations contained in the Marathon Contract will take effect. As a
result, after 2001, at least a portion of ENSTAR Alaska's requirements are
expected to be satisfied outside the terms of the contracts, as currently in
effect.
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<PAGE>
Based on gas purchases during the twelve months ended December 31,
1996, which are not necessarily indicative of the volume of future purchases,
gas reserves committed to APC under the Marathon and Shell Contracts would have
a current reserve life index of approximately 14 years.
ENSTAR Alaska's average cost of gas sold in 1996, 1995 and 1994 was
$1.59, $1.75 and $1.74 per Mcf, respectively. ENSTAR Alaska's average gas sales
price in 1996, 1995 and 1994 was $3.29, $3.41 and $3.23 per Mcf, respectively.
As stated above, ENSTAR Alaska purchases all of its natural gas under
long-term contracts in which the price is indexed to changes in the price of
crude oil futures contracts. However, because ENSTAR Alaska's sales prices are
adjusted to include the projected cost of its natural gas, there has been and is
expected to be little or no impact on margins derived from ENSTAR Alaska's gas
sales as a result of fluctuations in oil prices due to worldwide political
events and changing market conditions.
COMPETITION
ENSTAR Alaska competes primarily with municipal and cooperative
electric power distributors and with various suppliers of fuel oil and propane
for the available energy market. There are also extensive coal reserves
proximate to ENSTAR Alaska's operating area; however, such reserves are not
presently being produced.
During the last eight years, ENSTAR Alaska's natural gas volumes
delivered on a purchase/resale basis have declined. Beginning in 1989, several
of its major customers began purchasing gas directly from gas producers or gas
marketers. However, the APUC has approved tariffs allowing ENSTAR Alaska to
transport these volumes for a transportation fee that approximates the margin
that would have been earned had the customer remained a sales customer rather
than becoming a transportation customer. Consequently, ENSTAR Alaska anticipates
no adverse economic impact to result from these transportation arrangements.
If any other existing large customer of ENSTAR Alaska chooses to
purchase gas directly from producers, ENSTAR Alaska would expect to collect a
fee for transporting that gas equivalent to the margin earned on sales volumes
for those customers because the large distance of remaining user facilities from
producing fields would preclude the by-pass of ENSTAR Alaska's pipelines.
ENSTAR Alaska supplies natural gas to its customers at prices that at
the present time economically preclude substitution of alternative fuels. Since
the Shell Contract and the Marathon Contract include prices that fluctuate based
on oil indices, a competitive margin favoring natural gas over oil-based energy
sources is expected to continue. However, there is no assurance that the
competitive advantage over other alternative fuels will not be reduced or
eliminated by the development of new energy technology or by changes in the
price of oil or refined products.
REGULATION
The APUC has jurisdiction as to rates and charges for gas sales,
construction of new facilities, extensions and abandonments of service and
certain other matters. Rates are generally designed to
-18-
<PAGE>
permit the recovery of the cost of providing service, including purchased gas
costs, and a return on investment in plant. APC and ENG are regulated by the
APUC on a combined basis as though they were a single entity. Because ENSTAR
Alaska's operations are wholly intrastate, ENSTAR Alaska is not subject to or
affected by Order 636 or any other economic regulation by the FERC.
As a result of a proceeding filed in 1984, which was concluded in May
1986, the APUC granted ENSTAR Alaska an aggregate rate increase of 20.27% and
authorized a regulatory rate of return on common equity of 15.65%. ENSTAR Alaska
has no significant regulatory issues pending before the APUC. Since its
inception in 1961, ENSTAR Alaska has participated in only three formal rate
proceedings.
CORPORATE
REGULATION
The Company is a "public utility company" within the meaning of the
Public Utility Holding Company Act of 1935, as amended (the "1935 Act").
Accordingly, if any "company" (as defined for purposes of the 1935 Act and
therefore including so-called "organized groups") becomes the owner of 10% or
more of the Company's outstanding voting stock, that company would be required
to register as a "holding company" under the 1935 Act, in the absence of an
exemption of the type described below. Section 9(a)(2) also requires a person
(including both individuals and "companies") to obtain prior approval from the
Securities and Exchange Commission (the "SEC") in connection with the
acquisition of 5% or more of the outstanding voting stock of a public utility if
that person is also the owner of 5% or more of the outstanding voting stock of
another public utility.
In March 1991, the Company filed in good faith with the SEC an
application pursuant to Section 2(a)(8) of the 1935 Act, seeking a determination
that Seagull was not subject to regulation as a "subsidiary company" of FMR
Corp. (the "FMR Application"), which was then the owner of 2,805,624 shares
(approximately 12.5% at such time) (shares adjusted for a 2-for-1 stock split of
all the issued shares of the Company's common stock (the "Common Stock"),
effected June 4, 1993) of the outstanding Common Stock. Under the 1935 Act, a
company is a "subsidiary company" of a "holding company" if the "holding
company" owns 10% or more of the total voting power of the "subsidiary company",
unless the SEC determines otherwise. Based upon the most recent information
furnished to the Company by FMR Corp., FMR Corp.'s beneficial shares owned has
fallen below 5% of the outstanding voting stock of the Company.
In December 1993, Seagull filed in good faith with the SEC an
additional application pursuant to Section 2(a)(8) of the 1935 Act, seeking a
determination that the Company was not subject to regulation as a "subsidiary
company" of AXA Assurances I. A. R. D. Mutuelle, AXA Assurances Vie Mutuelle,
Alpha Assurances I. A. R. D. Mutuelle, Alpha Assurances Vie Mutuelle, Uni Europe
Assurance Mutuelle and AXA (collectively, the "Mutuelles AXA") and The Equitable
Companies Incorporated ("Equitable") and their respective affiliates
(collectively, the "Equitable Entities"), (the "Equitable Application"). At such
time, the Equitable Entities beneficially owned 4,495,600 shares (approximately
12.5%) of Common Stock. Based upon the most recent information furnished to the
Company by the
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<PAGE>
Equitable Entities, the Equitable Entities' beneficial shares owned has fallen
below 5% of the outstanding voting stock of the Company.
On October 3, 1996, the Company filed in good faith with the SEC an
application pursuant to Section 2(a)(8) of the 1935 Act, seeking a determination
that Seagull was not subject to regulation as a "subsidiary company" of The
Prudential Insurance Company of America ("Prudential"), (the "Prudential
Application"), which was then the owner of 5,573,061 shares (approximately 8.9%
at such time of the outstanding Common Stock. According to information provided
by Prudential, in its capacity as investment adviser, is beneficial owner of
6,546,741 shares (10.4%) of the Common Stock which are owned by numerous
investment counseling clients, none of which is known to have such interest with
respect to more than 5% of the class. Prudential has sole voting and dispositive
power as to 5,573,061 shares and shared voting and dispositive power as to
946,680 shares.
As a result of the Company's good faith filing of the Prudential
Application, it currently would not be subject to any obligation, duty or
liability imposed by the 1935 Act, unless and until the SEC enters an order
denying or otherwise adversely disposing of the Prudential Application. To date,
no such order has been issued. The Company believes that the Prudential
Application ultimately should be granted.
ENVIRONMENTAL MATTERS
Seagull's operations are subject to federal, state and local laws and
regulation governing the discharge of materials into the environment or
otherwise relating to environmental protection. Numerous governmental
departments issue rules and regulations to implement and enforce such laws which
are often difficult and costly to comply with and which carry substantial
penalties for failure to comply. These laws and regulations may require the
acquisition of a permit before drilling commences, restrict the types,
quantities and concentration of various substances that can be released into the
environment in connection with drilling and production activities, limit or
prohibit drilling activities on certain lands lying within wilderness, wetlands
and other protected areas, and impose substantial liabilities for pollution
resulting from the Company's operations. In addition, these laws, rules and
regulations may restrict the rate of oil and natural gas production below the
rate that would otherwise exist. State laws often require some form of remedial
action to prevent pollution from former operations, such as pit closure and
plugging abandoned wells.
The Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), also known as the "Superfund" law, imposes liability, without
regard to fault or the legality of the original conduct, on certain classes of
persons who are considered to be responsible for the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances. Under CERCLA,
such persons may be subject to joint and several liability for the costs of
cleaning up the hazardous substances that have been released into the
environment, for damages to natural resources and for the costs of certain
health studies. It is not uncommon for neighboring landowners and other third
parties to file claims for personal injury and property damage allegedly caused
by hazardous substances or other pollutants released into the environment.
Stricter standards in environmental legislation may be imposed on the
oil and gas industry in the future. For instance, legislation has been proposed
in Congress from time to time that would reclassify
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<PAGE>
certain oil and natural gas exploration and production wastes as "hazardous
wastes" and make the reclassified wastes subject to more stringent handling,
disposal and clean-up requirements. If such legislation were to be enacted, it
could have a significant impact on the operating costs of the Company, as well
as the oil and gas industry in general. Furthermore, although petroleum,
including crude oil and natural gas, is exempt from CERCLA, at least two courts
have recently ruled that certain wastes associated with the production of crude
oil may be classified as "hazardous substances" under CERCLA and thus such
wastes may become subject to liability and regulation under CERCLA, as described
above. State initiatives to further regulate the disposal of oil and natural gas
wastes are also pending in certain states, and these various initiatives could
have a similar impact on the Company. Compliance with environmental requirements
generally could have a material adverse effect upon the capital expenditures,
earnings or competitive position of the Company. Although the Company has not
experienced any material adverse effect from compliance with environmental
requirements, there is no assurance that this will continue in the future.
The Oil Pollution Act of 1990 ("OPA") and regulations promulgated
pursuant thereto impose a variety of requirements on "responsible Parties"
related to the prevention of oil spills and liability for damages resulting from
such spills. Few defenses exist to the liability imposed by the OPA and such
liability could be substantial. A failure to comply with ongoing requirements or
inadequate cooperation in a spill event could subject a responsible party to
civil or criminal enforcement action.
On October 19, 1996, legislative amendments to OPA were enacted. These
amendments reduced the requirement of obtaining a certificate of financial
responsibility to $35 million in the event of a spill, instead of the $150
million originally called for under OPA. In addition, the Texas Railroad
Commission proposed an amendment to its regulations in line with OPA. The
proposed amendment requires operators of hazardous liquid pipeline facilities
inland of the Gulf coast to prepare facility response plans within 60 days of
the effective date of the rule or simultaneously with the filing of the plan
with federal authorities.
In addition, the OCSLA authorizes regulations relating to safety and
environmental protection applicable to lessees and permittees operating in the
OCS. Specific design and operation standards may apply to OCS vessels, rigs,
platforms, vehicles and structures. Violations of lease conditions or
regulations issued pursuant to OCSLA can result in substantial civil and
criminal penalties, as well as potential court injunctions curtailing operations
and the cancellation of leases. Such enforcement liabilities can result from
either governmental or private prosecution.
The Federal Water Pollution Control Act ("FWPCA") imposes restrictions
and strict controls regarding the discharge of pollutants to state and federal
waters. The FWPCA provides for civil, criminal and administrative penalties for
any unauthorized discharges of oil and other hazardous substances in reportable
quantities and, along with the OPA, imposes substantial potential liability for
the costs of removal, remediation and damages. State laws for the control of
water pollution also provide varying civil, criminal and administrative
penalties and liabilities in the case of a discharge of petroleum or its
derivatives into state waters. Within the next few years, both state water
discharge regulations and the federal permits are expected to prohibit the
discharge of produced water and sand, and some other substances related to the
oil and gas industry, to coastal waters. Although the costs to comply with zero
discharge mandates under federal or state law may be significant, the entire
industry will experience similar costs and the Company believes that these costs
will not have a material adverse impact on the Company's financial condition and
operations. Some oil and gas exploration and production facilities
-21-
<PAGE>
are required to obtain permits for their storm water discharges. Costs may be
associated with treatment of wastewater or developing storm water pollution
prevention plans. Further, the Coastal Zone Management Act authorizes state
implementation and development of programs of management measures for non-point
source pollution to restore and protect coastal waters.
Many states in which the Company operates have recently begun to
regulate naturally occurring radioactive materials ("NORM") and NORM wastes that
are generated in connection with oil and gas exploration and production
activities. NORM wastes typically consist of very low-level radioactive
substances that become concentrated in pipe scale and in production equipment.
State regulations may require the testing of pipes and production equipment for
the presence of NORM, the licensing of NORM-contaminated facilities and the
careful handling and disposal of NORM wastes. The Company believes that the
growing regulation of NORM will have a minimal effect on the Company's
operations because the Company generates only a very small quantity of NORM on
an annual basis.
EMPLOYEES
As of March 1, 1997, the Company had 724 full time employees. In
addition to the services of its full time employees, the Company employs, as
needed, the services of consulting geologists, engineers, regulatory
consultants, contract pumpers and certain other temporary employees.
ENSTAR Alaska operates under collective bargaining agreements with
separate bargaining units for operating and clerical employees. These units
represent approximately 80% of ENSTAR Alaska's work force. Contracts have been
negotiated that set wages and work relationships for the two units. The
operating bargaining unit contract, effective from April 1, 1992 through April
1, 1996, is in the process of being renegotiated. The clerical bargaining unit
contract is effective from April 1, 1995 through April 1, 2000. The Company is
not a party to any other collective bargaining agreements. The Company has never
had a work stoppage.
The Company considers its relations with its employees to be
satisfactory.
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<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company, each of whom has been elected to
serve until his or her successor is elected and qualified, are as follows:
<TABLE>
<CAPTION>
Name Age Present Position and Prior Business Experience
<S> <C> <C>
Barry J. Galt......... 63 Chairman of the Board and Chief Executive Officer
since December 1983; President of the Company
from December 1983 to October 1996
Robert F. Vagt........ 50 President and Chief Operating Officer since
October 1996; President and Chief Executive
Officer of Global from May 1992 to October
1996; Chairman of the Board of Global since
December 1994; Director, President and Chief
Operating Officer of Adobe Resources Corporation
(Director from May 1986 to May 1992 and President
and Chief Operating Officer from November 1990 to
May 1992)
John W. Elias......... 56 Executive Vice President since April 1993; Chief
Operating Officer of the Company from January
1995 through October 1996; For the previous 30
years, he served in a variety of positions for
Amoco Production Company and its parent, Amoco
Corporation, most recently as Group Vice
President of Worldwide Natural Gas for Amoco
Production Company
Richard F. Barnes..... 53 President of ENSTAR Natural Gas Company (a
division of the Company) and Alaska Pipeline
Company (a subsidiary of the Company) since
September 1987
Gerald R. Colley...... 46 Senior Vice President, International Exploration
and Production since November 1996; Senior Vice
President - International Exploration of Global
from December 1994 to November 1996; Vice
President - International Exploration of Global
from July 1993 to December 1994; Vice President
- International Exploration of Global Natural
Resources Corporation of Nevada ("GNRC"), a
wholly owned subsidiary of Global, since October
1992; Vice President and Exploration Director of
Hadson Europe, Inc. from August 1986 to October
1992
John N. Goodpasture... 48 Senior Vice President, Pipelines and Marketing
since May 1993; President of Seagull Pipeline
Company since March 1990
John A. Howard........ 50 Senior Vice President, Canadian Exploration and
Production since November 1996; President of
Seagull Energy Canada Ltd., a wholly owned
subsidiary of the Company, since January 1994;
President and Chief Executive Officer of Novalta
Resources Inc. from 1987 to January 1994
William L. Transier... 42 Senior Vice President and Chief Financial Officer
since May 1996; For the previous 20 years, he
held a variety of positions at KPMG Peat Marwick
LLP and was promoted to partner in July 1986
Janice K. Hartrick.... 44 Chief Counsel and Vice President, Environmental
Affairs since December 1992; Chief Counsel of the
Company since 1989
Gordon L. McConnell... 50 Vice President and Controller since November
1996; Vice President - Accounting of Global from
January 1996 to November 1996; Controller of
Global from July 1993 to January 1996; Controller
of GNRC since October 1991; Assistant Controller
of GNRC from July 1991 to October 1991
H. Alan Payne......... 55 Vice President, Investor Relations since November
1996; Director, Investor Relations from December
1984 to November 1996
Jack M. Robertson..... 53 Vice President, Human Resources since November
1996; Director, Human Resources from November
1990 to November 1996
Stephen A. Thorington. 41 Vice President, Finance and Treasurer since May
1996; Managing Director of Chase Securities Inc.
from January 1992 to May 1996; Managing
Director for The Chase Manhattan Bank, N.A. from
June 1991 through April 1994
Carl E. Volke......... 53 Vice President, Administration since November
1996; Director, Administration from November 1986
to November 1996
Lee Van Winkle........ 44 Vice President, Corporate Planning since November
1996; Vice President - Corporate Planning of
Global from July 1993 to November 1996; Vice
President - Corporate Planning of GNRC since
August 1992; Corporate Manager - Planning and
Budget for Adobe Resources Corporation for more
than five years prior to August 1992
</TABLE>
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<PAGE>
Item 2. Properties
Incorporated herein by reference to Item 1 of this Annual Report on
Form 10-K.
Item 3. Legal Proceedings
Royalty Litigation. Increasingly, royalty owners under oil and gas
leases are challenging valuation methodology and post-production deductions used
by producers. These cases have arisen because of the manner in which oil and gas
producers such as Seagull have begun to provide services that had previously
been provided by the interstate gas pipelines prior to the "unbundling" of gas
services. For example, in 1996, Seagull has been sued in Anne K. Barnaby, et al.
v. Seagull MidSouth, Inc. This case is pending in state court of Latimer County,
Oklahoma. In this case, the plaintiffs seek additional royalties based upon the
deduction by Seagull of post-production costs, such as those related to
gathering, compression, dehydration and treating. In addition, the plaintiffs
have questioned the sales price used by Seagull as a basis for calculating
royalty to the extent that sales were made to Seagull's gas marketing
subsidiary.
NorAm Litigation. Seagull Mid-South has been sued in NorAm Gas
Transmission Co., et al. v. Seagull Mid-South Inc. The case relates to Seagull's
termination of a 1956 gas contract, which provided for the sale of gas by
Seagull from certain wells in the Aetna Filed in Arkansas for $0.16 per Mcf.
NorAm Gas Transmission ("NorAm) has sought a declaratory judgment that the gas
contract remains in effect with respect to these wells. Since the termination by
Seagull of the gas contract, Seagull has been selling the gas in question on the
spot market. Seagull believes that it has reasonable grounds for terminating the
gas contract. The NorAm case is currently scheduled for trial in mid-1997 in
District Court in Harris County, Texas. Seagull intends to vigorously defend
this case and does not believe that this case will have a material adverse
effect on its financial condition or results of operations.
NorAm has also sought a declaratory judgment to the effect that certain
additional wells in the Aetna Field (including any new wells) would be subject
to the $0.16 per Mcf price (the "Additional Well Claim"). If NorAm were
successful with the Additional Well Claim, Seagull's operations in the Aetna
Field would be materially affected in an adverse manner. However, Seagull
believes that there is little basis for this claim by NorAm and believes that it
will not be required to pay any amounts in connection with the Additional Well
Claim.
Gulf Coast Vacuum Site. In 1993, the Environmental Protection Agency
("EPA") notified the Company that a subsidiary was a potentially responsible
party ("PRP") at the Gulf Coast Vacuum Services Superfund Site (the "GCV Site")
in Vermilion Parish, Louisiana. Based upon the Company's investigation of this
claim, the Company believes that the basis for its alleged liability is a series
of transactions between the Company's subsidiaries and the operator of the GCV
Site that occurred during 1979 and 1980. While the EPA's cleanup cost estimate
of the GCV Site is in the range of $17 million, the Company believes that its
liability is unlikely to be material to its financial condition, results of
operations or cash flows because of the large number of potentially responsible
parties at the GCV Site and the relative amount of contamination, if any, that
may have been caused at the GCV Site by the disposal of wastes by the Company
during 1979 and 1980.
Caddo Natural Gas Company Site. The Company was notified by the
Louisiana Department of Environmental Quality on March 20, 1996, that one of the
Company's wholly owned subsidiaries is a PRP in a state Superfund site known as
the Caddo Natural Gas Company Site. This site is reported to be contaminated
with low levels of PCB, an additive used in lubricating oils prior to the 1980s.
Subsequent to year-end, the Company signed a settlement agreement whereby
Seagull would pay a portion of the cleanup costs for the Caddo Natural Gas
Company Site. Seagull's share of the cleanup costs is not expected to be
material to its financial condition, results of operations or cash flows.
Other. The Company is a party to ongoing litigation in the normal
course of business or other litigation with respect to which the Company is
indemnified pursuant to various purchase agreements or other contractual
arrangements. Management regularly analyzes current information and, as
necessary, provides accruals for probable liabilities on the eventual
disposition of these matters. While the outcome of lawsuits or other proceedings
against the Company cannot be predicted with certainty, management believes that
the effect on its financial condition, results of operations or cash flows, if
any, will not be material.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
A. The Company's Common Stock (the "Common Stock") is traded on the New
York Stock Exchange under the ticker symbol SGO. The high and low sales prices
on the New York Stock Exchange Composite Tape for each quarterly period during
the last two fiscal years were as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------------------- --------------------------------------
High Low High Low
----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
First Quarter 22 7/8 17 1/8 20 15 1/4
Second Quarter 25 1/2 21 19 7/8 16 1/2
Third Quarter 26 17 1/2 22 1/2 16
Fourth Quarter 24 3/8 20 5/8 22 1/4 16 5/8
</TABLE>
B. As of March 3, 1997, there were approximately 4,764 holders of
record of Common Stock.
C. Seagull has not declared any cash dividends on its Common Stock
since it became a public entity in 1981. The decision to pay Common Stock
dividends in the future will depend upon the Company's earnings and financial
condition and such other factors as the Company's Board of Directors deems
relevant. The Company's revolving credit agreements (the "Credit Facilities")
restrict the Company's declaration or payment of dividends on and repurchases of
Common Stock unless each of the following tests have been met: (i) the aggregate
amount of outstanding loans under the Credit Agreement, together with all other
senior indebtedness of Seagull and its subsidiaries (excluding APC) then
outstanding, must not exceed the Borrowing Base, (ii) Tangible Net Worth cannot
be less than $465 million plus 50% of the Company's net income, if positive,
beginning with the fiscal year ended December 31, 1997, (iii) the Company's
Debt/Capitalization Ratio cannot be more than 65% and (iv) no Default or Event
of Default shall have occurred and be continuing. The capitalized terms used
herein to describe the restrictions contained in the Credit Facilities have the
meanings assigned to them in the Credit Facilities. Under the most restrictive
of these tests, as of December 31, 1996, approximately $133 million was
available for payment of dividends or repurchase of Common Stock. In addition,
certain debt instruments of APC restrict the ability of APC to transfer funds to
the Company in the form of cash dividends, loans or advances. For a description
of such restrictions, reference is made to Note 6 of the Consolidated Financial
Statements included in the Company's 1996 Annual Report to Shareholders and as
part of Exhibit 13 attached hereto.
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<PAGE>
Item 6. Selected Financial Data
Incorporated herein by reference to the Selected Financial Data
included in the Company's 1996 Annual Report to Shareholders and as part of
Exhibit 13 attached hereto.
SELECTED QUARTERLY FINANCIAL DATA
Summarized quarterly financial data (stated in thousands except per
share amounts) is as follows:
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
1996:
Revenues:
Previously Reported................ $110,647 $ 85,788 $ 85,205 NA
Global (1)......................... 26,193 26,649 25,581 NA
-------------------- -------------------- -------------------- --------------------
As Restated...................... $136,840 $112,437 $110,786 $158,515
==================== ==================== ==================== ====================
Operating Profit:
Previously Reported................ $ 30,609 $ 7,262 $ 12,643 NA
Global (1)......................... 7,092 6,564 7,473 NA
-------------------- -------------------- -------------------- --------------------
As Restated...................... $ 37,701 $ 13,826 $ 20,116 $ 33,412
==================== ==================== ==================== ====================
Net Income (Loss):
Previously Reported................ $ 14,846 $ (5,907) $ 1,633 NA
Global (1)......................... 3,466 2,973 5,825 NA
-------------------- -------------------- -------------------- --------------------
As Restated...................... $ 18,312 $ (2,934) $ 7,458 $ 6,125 (6)
==================== ==================== ==================== ====================
Earnings (Loss) per Share (2):
Previously Reported................ $ 0.40 $ (0.16) $ 0.04 NA
As Restated........................ $ 0.29 $ (0.05) $ 0.12 $ 0.10
==================== ==================== ==================== ====================
1995:
Revenues:
Previously Reported................ $ 94,850 $ 81,487 $ 68,087 $ 91,849
Global (1)......................... 17,577 17,108 17,294 20,174
-------------------- -------------------- -------------------- --------------------
As Restated...................... $112,427 $ 98,595 $ 85,381 $112,023
==================== ==================== ==================== ====================
Operating Profit (Loss):
Previously Reported................ $(44,366) $ (7) $ (2,421) $ 12,677
Global (1)......................... (3,103) (2,107) 946 4,003
-------------------- -------------------- -------------------- --------------------
As Restated...................... $(47,469) (3) $ (2,114) $ (1,475) $ 16,680
==================== ==================== ==================== ====================
Net Income (Loss):
Previously Reported................ $(38,550) $ (7,125) $ 41,550 $ 4,757
Global (1)......................... (4,216) (2,938) 2,142 2,642
-------------------- -------------------- -------------------- --------------------
As Restated...................... $(42,766) (3) $(10,063) (4) $ 43,692 (5) $ 7,399
==================== ==================== ==================== ====================
Earnings (Loss) per Share (2):
Previously Reported................ $ (1.07) $ (0.20) $ 1.13 $ 0.13
As Restated........................ $ (0.69) $ (0.16) $ 0.70 $ 0.12
==================== ==================== ==================== ====================
</TABLE>
(1) Certain adjustments were made to conform the accounting policies and
presentation of Seagull and Global.
(2) Quarterly earnings (loss) per common share may not total to the full
year per share amount, as the weighted average number of shares
outstanding for each quarter fluctuated as a result of the assumed
exercise of stock options.
(3) Includes $48.8 million non-cash charge relating to the impairment of
long-lived assets.
(4) Includes one-time pre-tax charges of $8 million for expenses involved
in the workforce reduction and consolidation.
(5) Includes $82 million pre-tax gain on the sale of the Pipeline Assets .
(6) Includes $10 million pre-tax merger expenses relating to the Global
Merger.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Incorporated herein by reference to Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's 1996 Annual Report to Shareholders and as part of Exhibit 13 attached
hereto.
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<PAGE>
Item 8. Financial Statements and Supplementary Data
Incorporated herein by reference to the Consolidated Financial
Statements and Supplementary Data included in the Company's 1996 Annual Report
to Shareholders and as part of Exhibit 13 attached hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Incorporated herein by reference to "Election of Directors" included in
the Proxy Statement for the Company's Annual Meeting of Shareholders to be held
on May 13, 1997 (the "Proxy Statement"). See also "Executive Officers of the
Company" included in Part I of this Annual Report on Form 10-K, which is
incorporated by reference herein.
Item 11. Executive Compensation
Incorporated herein by reference to "Election of Directors --Executive
Compensation--Summary Compensation Table," "--Compensation Arrangements,"
"--Option Exercises and Fiscal Year-End Values," "--Option Grants," "--Executive
Supplemental Retirement Plan," "--ENSTAR Natural Gas Company Supplemental
Executive Retirement Plan" and "--ENSTAR Natural Gas Company Retirement Plan";
and "Election of Directors-Compensation of Directors" included in the Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference to "Principal Shareholders" and
"Election of Directors--Security Ownership of Directors and Management" included
in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference to "Election of Directors--Certain
Transactions" included in the Proxy Statement.
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<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements:
The following Consolidated Financial Statements and Independent
Auditors' Report thereon are included in the Company's 1996 Annual Report to
Shareholders and as part of Exhibit 13 attached hereto, and are incorporated
herein by reference:
Independent Auditors' Report
Consolidated Financial Statements
Notes to Consolidated Financial Statements
2. Schedules:
All schedules have been omitted because the required information is
insignificant or not applicable.
3. Exhibits:
<TABLE>
<S> <C>
3.1 Articles of Incorporation of the Company, as amended,
including Articles of Amendment filed May 12, 1988, May
21, 1991, and May 21, 1993 with the Secretary of State of
the State of Texas, that certain Statement of Relative
Rights and Preferences related to the designation and
issuance of the Company's $2.25 Convertible Exchangeable
Preferred Stock, Series A, filed August 6, 1986 with the
Secretary of State of the State of Texas and that certain
Statement of Resolution Establishing Series of Shares of
Series B Junior Participating Preferred Stock of Seagull
Energy Corporation filed March 21, 1989 with the Secretary
of State of the State of Texas (incorporated by reference
to Exhibit 3.1 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993).
3.2 Bylaws of the Company, as amended through March 17, 1995
(incorporated by reference to Exhibit 3.1 to Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995).
*4.1 $650 Million Reducing Revolving Credit and Competitive
Bid Facility among Seagull Energy Corporation, The Chase
Manhattan Bank and The Other Banks Signatory Thereto, dated
December 23, 1996.
*4.2 U.S. $100 Million Reducing Revolving Credit Facility among
Seagull Energy Canada Ltd. and The Chase Manhattan Bank of
Canada, The Bank of Nova Scotia, Canadian Imperial Bank
of Commerce, and The Other Banks Signatory Hereto, dated
December 23, 1996.
4.3 Senior Indenture dated as of July 15, 1993 by and between
the Company and The Bank of New York, as Trustee
(incorporated by reference to Exhibit 4.1 to Current
Report on Form 8-K dated August 4, 1993; Specimen of 7 7/8%
Senior Note due 2003 and resolutions adopted by the
Chairman of the Board of Directors is incorporated by
reference to Exhibit 4.3 to Current Report on Form 8-K
dated August 4, 1993).
4.4 Senior Subordinated Indenture dated as of July 15, 1993
by and between the Company and The Bank of New York, as
Trustee (incorporated by reference to Exhibit 4.2 to
Current Report on Form 8-K dated August 4, 1993; Specimen
of 8 5/8% Senior Subordinated Note due 2005 and resolutions
adopted by the
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Chairman of the Board of Directors is incorporated by
reference to Exhibit 4.4 to Current Report on Form 8-K
dated August 4, 1993).
4.5 Note Agreement dated June 17, 1985 by and among APC and
The Travelers Insurance Company, The Travelers Life
Insurance Company, and the Equitable Life Assurance Society
of the United States (collectively, the "Insurance
Companies") (including forms of notes and other exhibits
thereto) and Inducement Agreement of even date therewith
by and among Seagull and the Insurance Companies (the
Note Agreement including exhibits thereto incorporated
by reference to Exhibit 4.1 to Annual Report on Form 10-K
for the year ended December 31, 1995; the Form of
Consent and Agreement dated April 15, 1991 by and among
APC and the Insurance Companies (including exhibits
thereto) is incorporated by reference to Exhibit 4.2
to Annual Report on Form 10-K for the year ended December
31, 1992).
4.6 Note Agreement dated May 14, 1992 by and among Alaska
Pipeline Company and each of the purchasers thereto
(including forms of notes and other exhibits thereto)
and Inducement Agreement of even date therewith by and
among Seagull and Aid Association for Lutherans, The
Equitable Life Assurance Society of the United States,
Equitable Variable Life Insurance Company, Provident
Life & Accident Insurance Company and Teachers Insurance
& Annuity Association of America (including exhibits
thereto) (incorporated by reference to Exhibit 4.7 to
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992).
4.7 Trust Agreement dated as of September 1, 1995 for the
Seagull Series 1995 Trust (the Trust Agreement is
incorporated by reference to Exhibit 10.1 to Quarterly
Report on Form 10-Q for the quarter ended September 30,
1995; the Guaranty by Seagull Energy Corporation in favor
of the Seagull Series 1995 Trust is incorporated by
reference to Exhibit 10.2 to Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995).
4.8 Rights Agreement dated as of March 17, 1989 between the
Company and NCNB Texas National Bank, as Rights Agent,
which includes the form of Statement of Resolution setting
forth the terms of the Series B Junior Participating
Preferred Stock, par value $1.00 per share, as Exhibit
A, the form of Right Certificate as Exhibit B and the
Summary of Rights to Purchase Preferred Shares as Exhibit
C (the Rights Agreement is incorporated by reference to
Exhibit 4.8 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993; the First Amendment dated as
of June 18, 1992 is incorporated by reference to Exhibit
3.4 to Registration Statement on Form S-3 (File No.
33-55426)).
#10.1 Seagull Energy Corporation 1994 Executive Incentive Plan
(incorporated by reference to Exhibit 10.1 to Quarterly
Report on Form 10-Q for the quarter ended September 30,
1994).
#10.2 Seagull Energy Corporation 1995 Executive Incentive Plan
(incorporated by reference to Exhibit 10.2 to Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995).
*#10.3 Seagull Energy Corporation 1996 Executive Incentive Plan.
*#10.4 Seagull Energy Corporation 1981 Stock Option Plan
(Restated), including forms of agreements, as amended (the
amended and restated plan is incorporated by reference to
Exhibit 10.6 to Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993; Form of Amendement
to Stock Option Agreement(s) for the Seagull Energy
Corporation is incorporated by reference to Exhibit 10.5
to the Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995; Form of Amendment to Stock Option
Agreement(s) is filed herewith).
*#10.5 Seagull Energy Corporation 1983 Stock Option Plan
(Restated), including forms of agreements, as amended (the
amended and restated plan is incorporated by reference to
Exhibit 10.7 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993; the amended form of
Nonstatutory Stock Option Agreement is incorporated by
reference to Exhibit 10.15 to Annual Report on Form 10-K
for the year ended December 31, 1993; Form of Amendement
to Stock Option Agreement(s) for the Seagull Energy
Corporation is incorporated by reference to Exhibit 10.5
to the Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995; Form of Amendment to Stock Option
Agreement(s) is filed herewith).
</TABLE>
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*#10.6 Seagull Energy Corporation 1986 Stock Option Plan
(Restated), including forms of agreements, as amended (the
amended and restated plan is incorporated by reference to
Exhibit 10.8 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993; the amended form of
Nonstatutory Stock Option Agreement is incorporated by
reference to Exhibit 10.16 to Annual Report on Form 10-K
for the year ended December 31, 1993; Form of Amendment to
Stock Option Agreement(s) for the Seagull Energy
Corporation is incorporated by reference to Exhibit 10.5
to the Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995; Form of Amendment to Stock Option
Agreement(s) is filed herewith).
*#10.7 Seagull Energy Corporation 1990 Stock Option Plan,
including forms of agreements, as amended (incorporated by
reference to Exhibit 10.22 to Annual Report on form 10-K
for the year ended December 31, 1995; Form of Amendment to
Stock Option Agreement(s) is filed herewith).
*#10.8 Global Natural Resources Inc. 1989 Key Employees Stock
Option Plan (the Plan is incorporated by reference to
Exhibit 4.1 to Registration Statement No. 33-31537 of
Global Natural Resources Inc.; the Form of Stock Option
Agreement is incorporated by reference to Exhibit 4.2 to
Registration Statement No. 33-31537 of Global Natural
Resources Inc.; Form of Amendment to Stock Option
Agreement(s) is filed herewith).
*#10.9 Global Natural Resources Inc. 1992 Stock Option Plan (the
Plan is incorporated by reference to Exhibit 10.47 to the
Quarterly Report on Form 10-Q for the quarter ended June
30, 1992 of Global Natural Resources Inc. (Registration
No. 1-8674); the Form of Stock Option Agreement is
incorporated by reference to Exhibit 10.48 to the
Quarterly Report on Form 10-Q for the quarter ended June
30, 1992 of Global Natural Resources Inc. (Registration
No. 1-8674); Form of Amendment to Stock Option
Agreement(s) is filed herewith).
#10.10 Seagull Energy Corporation 1993 Nonemployee Directors
Stock Option Plan, including forms of agreements (the Plan
is incorporated by reference to Exhibit 10.37 to Annual
Report on Form 10-K for the year ended December 31, 1992;
the amended form of Nonstatutory Stock Option Agreement is
incorporated by reference to Exhibit 10.29 to Annual
Report on Form 10-K for the year ended December 31, 1993;
the Amendment to Nonemployee Directors' Stock Option
Agreements is incorporated by reference to Exhibit 10.1 to
Quarterly Report on Form 10-Q for the quarter ended June
30, 1996).
*#10.11 Seagull Energy Corporation 1993 Stock Option Plan,
including forms of agreements (the Plan is incorporated by
reference to Exhibit 10.38 to Annual Report on Form 10-K
for the year ended December 31, 1992; the amended form of
Nonstatutory Stock Option Agreement is incorporated by
reference to Exhibit 10.30 to Annual Report on Form 10-K
for the year ended December 31, 1993; Form of Amendment to
Stock Option Agreement(s) for the Seagull Energy
Corporation is incorporated by reference to Exhibit 10.5
to Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995; Form of Amendment to Stock Option
Agreement(s) is filed herewith).
*#10.12 1995 Omnibus Stock Plan (the Plan is incorporated by
reference to Exhibit 10.3 to Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995; Form of Amendment to
Stock Option Agreement(s) is filed herewith).
*#10.13 Seagull Energy Corporation Management Stability Plan (the
Plan is incorporated by reference to Exhibit 10.35 to
Annual Report on Form 10-K for the year ended December 31,
1994; the First Amendment is filed herewith).
#10.14 Outside Directors Deferred Fee Plan of the Company, as
amended and restated (incorporated by reference to Exhibit
10.2 to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996).
*#10.15 Employment Agreement dated December 30, 1983 by and
between the Company and Barry J. Galt, Chairman of the
Board, President and Chief Executive Officer of the
Company (the Employment Agreement is incorporated by
reference to Exhibit 10.1 to Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993; Amendment to
Employment Agreement is filed herewith).
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#10.16 Executive Supplemental Retirement Plan Membership
Agreement between the Company and Barry J. Galt dated as
of February 3, 1986, as amended (incorporated by reference
to Exhibit 10.2 to Quarterly Report on Form 10-Q for the
quarter ended September 31, 1996).
#10.17 Restricted Stock Agreement made and entered into as of
March 17, 1995 between Seagull Energy Corporation and
Barry J. Galt (incorporated by reference to Exhibit 10.32
to Annual Report on Form 10-K for the year ended December
31, 1994).
#10.18 Severance Agreement between Seagull Energy Corporation and
Barry J. Galt (incorporated by reference to Exhibit 10.3
to Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995).
#10.19 Seagull Energy Corporation Executive Supplemental
Retirement Plan, as amended (incorporated by reference to
Exhibit 1.1 to Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996).
#10.20 Seagull Energy Corporation Supplemental Benefit Plan, as
amended, including the First Amendment thereto
(incorporated by reference to Exhibit 10.11 to Annual
Report on Form 10-K for the year ended December 31, 1995).
#10.21 Form of Restricted Stock Agreement made and entered into
as of March 17, 1995 between Seagull Energy Corporation
and, individually, Richard F. Barnes (granted 2,000 shares
of restricted Common Stock), John W. Elias (granted 3,000
shares of restricted Common Stock) and Thomas P. McConn
(granted 2,000 shares of restricted Common Stock)
(incorporated by reference to Exhibit 10.33 to Annual
Report on Form 10-K for the year ended December 31, 1994).
#10.22 Form of Severance Agreement between Seagull Energy
Corporation and Richard F. Barnes, John W. Elias, and
Thomas P. McConn (incorporated by reference to Exhibit
10.34 to Annual Report on Form 10-K for the year ended
December 31, 1994).
10.23 Joint Venture Agreement dated August 8, 1968, between
Huffington, Virginia International Company, Austral
Petroleum Gas Corporation, Golden Eagle Indonesia, Limited
and Union Texas Far East Corporation, as amended
(incorporated by reference to Exhibit 6.6 to Registration
Statement No. 2-58834 of Global Natural Resources Inc.).
10.24 Agreement dated as of October 1, 1979 among the parties to
the Joint Venture Agreement referred to in Exhibit 10.21
above (incorporated by reference to Exhibit 5.2 to
Registration Statement No. 2-66661 of Global Natural
Resources Inc.).
10.25 Production Sharing Contract, dated August 8, 1968, between
Pertamina, Huffington, and Virginia International Company,
as amended (incorporated by reference to Exhibit 6.5 to
Registration Statement No. 2-58834 of Global Natural
Resources Inc.; Amendment dated as of January 1, 1978
incorporated by reference to Exhibit 5.4 to Registration
Statement No. 2-66661 of Global Natural Resources Inc.).
10.26 Royalty Incentive Plan, as amended (incorporated by
reference to Exhibit 1.4 to the Annual Report on Form 20-F
for the year ended December 31, 1981 of the U.K. Company).
10.27 Acquisition Agreement dated May 17, 1993 between UMIC Cote
d'Ivoire Corporation and G.N.R. (Cote d'Ivoire) Ltd. Ivory
Coast Production Sharing Contract - Block CI-11
(incorporated by reference to Exhibit 10.40 to the Annual
Report on Form 10-K for the year ended December 31, 1994
of Global Natural Resources Inc. (Registration No.
1-8674)).
10.28 Farmout Agreement dated July 25, 1994 between GNR (Egypt)
Ltd. and Apache Oil Egypt, Inc. Qarun Concession Egypt
(incorporated by reference to Exhibit 10.41 to the Annual
Report on Form 10-K for the year ended December 31, 1994
of Global Natural Resources Inc. (Registration No.
1-8674)).
10.29 Purchase and Sale Agreement by and among Seagull Energy
Corporation, Amoco Gas Company, Houston Pipe Line Company,
Enron Gas Processing Company and Mantaray Pipeline
Company, as sellers and Seahawk Gathering & Liquids
Company as buyer and Tejas Power Corporation as Guarantor
dated July
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28, 1995 (incorporated by reference to Exhibit 10.6 to
Quarterly Report on Form 10-Q for the quarter ended June
30, 1995).
10.30 Stock Purchase Agreement Between Seagull Energy
Corporation and Exxon Corporation relating to all of the
Outstanding Capital Stock of Esso Suez Inc., as executed
in Houston, Texas on July 22, 1996 (incorporated by
reference to Exhibit 2.1 to the Current Report on Form 8-K
filed on August 28, 1996).
10.31 Purchase and Sale Agreement Between Esso Egypt Limited and
Seagull Energy Corporation dated July 22, 1996
(incorporated by reference to Exhibit 2.2 to the Current
Report on Form 8-K filed on August 28, 1996).
10.32 Agreement and Plan of Merger dated as of July 22, 1996 by
and among Seagull Energy Corporation, GNR Merger
Corporation and Global Natural Resources Inc.
(incorporated by reference to Exhibit 2.1 to Registration
Statement No. 333-09845 on Form S-4 of Seagull Energy
Corporation).
10.33 Voting Agreement dated as of July 22, 1996 among Seagull
Energy Corporation and The Prudential Life Insurance
Company of America (incorporated by reference to Exhibit
2.2 to Registration Statement 333-09845 on Form S-4 of
Seagull Energy Corporation).
*13 Portions of the Seagull Energy Corporation and
Subsidiaries Annual Report to Shareholders for the year
ended December 31, 1996 which are incorporated by
reference herein to this Annual Report on Form 10-K of
Seagull Energy Corporation and Subsidiaries for the year
ended December 31, 1996.
*21 Subsidiaries of Seagull Energy Corporation.
*23.1 Consent of KPMG Peat Marwick LLP.
*23.2 Consent of Ryder Scott Company, independent petroleum
engineers.
*23.3 Consent of DeGolyer and MacNaughton, independent petroleum
engineers.
*23.4 Consent of Netherland, Sewell and Associates, Inc.,
independent petroleum engineers.
*27.1 Financial Data Schedule.
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* Filed herewith.
# Identifies management contracts and compensatory plans or arrangements.
<PAGE>
(b) Reports on Form 8-K
On October 18, 1996, the Company filed a current report on Form 8-K
dated October 3, 1996 with respect to Seagull's merger with Global. The items
reported in such current report were Item 2 (Acquisition and Disposition of
Assets) and Item 7 (Financial Statements and Exhibits). The following financial
statements were included in that report:
(a) Financial statements of businesses acquired.
The consolidated financial statements of Global for the years
ended December 31, 1995, 1994 and 1993 (incorporated by
reference to Global's Annual Report on Form 10-K for the year
ended December 31, 1995; Registration No. 1-8674).
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<PAGE>
The unaudited consolidated financial statements of Global for
the six months ended June 30, 1996 and 1995 (incorporated by
reference to Global's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996; Registration No. 1-8674).
(b) Pro forma financial information.
The pro forma financial information giving effect to (i) the
merger of Seagull and Global using the pooling of interest
method of accounting for business combinations and (ii) the
Esso Suez Acquisition financed under Seagull's revolving
credit facilities and using the purchase method of accounting.
On October 18, 1996, the Company filed an amendment to current report
on Form 8-K dated September 10, 1996 with respect to Seagull's acquisition of
all the outstanding common stock of Esso Suez Inc. and certain assets of Esso
Egypt Limited. The item reported in such current report was Item 7 (Financial
Statements and Exhibits). The following financial statements were included in
that report:
The pro forma financial information giving effect to (i) the
merger of Seagull and Global using the pooling of interest
method of accounting for business combinations and (ii) the
Esso Suez Acquisition financed under Seagull's revolving
credit facilities and using the purchase method of accounting
(incorporated by reference to Exhibit 99.1 of the Company's
Current Report on Form 8-K filed with the Securities and
Exchange Commission on October 18, 1996).
On November 13, 1996, the Company filed an amendment to current report
on Form 8-K dated October 3, 1996 with respect to Seagull's merger with Global.
The item reported in such current report was Item 7 (Financial Statements and
Exhibits). The following financial statements were included in that report:
Supplemental consolidated statements of earnings and cash
flows of Seagull and Global for each of the quarters in the
three quarters ended September 30, 1996 and four quarters
ended December 31, 1995 and the supplemental consolidated
balance sheets of Seagull and Global as of September 30, June
30, and March 31, 1996 and December 31, 1995.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SEAGULL ENERGY CORPORATION
Date: March 27, 1997 By: /s/ Barry J.Galt
Barry J. Galt, Chairman of
the Board and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /s/ Barry J. Galt By: /s/ Thomas H. Cruikshank
Barry J. Galt, Chairman of the Thomas H. Cruikshank, Director
Board and Chief Executive Officer Date: March 27, 1997
and Director (Principal Executive
Officer) By: /s/ Peter J. Fluor
Date: March 27, 1997 Peter J. Fluor, Director
Date: March 27, 1997
By: /s/ Robert F. Vagt
Robert F. Vagt, President and By: /s/ William R. Grant
Chief Operating Officer and William R. Grant, Director
Director Date: March 27, 1997
Date: March 27, 1997
By: /s/ Dean P. Guerin
By: /s/ John W. Elias Dean P. Guerin, Director
John W. Elias, Executive Vice Date: March 27, 1997
President and Director
Date: March 27, 1997 By: /s/ Richard M. Morrow
Richard M. Morrow, Director
By: /s/ William L. Transier Date: March 27, 1997
William L. Transier, Senior Vice
President and Chief Financial By: /s/ Dee S. Osborne
Officer (Principal Financial Dee S. Osborne, Director
Officer) Date: March 27, 1997
Date: March 27, 1997
By: /s/ Sidney R. Petersen
By: /s/ Gordon L. McConnell Sidney R. Petersen, Director
Gordon L. McConnell, Vice Date: March 27, 1997
President and Controller
(Principal Accounting Officer) By: /s/ Sam F. Segnar
Date: March 27, 1997 Sam F. Segnar, Director
Date: March 27, 1997
By: /s/ J. Evans Attwell
J. Evans Attwell, Director By: /s/ R. A. Walker
Date: March 27, 1997 R. A. Walker, Director
Date: March 27, 1997
By: /s/ Richard J. Burgess
Richard J. Burgess, Director
Date: March 27, 1997
By: /s/ Milton Carroll
Milton Carroll, Director
Date: March 27, 1997
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<PAGE>
EXHIBIT INDEX
EXHIBITS:
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3.1 Articles of Incorporation of the Company, as amended,
including Articles of Amendment filed May 12, 1988, May
21, 1991, and May 21, 1993 with the Secretary of State of
the State of Texas, that certain Statement of Relative
Rights and Preferences related to the designation and
issuance of the Company's $2.25 Convertible Exchangeable
Preferred Stock, Series A, filed August 6, 1986 with the
Secretary of State of the State of Texas and that certain
Statement of Resolution Establishing Series of Shares of
Series B Junior Participating Preferred Stock of Seagull
Energy Corporation filed March 21, 1989 with the Secretary
of State of the State of Texas (incorporated by reference
to Exhibit 3.1 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993).
3.2 Bylaws of the Company, as amended through March 17, 1995
(incorporated by reference to Exhibit 3.1 to Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995).
*4.1 $650 Million Reducing Revolving Credit and Competitive
Bid Facility among Seagull Energy Corporation, The Chase
Manhattan Bank and The Other Banks Signatory Thereto, dated
December 23, 1996.
*4.2 U.S. $100 Million Reducing Revolving Credit Facility among
Seagull Energy Canada Ltd. and The Chase Manhattan Bank of
Canada, The Bank of Nova Scotia, Canadian Imperial Bank
of Commerce, and The Other Banks Signatory Hereto, dated
December 23, 1996.
4.3 Senior Indenture dated as of July 15, 1993 by and between
the Company and The Bank of New York, as Trustee
(incorporated by reference to Exhibit 4.1 to Current
Report on Form 8-K dated August 4, 1993; Specimen of 7 7/8%
Senior Note due 2003 and resolutions adopted by the
Chairman of the Board of Directors is incorporated by
reference to Exhibit 4.3 to Current Report on Form 8-K
dated August 4, 1993).
4.4 Senior Subordinated Indenture dated as of July 15, 1993
by and between the Company and The Bank of New York, as
Trustee (incorporated by reference to Exhibit 4.2 to
Current Report on Form 8-K dated August 4, 1993; Specimen
of 8 5/8% Senior Subordinated Note due 2005 and resolutions
adopted by the Chairman of the Board of Directors is
incorporated by reference to Exhibit 4.4 to Current Report
on Form 8-K dated August 4, 1993).
4.5 Note Agreement dated June 17, 1985 by and among APC and
The Travelers Insurance Company, The Travelers Life
Insurance Company, and the Equitable Life Assurance Society
of the United States (collectively, the "Insurance
Companies") (including forms of notes and other exhibits
thereto) and Inducement Agreement of even date therewith
by and among Seagull and the Insurance Companies (the
Note Agreement including exhibits thereto incorporated
by reference to Exhibit 4.1 to Annual Report on Form 10-K
for the year ended December 31, 1995; the Form of
Consent and Agreement dated April 15, 1991 by and among
APC and the Insurance Companies (including exhibits
thereto) is incorporated by reference to Exhibit 4.2
to Annual Report on Form 10-K for the year ended December
31, 1992).
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4.6 Note Agreement dated May 14, 1992 by and among Alaska
Pipeline Company and each of the purchasers thereto
(including forms of notes and other exhibits thereto)
and Inducement Agreement of even date therewith by and
among Seagull and Aid Association for Lutherans, The
Equitable Life Assurance Society of the United States,
Equitable Variable Life Insurance Company, Provident
Life & Accident Insurance Company and Teachers Insurance
& Annuity Association of America (including exhibits
thereto) (incorporated by reference to Exhibit 4.7 to
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992).
4.7 Trust Agreement dated as of September 1, 1995 for the
Seagull Series 1995 Trust (the Trust Agreement is
incorporated by reference to Exhibit 10.1 to Quarterly
Report on Form 10-Q for the quarter ended September 30,
1995; the Guaranty by Seagull Energy Corporation in favor
of the Seagull Series 1995 Trust is incorporated by
reference to Exhibit 10.2 to Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995).
4.8 Rights Agreement dated as of March 17, 1989 between the
Company and NCNB Texas National Bank, as Rights Agent,
which includes the form of Statement of Resolution setting
forth the terms of the Series B Junior Participating
Preferred Stock, par value $1.00 per share, as Exhibit
A, the form of Right Certificate as Exhibit B and the
Summary of Rights to Purchase Preferred Shares as Exhibit
C (the Rights Agreement is incorporated by reference to
Exhibit 4.8 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993; the First Amendment dated as
of June 18, 1992 is incorporated by reference to Exhibit
3.4 to Registration Statement on Form S-3 (File No.
33-55426)).
#10.1 Seagull Energy Corporation 1994 Executive Incentive Plan
(incorporated by reference to Exhibit 10.1 to Quarterly
Report on Form 10-Q for the quarter ended September 30,
1994).
#10.2 Seagull Energy Corporation 1995 Executive Incentive Plan
(incorporated by reference to Exhibit 10.2 to Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995).
*#10.3 Seagull Energy Corporation 1996 Executive Incentive Plan.
*#10.4 Seagull Energy Corporation 1981 Stock Option Plan
(Restated), including forms of agreements, as amended (the
amended and restated plan is incorporated by reference to
Exhibit 10.6 to Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993; Form of Amendement
to Stock Option Agreement(s) for the Seagull Energy
Corporation is incorporated by reference to Exhibit 10.5
to the Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995; Form of Amendment to Stock Option
Agreement(s) is filed herewith).
*#10.5 Seagull Energy Corporation 1983 Stock Option Plan
(Restated), including forms of agreements, as amended (the
amended and restated plan is incorporated by reference to
Exhibit 10.7 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993; the amended form of
Nonstatutory Stock Option Agreement is incorporated by
reference to Exhibit 10.15 to Annual Report on Form 10-K
for the year ended December 31, 1993; Form of Amendement
to Stock Option Agreement(s) for the Seagull Energy
Corporation is incorporated by reference to Exhibit 10.5
to the Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995; Form of Amendment to Stock Option
Agreement(s) is filed herewith).
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quarter ended June 30, 1995; Form of Amendment to Stock
Option Agreement(s) is filed herewith).
*#10.6 Seagull Energy Corporation 1986 Stock Option Plan
(Restated), including forms of agreements, as amended (the
amended and restated plan is incorporated by reference to
Exhibit 10.8 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993; the amended form of
Nonstatutory Stock Option Agreement is incorporated by
reference to Exhibit 10.16 to Annual Report on Form 10-K
for the year ended December 31, 1993; Form of Amendment to
Stock Option Agreement(s) for the Seagull Energy
Corporation is incorporated by reference to Exhibit 10.5
to the Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995; Form of Amendment to Stock Option
Agreement(s) is filed herewith).
*#10.7 Seagull Energy Corporation 1990 Stock Option Plan,
including forms of agreements, as amended (incorporated by
reference to Exhibit 10.22 to Annual Report on form 10-K
for the year ended December 31, 1995; Form of Amendment to
Stock Option Agreement(s) is filed herewith).
*#10.8 Global Natural Resources Inc. 1989 Key Employees Stock
Option Plan (the Plan is incorporated by reference to
Exhibit 4.1 to Registration Statement No. 33-31537 of
Global Natural Resources Inc.; the Form of Stock Option
Agreement is incorporated by reference to Exhibit 4.2 to
Registration Statement No. 33-31537 of Global Natural
Resources Inc.; Form of Amendment to Stock Option
Agreement(s) is filed herewith).
*#10.9 Global Natural Resources Inc. 1992 Stock Option Plan (the
Plan is incorporated by reference to Exhibit 10.47 to the
Quarterly Report on Form 10-Q for the quarter ended June
30, 1992 of Global Natural Resources Inc. (Registration
No. 1-8674); the Form of Stock Option Agreement is
incorporated by reference to Exhibit 10.48 to the
Quarterly Report on Form 10-Q for the quarter ended June
30, 1992 of Global Natural Resources Inc. (Registration
No. 1-8674); Form of Amendment to Stock Option
Agreement(s) is filed herewith).
#10.10 Seagull Energy Corporation 1993 Nonemployee Directors
Stock Option Plan, including forms of agreements (the Plan
is incorporated by reference to Exhibit 10.37 to Annual
Report on Form 10-K for the year ended December 31, 1992;
the amended form of Nonstatutory Stock Option Agreement is
incorporated by reference to Exhibit 10.29 to Annual
Report on Form 10-K for the year ended December 31, 1993;
the Amendment to Nonemployee Directors' Stock Option
Agreements is incorporated by reference to Exhibit 10.1 to
Quarterly Report on Form 10-Q for the quarter ended June
30, 1996).
*#10.11 Seagull Energy Corporation 1993 Stock Option Plan,
including forms of agreements (the Plan is incorporated by
reference to Exhibit 10.38 to Annual Report on Form 10-K
for the year ended December 31, 1992; the amended form of
Nonstatutory Stock Option Agreement is incorporated by
reference to Exhibit 10.30 to Annual Report on Form 10-K
for the year ended December 31, 1993; Form of Amendment to
Stock Option Agreement(s) for the Seagull Energy
Corporation is incorporated by reference to Exhibit 10.5
to Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995; Form of Amendment to Stock Option
Agreement(s) is filed herewith).
*#10.12 1995 Omnibus Stock Plan (the Plan is incorporated by
reference to Exhibit 10.3 to Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995; Form of Amendment to
Stock Option Agreement(s) is filed herewith).
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*#10.13 Seagull Energy Corporation Management Stability Plan (the
Plan is incorporated by reference to Exhibit 10.35 to
Annual Report on Form 10-K for the year ended December 31,
1994; the First Amendment is filed herewith).
#10.14 Outside Directors Deferred Fee Plan of the Company, as
amended and restated (incorporated by reference to Exhibit
10.2 to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996).
*#10.15 Employment Agreement dated December 30, 1983 by and
between the Company and Barry J. Galt, Chairman of the
Board, President and Chief Executive Officer of the
Company (the Employment Agreement is incorporated by
reference to Exhibit 10.1 to Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993; Amendment to
Employment Agreement is filed herewith).
#10.16 Executive Supplemental Retirement Plan Membership
Agreement between the Company and Barry J. Galt dated as
of February 3, 1986, as amended (incorporated by reference
to Exhibit 10.2 to Quarterly Report on Form 10-Q for the
quarter ended September 31, 1996).
#10.17 Restricted Stock Agreement made and entered into as of
March 17, 1995 between Seagull Energy Corporation and
Barry J. Galt (incorporated by reference to Exhibit 10.32
to Annual Report on Form 10-K for the year ended December
31, 1994).
#10.18 Severance Agreement between Seagull Energy Corporation and
Barry J. Galt (incorporated by reference to Exhibit 10.3
to Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995).
#10.19 Seagull Energy Corporation Executive Supplemental
Retirement Plan, as amended (incorporated by reference to
Exhibit 1.1 to Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996).
#10.20 Seagull Energy Corporation Supplemental Benefit Plan, as
amended, including the First Amendment thereto
(incorporated by reference to Exhibit 10.11 to Annual
Report on Form 10-K for the year ended December 31, 1995).
#10.21 Form of Restricted Stock Agreement made and entered into
as of March 17, 1995 between Seagull Energy Corporation
and, individually, Richard F. Barnes (granted 2,000 shares
of restricted Common Stock), John W. Elias (granted 3,000
shares of restricted Common Stock) and Thomas P. McConn
(granted 2,000 shares of restricted Common Stock)
(incorporated by reference to Exhibit 10.33 to Annual
Report on Form 10-K for the year ended December 31, 1994).
#10.22 Form of Severance Agreement between Seagull Energy
Corporation and Richard F. Barnes, John W. Elias, and
Thomas P. McConn (incorporated by reference to Exhibit
10.34 to Annual Report on Form 10-K for the year ended
December 31, 1994).
10.23 Joint Venture Agreement dated August 8, 1968, between
Huffington, Virginia International Company, Austral
Petroleum Gas Corporation, Golden Eagle Indonesia, Limited
and Union Texas Far East Corporation, as amended
(incorporated by reference to Exhibit 6.6 to Registration
Statement No. 2-58834 of Global Natural Resources Inc.).
10.24 Agreement dated as of October 1, 1979 among the parties to
the Joint Venture Agreement referred to
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in Exhibit 10.21 above (incorporated by reference to
Exhibit 5.2 to Registration Statement No. 2-66661 of
Global Natural Resources Inc.).
10.25 Production Sharing Contract, dated August 8, 1968, between
Pertamina, Huffington, and Virginia International Company,
as amended (incorporated by reference to Exhibit 6.5 to
Registration Statement No. 2-58834 of Global Natural
Resources Inc.; Amendment dated as of January 1, 1978
incorporated by reference to Exhibit 5.4 to Registration
Statement No. 2-66661 of Global Natural Resources Inc.).
10.26 Royalty Incentive Plan, as amended (incorporated by
reference to Exhibit 1.4 to the Annual Report on Form 20-F
for the year ended December 31, 1981 of the U.K. Company).
10.27 Acquisition Agreement dated May 17, 1993 between UMIC Cote
d'Ivoire Corporation and G.N.R. (Cote d'Ivoire) Ltd. Ivory
Coast Production Sharing Contract - Block CI-11
(incorporated by reference to Exhibit 10.40 to the Annual
Report on Form 10-K for the year ended December 31, 1994
of Global Natural Resources Inc. (Registration No.
1-8674)).
10.28 Farmout Agreement dated July 25, 1994 between GNR (Egypt)
Ltd. and Apache Oil Egypt, Inc. Qarun Concession Egypt
(incorporated by reference to Exhibit 10.41 to the Annual
Report on Form 10-K for the year ended December 31, 1994
of Global Natural Resources Inc. (Registration No.
1-8674)).
10.29 Purchase and Sale Agreement by and among Seagull Energy
Corporation, Amoco Gas Company, Houston Pipe Line Company,
Enron Gas Processing Company and Mantaray Pipeline
Company, as sellers and Seahawk Gathering & Liquids
Company as buyer and Tejas Power Corporation as Guarantor
dated July 28, 1995 (incorporated by reference to Exhibit
10.6 to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995).
10.30 Stock Purchase Agreement Between Seagull Energy
Corporation and Exxon Corporation relating to all of the
Outstanding Capital Stock of Esso Suez Inc., as executed
in Houston, Texas on July 22, 1996 (incorporated by
reference to Exhibit 2.1 to the Current Report on Form 8-K
filed on August 28, 1996).
10.31 Purchase and Sale Agreement Between Esso Egypt Limited and
Seagull Energy Corporation dated July 22, 1996
(incorporated by reference to Exhibit 2.2 to the Current
Report on Form 8-K filed on August 28, 1996).
10.32 Agreement and Plan of Merger dated as of July 22, 1996 by
and among Seagull Energy Corporation, GNR Merger
Corporation and Global Natural Resources Inc.
(incorporated by reference to Exhibit 2.1 to Registration
Statement No. 333-09845 on Form S-4 of Seagull Energy
Corporation).
10.33 Voting Agreement dated as of July 22, 1996 among Seagull
Energy Corporation and The Prudential Life Insurance
Company of America (incorporated by reference to Exhibit
2.2 to Registration Statement 333-09845 on Form S-4 of
Seagull Energy Corporation).
*13 Portions of the Seagull Energy Corporation and
Subsidiaries Annual Report to Shareholders for the year
ended December 31, 1996 which are incorporated by
reference herein to this Annual Report on Form 10-K of
Seagull Energy Corporation and Subsidiaries for the year
ended December 31, 1996.
*21 Subsidiaries of Seagull Energy Corporation.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
*23.1 Consent of KPMG Peat Marwick LLP.
*23.2 Consent of Ryder Scott Company, independent petroleum
engineers.
*23.3 Consent of DeGolyer and MacNaughton, independent petroleum
engineers.
*23.4 Consent of Netherland, Sewell and Associates, Inc.,
independent petroleum engineers.
*27.1 Financial Data Schedule.
</TABLE>
- --------------------
* Filed herewith.
# Identifies management contracts and compensatory plans or arrangements.
CREDIT AGREEMENT
$650,000,000 REDUCING REVOLVING CREDIT
AND COMPETITIVE BID FACILITY
AMONG
SEAGULL ENERGY CORPORATION,
THE CHASE MANHATTAN BANK,
Individually and as Agent,
AND
THE OTHER BANKS SIGNATORY HERETO
December 23, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Section 1. Definitions and Accounting Matters
1.1 Certain Defined Terms......................................1
1.2 Accounting Terms and Determinations.......................24
1.3 Types of Loans............................................24
1.4 Miscellaneous.............................................24
Section 2. Commitments; Borrowing Base Determinations;
Competitive Bid Facility..................................25
2.1 Committed Loans...........................................25
2.2 Letters of Credit.........................................25
2.3 Reductions and Changes of Commitments.....................28
2.4 Fees......................................................29
2.5 Affiliates; Lending Offices...............................30
2.6 Several Obligations.......................................30
2.7 Notes.....................................................30
2.8 Use of Proceeds...........................................31
2.9 Borrowing Base Determinations.............................31
2.10 Competitive Bid Procedure.................................31
Section 3. Borrowings, Prepayments and Selection of Interest Rates...33
3.1 Borrowings................................................33
3.2 Prepayments...............................................34
3.3 Selection of Interest Rates...............................35
Section 4. Payments of Principal and Interest........................36
4.1 Repayment of Loans and Reimbursement Obligations..........36
4.2 Interest..................................................36
Section 5. Payments; Pro Rata Treatment; Computations, Etc...........37
5.1 Payments..................................................37
5.2 Pro Rata Treatment........................................37
5.3 Computations..............................................38
5.4 Minimum and Maximum Amounts...............................38
5.5 Certain Actions, Notices, Etc.............................38
5.6 Non-Receipt of Funds by Agent.............................40
5.7 Sharing of Payments, Etc..................................40
Section 6. Yield Protection and Illegality...........................41
6.1 Additional Costs..........................................41
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
6.2 Limitation on Types of Loans..............................42
6.3 Illegality................................................43
6.4 Substitute Alternate Base Rate Loans......................43
6.5 Compensation..............................................44
6.6 Additional Costs in Respect of Letters of Credit..........44
6.7 Capital Adequacy..........................................45
6.8 Limitation on Additional Charges; Substitute Banks;
Non-Discrimination........................................45
Section 7. Conditions Precedent......................................46
7.1 Initial Loans.............................................46
7.2 Initial and Subsequent Loans..............................48
Section 8. Representations and Warranties............................48
8.1 Corporate Existence.......................................49
8.2 Corporate Power and Authorization.........................49
8.3 Binding Obligations.......................................49
8.4 No Legal Bar or Resultant Lien............................49
8.5 No Consent................................................49
8.6 Financial Condition.......................................50
8.7 Investments and Guaranties................................50
8.8 Liabilities and Litigation................................50
8.9 Taxes and Governmental Charges............................50
8.10 Title to Properties.......................................51
8.11 Defaults..................................................51
8.12 Location of Businesses and Offices........................51
8.13 Compliance with Law.......................................51
8.14 Margin Stock..............................................51
8.15 Subsidiaries..............................................52
8.16 ERISA.....................................................52
8.17 Investment Company Act....................................52
8.18 Public Utility Holding Company Act........................52
8.19 Environmental Matters.....................................53
8.20 Claims and Liabilities....................................54
8.21 Solvency..................................................54
Section 9. Affirmative Covenants.....................................54
9.1 Financial Statements and Reports..........................54
9.2 Officers' Certificates....................................56
9.3 Taxes and Other Liens.....................................57
9.4 Maintenance...............................................57
9.5 Further Assurances........................................58
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
9.6 Performance of Obligations................................58
9.7 Reimbursement of Expenses.................................58
9.8 Insurance.................................................59
9.9 Accounts and Records......................................59
9.10 Rights of Inspection......................................59
9.11 Notice of Certain Events..................................60
9.12 ERISA Information and Compliance..........................61
Section 10. Negative Covenants........................................62
10.1 Debts, Guaranties and Other Obligations...................62
10.2 Liens.....................................................65
10.3 Investments, Loans and Advances...........................68
10.4 Dividend Payment Restrictions.............................70
10.5 Mergers and Sales of Assets...............................70
10.6 Proceeds of Notes.........................................70
10.7 ERISA Compliance..........................................70
10.8 Amendment of Certain Documents............................71
10.9 Tangible Net Worth........................................71
10.10 Company Debt/Capitalization Ratio.........................71
10.11 EBITDAX/Interest Ratio....................................71
10.12 Nature of Business........................................71
10.13 Futures Contracts.........................................72
10.14 Covenants in Other Agreements.............................72
Section 11. Defaults..................................................73
11.1 Events of Default.........................................73
11.2 Collateral Account........................................75
11.3 Preservation of Security for Unmatured
Reimbursement Obligations.................................75
11.4 Right of Setoff...........................................76
Section 12. Agent.....................................................76
12.1 Appointment, Powers and Immunities........................76
12.2 Reliance by Agent.........................................77
12.3 Defaults..................................................78
12.4 Rights as a Bank..........................................78
12.5 Indemnification...........................................78
12.6 Non-Reliance on Agent and Other Banks.....................79
12.7 Failure to Act............................................79
12.8 Resignation or Removal of Agent...........................79
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 13. Miscellaneous.............................................80
13.1 Waiver....................................................80
13.2 Notices...................................................80
13.3 Indemnification...........................................80
13.4 Amendments, Etc...........................................81
13.5 Successors and Assigns....................................82
13.6 Limitation of Interest....................................85
13.7 Survival..................................................86
13.8 Captions..................................................86
13.9 Counterparts..............................................86
13.10 Governing Law.............................................86
13.11 Severability..............................................87
13.12 Chapter 15 Not Applicable.................................87
13.13 Confidential Information..................................87
13.14 Tax Forms.................................................88
13.15 Amendment and Restatement.................................88
13.16 Intercreditor Agreement...................................88
EXHIBITS:
Exhibit A Oil and Gas Subsidiaries
Exhibit B Form of Borrowing Base Certificate
Exhibit C Form of Request for Extension of Credit
Exhibit D Existing Competitive Loans
Exhibit E Form of Committed Note
Exhibit F Subsidiaries (with Addresses)
Exhibit G Form of Compliance Certificate
Exhibit H Assignment and Acceptance
Exhibit I Form of Engineering Report Certificate
Exhibit J Parameters Interest Rate Protection and Commodities
Futures Programs
Exhibit K Form of Competitive Bid Request
Exhibit L Form of Notice to Banks of Competitive Bid Request
Exhibit M Form of Competitive Bid
Exhibit N Form of Competitive Bid Administrative Questionnaire
Exhibit O Form of Competitive Note
Exhibit P Form of Second Amendment to Intercreditor Agreement
</TABLE>
<PAGE>
CREDIT AGREEMENT
This CREDIT AGREEMENT, dated as of December 23, 1996 (the "Effective
Date"), is by and among SEAGULL ENERGY CORPORATION (the "Company"), a
corporation duly organized and validly existing under the laws of the State of
Texas; each of the banks which is or which may from time to time become a
signatory hereto (individually, a "Bank" and, collectively, the "Banks"); THE
CHASE MANHATTAN BANK ("Chase"), as agent for the Banks (in such capacity,
together with its successors in such capacity, "Agent").
The parties hereto agree as follows:
Section 1. Definitions and Accounting Matters.
1.1 Certain Defined Terms. As used herein, the following terms shall
have the following meanings (all terms defined in this Section 1.1 or in other
provisions of this Agreement in the singular to have the same meanings when used
in the plural and vice versa):
"Additional Costs" shall have the meaning ascribed to such term in
Section 6.1 hereof.
"Affiliate" shall mean, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person and, if such Person is an individual, any member of
the immediate family (including parents, siblings, spouse, children,
stepchildren, grandchildren, nephews and nieces) of such individual and any
trust whose principal beneficiary is such individual or one or more members of
such immediate family and any Person who is controlled by any such member or
trust. As used in this definition, "control" (including, with correlative
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise).
"Agreement" shall mean this Credit Agreement, as the same may be
amended, modified, restated or supplemented from time to time.
"Alaskan Gas Component Value" shall mean (A) prior to the initial
Borrowing Base Determination, $60,000,000 and (B) thereafter, the amount by
which (i) the product of 5-1/2 times an amount equal to (I) the average annual
EBITDA of ENSTAR Alaska on a consolidated basis for the three year period ended
on the most recent December 31st plus (II) 70% of the average annual management
fees paid to the Company by ENSTAR Alaska during such three year period minus
(III) average annual Capital Expenditures attributable to ENSTAR Alaska in
accordance with GAAP and on a consolidated basis during such three year period
exceeds (ii) the Alaskan Gas Debt determined as of (x) the preceding January 1
(in the case of a Scheduled Redetermination) or (y) the last day of the second
<PAGE>
month prior to the month in which the effective date of the Borrowing Base
Determination occurs (in the case of a Requested Redetermination).
"Alaskan Gas Debt" shall mean the sum of (i) Funded Indebtedness of
ENSTAR Alaska plus (ii) Current Maturities of ENSTAR Alaska plus (iii)
Redemption Obligations of ENSTAR Alaska plus (iv) the highest amount of Short
Term Borrowings outstanding during the Short Term Borrowings Measuring Period.
"Alternate Base Rate" shall mean, for any day, a rate per annum equal
to the higher of (a) the Prime Rate in effect on such day or (b) 1/2 of 1% plus
the Federal Funds Rate in effect for such day (rounded upwards, if necessary, to
the nearest 1/16th of 1%). For purposes hereof, "Federal Funds Rate" shall mean,
for any period, a fluctuating interest rate per annum equal for each day during
such period to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by Agent
from three Federal funds brokers of recognized standing selected by it. For
purposes of this Agreement, any change in the Alternate Base Rate due to a
change in the Federal Funds Rate shall be effective on the effective date of
such change in the Federal Funds Rate. If for any reason Agent shall have
determined (which determination shall be conclusive and binding, absent manifest
error) that it is unable to ascertain the Federal Funds Rate for any reason,
including, without limitation, the inability or failure of Agent to obtain
sufficient bids or publications in accordance with the terms hereof, the
Alternate Base Rate shall be the Prime Rate until the circumstances giving rise
to such inability no longer exist. For the purposes hereof, "Prime Rate" shall
mean the prime rate as announced from time to time by Agent, and thereafter
entered in the minutes of Agent's Loan and Discount Committee. Without notice to
the Company or any other Person, the Prime Rate shall change automatically from
time to time as and in the amount by which said prime rate shall fluctuate. The
Prime Rate is a reference rate and does not necessarily represent the lowest or
best rate actually charged to any customer. Agent may make commercial loans or
other loans at rates of interest at, above or below the Prime Rate. For purposes
of this Agreement any change in the Alternate Base Rate due to a change in the
Prime Rate shall be effective on the date such change in the Prime Rate is
announced.
"Alternate Base Rate Loans" shall mean Loans which bear interest at a
rate based upon the Alternate Base Rate.
"APC" shall mean Alaska Pipeline Company, an Alaska corporation, a
Subsidiary of the Company.
"APC Long Term Financing Documents" shall mean that certain Inducement
Agreement and that certain Note Agreement (together with the Notes, as defined
therein), each dated as of May 14, 1992, by and among the Company, Aid
<PAGE>
Association for Lutherans, The Equitable Life Assurance Society of the United
States, Equitable Variable Life Insurance Company, Provident Life and Accident
Insurance Company and Teachers Insurance & Annuity Association of America, any
documentation executed in connection with any renewal, extension or
rearrangement of the Indebtedness that is the subject of the foregoing
documents, the Gas Sales Contract, the Intercompany Mortgage, as defined in the
above-mentioned Note Agreement, and any documents executed in replacement of any
of the foregoing documents, if any, and only if Agent has received notice
thereof pursuant to Section 10.8.
"Applicable Lending Office" shall mean, for each Bank and for each
Type of Loan, such office of such Bank (or of an affiliate of such Bank) as such
Bank may from time to time specify to Agent and the Company as the office by
which its Loans of such Type are to be made and/or issued and maintained.
"Applicable Margin" shall mean, on any day and with respect to any
Loan, the applicable per annum percentage set forth at the appropriate
intersection in the table shown below, based on the Debt/Capitalization Ratio as
of the last day of the most recently ending fiscal quarter of the Company and
its Subsidiaries with respect to which Agent shall have received the financial
statements and other information (the "Current Information") required to be
delivered to Agent pursuant to Section 9.1 hereof (said calculation to be made
by Agent as soon as practicable after receipt by Agent of all required Current
Information):
<TABLE>
<CAPTION>
Eurodollar
Alternate Base Rate Loan
Loan Applicable Applicable
Debt/Capitalization Ratio Margin Margin
- ---------------------------- --------------------- -----------
<S> <C> <C>
Greater than or equal to 60% 0.375 1.1875
Greater than or equal to 55%
but less than 60% 0.00 0.8125
Greater than or equal to 50%
but less than 55% 0.00 0.5625
Less than 50% 0.00 0.4375
</TABLE>
Notwithstanding the foregoing, at all times that a Borrowing Base Deficiency
shall exist and is continuing for more than 30 days, the Applicable Margins
provided for in this definition shall each be increased by adding 1.00%. Each
change in the Applicable Margin based on a change in the Current Information
shall be effective as of the fifteenth day of the month during which the Current
Information used to calculate the new Applicable Margin was delivered to Agent.
<PAGE>
"Applications" shall mean all applications and agreements for Letters
of Credit, or similar instruments or agreements, now or hereafter executed by
any Person in connection with any Letter of Credit now or hereafter issued or to
be issued.
"Bankruptcy Code" shall mean the United States Bankruptcy Code, as
amended, and any successor statute.
"Beluga Financing Documents" shall mean that certain Inducement
Agreement and that certain Note Agreement (together with the Notes, as defined
therein), each dated June 17, 1985, and amended as of June 15, 1990, by and
among the Company and The Equitable Life Assurance Society of the United States
and the Travelers Insurance Company, any documentation executed in connection
with any renewal, extension or rearrangement of the Indebtedness that is the
subject of the foregoing documents, the Gas Sales Contract, the Intercompany
Mortgage, as defined in the above-mentioned Note Agreement, and any documents
executed in replacement of any of the foregoing documents, if and only if Agent
has received notice thereof pursuant to Section 10.8.
"Borrowing Base" shall mean, as at any date, the sum of
(i) the Oil and Gas Reserves Component Value plus
(ii) the Alaskan Gas Component Value.
If the Company fails to provide a current Borrowing Base Certificate as required
by Section 9.2(c), two (2) Business Days after notice to the Company the
Majority Banks may determine the Alaskan Gas Component Value comprising the
Borrowing Base from time to time in their reasonable discretion, taking into
account all information reasonably available to them, and the Alaskan Gas
Component Value from time to time so determined shall be the Alaskan Gas
Component Value for all purposes of this Agreement until a current Borrowing
Base Certificate is furnished.
"Borrowing Base Certificate" shall mean a certificate with respect to
the Alaskan Gas Component Value, duly executed by the chief executive officer,
chief financial officer, treasurer or controller of the Company, appropriately
completed and in substantially the form of Exhibit B hereto.
"Borrowing Base Debt" shall mean, without duplication, the sum of (i)
borrowed money Indebtedness (including without limitation contingent obligations
in respect of borrowed money Indebtedness under any Guarantee or letter of
credit) plus (ii) the "Maximum Outstanding Amount" in effect from time to time
under the Canadian Facility plus (iv) Redemption Obligations payable within five
(5) years after any applicable determination date, together with obligations
(excluding volumetric obligations with respect to pre-sales of Hydrocarbon
production which have already been accounted for in the calculation of the
<PAGE>
Borrowing Base) payable out of Hydrocarbon production (except such obligations
payable solely by recourse to properties not included in the Borrowing Base and
Indebtedness permitted by Section 10.1(l)) to the extent such obligations have
not already been deducted in the calculation of the Borrowing Base; provided,
however, that Borrowing Base Debt shall not include the Loans, the Letter of
Credit Liabilities or any Subordinated Debt.
"Borrowing Base Deficiency" shall mean the amount by which (a) the sum
of (i) the aggregate outstanding amount of all Revolving Credit Obligations plus
(ii) the aggregate outstanding amount of all Borrowing Base Debt of the Company
and its Subsidiaries (other than ENSTAR Alaska) exceeds (b) the then current
Borrowing Base.
"Borrowing Base Deficiency Notification Date" shall mean the date on
which any notice of a Borrowing Base Deficiency is received by the Company.
"Borrowing Base Determination" shall mean a Scheduled Redetermination
or a Requested Redetermination.
"Business Day" shall mean any day other than a day on which commercial
banks are authorized or required to close in Houston, Texas or New York, New
York, and where such term is used in the definition of "Quarterly Date" in this
Section 1.1 or if such day relates to a borrowing of, a payment or prepayment of
principal of or interest on, or an Interest Period for, a Eurodollar Loan or a
notice by the Company with respect to any such borrowing, payment, prepayment or
Interest Period, a day which is also a day on which dealings in Dollar deposits
are carried out in the relevant interbank market.
"Canadian Facility" shall mean that certain Credit Agreement dated
December ____, 1996 executed by and among Seagull Energy Canada Ltd., The Chase
Manhattan Bank of Canada, as Arranger and as Agent, The Bank of Nova Scotia, as
Paying Agent and as Co-Agent, Canadian Imperial Bank of Commerce, as Co-Agent,
and certain banks therein named, as amended by the Intercreditor Agreement, and
as the same may be further amended or modified from time to time.
"Capital Expenditures" shall mean expenditures in respect of fixed or
capital assets (calculated in accordance with GAAP) excluding expenditures for
the restoration, repair or replacement of any fixed or capital asset which was
destroyed or damaged, in whole or in part, to the extent financed by the
proceeds of an insurance policy. Expenditures in respect of replacements and
maintenance consistent with the business practices of the Company and its
Subsidiaries in respect of plant facilities, machinery, fixtures and other like
capital assets utilized in the ordinary course of business are not Capital
Expenditures to the extent such expenditures are not capitalized in preparing a
balance sheet of the Company in accordance with GAAP.
<PAGE>
"Capital Lease Obligations" shall mean, as to any Person, the
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real and/or personal property which
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Capitalization" shall mean an amount equal to the sum of (a) Funded
Indebtedness of the Company and its Subsidiaries on a consolidated basis plus
(b) Current Maturities of the Company and its Subsidiaries on a consolidated
basis plus (c) borrowed money Indebtedness of the Company and its Subsidiaries
on a consolidated basis that is not Funded Indebtedness plus (d) Indebtedness of
the Company and its Subsidiaries on a consolidated basis constituting
obligations payable out of Hydrocarbons (except such obligations payable solely
by recourse to properties not included in the Borrowing Base) plus (e) Tangible
Net Worth of the Company and its Subsidiaries on a consolidated basis.
"Change of Control" shall mean a change resulting when any Unrelated
Person or any Unrelated Persons acting together which would constitute a Group
together with any Affiliates or Related Persons thereof (in each case also
constituting Unrelated Persons) shall at any time either (i) Beneficially Own
more than 50% of the aggregate voting power of all classes of Voting Stock of
the Company or (ii) succeed in having sufficient of its or their nominees
elected to the Board of Directors of the Company such that such nominees, when
added to any existing director remaining on the Board of Directors of the
Company after such election who is an Affiliate or Related Person of such Person
or Group, shall constitute a majority of the Board of Directors of the Company.
As used herein (a) "Beneficially Own" means "beneficially own" as defined in
Rule 13d-3 of the Securities Exchange Act of 1934, as amended, or any successor
provision thereto; provided, however, that, for purposes of this definition, a
Person shall not be deemed to Beneficially Own securities tendered pursuant to a
tender or exchange offer made by or on behalf of such Person or any of such
Person's Affiliates until such tendered securities are accepted for purchase or
exchange; (b) "Group" means a "group" for purposes of Section 13(d) of the
Securities Exchange Act of 1934, as amended; (c) "Unrelated Person" means at any
time any Person other than the Company or any Subsidiary and other than any
trust for any employee benefit plan of the Company or any Subsidiary of the
Company; (d) "Related Person" of any Person shall mean any other Person owning
(1) 5% or more of the outstanding common stock of such Person or (2) 5% or more
of the Voting Stock of such Person; and (e) "Voting Stock" of any Person shall
mean capital stock of such Person which ordinarily has voting power for the
election of directors (or persons performing similar functions) of such Person,
whether at all times or only so long as no senior class of securities has such
voting power by reason of any contingency.
"Chapter One" shall mean Chapter One of the Texas Credit Code, as in
effect on the date the document using such term was executed.
<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as amended, or
any successor statute, together with all regulations, rulings and
interpretations thereof or thereunder by the Internal Revenue Service.
"Commitment Percentage" shall mean, as to any Bank, the percentage
equivalent of a fraction the numerator of which is the amount of such Bank's
Commitment and the denominator of which is the aggregate amount of the
Commitments of all Banks.
"Commitment" shall mean, as to any Bank, the obligation, if any, of
such Bank to make Committed Loans and incur Letter of Credit Liabilities in an
aggregate principal amount at any one time outstanding up to but not exceeding
the amount, if any, set forth opposite such Bank's name on the signature pages
hereof under the caption "Commitment" (as the same may be reduced from time to
time pursuant to Section 2.3).
"Committed Loans" shall mean the loans provided for in Section 2.1
hereof.
"Committed Notes" shall mean the promissory notes of the Company
evidencing the Committed Loans, in the form of Exhibit E hereto, together with
all renewals, extensions, modifications and replacements thereof and
substitutions therefor.
"Company Report" shall mean one or more reports, in form satisfactory
to Agent and the Majority Banks, prepared by petroleum engineers employed by the
Company or its Subsidiaries, which shall evaluate (i) at least 85% of the
present value of the Included Reserves and (ii) any other properties as to which
the Company has conducted successful exploration activities subsequent to the
most recent Engineering Report, in each case effective as of the immediately
preceding July 1. Each Company Report shall set forth production, drilling and
acquisition information and other information requested by Agent and shall be
based upon updated economic assumptions acceptable to Agent and approved by the
Majority Banks at the beginning of the applicable year.
"Competitive Bid" shall mean an offer by a Bank to make a Competitive
Loan pursuant to Section 2.10 hereof.
"Competitive Bid Administrative Questionnaire" shall mean a
questionnaire substantially in the form of Exhibit N hereto.
"Competitive Bid Rate" shall mean, as to any Competitive Bid made by a
Bank pursuant to Section 2.10 hereof, the fixed rate of interest, in each case,
offered by the Bank making such Competitive Bid.
"Competitive Bid Request" shall have the meaning ascribed to such term
in Section 2.10 hereof.
<PAGE>
"Competitive Loans" shall mean the Existing Competitive Loans and
loans provided for in Section 2.10 hereof.
"Competitive Notes" shall mean the promissory notes of the Company
evidencing the Competitive Loans, in the form of Exhibit O hereto, together with
all renewals, extensions, modifications and replacements thereof and
substitutions therefor.
"Cover" for Letter of Credit Liabilities shall be effected by paying
to Agent immediately available funds, to be held by Agent in a collateral
account maintained by Agent at its Principal Office and collaterally assigned as
security for the financial accommodations extended pursuant to this Agreement
using documentation satisfactory to Agent, in an amount equal to any required
prepayment. Such amount shall be retained by Agent in such collateral account
until such time as (x) in the case of Cover being provided pursuant to Section
2.2(a), the applicable Letter of Credit shall have expired and Reimbursement
Obligations, if any, with respect thereto shall have been fully satisfied or (y)
in the case of Cover being provided pursuant to Section 3.2(b)(1), the
outstanding principal amount of all Revolving Credit Obligations is not greater
than the aggregate amount of the Commitments.
"Current Maturities" shall mean, on any day on which Current
Maturities are calculated, the sum of (a) scheduled principal payments on Funded
Indebtedness which are payable within one (1) year after such day plus (b) the
principal component of payments required to be made with respect to Capital
Lease Obligations within one (1) year of said date plus (c), to the extent not
included above, all items which in accordance with GAAP would be classified as
current maturities of long term debt.
"Debt/Capitalization Ratio" shall mean the ratio of (a) the sum of
Funded Indebtedness of the Company and its Subsidiaries on a consolidated basis
plus Current Maturities of the Company and its Subsidiaries on a consolidated
basis plus borrowed money Indebtedness of the Company and its Subsidiaries on a
consolidated basis that is not Funded Indebtedness plus Indebtedness of the
Company and its Subsidiaries on a consolidated basis constituting obligations
payable out of Hydrocarbons (except such obligations payable solely by recourse
to properties not included in the Borrowing Base) to (b) Capitalization.
"Default" shall mean an Event of Default or an event which with notice
or lapse of time or both would, unless cured or waived, become an Event of
Default.
"Disclosure Statement" shall mean the Disclosure Statement dated
December 31, 1992 delivered to Agent by the Company.
"Dividend Payment" shall mean, with respect to any Person, dividends
(in cash, property or obligations) on, or other payments or distributions on
account of, or the redemption of, or the setting apart of money for a sinking or
other analogous fund for the purchase, redemption, retirement or other
<PAGE>
acquisition of, any shares of any class of capital stock of such Person, or the
exchange or conversion of any shares of any class of capital stock of such
Person for or into any obligations of or shares of any other class of capital
stock of such Person or any other property, but excluding dividends to the
extent payable in, or exchanges or conversions for or into, shares of common
stock of the Company or options or warrants to purchase common stock of the
Company.
"Dollars" and "$" shall mean lawful money of the United States of
America.
"EBITDA" shall mean net earnings (excluding gains and losses on sales
and retirement of assets, non-cash write downs, charges resulting from
accounting convention changes) before deduction for federal and state taxes,
interest expense (including capitalized interest), operating lease rentals or
depreciation, depletion and amortization expense, all determined in accordance
with GAAP.
"EBITDAX" shall mean net earnings (excluding gains and losses on sales
and retirement of assets, non-cash write downs, charges resulting from
accounting convention changes and deductions for dry hole expenses) before
deduction for federal and state taxes, interest expense (including capitalized
interest), operating lease rentals or depreciation, depletion and amortization
expense, all determined in accordance with GAAP.
"EBITDAX/Interest Ratio" shall mean the ratio of (a) EBITDAX of the
Company and its Subsidiaries on a consolidated basis to (b) operating lease
rentals and interest expense (including capitalized interest but excluding
non-cash amortization of deferred financing costs) on all Indebtedness of the
Company and its Subsidiaries on a consolidated basis for any twelve-month period
ending on the last day of every calendar quarter during the period with respect
to which the EBITDAX/Interest Ratio is to be calculated.
"Engineering Report" shall mean one or more reports, in form
satisfactory to Agent and the Majority Banks, prepared by one or more
independent consulting firms acceptable to Agent and the Majority Banks in their
reasonable business judgment, which shall evaluate at least 85% of the present
value of the Included Reserves as of the immediately preceding January 1. Each
Engineering Report shall set forth a projection of the future rate of
production, Net Proceeds of Production and present value of the Net Proceeds of
Production, in each case based upon economic assumptions acceptable to Agent and
approved by the Majority Banks.
"ENSTAR Alaska" shall collectively mean (i) the gas distribution
system in south-central Alaska known as ENSTAR Natural Gas Company, a division
of the Company, and (ii) APC.
"Environmental Claim" means any third party (including Governmental
Authorities and employees) action, lawsuit, claim or proceeding (including
claims or proceedings at common law or under the Occupational Safety and Health
Act or similar laws relating to safety of employees) which seeks to impose
liability for (i) noise; (ii) pollution or contamination of the air, surface
<PAGE>
water, ground water or land or the clean-up of such pollution or contamination;
(iii) solid, gaseous or liquid waste generation, handling, treatment, storage,
disposal or transportation; (iv) exposure to Hazardous Substances; (v) the
safety or health of employees or (vi) the manufacture, processing, distribution
in commerce or use of Hazardous Substances. An "Environmental Claim" includes,
but is not limited to, a common law action, as well as a proceeding to issue,
modify or terminate an Environmental Permit, or to adopt or amend a regulation
to the extent that such a proceeding attempts to redress violations of an
applicable permit, license, or regulation as alleged by any Governmental
Authority.
"Environmental Liabilities" includes all liabilities arising from any
Environmental Claim, Environmental Permit or Requirement of Environmental Law
under any theory of recovery, at law or in equity, and whether based on
negligence, strict liability or otherwise, including but not limited to:
remedial, removal, response, abatement, investigative, monitoring, personal
injury and damage to property or injuries to persons, and any other related
costs, expenses, losses, damages, penalties, fines, liabilities and obligations,
and all costs and expenses necessary to cause the issuance, reissuance or
renewal of any Environmental Permit including reasonable attorneys' fees and
court costs.
"Environmental Permit" means any permit, license, approval or other
authorization under any applicable Legal Requirement relating to pollution or
protection of health or the environment, including laws, regulations or other
requirements relating to emissions, discharges, releases or threatened releases
of pollutants, contaminants or hazardous substances or toxic materials or wastes
into ambient air, surface water, ground water or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or Hazardous Substances.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and all rules, regulations and
interpretations by the Internal Revenue Service or the Department of Labor
thereunder.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) which is a member of a group of which the Company is a member and
which is under common control within the meaning of the regulations under
Section 414 of the Code.
"Eurodollar Base Rate" shall mean, with respect to any Interest Period
for any Eurodollar Loan, the lesser of (A) the rate per annum (rounded upwards,
if necessary, to the nearest 1/16th of 1%) equal to the average of the offered
quotations appearing on Telerate Page 3750 (or if such Telerate Page shall not
be available, any successor or similar service as may be selected by Agent and
the Company) as of 11:00 a.m., Houston, Texas time (or as soon thereafter as
practicable) on the day two Business Days prior to the first day of such
Interest Period for Dollar deposits having a term comparable to such Interest
Period and in an amount comparable to the principal amount of the Eurodollar
<PAGE>
Loan to which such Interest Period relates or (B) the Highest Lawful Rate. If
none of such Telerate Page 3750 nor any successor or similar service is
available, then the "Eurodollar Base Rate" shall mean, with respect to any
Interest Period for any applicable Eurodollar Loan, the lesser of (A) the rate
per annum (rounded upwards, if necessary, to the nearest 1/16th of 1%)
determined by Agent to be the average of the rates quoted by the Reference Banks
at approximately 11:00 a.m., Houston, Texas time (or as soon thereafter as
practicable) on the day two Business Days prior to the first day of such
Interest Period for the offering by such Reference Banks to leading banks in the
interbank market of Dollar deposits having a term comparable to such Interest
Period and in an amount comparable to the principal amount of the Eurodollar
Loan to which such Interest Period relates or (B) the Highest Lawful Rate. If
any Reference Bank does not furnish a timely quotation, Agent shall determine
the relevant interest rate on the basis of the quotation or quotations furnished
by the remaining Reference Bank or Banks; if none of such quotations is
available on a timely basis, the provisions of Section 6.2 shall apply. Each
determination of the Eurodollar Base Rate shall be conclusive and binding,
absent manifest error, and may be computed using any reasonable averaging and
attribution method.
"Eurodollar Loans" shall mean Loans the interest on which is
determined on the basis of rates referred to in the definition of "Eurodollar
Base Rate" in this Section 1.1.
"Eurodollar Rate" shall mean, for any Interest Period for any
Eurodollar Loan, a rate per annum determined by Agent to be equal to the
Eurodollar Base Rate for such Loan for such Interest Period.
"Event of Default" shall have the meaning assigned to such term in
Section 11 hereof.
"Existing Competitive Loans" shall mean the Competitive Loans
described on Exhibit D hereto.
"Facility Fee Percentage" shall mean 0.1875%; provided, however, that
at all times that the Company shall have received an investment grade senior
debt rating from two nationally known agencies (one of which must be either
Standard & Poor's Ratings Group or Moody's Investors Service, Inc.) of BBB-/Baa3
(or the equivalent), the Facility Fee Percentage shall be reduced to 0.125%.
"Financial Statements" shall mean the financial statement or
statements, together with the notes and schedules thereto, described or referred
to in Sections 8.6 and 9.1.
"Funded Indebtedness" shall mean all Indebtedness which by its terms
matures more than one (1) year from the date as of which any calculation of
Funded Indebtedness is made, and any Indebtedness maturing within one (1) year
from such date which is renewable at the option of the obligor to a date beyond
one (1) year from such date.
<PAGE>
"GAAP" shall mean as to a particular Person, such accounting practice
as, in the opinion of KPMG Peat Marwick or other independent accountants of
recognized national standing retained by such Person and acceptable to the
Majority Banks, conforms at the time to generally accepted accounting
principles, consistently applied. Generally accepted accounting principles means
those principles and practices (a) which are recognized as such by the Financial
Accounting Standards Board, (b) which are applied for all periods after the date
hereof in a manner consistent with the manner in which such principles and
practices were applied to the most recent audited financial statements of the
relevant Person furnished to the Banks, except only for such changes in
principles and practices with which the applicable independent public
accountants concur and which are disclosed to the Banks in writing, and (c)
which are consistently applied for all periods after the date hereof so as to
reflect properly the financial condition and results of operations of such
Person.
"Gas and Liquids Pipeline Subsidiaries" shall mean each company (which
may include the Company) engaged in the Pipeline Operations.
"Gas Sale Contract" shall mean that certain Gas Sale Contract dated
January 1, 1984, between APC, as Seller, and ENSTAR Natural Gas Company, as
Purchaser, as amended on June 17, 1985, and from time to time thereafter, if and
only if Agent has received notice thereof pursuant to Section 10.8.
"Governmental Authority" shall mean any sovereign governmental
authority, the United States of America, any State of the United States and any
political subdivision of any of the foregoing, and any central bank, agency,
instrumentality, department, commission, board, bureau, authority, court or
other tribunal or quasi-governmental authority in each case whether executive,
legislative, judicial, regulatory or administrative, having jurisdiction over
the Company, any of its Subsidiaries, any of their respective property, Agent or
any Bank.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of any such Person directly or indirectly guaranteeing any
Indebtedness of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness (whether arising by virtue of partnership
arrangements, by agreement to keep- well, to purchase assets, goods, securities
or services, to take-or-pay, or to maintain financial statement conditions or
otherwise, other than agreements to purchase assets, goods, securities or
services at an arm's length price in the ordinary course of business) or (ii)
entered into for the purpose of assuring in any other manner the holder of such
Indebtedness of the payment thereof or to protect such holder against loss in
respect thereof (in whole or in part), provided that the term "Guarantee" shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
<PAGE>
"Hazardous Substance" shall mean petroleum products, and any hazardous
or toxic waste or substance defined or regulated as such from time to time by
any law, rule, regulation or order described in the definition of "Requirements
of Environmental Law".
"Highest Lawful Rate" shall mean, on any day, the maximum nonusurious
rate of interest permitted for that day by whichever of applicable federal or
Texas law permits the higher interest rate, stated as a rate per annum. On each
day, if any, that Chapter One establishes the Highest Lawful Rate, the Highest
Lawful Rate shall be the "indicated rate ceiling" (as defined in Chapter One)
for that day.
"Hydrocarbons" shall mean oil, gas, casinghead gas, drip gasoline,
natural gasoline, condensate and all other liquid or gaseous hydrocarbons and
related minerals, in each case whether in a natural or a processed state.
"Included Reserves" shall mean those producing and non-producing
proved oil and gas reserves of the Company and its Oil and Gas Subsidiaries
which are to be taken into account in the determination of the Oil and Gas
Reserves Component Value from time to time in effect, as designated by the
Company.
"Indebtedness" shall mean, as to any Person: (i) indebtedness of such
Person for borrowed money (whether by loan or the issuance and sale of debt
securities) or for the deferred purchase or acquisition price of property or
services, including, without limitation, obligations (excluding volumetric
obligations with respect to pre-sales of Hydrocarbon production which have
already been accounted for in the calculation of the Borrowing Base) payable out
of Hydrocarbon production; (ii) obligations, whether fixed or contingent, of
such Person in respect of letters of credit, acceptances or similar instruments
issued or accepted by banks and other financial institutions for the account of
such Person or any other Person; (iii) Capital Lease Obligations of such Person;
(iv) Redemption Obligations of such Person and other obligations of such Person
to redeem or otherwise retire shares of capital stock of such Person or any
other Person, in each case to the extent that the redemption obligations will
arise prior to the stated maturity of the Obligations; (v) indebtedness of
others of the type described in clause (i), (ii), (iii) or (iv) above secured by
a Lien on the property of such Person, whether or not the respective obligation
so secured has been assumed by such Person; and (vii) indebtedness of others of
the type described in clause (i), (ii), (iii) or (iv) above Guaranteed by such
Person.
"Intercreditor Agreement" shall mean that certain Intercreditor
Agreement dated December 30, 1993 executed by and among the Company, Seagull
Energy Canada Ltd., Agent and the "Administrative Agent" under the Canadian
Facility, as amended by that certain First Amendment to Intercreditor Agreement
dated May 24, 1994 and by that certain Second Amendment to Intercreditor
Agreement in the form of Exhibit P hereto dated concurrently herewith, and as
the same may be further amended or modified from time to time.
<PAGE>
"Interest Period" shall mean:
(a) With respect to any Eurodollar Loan, the period commencing on (i)
the date such Loan is made or converted into or continued as a Eurodollar Loan
or (ii) in the case of a roll-over to a successive Interest Period, the last day
of the immediately preceding Interest Period and ending on the numerically
corresponding day in the first, second, third or sixth calendar month
thereafter, as the Company may select as provided in Section 3.3 hereof, except
that each such Interest Period which commences on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month shall
end on the last Business Day of the appropriate subsequent calendar month.
(b) With respect to any Alternate Base Rate Loan, the period
commencing on the date such Loan is made and ending on the next succeeding
Quarterly Date.
(c) With respect to any Existing Competitive Loan, the applicable
interest period specified on Exhibit D hereto, and with respect to any other
Competitive Loan, the period commencing on the date such Loan is made and ending
on the date specified in the Competitive Bid in which the offer to make the
Competitive Loan was extended; provided, however, that each such period shall
have a duration of not less than seven calendar days or more than 180 calendar
days.
Notwithstanding the foregoing: (i) no Interest Period applicable to any
Eurodollar Loan or any Competitive Loan may commence before and end after the
date of any scheduled reduction in the Commitments if, after giving effect
thereto, the aggregate principal amount of the Eurodollar Loans or Competitive
Loans which have Interest Periods which end after such reduction date shall be
greater than the aggregate principal amount of the Commitments scheduled to be
in effect after such reduction date; (ii) each Interest Period which would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or, in the case of an Interest Period for Eurodollar
Loans, if such next succeeding Business Day falls in the next succeeding
calendar month, on the next preceding Business Day); (iii) no Interest Period
applicable to any Eurodollar Loan or any Competitive Loan shall extend beyond
the end of the scheduled Revolving Credit Availability Period, and (iv) no
Interest Period for any Eurodollar Loans shall have a duration of less than one
month and, if the Interest Period therefor would otherwise be a shorter period,
such Loans shall not be available hereunder.
"Investments" shall have the meaning assigned to such term in Section
10.3 hereof.
"Investments Tests" shall mean compliance with each of the following
restrictions (both before and immediately after giving effect to the applicable
Investments):
(i) there shall exist no Borrowing Base Deficiency;
<PAGE>
(ii) no Default or Event of Default shall have occurred and be
continuing; and
(iii) the applicable Investment, when aggregated with any prior
permitted Investments, shall not exceed 10% of Tangible Net
Worth of the Company and its Subsidiaries on a consolidated
basis.
"Issuer" shall mean each Bank issuing a Letter of Credit hereunder.
"Legal Requirement" shall mean any law, statute, ordinance, decree,
requirement, order, judgment, rule, regulation (or interpretation of any of the
foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority, now or hereafter in effect.
"Letter of Credit" shall have the meaning assigned to such term in
Section 2.2 hereof.
"Letter of Credit Fee" shall mean a per annum rate equal to the
Applicable Margin for Eurodollar Loans in effect from time to time.
"Letter of Credit Liabilities" shall mean, at any time and in respect
of any Letter of Credit, the sum of (i) the amount available for drawings under
such Letter of Credit plus (ii) the aggregate unpaid amount of all Reimbursement
Obligations at the time due and payable in respect of previous drawings made
under such Letter of Credit.
"Lien" shall mean, with respect to any asset, any mortgage, lien,
pledge, charge, collateral assignment, security interest or encumbrance of any
kind in respect of such asset. For the purposes of this Agreement, a Person
shall be deemed to own subject to a Lien any asset which it has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement relating to such
asset.
"Liquid Investments" shall mean:
(I) in the case of investments of U.S. Dollars
(i) securities issued or directly, fully and
unconditionally guaranteed or insured by the United
States of America or any agency or instrumentality
thereof (provided that the full faith and credit of
the United States of America is pledged in support
thereof) having maturities of not more than one year
from the date of issue;
(ii) U.S. Dollar time deposits and certificates of deposit
(A) of any Bank having capital and surplus in excess
of U.S. $300,000,000, or (B) of any commercial bank
incorporated in the United States, of recognized
standing, having capital and surplus in excess of
U.S. $500,000,000 and which has (or which is a
<PAGE>
Subsidiary of a holding company which has) publicly
traded debt securities rated, at the time of issuance
of such time deposits, AA or higher by Standard &
Poor's Corporation or Aa-2 or higher by Moody's
Investors Service, Inc. with maturities of not more
than one year from the date of issue;
(iii) repurchase obligations with a term of not more than
seven days for underlying securities of the types
described in clause (I)(i) above entered into with
any bank meeting the qualifications specified in
clause (I)(ii) above, provided that the terms of such
agreements comply with the guidelines set forth in
the Federal Financial Institution Examination Counsel
Supervisory Policy -- Repurchase Agreements of
Depository Institutions With Securities Dealers and
Others, as adopted by the Comptroller of the Currency
on October 31, 1985;
(iv) commercial paper or other U.S. Dollar obligations
issued by the parent corporation (A) of any Bank
having capital and surplus in excess of U.S.
$300,000,000, or (B) of any commercial bank (provided
that the parent corporation and the bank are both
incorporated in the United States) of recognized
standing having capital and surplus in excess of U.S.
$500,000,000 and commercial paper or other U.S.
Dollar obligations issued by any Person incorporated
in the United States, which commercial paper is rated
at least A-2 or the equivalent thereof by Standard &
Poor's Corporation or at least P-2 or the equivalent
thereof by Moody's Investors Service, Inc. and in
each case maturing not more than six months after the
date of issue;
(v) obligations of any state or political subdivision
thereof rated at least F-1 by Fitch Investors
Service, Inc. or AA by Standard & Poor's Corporation
with an original maturity of 180 days or less; and
(vi) investments in money market funds substantially all
the assets of which are comprised of securities of
the types described in clauses (I)(i) through (v)
above; and
(II) in the case of investments of Canadian dollars
(i) bonds or other evidences of indebtedness of, or the
principal and interest of which is fully guaranteed
by, the Government of Canada or any province of
Canada, payable in Canadian dollars and (in the case
of any provincial obligations and any Government of
Canada obligations that are rated) rated AAA or AA
(or the then equivalent grade) by Dominion Bond
Rating Service Limited, or any other nationally
<PAGE>
recognized bond rating service, having a maturity not
in excess of one year,
(ii) certificates of deposit issued or guaranteed by a
bank or trust company organized under the laws of
Canada or any province thereof, provided such bank or
trust company has capital and retained earnings in
the aggregate in excess of Canadian $500,000,000 on
its most recent balance sheet (whether audited or
unaudited), having a maturity not in excess of one
year,
(iii) bankers' acceptances of any bank or trust company the
certificates of deposit of which would constitute
Liquid Investments as provided in clause (II)(ii)
above, if outstanding unsecured debt of such bank or
trust company is rated no less than AA (or the then
equivalent grade) by Dominion Bond Rating Service
Limited, or any other nationally recognized bond
rating service; and
(iv) commercial paper rated no less than R-1 (or the then
equivalent grade) by Dominion Bond Rating Service
Limited or A-1 (or the then equivalent grade) by CBRS
Inc., having a maturity not in excess of one year;
excluding any bonds or other evidences of
indebtedness, certificates of deposit or commercial
paper which a Canadian chartered bank may not hold as
security under the Bank Act (Canada).
"Loan Documents" shall mean this Agreement, the Notes, the
Intercreditor Agreement, all Applications, all instruments, certificates and
agreements now or hereafter executed or delivered to Agent or any Bank pursuant
to any of the foregoing, and all amendments, modifications, renewals,
extensions, increases and rearrangements of, and substitutions for, any of the
foregoing.
"Loans" shall mean Committed Loans and Competitive Loans.
"Majority Banks" shall mean (a) prior to the termination of the
Commitments, Banks having greater than 66-2/3% of the aggregate amount of the
Commitments and (b) after the termination of the Commitments, Banks having
greater than 66-2/3% of the aggregate principal amount of the Loans and the
Letter of Credit Liabilities.
"Material Adverse Effect" shall mean a material adverse effect on the
business, condition (financial or otherwise), operations, properties (including
proven oil and gas reserves) or prospects of the Company and its Subsidiaries,
taken as a whole, or on the ability of the Company to perform its material
obligations under any Loan Document to which it is a party.
<PAGE>
"Maximum Revolving Credit Available Amount" shall mean, at any date,
an amount equal to the lesser of (i) the aggregate of the Commitments or (ii)
the amount by which (a) the Borrowing Base exceeds (b) the aggregate outstanding
amount of all Borrowing Base Debt of the Company and its Subsidiaries (other
than ENSTAR Alaska).
"Mesa Contract" shall mean that certain Purchase and Sale Agreement
dated February 6, 1991 executed by and among Mesa Limited Partnership, a
Delaware limited partnership, Mesa Operating Limited Partnership, a Delaware
limited partnership, and Mesa Midcontinent Limited Partnership, a Delaware
limited partnership, as Sellers, and the Company, as Buyer, as amended by that
certain First Amendment to Purchase and Sale Agreement dated February 22, 1991
and as further amended by that certain Second Amendment to Purchase and Sale
Agreement dated March 8, 1991.
"Net Proceeds of Production" shall mean, with respect to any Person,
all revenue received by or credited to the account of such Person from the sale
of Hydrocarbons and other minerals in, under or produced from their respective
oil, gas and mineral properties after deducting royalties, overriding royalties,
volumetric production payments with respect to pre-sales of Hydrocarbon
production, production payments pledged to secure non-recourse financing payable
solely out of such production payments, net profits interests and other burdens
payable out of production, normal and reasonable operating expenses and
severance, ad valorem, excise and windfall profit taxes.
"Notes" shall mean the Committed Notes and the Competitive Notes.
"Obligations" shall mean, as at any date of determination thereof, the
sum of the following: (i) the aggregate principal amount of Loans outstanding
hereunder plus (ii) the aggregate amount of the Letter of Credit Liabilities
hereunder plus (iii) all other liabilities, obligations and indebtedness of the
Company or any Subsidiary of the Company under any Loan Document.
"Oil and Gas Reserves Component Value" shall mean (A) prior to the
initial Borrowing Base Determination, $490,000,000 and (B) thereafter, that
amount of Indebtedness that the Super Majority Banks shall agree can be
supported by the Included Reserves, after an engineering and economic review of
the Included Reserves conducted by the Banks using customary standards for oil
and gas lending.
"Oil and Gas Subsidiaries" shall mean any Subsidiary of the Company
whose assets consist primarily of oil and gas properties. As of the date hereof,
the Oil and Gas Subsidiaries are listed as such on Exhibit A hereto.
"Organizational Documents" shall mean, with respect to a corporation,
the certificate of incorporation, articles of incorporation and bylaws of such
corporation; with respect to a partnership, the partnership agreement
<PAGE>
establishing such partnership; with respect to a joint venture, the joint
venture agreement establishing such joint venture, and with respect to a trust,
the instrument establishing such trust; in each case including any and all
modifications thereof as of the date of the Loan Document referring to such
Organizational Document.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Person" shall mean an individual, a corporation, a company, a bank, a
voluntary association, a partnership, a trust, an unincorporated organization,
any Governmental Authority or any other entity.
"Pipeline Operations" shall mean the natural gas gathering and
transmission, gas liquids plant, gas marketing, engineering and construction and
liquids pipeline operations of the Company and its Subsidiaries, excluding any
portion of such operations attributable to ENSTAR Alaska.
"Plan" shall mean an employee pension benefit plan which is covered by
Title IV of ERISA or subject to the minimum funding standards under Section 412
of the Code and is either (a) maintained by the Company or any ERISA Affiliate
for employees of the Company or any ERISA Affiliate or (b) maintained pursuant
to a collective bargaining agreement or any other arrangement under which more
than one employer makes contributions and to which the Company or any ERISA
Affiliate is then making or accruing an obligation to make contributions or has
within the preceding five plan years made contributions.
"Post-Default Rate" shall mean, in respect of any principal of any
Loan, any Reimbursement Obligation or any other amount payable by the Company
under this Agreement or any other Loan Document which is not paid when due
(whether at stated maturity, by acceleration, or otherwise), a rate per annum
during the period commencing on the due date until such amount is paid in full
equal to the lesser of (a) the sum of (x) with respect to Eurodollar Loans, 2%
per annum plus the applicable Eurodollar Rate then in effect plus the Applicable
Margin for Eurodollar Loans until the expiration of the applicable Interest
Period, (y) with respect to Competitive Loans, 2% per annum plus the applicable
fixed rate offered by the applicable Bank and accepted by the Company in
accordance with Section 2.10 hereof (or, in the case of the Existing Competitive
Loans, the applicable fixed rate specified on Exhibit D hereto), and (z) with
respect to Alternate Base Rate Loans and with respect to Eurodollar Loans after
the expiration of the applicable Interest Period (and also with respect to
indebtedness other than Loans), 2% plus the Alternate Base Rate as in effect
from time to time plus the Applicable Margin for Alternate Base Rate Loans or
(b) the Highest Lawful Rate.
"Principal Office" shall mean the principal office of Agent, presently
located at 1 Chase Manhattan Plaza, 8th Floor, New York, New York 10081,
Attention: Agent Services.
<PAGE>
"Quarterly Dates" shall mean the last day of each March, June,
September and December, provided that, if any such date is not a Business Day,
then the relevant Quarterly Date shall be the next succeeding Business Day.
"Redemption Obligations" shall mean with respect to any Person all
mandatory redemption obligations of such Person with respect to preferred stock
or other equity securities issued by such Person or put rights in favor of the
holder of such preferred stock or other equity securities, to the extent that
the redemption obligations will arise prior to the stated maturity of the
Obligations.
"Reference Banks" shall mean Chase and such other Banks (up to a
maximum of two (2) additional Banks) as the Company, with the approval of Agent
(which approval shall not be unreasonably withheld), may from time to time
designate.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System as the same may be amended or supplemented from time
to time and any successor or other regulation relating to reserve requirements.
"Regulatory Change" shall mean, with respect to any Bank, any change
on or after the date of this Agreement in Legal Requirements (including
Regulation D) or the adoption or making on or after such date of any
interpretation, directive or request applying to a class of banks including such
Bank under any Legal Requirements (whether or not having the force of law) by
any Governmental Authority.
"Reimbursement Obligations" shall mean, as at any date, the
obligations of the Company then outstanding in respect of Letters of Credit
under this Agreement, to reimburse Agent for the account of the applicable
Issuer for the amount paid by the applicable Issuer in respect of any drawing
under such Letter of Credit.
"Relevant Party" shall mean the Company and each other party to any of
the Loan Documents other than (a) the Banks and (b) Agent.
"Request for Extension of Credit" shall mean a request for extension
of credit duly executed by the chief executive officer, chief financial officer,
or treasurer of the Company, appropriately completed and substantially in the
form of Exhibit C attached hereto.
"Requested Redetermination" shall have the meaning assigned to such
term in Section 2.9 hereof.
"Requesting Banks" shall mean (a) prior to the termination of the
Commitments, Banks having greater than 50% of the aggregate amount of the
Commitments and (b) after the termination of the Commitments, Banks having
greater than 50% of the aggregate principal amount of the Loans and the Letter
of Credit Liabilities.
<PAGE>
"Requirements of Environmental Law" means all requirements imposed by
any law (including for example and without limitation The Resource Conservation
and Recovery Act and The Comprehensive Environmental Response, Compensation, and
Liability Act), rule, regulation, or order of any federal, state or local
executive, legislative, judicial, regulatory or administrative agency, board or
authority in effect at the applicable time which relate to (i) noise; (ii)
pollution, protection or clean-up of the air, surface water, ground water or
land; (iii) solid, gaseous or liquid waste generation, treatment, storage,
disposal or transportation; (iv) exposure to Hazardous Substances; (v) the
safety or health of employees or (vi) regulation of the manufacture, processing,
distribution in commerce, use, discharge or storage of Hazardous Substances.
"Reserve Requirement" shall mean, for any Eurodollar Loan for any
Interest Period therefor, the stated maximum rate for all reserves (including
any marginal, supplemental or emergency reserves) required to be maintained
during such Interest Period under Regulation D by any member bank of the Federal
Reserve System or any Bank against "Eurocurrency liabilities" (as such term is
used in Regulation D). Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect and include any other reserves required to be
maintained by such member banks by reason of any Regulatory Change against (i)
any category of liabilities which includes deposits by reference to which the
Eurodollar Rate is to be determined as provided in the definition of "Eurodollar
Base Rate" in this Section 1.1 or (ii) any category of extensions of credit or
other assets which include Eurodollar Loans. Any determination by Agent of the
Reserve Requirement shall be conclusive and binding, absent manifest error, and
may be made using any reasonable averaging and attribution method.
"Responsible Officer" shall mean the chairman of the board, the
president, any executive vice president, the vice president of finance and
administration, the chief executive officer or the chief operating officer or
any equivalent officer (regardless of title) and in the case of the Company, any
other vice president, and in respect of financial or accounting matters, shall
also include the chief financial officer, the treasurer and the controller or
any equivalent officer (regardless of title).
"Revolving Credit Availability Period" shall mean the period from and
including the date hereof to but not including December 31, 2002 or the date the
Commitments are terminated pursuant to Section 11.1, whichever is first to
occur.
"Revolving Credit Obligations" shall mean, as at any date of
determination thereof, the sum of the following (determined without
duplication): (i) the aggregate principal amount of Loans outstanding hereunder
plus (ii) the aggregate amount of the Letter of Credit Liabilities hereunder.
"Scheduled Redetermination" shall having the meaning assigned to such
term in Section 2.9 hereof.
<PAGE>
"Senior Debt" shall mean Indebtedness having a weighted average
maturity at least seven (7) years from the date of issuance and having no
conditions precedent or covenants materially more onerous to the Company than
the conditions precedent and covenants contained herein and in the other Loan
Documents with respect to the Loans. The documents evidencing any Senior Debt
shall contain a provision substantially identical to Section 10.2(y) hereof
permitting Liens securing the Notes and the other Obligations on a pari passu
basis with such Senior Debt.
"Short Term Borrowings" shall mean, as of any date, the aggregate
outstanding principal amount of ENSTAR Alaska's borrowed money Indebtedness
(other than borrowed money Indebtedness owed by ENSTAR Natural Gas Company to
APC or by APC to ENSTAR Natural Gas Company) which is not Funded Indebtedness.
"Short Term Borrowings Measuring Period" shall mean that period of
ninety (90) consecutive days during the twelve-month period ending on the
applicable date that average Short Term Borrowings were lower than any other
period of ninety (90) consecutive days during such twelve-month period.
"Subordinated Debt" shall mean Indebtedness of the Company having a
weighted average maturity at least seven (7) years from the date of issuance and
having no conditions precedent or covenants materially more onerous to the
Company than the conditions precedent and covenants contained herein and in the
other Loan Documents with respect to the Loans and which is expressly made
subordinate and junior in right of payment to the Obligations and in respect of
any collateral or security by the express terms of the instruments evidencing
the Subordinated Debt or the indenture or other similar instrument under which
the Subordinated Debt is issued (which indenture or other instrument will be
binding on all holders of such Subordinated Debt), by provisions not more
favorable to the holders of the Subordinated Debt than the following:
(a) in the event a Default exists and is continuing, no payment of
principal or interest will be made on account of Subordinated Debt and no remedy
for default shall be exercised until (i) such Default will have been cured or
waived or until the Obligations will have been paid in full (or provisions made
therefor reasonably satisfactory to the Banks) or (ii) 179 days after the
occurrence of such Default (as to which the Banks have knowledge as a result of
having received notice from the Company pursuant to this Agreement or otherwise)
and no action being taken by the Banks with respect to such Default, whichever
occurs earlier;
(b) upon the occurrence of any of the events or proceedings specified
in Subsections 11.1(f) or (g) hereof (or, as to any Subsidiary of the Company,
Subsection 11.1(j) to the extent that it refers to Subsections 11.1(f) or (g)),
the holders of any Obligations will be entitled to receive payment in full of
all principal or interest on all Obligations before the holders of the
Subordinated Debt are entitled to receive any payment on account of principal or
interest on the Subordinated Debt, and to that end (but subject to the power of
a court of competent jurisdiction to make other provision) the holders of the
Obligations will be entitled to receive distributions of any kind or character,
<PAGE>
whether in cash or property or securities (other than equity securities and
other securities establishing rights in the holders thereof which are
subordinate to the rights of the holders of the Obligations in accordance with
this definition of Subordinated Debt), which may be or would otherwise be
payable or deliverable in any such proceedings in respect of the Subordinated
Debt (provided that, the Subordinated Debt may provide that if the Obligations
have been paid in full or provision therefor reasonably satisfactory to the
Banks has been made, the holders of the Subordinated Debt will be subrogated to
the rights of the holders of the Obligations);
(c) in the event that any Subordinated Debt is declared due and
payable before its expressed maturity because of the occurrence of an event of
default thereunder (under circumstances when the provisions of the foregoing
clauses (a) and (b) will not be applicable), the holders of the Obligations at
the time such Subordinated Debt becomes due and payable because of such an event
of default will be entitled to receive payment in full of all Obligations (or
have provision therefor satisfactory to the Banks made) before the holders of
the Subordinated Debt are entitled to receive any payment on account of the
principal or interest on the Subordinated Debt; and
(d) no holder of the Obligations will be prejudiced in its right to
enforce subordination of the Subordinated Debt by any act or failure to act on
the part of the Company or the part of the holders of the Obligations; provided
that, the Subordinated Debt may provide that the foregoing provisions are solely
for the purpose of defining the relative rights of the holders of the
Obligations on the one hand, and the holders of the Subordinated Debt on the
other hand, and that nothing therein will impair, as between the Company and the
holders of the Subordinated Debt, the obligation of the Company, which may be
unconditional and absolute, to pay to the holders of the Subordinated Debt the
principal and interest thereon in accordance with its terms, nor will anything
herein prevent the holders of the Subordinated Debt from exercising all remedies
otherwise permitted by applicable law or thereunder upon default thereunder,
subject to the rights under clauses (a), (b) and (c) above of the holders of the
Obligations to receive cash, property or securities otherwise payable or
deliverable to the holders of the Subordinated Debt.
"Subsidiary" shall mean, with respect to any Person (the "parent"),
(a) any corporation of which at least a majority of the outstanding shares of
stock having by the terms thereof ordinary voting power to elect a majority of
the board of directors of such corporation (irrespective of whether or not at
the time stock of any other class or classes of such corporation shall have or
might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by the parent or one or more of
the Subsidiaries of the parent or by the parent and one or more of the
Subsidiaries of the parent, and (b) any partnership, limited partnership, joint
venture or other form of entity, the majority of the legal or beneficial
ownership of which is at the time directly or indirectly owned or controlled by
<PAGE>
the parent or one or more of the Subsidiaries of the parent or by the parent and
one or more of the Subsidiaries of the parent.
"Super Majority Banks" shall mean (a) prior to the termination of the
Commitments, Banks having 75% or more of the aggregate amount of the Commitments
and (b) after the termination of the Commitments, Banks having 75% or more of
the aggregate principal amount of the Loans and the Letter of Credit
Liabilities.
"Tangible Net Worth" shall mean the sum of the redemption price of
preferred stock, par value of common stock, capital in excess of par value of
common stock (additional paid-in capital) and retained earnings, less treasury
stock, goodwill, deferred development costs, franchises, licenses, patents,
trademarks and copyrights and all other assets which are properly classified as
intangible assets in accordance with GAAP less any Redemption Obligations.
"Type" shall have the meaning assigned to such term in Section 1.3
hereof.
"Unfunded Liabilities" shall mean, with respect to any Plan, at any
time, the amount (if any) by which (a) the present value of all benefits under
such Plan exceeds (b) the fair market value of all Plan assets allocable to such
benefits, all determined as of the then most recent actuarial valuation report
for such Plan, but only to the extent that such excess represents a potential
liability of any ERISA Affiliate to the PBGC or a Plan under Title IV of ERISA.
1.2 Accounting Terms and Determinations. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be delivered hereunder shall be prepared, in accordance with GAAP.
To enable the ready determination of compliance with the provisions hereof, the
Company will not change from December 31 in each year the date on which its
fiscal year ends, nor from March 31, June 30 and September 30 the dates on which
the first three fiscal quarters in each fiscal year end.
1.3 Types of Loans. Loans hereunder are distinguished by "Type". The
"Type" of a Loan refers to the determination whether such Loan is a Eurodollar
Loan, a Competitive Loan or an Alternate Base Rate Loan.
1.4 Miscellaneous. The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. Any
reference to Sections shall refer to Sections of this Agreement.
<PAGE>
Section 2. Commitments; Borrowing Base Determinations; Competitive Bid
Facility.
2.1 Committed Loans. From time to time on or after the date hereof and
during the Revolving Credit Availability Period, each Bank shall make Committed
Loans under this Section 2.1 to the Company in an aggregate principal amount at
any one time outstanding (including its Commitment Percentage of all Letter of
Credit Liabilities at such time) up to but not exceeding such Bank's Commitment
Percentage of the amount by which the Maximum Revolving Credit Available Amount
exceeds the aggregate unpaid principal balance of all Competitive Loans and
Letter of Credit Liabilities from time to time outstanding. Subject to the
conditions herein, any such Committed Loan repaid prior to the end of the
Revolving Credit Availability Period may be reborrowed pursuant to the terms of
this Agreement; provided, that any and all such Committed Loans shall be due and
payable in full at the end of the Revolving Credit Availability Period.
2.2 Letters of Credit.
(a) Letters of Credit. Subject to the terms and conditions hereof, and
on the condition that aggregate Letter of Credit Liabilities shall never exceed
$100,000,000, the Company shall have the right, in addition to Committed Loans
provided for in Section 2.1 hereof, to utilize the Commitments from time to time
from and after the Effective Date through the expiration of the Revolving Credit
Availability Period by obtaining the issuance of letters of credit for the
account of the Company and on behalf of the Company by the applicable Issuer if
the Company shall so request in the notice referred to in Section 2.2(b)(i)
(such letters of credit being collectively referred to as the "Letters of
Credit"). Upon the date of the issuance of a Letter of Credit, the applicable
Issuer shall be deemed, without further action by any party hereto, to have sold
to each Bank, and each Bank shall be deemed, without further action by any party
hereto, to have purchased from the applicable Issuer, a participation, to the
extent of such Bank's Commitment Percentage, in such Letter of Credit and the
related Letter of Credit Liabilities. Any Letter of Credit having an expiry date
after the end of the Revolving Credit Availability Period shall have been fully
Covered or shall be backed by a letter of credit in form and substance, and
issued by an issuer, acceptable to Agent in its reasonably exercised discretion.
Subject to the terms and conditions hereof, upon the request of the Company, if
Chase is the designated Issuer, Chase shall issue the applicable Letter of
Credit and if any other Bank is the designated Issuer, such Bank may, but shall
not be obligated to, issue such Letter of Credit.
(b) Additional Provisions. The following additional provisions shall
apply to each Letter of Credit:
(i) The Company shall give Agent at least three (3) Business Days'
prior notice (effective upon receipt) specifying the proposed Issuer and the
date such Letter of Credit is to be issued and describing the proposed terms of
such Letter of Credit and the nature of the transaction proposed to be supported
thereby, and shall furnish such additional information regarding such
<PAGE>
transaction as Agent or the applicable Issuer may reasonably request. Upon
receipt of such notice Agent shall promptly notify each Bank of the contents
thereof and of such Bank's Commitment Percentage of the amount of such proposed
Letter of Credit.
(ii) No Letter of Credit may be issued if after giving effect thereto
(A) the aggregate outstanding principal amount of Committed Loans plus the
aggregate Letter of Credit Liabilities would exceed (B) the amount by which the
Maximum Revolving Credit Available Amount exceeds the aggregate unpaid principal
balance of all Competitive Loans and Letter of Credit Liabilities from time to
time outstanding. On each day during the period commencing with the issuance of
any Letter of Credit and until such Letter of Credit shall have expired or been
terminated, the Commitment of each Bank shall be deemed to be utilized for all
purposes hereof in an amount equal to such Bank's Commitment Percentage of the
amount then available for drawings under such Letter of Credit.
(iii) Upon receipt from the beneficiary of any Letter of Credit of any
demand for payment thereunder, the applicable Issuer shall promptly notify the
Company and each Bank as to the amount to be paid as a result of such demand and
the payment date. If at any time the applicable Issuer shall have made a payment
to a beneficiary of a Letter of Credit in respect of a drawing under such Letter
of Credit, each Bank will pay to the applicable Issuer immediately upon demand
by the applicable Issuer at any time during the period commencing after such
payment until reimbursement thereof in full by the Company, an amount equal to
such Bank's Commitment Percentage of such payment, together with interest on
such amount for each day from the date of demand for such payment (or, if such
demand is made after 11:00 a.m. Houston, Texas time on such date, from the next
succeeding Business Day) to the date of payment by such Bank of such amount at a
rate of interest per annum equal to the Federal Funds Rate for such period.
(iv) The Company shall be irrevocably and unconditionally obligated
forthwith to reimburse the applicable Issuer for any amount paid by the
applicable Issuer upon any drawing under any Letter of Credit, without
presentment, demand, protest or other formalities of any kind. Such
reimbursement may, subject to satisfaction of any other applicable conditions
set forth in this Agreement, including the existence of the Maximum Revolving
Credit Available Amount (after adjustment in the same to reflect the elimination
of the corresponding Letter of Credit Liability) be made by borrowing of Loans.
In the event any such reimbursement is not made by borrowing of Loans, the
Company shall make such reimbursement in immediately available funds within five
(5) days after demand therefor by the applicable Issuer. The applicable Issuer
will pay to each Bank such Bank's Commitment Percentage of all amounts received
from the Company for application in payment, in whole or in part, of the
Reimbursement Obligation in respect of any Letter of Credit, but only to the
extent such Bank has made payment to the applicable Issuer in respect of such
Letter of Credit pursuant to clause (iii) above.
<PAGE>
(v) The Company will pay to Agent at the Principal Office for the
account of each Bank a fee on such Bank's Commitment Percentage of the daily
average amount available for drawings under each Letter of Credit, in each case
for the period from and including the date of issuance of such Letter of Credit
to and including the date of expiration or termination thereof at a rate per
annum equal to the Letter of Credit Fee in effect from time to time, such fee to
be paid in arrears on the Quarterly Dates and on the date of the expiration or
termination thereof. Agent will pay to each Bank, promptly after receiving any
payment in respect of letter of credit fees referred to in the preceding
sentence of this clause (v), an amount equal to such Bank's Commitment
Percentage of such fees. The Company shall pay to the applicable Issuer an
administration and issuance fee in an amount equal to 1/8 of 1% per annum of the
daily average amount available for drawings under such Letter of Credit, in each
case for the period from and including the date of issuance of such Letter of
Credit to and including the date of expiration or termination thereof, such fee
to be paid in arrears on the Quarterly Dates and on the date of the expiration
or termination thereof. Such administration and issuance fee shall be retained
by the applicable Issuer.
(vi) The issuance by the applicable Issuer of each Letter of Credit
shall, in addition to the conditions precedent set forth in Section 7 hereof, be
subject to the conditions precedent that such Letter of Credit shall be in such
form and contain such terms as shall be reasonably satisfactory to the
applicable Issuer and that the Company shall have executed and delivered such
other instruments and agreements relating to such Letter of Credit as the
applicable Issuer shall have reasonably requested and are not inconsistent with
the terms of this Agreement including an Application therefor. In the event of a
conflict between the terms of this Agreement and the terms of any Application,
the terms of this Agreement shall control. Without limiting the generality of
the foregoing sentence, in the event any such Application shall include
requirements for Cover, it is agreed that there shall be no requirements for the
Company to provide Cover except as expressly required in this Agreement.
(c) Indemnification. The Company hereby indemnifies and holds harmless
Agent, the applicable Issuer and each Bank from and against any and all claims
and damages, losses, liabilities, costs or expenses which such Bank, the
applicable Issuer or Agent may incur (or which may be claimed against such Bank,
the applicable Issuer or Agent by any Person whatsoever) in connection with the
execution and delivery or transfer of or payment or failure to pay under any
Letter of Credit, including, without limitation, any claims, damages, losses,
liabilities, costs or expenses which Agent, the applicable Issuer or such Bank,
as the case may be, may incur (whether incurred as a result of its own
negligence or otherwise) by reason of or in connection with the failure of any
other Bank (whether as a result of its own negligence or otherwise) to fulfill
or comply with its obligations to Agent, the applicable Issuer or such Bank, as
the case may be, hereunder (but nothing herein contained shall affect any rights
the Company may have against such defaulting Bank); provided that, the Company
shall not be required to indemnify any Bank, the applicable Issuer or Agent for
any claims, damages, losses, liabilities, costs or expenses to the extent, but
only to the extent, caused by (i) the willful misconduct or gross negligence of
the party seeking indemnification, or (ii) by such Bank's, the applicable
<PAGE>
Issuer's or Agent's, as the case may be, failure to pay under any Letter of
Credit after the presentation to it of a request required to be paid under
applicable law. Nothing in this Section 2.2(c) is intended to limit the
obligations of the Company under any other provision of this Agreement.
(d) Co-issuance or Separate Issuance of Letters of Credit. The Company
may, at its option, request that any requested Letter of Credit which exceeds
$1,000,000 be issued severally, but not jointly, by any two or more of the Banks
or issued through separate Letters of Credit issued by any two or more of the
Banks, respectively, each in an amount equal to a portion of the amount of the
applicable Letter of Credit requested by the Company. In either such event, the
Banks issuing such Letters of Credit shall each constitute an "Issuer" and the
Letters of Credit so issued shall each constitute a "Letter of Credit" for all
purposes hereunder and under the Loan Documents. Notwithstanding the foregoing,
no Bank other than Chase shall have any obligation to issue any Letter of
Credit, but may do so at its option.
2.3 Reductions and Changes of Commitments.
(a) Mandatory.
(i) The total Commitment of the Banks shall be reduced as follows:
<TABLE>
<CAPTION>
Reduction Resulting Revolving
Reduction Date Amount Credit Commitment
<S> <C> <C>
March 31, 1999 $40,000,000 $610,000,000
June 30, 1999 $40,000,000 $570,000,000
September 30, 1999 $40,000,000 $530,000,000
December 31, 1999 $40,000,000 $490,000,000
March 31, 2000 $40,000 000 $450,000,000
June 30, 2000 $40,000,000 $410,000,000
September 30, 2000 $40,000,000 $370,000,000
December 31, 2000 $40,000,000 $330,000,000
March 31, 2001 $40,000,000 $290,000,000
June 30, 2001 $40,000,000 $250,000,000
September 30, 2001 $40,000,000 $210,000,000
December 31, 2001 $40,000,000 $170,000,000
March 31, 2002 $40,000,000 $130,000,000
June 30, 2002 $40,000,000 $90,000,000
September 30, 2002 $40,000,000 $50,000,000
December 31, 2002 $50,000,000 $0
</TABLE>
<PAGE>
(ii) On December 31, 2002, all Commitments shall be terminated in
their entirety unless terminated at an earlier date pursuant to Section 11.1.
(b) Optional. The Company shall have the right to terminate or reduce
the unused portion of the Commitments at any time or from time to time, provided
that: (i) the Company shall give notice of each such termination or reduction to
Agent as provided in Section 5.5 hereof and (ii) each such partial reduction
shall be permanent and in an aggregate amount at least equal to $5,000,000.
(c) No Reinstatement. Any reduction in or termination of the
Commitments may not be reinstated without the approval of Agent and any Bank
whose Commitment (or the applicable part thereof) is to be so reinstated.
2.4 Fees.
(a) The Company shall pay to Agent for the account of each Bank a
facility fee accruing from the Effective Date, computed for each day at a rate
per annum equal to the Facility Fee Percentage times such Bank's pro rata share
(based on its respective Commitment) of the Maximum Revolving Credit Available
Amount on such day. Such facility fees shall be payable on the Quarterly Dates
and on the earlier of the date the Commitments are terminated in their entirety
or the last day of the Revolving Credit Availability Period.
(b) The Company shall pay to Agent for the account of each Bank a
commitment fee with respect to such Bank's Commitment accruing from the
Effective Date, computed for each day at a rate per annum equal to 0.05% times
the amount of such Bank's pro rata share (based on its respective Commitment) of
(i) the aggregate Commitments on such day minus (ii) the sum of the aggregate
outstanding Loans on such day plus the aggregate Letter of Credit Liabilities
outstanding on such day. Commitment fees accruing pursuant to this clause (b)
shall be payable on the Quarterly Dates and on the earlier of the date the
Commitments are terminated in their entirety or the last day of the Revolving
Credit Availability Period.
(c) The Company shall pay to Agent for the account of each Bank an
additional facility fee upon any increase in such Bank's available Commitment as
a result of an increase in the Borrowing Base or a decrease in Borrowing Base
Debt. Such additional facility fee shall be in an amount equal to such Bank's
pro rata share (based on its respective Commitment) of the product of (i)
one-fourth (1/4th) of the amount (if any) by which the then current Facility Fee
Percentage exceeds 0.125% times (ii) the amount of such increase in a Bank's
available Commitment as a result of an increase in the Borrowing Base or a
decrease in Borrowing Base Debt. Payment of such additional fee resulting from
an increase in the Borrowing Base shall be due and payable upon the effective
date of such increase in the Borrowing Base. Payment of such additional fee
resulting from a decrease in Borrowing Base Debt shall be due and payable upon
delivery of a Request for Extension of Credit pursuant to Section 7.2 hereof or
a certificate of compliance pursuant to Sections 9.2(a)(i) or 9.2(b) hereof,
<PAGE>
whichever shall first occur, reflecting such decrease in Borrowing Base Debt.
The facility fee provided for in this Section 2.4(c) shall be payable
notwithstanding any prior decrease in the available Commitments which may have
occurred as a result of a decrease in the Borrowing Base or an increase in
Borrowing Base Debt.
(d) The Company agrees to pay to Agent fees as provided in the
separate letter agreements executed by and between Agent and the Company.
2.5 Affiliates; Lending Offices.
(a) Any Bank may, if it so elects, fulfill any obligation to make a
Eurodollar Loan or Competitive Loan by causing a branch, foreign or otherwise,
or Affiliate of such Bank to make such Loan and may transfer and carry such Loan
at, to or for the account of any branch office or Affiliate of such Bank;
provided that, in such event for the purposes of this Agreement such Loan shall
be deemed to have been made by such Bank and the obligation of the Company to
repay such Loan shall nevertheless be to such Bank and shall be deemed to be
held by such Bank and, to the extent of such Loan, to have been made for the
account of such branch or Affiliate.
(b) Notwithstanding any provision of this Agreement to the contrary,
each Bank shall be entitled to fund and maintain its funding of all or any part
of its Loans hereunder in any manner it sees fit, it being understood, however,
that for the purposes of this Agreement all determinations hereunder shall be
made as if such Bank had actually funded and maintained each Eurodollar Loan
during each Interest Period through the purchase of deposits having a maturity
corresponding to such Interest Period and bearing an interest rate equal to the
Eurodollar Rate for such Interest Period.
2.6 Several Obligations. The failure of any Bank to make any Loan to
be made by it on the date specified therefor shall not relieve any other Bank of
its obligation to make its Loan on such date, but neither Agent nor any Bank
shall be responsible for the failure of any other Bank to make a Loan to be made
by such other Bank.
2.7 Notes. The Committed Loans made by each Bank shall be evidenced by
a single Committed Note of the Company in substantially the form of Exhibit E
hereto payable to the order of such Bank in a principal amount equal to the
Commitment of such Bank, and otherwise duly completed. The Competitive Loans
made by each Bank shall be evidenced by a single Competitive Note of the Company
in substantially the form of Exhibit O hereto payable to the order of such Bank
and otherwise duly completed. Each Bank is hereby authorized by the Company to
endorse on the schedules (or a continuations thereof) attached to the Notes of
such Bank, to the extent applicable, the date, amount and Type of and the
Interest Period for each Loan made by such Bank to the Company hereunder, and
the amount of each payment or prepayment of principal of such Loan received by
such Bank, provided, that any failure by such Bank to make any such endorsement
<PAGE>
shall not affect the obligations of the Company under such Note or hereunder in
respect of such Loan.
2.8 Use of Proceeds. The proceeds of the Loans shall be used for
general corporate purposes.
2.9 Borrowing Base Determinations.
(a) Within 45 days after receipt of the Engineering Report required to
be delivered each year, commencing with the Engineering Report required to be
delivered in 1994, Agent shall notify the Company, in writing, of the Oil and
Gas Reserves Component Value determined on the basis of such Engineering Report
and the Borrowing Base determined on the basis of such Oil and Gas Reserves
Component Value, together with the determination of the Alaskan Gas Component
Value. Each such determination is herein called a "Scheduled Redetermination".
Each Scheduled Redetermination shall be effective when the Company is notified
of the amount of the redetermined Borrowing Base by Agent.
(b) The Requesting Banks or the Company may, from time to time (but
not more frequently than one time during any calendar year by the Requesting
Banks and one time during any calendar year by the Company), request a
redetermination of the Oil and Gas Reserves Component Value based upon the most
recently received Engineering Report or Company Report, as the case may be, and
of the Borrowing Base based upon such redetermination of the Oil and Gas
Reserves Component Value, together with the determination of the Alaskan Gas
Component Value. Each such requested redetermination is herein called a
"Requested Redetermination." Each Requested Redetermination shall be effective
when the Company is notified, in writing, of the amount of the redetermined
Borrowing Base by Agent.
2.10 Competitive Bid Procedure.
(a) In order to request Competitive Bids, the Company shall hand
deliver, telex or telecopy to Agent a duly completed request substantially in
the form of Exhibit K, with the blanks appropriately completed (a "Competitive
Bid Request"), to be received by Agent not later than 11:00 a.m., Houston, Texas
time, five Business Days before the date specified for a proposed Competitive
Loan. No Alternate Base Rate Loan shall be requested in, or, except pursuant to
Section 6, made pursuant to, a Competitive Bid Request. A Competitive Bid
Request that does not conform substantially to the format of Exhibit K may be
rejected at Agent's sole discretion, and Agent shall promptly notify the Company
of such rejection by telecopier. Each Competitive Bid Request shall in each case
refer to this Agreement and specify (x) the date of such Competitive Loans
(which shall be a Business Day) and the aggregate principal amount thereof
(which shall not be less than $25,000,000 or greater than the unused portion of
the Maximum Revolving Credit Available Amount on such date and shall be an
integral multiple of $5,000,000) and (y) the Interest Period with respect
thereto (which may not end after the termination of the Revolving Credit
<PAGE>
Availability Period). Promptly after its receipt of a Competitive Bid Request
that is not rejected as aforesaid, Agent shall invite by telecopier (in
substantially the form set forth in Exhibit L hereto) the Banks to bid, on the
terms and conditions of this Agreement, to make Competitive Loans pursuant to
such Competitive Bid Request. Notwithstanding the foregoing, Agent shall have no
obligation to invite any Bank to make a Competitive Bid pursuant to this Section
2.10(a) until such Bank has delivered a properly completed Competitive Bid
Administrative Questionnaire to Agent.
(b) Each Bank may, in its sole discretion, make one or more
Competitive Bids to the Company responsive to each Competitive Bid Request. Each
Competitive Bid by a Bank must be received by Agent via telecopier, in the form
of Exhibit M hereto, not later than 11:00 a.m., Houston, Texas time, four
Business Days before the date specified for a proposed Competitive Loan.
Competitive Bids that do not conform substantially to the format of Exhibit M
may be rejected by Agent after conferring with, and upon the instruction of, the
Company, and Agent shall notify the Bank of such rejection as soon as
practicable. Each Competitive Bid shall refer to this Agreement and (x) specify
the principal amount (which shall be in a minimum principal amount of
$10,000,000 and in an integral multiple of $1,000,000 and which may equal the
entire aggregate principal amount of the Competitive Loan requested by the
Company) of the Competitive Loan that the Bank is willing to make to the
Company, (y) specify the Competitive Bid Rate at which the Bank is prepared to
make the Competitive Loan and (z) confirm the Interest Period with respect
thereto specified by the Company in its Competitive Bid Request. A Competitive
Bid submitted by a Bank pursuant to this paragraph (b) shall be irrevocable.
(c) Agent shall, by 2:00 p.m. four Business Days before the date
specified for a proposed Competitive Loan, notify the Company by telecopier of
all the Competitive Bids made, the Competitive Bid Rate and the maximum
principal amount of each Competitive Loan in respect of which a Competitive Bid
was made and the identity of the Bank that made each bid. Agent shall send a
copy of all Competitive Bids to the Company for its records as soon as
practicable after completion of the bidding process set forth in this Section
2.10.
(d) The Company may in its sole and absolute discretion, subject only
to the provisions of this Section 2.10(d), accept or reject any Competitive Bid
referred to in Section 2.10(c); provided, however, that the aggregate amount of
the Competitive Bids so accepted by the Company may not exceed the principal
amount of the Competitive Loan requested by the Company. The Company shall
notify Agent by telecopier whether and to what extent it has decided to accept
or reject any or all of the bids referred to in Section 2.10(c), not later than
11:00 a.m., Houston, Texas time, three Business Days before the date specified
for a proposed Competitive Loan; provided, however, that (w) the failure by the
Company to give such notice shall be deemed to be a rejection of all the bids
referred to in Section 2.10(c) and (x) no bid shall be accepted for a
Competitive Loan unless such Competitive Loan is in a minimum principal amount
of $10,000,000 and an integral multiple of $1,000,000. Notwithstanding the
foregoing, if it is necessary for the Company to accept a pro rata allocation of
the bids made in response to a Competitive Bid Request (whether pursuant to the
<PAGE>
events specified in clause (x) above or otherwise) and the available principal
amount of Competitive Loans to be allocated among the Banks is not sufficient to
enable Competitive Loans to be allocated to each Bank in a minimum principal
amount of $10,000,000 and in integral multiples of $1,000,000, then the Company
shall select the Banks to be allocated such Competitive Loans and shall round
allocations up or down to the next higher or lower multiple of $1,000,000 as it
shall deem appropriate. In addition, the Company shall be permitted under the
foregoing procedures to accept a bid or bids in a principal amount of less than
$10,000,000 (i) in order to enable the Company to accept bids equal to (but not
in excess of) the principal amount of the Competitive Loan requested by the
Company or (ii) in order to enable the Company to accept all remaining bids, or
all remaining bids at a particular Competitive Bid Rate. A notice given by
Company pursuant to this paragraph (d) shall be irrevocable.
(e) Agent shall promptly notify each bidding Bank whether or not its
Competitive Bid has been accepted (and if so, in what amount and at what
Competitive Bid Rate) by telex or telecopier sent by Agent, and each successful
bidder will thereupon become bound, subject to the other applicable conditions
hereof, to make the Competitive Loan in respect of which its bid has been
accepted. After completing the notifications referred to in the immediately
preceding sentence, Agent shall (i) notify Agent of each Competitive Bid that
has been accepted, the amount thereof and the Competitive Bid Rate therefor and
(ii) notify each Bank of the aggregate principal amount of all Competitive Bids
accepted.
(f) No Competitive Loan shall be made within five Business Days of the
date of any other Competitive Loan, unless the Company and Agent shall mutually
agree otherwise.
(g) If Agent shall at any time have a Commitment hereunder and shall
elect to submit a Competitive Bid in its capacity as a Bank, it shall submit
such bid directly to the Company one quarter of an hour earlier than the latest
time at which the other Banks are required to submit their bids to Agent
pursuant to paragraph (b) above.
(h) All notices required by this Section 2.10 shall be made in
accordance with Section 13.2 and the Competitive Bid Administrative
Questionnaire most recently placed on file by each Bank with Agent.
Section 3. Borrowings, Prepayments and Selection of Interest Rates.
3.1 Borrowings. The Company shall give Agent notice of each borrowing
to be made hereunder as provided in Sections 2.10 and 5.5 hereof. Not later than
2:00 p.m. Houston, Texas time on the date specified for each such borrowing
hereunder, each Bank shall make available the amount of the Loan, if any, to be
made by it on such date to Agent, at its Principal Office, in immediately
available funds, for the account of the Company. The amount so received by Agent
shall, subject to the terms and conditions of this Agreement, be made available
to the Company by depositing the same, in immediately available funds, in an
<PAGE>
account designated by the Company maintained with Agent at the Principal Office.
3.2 Prepayments.
(a) Optional Prepayments. Subject to the provisions of Sections 4, 5
and 6, the Company shall have the right to prepay, on any Business Day, in whole
or in part, without the payment of any penalty or fee, Loans at any time or from
time to time, provided that, the Company shall give Agent notice of each such
prepayment as provided in Section 5.5 hereof. Eurodollar Loans and Competitive
Loans may be prepaid on the last day of an Interest Period applicable thereto.
Neither Eurodollar Loans nor Competitive Loans may be otherwise prepaid unless
prepayment is accompanied by payment of all compensation required by Section 6.
(b) Mandatory Prepayments and Cover; Borrowing Base Deficiency.
(1) Reduction of Commitments. The Company shall from time to time on
demand by Agent prepay the Loans (or provide Cover for Letter of Credit
Liabilities) in such amounts as shall be necessary so that at all times the
aggregate outstanding principal amount of all Revolving Credit Obligations shall
not be in excess of the aggregate amount of the Commitments, as reduced from
time to time pursuant to Section 2.3 hereof plus any Cover provided under this
Section 3.2(b)(1).
(2) Borrowing Base Deficiency. Should a Borrowing Base Deficiency
occur, Agent may (and, at the direction of the Majority Banks, shall) notify the
Company in writing of such Borrowing Base Deficiency. Within 30 days from and
after the Borrowing Base Deficiency Notification Date, the Company shall, at its
election, take one of the following actions:
(i) execute and deliver to Agent security documents, in
form and substance satisfactory to Agent and its
counsel, securing the Notes and the other Obligations
and covering additional assets, which are not
included in the Borrowing Base and which are not then
covered by any security documents securing the Notes
or the other Obligations, of a type and nature, and
having a value (determined by the Majority Banks
using customary standards for lending) satisfactory
to the Majority Banks; or
(ii) make a payment on the Loans or Borrowing Base Debt of
the Company or its Subsidiaries, as the Company may
elect, in an amount sufficient to eliminate such
Borrowing Base Deficiency, and deliver to Agent
evidence satisfactory to Agent of any such payment of
Borrowing Base Debt of the Company or its
Subsidiaries.
<PAGE>
If the Company shall elect to execute and deliver security documents to Agent
pursuant to subsection (i) above, it shall provide Agent and each Bank with
descriptions of the assets to be collaterally assigned (together with current
valuations, Engineering Reports and title evidence applicable thereto, each of
which shall be in form and substance satisfactory to Agent) within 20 days after
the Borrowing Base Deficiency Notification Date.
If the Company fails to take either of the actions described above within such
30-day period, then without any necessity for notice to the Company or any other
person, the Company shall become obligated to pay on the Loans three (3)
installments, each in an amount equal to one-third (1/3rd) of the applicable
Borrowing Base Deficiency, such installments to be due and payable on or before
three (3), six (6) and nine (9) calendar months after the Borrowing Base
Deficiency Notification Date, respectively. Payments of principal otherwise
required hereunder shall be credited against such installments.
(3) Asset Dispositions. If the Company or any Subsidiary sells,
transfers or otherwise disposes of assets that have been given value in the most
recent determination of the Borrowing Base and having a fair market value in the
aggregate for the Company and such Subsidiaries in excess of $50,000,000 during
the period from the effective date of any Borrowing Base Determination until the
effective date of the next Borrowing Base Determination, the Borrowing Base
shall be immediately reduced, until the effective date of the next Borrowing
Base Determination, by an amount equal to (i) in the case of sale, transfer or
other disposition of all or substantially all of the assets comprising (x)
ENSTAR Alaska or (y) the Included Reserves, the value of such assets reflected
in the most recent Borrowing Base, or if the value of the applicable asset
reflected in the most recent Borrowing Base cannot be readily determined, the
net sales proceeds realized from the sale, transfer or other disposition of such
assets and (ii) in the case of sale, transfer or other disposition of less than
all or substantially all of the assets comprising any of the business segments
described in (x) or (y) above, the value of such assets reflected in the most
recent Borrowing Base (if such value can be readily determined), or if the value
of the applicable asset reflected in the most recent Borrowing Base cannot be
readily determined, the net sales proceeds realized from the sale, transfer or
other disposition of such assets. If such reduction shall result in a Borrowing
Base Deficiency, then in lieu of the provisions of Section 3.2(b)(2) hereof,
the Company shall immediately make a payment on the Loans in an amount equal to
such Borrowing Base Deficiency. In addition to and cumulative of the foregoing,
if a Borrowing Base Deficiency exists prior to such sale, transfer or other
disposition of assets, then in lieu of the provisions of Section 3.2(b)(2)
hereof, the Company shall immediately make a payment on the Loans in an amount
equal to the lesser of the amount of the Borrowing Base Deficiency (after giving
effect to the applicable sale, transfer or other disposition) or 100% of the net
sales proceeds realized from the applicable sale, transfer or other disposition.
3.3 Selection of Interest Rates. Subject to the terms and provisions
of this Agreement, the Company shall have the right either to convert any Loan
(in whole or in part) into a Loan of another Type (provided that no such
conversion of Eurodollar Loans or Competitive Loans shall be permitted other
<PAGE>
than on the last day of an Interest Period applicable thereto) or to continue
such Loan (in whole or in part) as a Loan of the same Type. In the event the
Company fails to so give such notice prior to the end of the applicable Interest
Period with respect to any Eurodollar Loan or Competitive Loan, such Loan shall
become an Alternate Base Rate Loan on the last day of such Interest Period.
Section 4. Payments of Principal and Interest.
4.1 Repayment of Loans and Reimbursement Obligations. The Company will
pay to Agent for the account of each Bank (a) the principal of each Loan made by
such Bank on the dates provided in the respective Notes and as provided
hereunder and (b) the amount of each Reimbursement Obligation promptly upon its
occurrence. The amount of any Reimbursement Obligation may, if the applicable
conditions precedent specified in Section 7 hereof have been satisfied, be paid
with the proceeds of Loans.
4.2 Interest.
(a) Subject to Section 13.6 hereof, the Company will pay to Agent for
the account of each Bank interest on the unpaid principal amount of each Loan
made by such Bank for the period commencing on the date of such Loan to but
excluding the date such Loan shall be paid in full, at the lesser of (I) the
following rates per annum:
(i) if such Loan is an Alternate Base Rate Loan, the Alternate Base
Rate plus the Applicable Margin,
(ii) if such Loan is a Eurodollar Loan, the applicable Eurodollar Rate
plus the Applicable Margin, and
(iii) if such Loan is a Competitive Loan, the applicable fixed rate
offered by the applicable Bank and accepted by the Company in accordance with
Section 2.10 hereof (or, in the case of Existing Competitive Loans, the
applicable fixed rate specified on Exhibit D hereto), or (II) the Highest Lawful
Rate.
(b) Notwithstanding any of the foregoing but subject to Section 13.6
hereof, the Company will pay to Agent for the account of each Bank interest at
the applicable Post-Default Rate on any principal of any Loan made by such Bank,
on any Reimbursement Obligation and on any other amount payable by the Company
hereunder to or for the account of such Bank (but, if such amount is interest,
only to the extent legally allowed), which shall not be paid in full when due
(whether at stated maturity, by acceleration or otherwise), for the period
commencing on the due date thereof until the same is paid in full.
<PAGE>
(c) Accrued interest on each Loan shall be payable on the last day of
each Interest Period for such Loan (and, if such Interest Period exceeds three
months' duration, quarterly, commencing on the first quarterly anniversary of
the first day of such Interest Period), except that (i) accrued interest payable
at the Post-Default Rate shall be due and payable from time to time on demand of
Agent or the Majority Banks (through Agent) and (ii) accrued interest on any
amount prepaid or converted pursuant to Section 6 hereof shall be paid on the
amount so prepaid or converted.
Section 5. Payments; Pro Rata Treatment; Computations, Etc.
5.1 Payments.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest, Reimbursement Obligations and other amounts to be made by
the Company hereunder and under the Notes shall be made in Dollars, in
immediately available funds, to Agent at the Principal Office (or in the case of
a successor Agent, at the principal office of such successor Agent in the United
States), not later than 11:00 a.m. Houston, Texas time on the date on which such
payment shall become due (each such payment made after such time on such due
date to be deemed to have been made on the next succeeding Business Day). Agent,
or any Bank for whose account any such payment is made, may (but shall not be
obligated to) debit the amount of any such payment which is not made by such
time to any ordinary deposit account of the Company with Agent or such Bank, as
the case may be.
(b) The Company shall, at the time of making each payment hereunder or
under any Note, specify to Agent the Loans or other amounts payable by the
Company hereunder or thereunder to which such payment is to be applied. Each
payment received by Agent hereunder or under any Note or any other Loan Document
for the account of a Bank shall be paid promptly to such Bank, in immediately
available funds for the account of such Bank's Applicable Lending Office.
(c) If the due date of any payment hereunder or under any Note or any
other Loan Document falls on a day which is not a Business Day, the due date for
such payment (subject to the definition of Interest Period) shall be extended to
the next succeeding Business Day and interest shall be payable for any principal
so extended for the period of such extension.
5.2 Pro Rata Treatment. Except to the extent otherwise provided
herein: (a) each borrowing from the Banks under Section 2.1 hereof shall be made
ratably from the Banks on the basis of their respective Commitments and each
payment of commitment or facility fees shall be made for the account of the
Banks, and each termination or reduction of the Commitments of the Banks under
Section 2.3 hereof shall be applied, pro rata, according to the Banks'
respective Commitments; (b) each payment by the Company of principal of or
interest on Loans of a particular Type shall be made to Agent for the account of
the Banks pro rata in accordance with the respective unpaid principal amounts of
<PAGE>
such Loans held by the Banks; and (c) the Banks (other than the applicable
Issuer) shall purchase from the applicable Issuer participations in the Letters
of Credit to the extent of their respective Commitment Percentages.
5.3 Computations. Interest on Competitive Loans and interest based on
the Eurodollar Base Rate or the Federal Funds Rate will be computed on the basis
of a year of 360 days and actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable, unless the
effect of so computing shall be to cause the rate of interest to exceed the
Highest Lawful Rate, in which case interest shall be calculated on the basis of
the actual number of days elapsed in a year composed of 365 or 366 days, as the
case may be. All other interest and fees shall be computed on the basis of a
year of 365 (or 366) days and actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable.
5.4 Minimum and Maximum Amounts. Except for prepayments made pursuant
to Section 3.2(b) hereof, and subject to the provisions of Section 2.10 hereof
with respect to Competitive Loans, each borrowing and repayment of principal of
Loans, each termination or reduction of Commitments, each optional prepayment
and each conversion of Type shall be in an aggregate principal amount at least
equal to (a) in the case of Eurodollar Loans and Competitive Loans, $5,000,000,
and (b) in the case of Alternate Base Rate Loans, $1,000,000 (borrowings or
prepayments of Loans of different Types or, in the case of Eurodollar Loans and
Competitive Loans, having different Interest Periods at the same time hereunder
to be deemed separate borrowings and prepayments for purposes of the foregoing,
one for each Type or Interest Period). Upon any mandatory prepayment that would
reduce Eurodollar Loans or Competitive Loans, respectively, having the same
Interest Period to less than $5,000,000 such Loans shall automatically be
converted into Alternate Base Rate Loans. Notwithstanding anything to the
contrary contained in this Agreement, there shall not be, at any one time, more
than eight (8) Interest Periods in effect with respect to Eurodollar Loans or
Competitive Loans, in the aggregate.
5.5 Certain Actions, Notices, Etc. Notices to Agent of any termination
or reduction of Commitments, of borrowings and prepayments, conversions and
continuations of Loans and of the duration of Interest Periods shall be
<PAGE>
irrevocable and shall be effective only if received by Agent not later than
11:00 a.m. Houston, Texas time on the number of Business Days prior to the date
of the relevant termination, reduction, borrowing and/or repayment, conversion
or continuance specified below:
<TABLE>
<CAPTION>
Number of
Business
Notice Days Prior
<S> <C> <C>
Termination or
Reduction of Commitments 2
Borrowing or prepayment
of or conversion into or
continuance of Alternate Base
Rate Loans same day
Borrowing or
prepayment of or conversion
into or continuance of
Eurodollar Loans 3
</TABLE>
Each such notice of termination or reduction shall specify the amount
of the Commitments to be terminated or reduced. Each such notice of borrowing or
prepayment shall specify the amount and Type of the Loans to be borrowed or
prepaid (subject to Sections 3.2(a) and 5.4 hereof), the date of borrowing or
prepayment (which shall be a Business Day) and, in the case of Eurodollar Loans,
the duration of the Interest Period therefor (subject to the definition of
"Interest Period"). Each such notice of conversion of a Loan into a Loan of
another Type shall identify such Loan (or portion thereof) being converted and
specify the Type of Loan into which such Loan is being converted (subject to
Section 5.4 hereof) and the date for conversion (which shall be a Business Day)
and, unless such Loan is being converted into an Alternate Base Rate Loan, the
duration (subject to the definition of "Interest Period") of the Interest Period
therefor which is to commence as of the last day of the then current Interest
Period therefor (or the date of conversion, if such Loan is being converted from
an Alternate Base Rate Loan). Each such notice of continuation of a Loan (or
portion thereof) as the same Type of Loan shall identify such Loan (or portion
thereof) being continued (subject to Section 5.4 hereof) and, unless such Loan
is an Alternate Base Rate Loan, the duration (subject to the definition of
"Interest Period") of the Interest Period therefor which is to commence as of
the last day of the then current Interest Period therefor. Agent shall promptly
notify the affected Banks of the contents of each such notice. Notice of any
prepayment having been given, the principal amount specified in such notice,
together with interest thereon to the date of prepayment, shall be due and
payable on such prepayment date. Section 2.10 hereof shall control the time
periods applicable to Competitive Loans.
<PAGE>
5.6 Non-Receipt of Funds by Agent. Unless Agent shall have been
notified by a Bank or the Company (the "Payor") prior to the date on which such
Bank is to make payment to Agent of the proceeds of a Loan to be made by it
hereunder (or the payment of any amount by such Bank to reimburse the applicable
Issuer for a drawing under any Letter of Credit) or the Company is to make a
payment to Agent for the account of one or more of the Banks, as the case may be
(such payment being herein called the "Required Payment"), which notice shall be
effective upon receipt, that the Payor does not intend to make the Required
Payment to Agent, Agent may assume that the Required Payment has been made and
may, in reliance upon such assumption (but shall not be required to), make the
amount thereof available to the intended recipient on such date and, if the
Payor has not in fact made the Required Payment to Agent on or before such date,
the recipient of such payment (or, if such recipient is the beneficiary of a
Letter of Credit, the Company and, if the Company fails to pay the amount
thereof to Agent forthwith upon demand, the Banks ratably in proportion to their
respective Commitment Percentages) shall, on demand, pay to Agent the amount
made available to it together with interest thereon in respect of the period
commencing on the date such amount was so made available by Agent until the date
Agent recovers such amount at a rate per annum equal to the Federal Funds Rate
for such period.
5.7 Sharing of Payments, Etc. If a Bank shall obtain payment of any
principal of or interest on any Loan made by it under this Agreement, or on any
Reimbursement Obligation or other obligation then due to such Bank hereunder,
through the exercise of any right of set-off, banker's lien, counterclaim or
similar right, or otherwise, it shall promptly purchase from the other Banks
participations in the Loans made, or Reimbursement Obligations or other
obligations held, by the other Banks in such amounts, and make such other
adjustments from time to time as shall be equitable to the end that all the
Banks shall share the benefit of such payment (net of any expenses which may be
incurred by such Bank in obtaining or preserving such benefit) pro rata in
accordance with the unpaid principal and interest on the Obligations then due to
each of them (provided, however, that the foregoing shall not apply to payments
of Competitive Loans made prior to the termination of the Commitments following
the occurrence of an Event of Default). To such end all the Banks shall make
appropriate adjustments among themselves (by the resale of participations sold
or otherwise) if such payment is rescinded or must otherwise be restored. The
Company agrees, to the fullest extent it may effectively do so under applicable
law, that any Bank so purchasing a participation in the Loans made, or
Reimbursement Obligations or other obligations held, by other Banks may exercise
all rights of set-off, bankers' lien, counterclaim or similar rights with
respect to such participation as fully as if such Bank were a direct holder of
Loans and Reimbursement Obligations or other obligations in the amount of such
participation. Nothing contained herein shall require any Bank to exercise any
such right or shall affect the right of any Bank to exercise, and retain the
benefits of exercising, any such right with respect to any other Indebtedness or
obligation of the Company.
<PAGE>
Section 6. Yield Protection and Illegality.
6.1 Additional Costs.
(a) Subject to Section 13.6, the Company shall pay to Agent, on demand
for the account of each Bank from time to time such amounts as such Bank may
determine to be necessary to compensate it for any costs incurred by such Bank
which such Bank determines are attributable to its making or maintaining of any
Eurodollar Loan or any Competitive Loan hereunder or its obligation to make any
such Loan hereunder, or any reduction in any amount receivable by such Bank
hereunder in respect of any of such Loans or such obligation (such increases in
costs and reductions in amounts receivable being herein called "Additional
Costs"), in each case resulting from any Regulatory Change which:
(i) subjects such Bank (or makes it apparent that such Bank is
subject) to any tax (including without limitation any United States interest
equalization tax), levy, impost, duty, charge or fee (collectively, "Taxes"), or
any deduction or withholding for any Taxes on or from the payment due under any
Eurodollar Loan or any Competitive Loan or other amounts due hereunder, other
than income and franchise taxes of the jurisdiction (or any subdivision thereof)
in which such Bank has an office or its Applicable Lending Office; or
(ii) changes the basis of taxation of any amounts payable to such Bank
under this Agreement or its Notes in respect of any of such Loans (other than
changes which affect taxes measured by or imposed on the overall net income or
franchise taxes of such Bank or of its Applicable Lending Office for any of such
Loans by the jurisdiction (or any subdivision thereof) in which such Bank has an
office or such Applicable Lending Office); or
(iii) imposes or modifies or increases or deems applicable any
reserve, special deposit or similar requirements (including, without limitation,
any such requirement imposed by the Board of Governors of the Federal Reserve
System) relating to any extensions of credit or other assets of, or any deposits
with or other liabilities of, such Bank or loans made by such Bank, or against
any other funds, obligations or other property owned or held by such Bank
(including any of such Loans or any deposits referred to in the definition of
"Eurodollar Base Rate" in Section 1.1 hereof) and such Bank actually incurs such
additional costs.
Each Bank (if so requested by the Company through Agent) will designate a
different available Applicable Lending Office for the Eurodollar Loans or the
Competitive Loans of such Bank or take such other action as the Company may
request if such designation or action will avoid the need for, or reduce the
amount of, such compensation and will not, in the sole opinion of such Bank, be
disadvantageous to such Bank (provided that such Bank shall have no obligation
so to designate an Applicable Lending Office for Eurodollar Loans located in the
United States of America). Each Bank will furnish the Company with a statement
setting forth the basis and amount of each request by such Bank for compensation
under this Section 6.1(a); subject to Section 6.8, such certificate shall be
<PAGE>
conclusive, absent manifest error, and may be prepared using any reasonable
averaging and attribution methods.
(b) Without limiting the effect of the foregoing provisions of this
Section 6.1, in the event that, by reason of any Regulatory Change, any Bank
either (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
such Bank which includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Bank which includes Eurodollar
Loans or Competitive Loans or (ii) becomes subject to restrictions on the amount
of such a category of liabilities or assets which it may hold, then, if such
Bank so elects by notice to the Company (with a copy to Agent), the obligation
of such Bank to make Eurodollar Loans or Competitive Loans, as the case may be,
hereunder shall be suspended until the date such Regulatory Change ceases to be
in effect (in which case the provisions of Section 6.4 hereof shall be
applicable).
(c) Good faith determinations and allocations by any Bank for purposes
of this Section 6.1 of the effect of any Regulatory Change on its costs of
maintaining its obligations to make Loans or of making or maintaining Loans or
on amounts receivable by it in respect of Loans, and of the additional amounts
required to compensate such Bank in respect of any Additional Costs, shall be
conclusive, absent manifest error.
(d) The Company's obligation to pay Additional Costs and compensation
with regard to each Eurodollar Loan and each Competitive Loan shall survive
termination of this Agreement.
6.2 Limitation on Types of Loans. Anything herein to the contrary
notwithstanding, if, with respect to any Eurodollar Loans:
(a) Agent determines in good faith (which determination shall be
conclusive) that quotations of interest rates for the relevant deposits referred
to in the definition of "Eurodollar Base Rate" in Section 1.1 hereof are not
being provided by the Reference Banks in the relevant amounts or for the
relevant maturities for purposes of determining the rate of interest for such
Loans for Interest Periods therefor as provided in this Agreement; or
(b) the Majority Banks determine (which determination shall be
conclusive) and notify Agent that the relevant rates of interest referred to in
the definition of "Eurodollar Base Rate" in Section 1.1 hereof upon the basis of
which the rates of interest for such Loans are to be determined do not
accurately reflect the cost to such Banks of making or maintaining such Loans
for Interest Periods therefor; or
(c) Agent determines in good faith (which determination shall be
conclusive) that by reason of circumstances affecting the interbank Dollar
market generally, deposits in United States dollars in the relevant interbank
<PAGE>
Dollar market are not being offered for the applicable Interest Period and in an
amount equal to the amount of the Eurodollar Loan requested by the Company; then
Agent shall promptly notify the Company and each Bank thereof, and, so long as
such condition remains in effect, the Banks shall be under no obligation to make
Eurodollar Loans (but shall maintain until the end of the Interest Period then
in effect the Eurodollar Loans then outstanding).
6.3 Illegality. Notwithstanding any other provision of this Agreement
to the contrary, if (x) by reason of the adoption of any applicable Legal
Requirement or any change in any applicable Legal Requirement or in the
interpretation or administration thereof by any Governmental Authority or
compliance by any Bank with any request or directive (whether or not having the
force of law) of any central bank or other Governmental Authority or (y)
circumstances affecting the relevant interbank Dollar market or the position of
a Bank therein shall at any time make it unlawful or impracticable in the sole
discretion of a Bank exercised in good faith for such Bank or its Applicable
Lending Office to (a) honor its obligation to make Eurodollar Loans or
Competitive Loans hereunder, or (b) maintain Eurodollar Loans or Competitive
Loans hereunder, then such Bank shall promptly notify the Company thereof
through Agent and such Bank's obligation to make or maintain Eurodollar Loans or
Competitive Loans, as the case may be, hereunder shall be suspended until such
time as such Bank may again make and maintain Eurodollar Loans or Competitive
Loans, as the case may be (in which case the provisions of Section 6.4 hereof
shall be applicable). Before giving such notice pursuant to this Section 6.3,
such Bank will designate a different available Applicable Lending Office for the
Eurodollar Loans or the Competitive Loans, as the case may be, of such Bank or
take such other action as the Company may request if such designation or action
will avoid the need to suspend such Bank's obligation to make Eurodollar Loans
or Competitive Loans, as the case may be, hereunder and will not, in the sole
opinion of such Bank exercised in good faith, be disadvantageous to such Bank
(provided, that such Bank shall have no obligation so to designate an Applicable
Lending Office for Eurodollar Loans located in the United States of America).
6.4 Substitute Alternate Base Rate Loans. If the obligation of any
Bank to make or maintain Eurodollar Loans or Competitive Loans, as the case may
be, shall be suspended pursuant to Section 6.1, 6.2 or 6.3 hereof, all Loans
which would otherwise be made by such Bank as Eurodollar Loans or Competitive
Loans, as the case may be, shall be made instead as Alternate Base Rate Loans
(and, if an event referred to in Section 6.1(b) or 6.3 hereof has occurred and
such Bank so requests by notice to the Company with a copy to Agent, each
Eurodollar Loan or each Competitive Loan, as the case may be, of such Bank then
outstanding shall be automatically converted into an Alternate Base Rate Loan on
the date specified by such Bank in such notice) and, to the extent that
Eurodollar Loans or Competitive Loans, as the case may be, are so made as (or
converted into) Alternate Base Rate Loans, all payments of principal which would
otherwise be applied to such Eurodollar Loans or such Competitive Loans, as the
case may be, shall be applied instead to such Alternate Base Rate Loans.
<PAGE>
6.5 Compensation. Subject to Section 13.6 hereof, the Company shall
pay to Agent for the account of each Bank, within four (4) Business Days after
demand therefor by such Bank through Agent, such amount or amounts as shall be
sufficient (in the reasonable opinion of such Bank) to compensate it for any
loss, cost or expense actually incurred by it (exclusive of any lost profits or
opportunity costs) as a result of:
(a) any payment, prepayment or conversion of a Eurodollar Loan or a
Competitive Loan made by such Bank on a date other than the last day of an
Interest Period for such Loan; or
(b) any failure by the Company to borrow a Eurodollar Loan or a
Competitive Loan to be made by such Bank on the date for such borrowing
specified in the relevant notice of borrowing under Section 5.5 or Section 2.10
hereof or to convert a Eurodollar Loan or a Competitive Loan into an Alternate
Base Rate Loan on such date after giving notice of such conversion; such
compensation to include, without limitation, any loss or expense actually
incurred (exclusive of any lost profits or opportunity costs) by reason of the
liquidation or reemployment of deposits or other funds acquired by the
applicable Bank to fund or maintain its share of any Loan. Subject to Section
6.8, each determination of the amount of such compensation by a Bank shall be
conclusive and binding, absent manifest error, and may be computed using any
reasonable averaging and attribution method. No costs shall be payable under
this Section solely by reason of the conversion of loans designated as
"Eurodollar Loans" under that certain Amended and Restated Credit Agreement
referred to in Section 13.15 hereof into the Existing Competitive Loans.
6.6 Additional Costs in Respect of Letters of Credit. If as a result
of any Regulatory Change there shall be imposed, modified or deemed applicable
any tax, reserve, special deposit or similar requirement against or with respect
to or measured by reference to Letters of Credit issued or to be issued
hereunder or participations in such Letters of Credit, and the result shall be
to increase the cost to any Bank of issuing or maintaining any Letter of Credit
or any participation therein, or reduce any amount receivable by any Bank
hereunder in respect of any Letter of Credit or any participation therein (which
increase in cost, or reduction in amount receivable, shall be the result of such
Bank's reasonable allocation of the aggregate of such increases or reductions
resulting from such event), then such Bank shall notify the Company through
Agent, and upon demand therefor by such Bank through Agent, the Company (subject
to Section 13.6 hereof) shall pay to such Bank, from time to time as specified
by such Bank, such additional amounts as shall be sufficient to compensate such
Bank for such increased costs or reductions in amount. Before making such demand
pursuant to this Section 6.6, such Bank will designate a different available
Applicable Lending Office for the Letter of Credit of such Bank or take such
other action as the Company may request, if such designation or action will
avoid the need for, or reduce the amount of, such compensation and will not, in
the sole opinion of such Bank exercised in good faith, be disadvantageous to
<PAGE>
such Bank. A statement as to such increased costs or reductions in amount
incurred by such Bank, submitted by such Bank to the Company, shall be
conclusive as to the amount thereof, absent manifest error.
6.7 Capital Adequacy. If any Bank shall have determined that the
adoption after the date hereof or effectiveness after the date hereof (whether
or not previously announced) of any applicable law, rule, regulation or treaty
regarding capital adequacy, or any change therein after the date hereof, or any
change in the interpretation or administration thereof after the date hereof by
any Governmental Authority charged with the interpretation or administration
thereof, or compliance by any Bank (or its Applicable Lending Office) with any
request or directive after the date hereof regarding capital adequacy (whether
or not having the force of law) of any such Governmental Authority has or would
have the effect of reducing the rate of return on such Bank's capital as a
consequence of such Bank's obligations hereunder, under the Loans made by it,
under the Letters of Credit and under the Notes held by it to a level below that
which such Bank could have achieved but for such adoption, change or compliance
(taking into consideration such Bank's policies with respect to capital
adequacy) by an amount deemed by such Bank to be material, then from time to
time, upon satisfaction of the conditions precedent set forth in this Section
6.7, upon demand by such Bank (with a copy to Agent), the Company (subject to
Section 13.6 hereof) shall pay to such Bank such additional amount or amounts as
will compensate such Bank for such reduction. A certificate as to such amounts,
submitted to the Company and Agent by such Bank, setting forth the basis for
such Bank's determination of such amounts, shall constitute a demand therefor
and shall be conclusive and binding for all purposes, absent manifest error. The
Company shall pay the amount shown as due on any such certificate within four
(4) Business Days after delivery of such certificate. Subject to Section 6.8, in
preparing such certificate, a Bank may employ such assumptions and allocations
of costs and expenses as it shall in good faith deem reasonable and may use any
reasonable averaging and attribution method.
6.8 Limitation on Additional Charges; Substitute Banks;
Non-Discrimination. Anything in this Section 6 notwithstanding:
(a) the Company shall not be required to pay to any Bank reimbursement
with regard to any costs or expenses, unless such Bank notifies the Company of
such costs or expenses within 90 days after the date paid or incurred;
(b) none of the Banks shall be permitted to pass through to the
Company charges and costs under this Section 6 on a discriminatory basis (i.e.,
which are not also passed through by such Bank to other customers of such Bank
similarly situated where such customer is subject to documents providing for
such pass through); and
(c) if any Bank elects to pass through to the Company any material
charge or cost under this Section 6 or elects to terminate the availability of
Eurodollar Loans for any material period of time, the Company may, within 60
days after the date of such event and so long as no Default shall have occurred
and be continuing, elect to terminate such Bank as a party to this Agreement;
<PAGE>
provided that, concurrently with such termination the Company shall (i) if Agent
and each of the other Banks shall consent, pay that Bank all principal, interest
and fees and other amounts owed to such Bank through such date of termination or
(ii) have arranged for another financial institution approved by Agent (such
approval not to be unreasonably withheld) as of such date, to become a
substitute Bank for all purposes under this Agreement in the manner provided in
Section 13.5; provided further that, prior to substitution for any Bank, the
Company shall have given written notice to Agent of such intention and the Banks
shall have the option, but no obligation, for a period of 60 days after receipt
of such notice, to increase their Commitments in order to replace the affected
Bank in lieu of such substitution.
Section 7. Conditions Precedent.
7.1 Initial Loans. The obligation of each Bank or any applicable
Issuer to make its initial Loans after the date hereof or issue or participate
in a Letter of Credit after the date hereof (if such Letter of Credit is issued
prior to the funding of the initial Loans after the date hereof) hereunder is
subject to the following conditions precedent, each of which shall have been
fulfilled or waived to the satisfaction of the Majority Banks:
(a) Corporate Action and Status. Agent shall have received from the
appropriate Governmental Authorities certified copies of the Organizational
Documents (other than bylaws) of the Company and each of its Subsidiaries, and
evidence satisfactory to Agent of all corporate action taken by the Company or
any of its Subsidiaries authorizing the execution, delivery and performance of
the Loan Documents and all other documents related to this Agreement to which it
is a party (including, without limitation, a certificate of the secretary of
each such party setting forth the resolutions of its Board of Directors
authorizing the transactions contemplated thereby and attaching a copy of its
bylaws), together with such certificates as may be appropriate to demonstrate
the qualification and good standing of and payment of taxes by the Company and
each of its Subsidiaries in each state in which such qualification is necessary.
(b) Incumbency. The Company and each Relevant Party shall have
delivered to Agent a certificate in respect of the name and signature of each of
the officers (i) who is authorized to sign on its behalf the applicable Loan
Documents related to any Loan or the issuance of any Letter of Credit and (ii)
who will, until replaced by another officer or officers duly authorized for that
purpose, act as its representative for the purposes of signing documents and
giving notices and other communications in connection with any Loan or the
issuance of any Letter of Credit. Agent and each Bank may conclusively rely on
such certificates until they receive notice in writing from the Company or the
appropriate Relevant Party to the contrary.
(c) Notes. Agent shall have received the appropriate Note of the
Company for each Bank, duly completed and executed.
<PAGE>
(d) Loan Documents. The Company and each other Relevant Party shall
have duly executed and delivered the other Loan Documents to which it is a party
(in such number of copies as Agent shall have requested) and each such Loan
Document shall be in form satisfactory to Agent. Each such Loan Document shall
be in substantially the form furnished to the Banks prior to their execution of
this Agreement, together with such changes therein as Agent may approve.
(e) Fees and Expenses. The Company shall have paid to Agent for the
account of each Bank all accrued and unpaid commitment fees and other fees in
the amounts previously agreed upon in writing among the Company and Agent; and
shall have in addition paid to Agent all amounts payable under the letter
agreements referred to Section 2.4(d) hereof and under Section 9.7 hereof on or
before the date of this Agreement.
(f) Opinions of Counsel. Agent shall have received (1) an opinion of
Vinson & Elkins L.L.P., counsel to the Company, in form and substance reasonably
satisfactory to Agent and (2) such opinions of counsel to the Company and other
Relevant Parties and special local counsel of Agent as Agent shall reasonably
request with respect to the Company and the Loan Documents.
(g) Execution by Banks. Agent shall have received counterparts of this
Agreement executed and delivered by or on behalf of each of the Banks or Agent
shall have received evidence satisfactory to it of the execution and delivery by
each of the Banks of a counterpart hereof.
(h) Consents. Agent shall have received evidence satisfactory to it
that, except as disclosed in the Disclosure Statement, all material consents of
each Governmental Authority and of each other Person, if any, reasonably
required in connection with (a) the Loans and the Letters of Credit and (b) the
execution, delivery and performance of this Agreement and the other Loan
Documents have been satisfactorily obtained.
(i) Amendment to Intercreditor Agreement. Agent shall have received
counterparts of the Second Amendment to Intercreditor Agreement referred to in
the definition of "Intercreditor Agreement" in Section 1.1 hereof executed and
delivered by or on behalf of each of the Company and by the "Administrative
Agent" under the Canadian Facility or Agent shall have received evidence
satisfactory to it of the execution and delivery by each such Person of a
counterpart of such Second Amendment to Intercreditor Agreement.
(j) Canadian Facility. Agent shall have received counterparts of the
Credit Agreement referred to in the definition of "Canadian Facility" in Section
1.1 hereof executed and delivered by or on behalf of each of Seagull Energy
Canada Ltd., The Chase Manhattan Bank of Canada, as Arranger and as Agent, The
Bank of Nova Scotia, as Paying Agent and as Co-Agent, Canadian Imperial Bank of
Commerce, as Co-Agent, and certain banks parties thereto or Agent shall have
received evidence satisfactory to it of the execution and delivery by each such
Person of a counterpart of such Credit Agreement.
<PAGE>
(k) Other Documents. Agent shall have received such other documents
consistent with the terms of this Agreement and relating to the transactions
contemplated hereby as Agent may reasonably request.
All provisions and payments required by this Section 7.1 are subject
to the provisions of Section 13.6.
7.2 Initial and Subsequent Loans. The obligation of each Bank or any
applicable Issuer to make any Loan (including, without limitation, its initial
Loan) to be made by it hereunder or to issue or participate in any Letter of
Credit is subject to the additional conditions precedent that (i) Agent shall
have received a Request for Extension of Credit and such other certifications as
Agent may reasonably require, (ii) in the case of Competitive Loans, the Company
shall have complied with the provisions of Section 2.10 hereof and (iii) as of
the date of such Loan or such issuance, and after giving effect thereto:
(a) no Default shall have occurred and be continuing;
(b) except for facts timely disclosed to Agent from time to time in
writing, which facts (I) are not materially more adverse to the Company and its
Subsidiaries, (II) do not materially decrease the ability of the Banks to
collect the Obligations as and when due and payable and (III) do not materially
increase the liability of Agent or any of the Banks, in each case compared to
those facts existing on the date hereof and the material details of which have
been set forth in the Financial Statements delivered to Agent prior to the date
hereof or in the Disclosure Statement, and except for the representations set
forth in the Loan Documents which, by their terms, are expressly (or by means of
similar phrasing) made as of the Effective Date or as of the date hereof, as the
case may be, only, the representations and warranties made in each Loan Document
shall be true and correct in all material respects on and as of the date of the
making of such Loan or such issuance, with the same force and effect as if made
on and as of such date;
(c) the making of such Loan or the issuance of such Letter of Credit
shall not violate any Legal Requirement applicable to any Bank.
Each Request for Extension of Credit by the Company hereunder or
request for issuance of a Letter of Credit shall include a representation and
warranty by the Company to the effect set forth in Subsections 7.2(a) and (b)
(both as of the date of such notice and, unless the Company otherwise notifies
Agent prior to the date of such borrowing or issuance, as of the date of such
borrowing or issuance).
Section 8. Representations and Warranties. To induce the Banks to
enter into this Agreement and to make the Loans and issue or participate in the
Letters of Credit, the Company represents and warrants (such representations and
<PAGE>
warranties to survive any investigation and the making of the Loans and the
issuance of the Letters of Credit) to the Banks and Agent as follows:
8.1 Corporate Existence. The Company and each Subsidiary of the
Company are corporations duly incorporated and organized, legally existing and
in good standing under the laws of the respective jurisdictions in which they
are incorporated, and are duly qualified as foreign corporations in all
jurisdictions wherein the property owned or the business transacted by them
makes such qualification necessary and the failure to so qualify could
reasonably be expected to result in a Material Adverse Effect.
8.2 Corporate Power and Authorization. The Company is duly authorized
and empowered to create and issue the Notes; each of the Company and each
Subsidiary of the Company is duly authorized and empowered to execute, deliver,
and perform this Agreement and the other Loan Documents to which it is a party;
and all corporate action on the Company's part requisite for the due creation
and issuance of the Notes and on the Company's part and on the part of each
Subsidiary of the Company for the due execution, delivery, and performance of
this Agreement and the other Loan Documents to which each of the Company and
each such Subsidiary is a party has been duly and effectively taken.
8.3 Binding Obligations. This Agreement, the Notes and the other Loan
Documents constitute legal, valid and binding obligations of the Company and its
Subsidiaries, to the extent each is a party thereto, enforceable against the
Company and its Subsidiaries, to the extent each is a party thereto, in
accordance with their respective terms, except as may be limited by any
bankruptcy, insolvency, moratorium or other similar laws or judicial decisions
affecting creditors' rights generally.
8.4 No Legal Bar or Resultant Lien. The Company's and each of its
Subsidiaries' creation, issuance, execution, delivery and performance of this
Agreement, the Notes and the other Loan Documents, to the extent they are
parties thereto, do not and will not violate any provisions of the
Organizational Documents of the Company or any Subsidiary of the Company or any
Legal Requirement to which the Company or any Subsidiary of the Company is
subject or by which its property may be presently bound or encumbered, or result
in the creation or imposition of any Lien upon any properties of the Company or
any Subsidiary of the Company, other than those permitted by this Agreement.
8.5 No Consent. Except as set forth in the Disclosure Statement, the
Company's creation and issuance of the Notes and the Company's and each of its
Subsidiaries' execution, delivery, and performance of this Agreement, the Notes
and the other Loan Documents to which they are parties do not and will not
require the consent or approval of any Person other than such consents and/or
approvals obtained by the Company contemporaneously with or prior to the
execution of this Agreement, including, without limitation, any Governmental
<PAGE>
Authorities, other than those consents the failure to obtain which could not be
reasonably expected to have a Material Adverse Effect.
8.6 Financial Condition. The audited consolidated and unaudited
consolidating annual financial statements of the Company and its Subsidiaries
for the year ended December 31, 1995 and the unaudited consolidated interim
financial statements of the Company and its Subsidiaries for the quarters and
three-month periods ended March 31, 1996 and June 30, 1996, which have been
delivered to the Banks, have been prepared in accordance with GAAP, and present
fairly the financial condition and results of the operations of the Company and
its Subsidiaries for the period or periods stated (subject only to normal
year-end audit adjustments with respect to the unaudited interim statements). No
material adverse change, either in any case or in the aggregate, has occurred
since June 30, 1996 in the assets, liabilities, financial condition, business,
operations, affairs or circumstances of the Company and its Subsidiaries taken
as a whole, except as disclosed to the Banks in the Disclosure Statement. Each
Engineering Report and Company Report fairly presents the values and prospective
performances of the property described therein and there are no statements or
conclusions therein which were based upon or included materially misleading
information or fail to take into account material information.
8.7 Investments and Guaranties. As of the Effective Date, neither the
Company nor any Subsidiary of the Company had made Investments in, advances to,
or Guarantees of, the obligations of any Person, except as (a) disclosed to the
Banks in the Disclosure Statement or (b) not prohibited by applicable provisions
of Section 10.
8.8 Liabilities and Litigation. Neither the Company nor any Subsidiary
of the Company has any material (individually or in the aggregate) liabilities,
direct or contingent, except as (a) disclosed or referred to in the Financial
Statements, (b) disclosed to the Banks in the Disclosure Statement, (c)
disclosed in a notice to Agent pursuant to Section 9.11 with respect to such as
could reasonably be expected to have a Material Adverse Effect or (d) not
prohibited by applicable provisions of Section 10. Except as (a) described in
the Financial Statements, (b) otherwise disclosed to the Banks in the Disclosure
Statement, (c) disclosed in a notice to Agent pursuant to Section 9.11 with
respect to such as could reasonably be expected to have a Material Adverse
Effect or (d) not prohibited by applicable provisions of Section 10, no
litigation, legal, administrative or arbitral proceeding, investigation, or
other action of any nature exists or (to the knowledge of the Company) is
threatened against or affecting the Company or any Subsidiary of the Company
which could reasonably be expected to result in any judgment which could
reasonably be expected to have a Material Adverse Effect, or which in any manner
challenges or may challenge or draw into question the validity of this
Agreement, the Notes or any other Loan Document, or enjoins or threatens to
enjoin or otherwise restrain any of the transactions contemplated by any of
them.
8.9 Taxes and Governmental Charges. The Company and its Subsidiaries
have filed, or obtained extensions with respect to the filing of, all material
tax returns and reports required to be filed and have paid all material taxes,
<PAGE>
assessments, fees and other governmental charges levied upon any of them or upon
any of their respective properties or income which are due and payable,
including interest and penalties, or have provided adequate reserves for the
payment thereof.
8.10 Title to Properties. The Company and its Subsidiaries have good
and defensible title to their respective properties included in the Borrowing
Base (including, without limitation, all fee and leasehold interests), free and
clear of all Liens except (a) those referred to in the Financial Statements, (b)
as disclosed to the Banks in the Disclosure Statement or (c) as permitted by
Section 10.2.
8.11 Defaults. Neither the Company nor any Subsidiary of the Company
is in default, which default could reasonably be expected to have a Material
Adverse Effect, under any indenture, mortgage, deed of trust, agreement or other
instrument to which the Company or any Subsidiary of the Company is a party or
by which the Company or any Subsidiary of the Company or the property of the
Company or any Subsidiary of the Company is bound, except as (a) disclosed to
the Banks in the Disclosure Statement, (b) disclosed in a notice to Agent
pursuant to Section 9.11 with respect to such as could reasonably be expected to
have a Material Adverse Effect or (c) specifically permitted by applicable
provisions of Section 10. No Default under this Agreement, the Notes or any
other Loan Document has occurred and is continuing.
8.12 Location of Businesses and Offices. Except to the extent that
Agent has been furnished written notice to the contrary or of additional
locations, pursuant to Section 9.11, the Company's principal place of business
and chief executive offices are located at the address stated on the signature
page hereof and the principal places of business and chief executive offices of
each Subsidiary are described on Exhibit F hereto.
8.13 Compliance with Law. Neither the Company nor any Subsidiary of
the Company (except as (a) disclosed to the Banks in the Disclosure Statement,
(b) disclosed in a notice to Agent pursuant to Section 9.11 with respect to such
as could reasonably be expected to have a Material Adverse Effect or (c) not
prohibited by applicable provisions of Section 10):
(a) is in violation of any Legal Requirement; or
(b) has failed to obtain any license, permit, franchise or other
governmental authorization necessary to the ownership of any of their respective
properties or the conduct of their respective business; which violation or
failure could reasonably be expected to have a Material Adverse Effect.
8.14 Margin Stock. None of the proceeds of the Notes will be used for
the purpose of, and neither the Company nor any Subsidiary of the Company is
engaged in the business of extending credit for the purpose of (a) purchasing or
<PAGE>
carrying any "margin stock" as defined in Regulation U of the Board of Governors
of the Federal Reserve System (12 C.F.R. Part 221) or (b) reducing or retiring
any indebtedness which was originally incurred to purchase or carry margin
stock, if such purpose under either (a) or (b) above would constitute this
transaction a "purpose credit" within the meaning of said Regulation U, or for
any other purpose which would constitute this transaction a "purpose credit".
Neither the Company nor any Subsidiary of the Company is engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stocks. Neither the Company nor any
Subsidiary of the Company nor any Person acting on behalf of the Company or any
Subsidiary of the Company has taken or will take any action which might cause
the Notes or any of the Loan Documents, including this Agreement, to violate
Regulation U or any other regulation of the Board of Governors of the Federal
Reserve System, or to violate any similar provision of the Securities Exchange
Act of 1934 or any rule or regulation under any such provision thereof.
8.15 Subsidiaries. The Company has no Subsidiaries as of the date of
this Agreement except those shown in Exhibit F hereto.
8.16 ERISA. With respect to each Plan, the Company and each ERISA
Affiliate have fulfilled their obligations, including obligations under the
minimum funding standards of ERISA and the Code, and are in compliance in all
material respects with the provisions of ERISA and the Code. The Company has no
knowledge of any event which could result in a liability of the Company or any
ERISA Affiliate to the PBGC or a Plan (other than to make contributions in the
ordinary course). Since the effective date of Title IV of ERISA, there have not
been any nor are there now existing any events or conditions that would cause
the Lien provided under Section 4068 of ERISA to attach to any property of the
Company or any ERISA Affiliate. There are no Unfunded Liabilities with respect
to any Plan other than those specifically described in the certificate delivered
in accordance with Section 7.1(i). No "prohibited transaction" has occurred with
respect to any Plan.
8.17 Investment Company Act. Neither the Company nor any of its
Subsidiaries is an investment company within the meaning of the Investment
Company Act of 1940, as amended, or, directly or indirectly, controlled by or
acting on behalf of any Person which is an investment company, within the
meaning of said Act.
8.18 Public Utility Holding Company Act. Neither the Company nor any
of its Subsidiaries (i) is subject to regulation under the Public Utility
Holding Company Act of 1935, as amended (the "PUHC Act"), except as to Section
9(a)(2) thereof (15 U.S.C.A. ss.79(i)(a)(2)), or (ii) is in violation of any of
the provisions, rules, regulations or orders of or under the PUHC Act. Further,
none of the transactions contemplated under this Agreement, including without
limitation, the making of the Loans and the issuance of the Letters of Credit,
shall cause or constitute a violation of any of the provisions, rules,
regulations or orders of or under the PUHC Act and the PUHC Act does not in any
manner impair the legality, validity or enforceability of the Notes. The Company
<PAGE>
has duly filed with the Securities and Exchange Commission good faith
applications (each an "Application") under Section 2(a)(8) of the PUHC Act (15
U.S.C.A. ss.79(b)(a)(8)) for a declaration of non-subsidiary status pursuant to
such Section 2(a)(8) with respect to each Person (each a "Specified
Shareholder") which owns, controls or holds with power to vote, directly or
indirectly, a sufficient quantity of the voting securities of the Company to be
construed as a "holding company", as such term is defined in the PUHC Act, in
respect of the Company. All of the information contained in such Applications,
as amended, was true as of the most recent filing date with respect thereto
(provided that the Company may, unless it has actual current knowledge to the
contrary, rely solely upon written information furnished by any Specified
Shareholder with respect to background information about the Specified
Shareholder and the nature of the ownership by such Specified Shareholder or its
Affiliates of the voting securities of the Company), and the Company knows of no
reason why each such Application, if acted upon by the Securities and Exchange
Commission, would not be approved. True and correct copies of each such
Application and any amendments thereto, as filed, have been furnished to Agent.
The Company has not received any written notice from the Securities and Exchange
Commission with respect to any such Application other than as disclosed in
writing to Agent.
8.19 Environmental Matters. Except as disclosed in the Disclosure
Statement, (i) the Company and it Subsidiaries have obtained and maintained in
effect all Environmental Permits (or has initiated the necessary steps to
transfer the Environmental Permits into its name), the failure to obtain which
could reasonably be expected to have a Material Adverse Effect, (ii) the Company
and its Subsidiaries and their properties, assets, business and operations have
been and are in compliance with all applicable Requirements of Environmental Law
and Environmental Permits failure to comply with which could reasonably be
expected to have a Material Adverse Effect, (iii) the Company and its
Subsidiaries and their properties, assets, business and operations are not
subject to any (A) Environmental Claims or (B) Environmental Liabilities, in
either case direct or contingent, and whether known or unknown, arising from or
based upon any act, omission, event, condition or circumstance occurring or
existing on or prior to the date hereof which could reasonably be expected to
have a Material Adverse Effect, and (iv) no Responsible Officer of the Company
or any of its Subsidiaries has received any notice of any violation or alleged
violation of any Requirements of Environmental Law or Environmental Permit or
any Environmental Claim in connection with its assets, properties, business or
operations which could reasonably be expected to have a Material Adverse Effect.
The liability (including without limitation any Environmental Liability and any
other damage to persons or property), if any, of the Company and its
Subsidiaries and with respect to their properties, assets, business and
operations which is reasonably expected to arise in connection with Requirements
of Environmental Laws currently in effect and other environmental matters
presently known by a Responsible Officer of the Company will not have a Material
Adverse Effect. No Responsible Officer of the Company knows of any event or
condition with respect to Environmental Matters with respect to any of its
properties or the properties of any of its Subsidiaries which could reasonably
be expected to have a Material Adverse Effect. For purposes of this Section
8.19, "Environmental Matters" shall mean matters relating to pollution or
protection of the environment, including, without limitation, emissions,
<PAGE>
discharges, releases or threatened releases of Hazardous Substances into the
environment (including, without limitation, ambient air, surface water or ground
water, or land surface or subsurface), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Substances.
8.20 Claims and Liabilities. Except as disclosed to the Banks in
writing, neither the Company nor any of its Subsidiaries has accrued any
liabilities under gas purchase contracts for gas not taken, but for which it is
liable to pay if not made up and which, if not paid, would have a Material
Adverse Effect. Except as disclosed to the Banks in writing, no claims exist
against the Company or its Subsidiaries for gas imbalances which claims if
adversely determined would have a Material Adverse Effect. No purchaser of
product supplied by the Company or any of its Subsidiaries has any claim against
the Company or any of its Subsidiaries for product paid for, but for which
delivery was not taken as and when paid for, which claim if adversely determined
would have a Material Adverse Effect.
8.21 Solvency. Neither the Company nor the Company and its
Subsidiaries, on a consolidated basis, is "insolvent", as such term is used and
defined in (i) the Bankruptcy Code and (ii) the Texas Uniform Fraudulent
Transfer Act, Tex. Bus. & Com. Code Ann. ss.24.001 et seq.
Section 9. Affirmative Covenants. A deviation from the provisions of
this Section 9 will not constitute a Default under this Agreement if such
deviation is consented to in writing by the Majority Banks. Without the prior
written consent of the Majority Banks, the Company agrees with the Banks and
Agent that, so long as any of the Commitments is in effect and until payment in
full of all Loans hereunder, the termination or expiry of all Letters of Credit
and payment in full of Letter of Credit Liabilities, all interest thereon and
all other amounts payable by the Company hereunder:
9.1 Financial Statements and Reports. The Company will promptly
furnish to any Bank from time to time upon request such information regarding
the business and affairs and financial condition of the Company and its
Subsidiaries as such Bank may reasonably request, and will furnish to Agent and
each of the Banks:
(a) Annual Reports - promptly after becoming available and in any
event within 100 days after the close of each fiscal year of the Company:
(i) the audited consolidated balance sheet of the Company and
its Subsidiaries as of the end of such year;
(ii) the audited consolidated statement of earnings of the
Company and its Subsidiaries for such year;
<PAGE>
(iii) the audited consolidated statement of cash flows of the
Company and its Subsidiaries for such year;
(iv) the unaudited consolidating balance sheet and statement of
earnings of the Company and its Subsidiaries, each for such
year or as of the end of such year, as the case may be;
(v) a report prepared by a petroleum engineer, who may be an
employee of the Company or its Subsidiaries, setting forth
the historical monthly production data for Hydrocarbons
produced and sold by the Company and its Subsidiaries for
such year; setting forth in each case in comparative form
the corresponding figures for the preceding fiscal year,
and, in the case of the audited Financial Statements,
audited and accompanied by the related opinion of KPMG Peat
Marwick or other independent certified public accountants of
recognized national standing acceptable to the Majority
Banks, which opinion shall state that such audited balance
sheets and statements have been prepared in accordance with
GAAP consistently followed throughout the period indicated
and fairly present the consolidated financial condition and
results of operations of the applicable Persons as at the
end of, and for, such fiscal year; and
(b) Quarterly Reports - as soon as available and in any event within
50 days after the end of each of the first three quarterly periods in each
fiscal year of the Company:
(i) the unaudited consolidated balance sheet of the
Company and its Subsidiaries as of the end of such
quarter;
(ii) the unaudited consolidated statement of earnings of
the Company and its Subsidiaries for such quarter and
for the period from the beginning of the fiscal year
to the close of such quarter;
(iii) the unaudited consolidated statement of cash flows of
the Company and its Subsidiaries for such quarter and
for the period from the beginning of the fiscal year
to the close of such quarter;
(iv) the unaudited consolidating balance sheet and
statement of earnings of the Company and its
Subsidiaries, each for such quarter and for the
period from the beginning of the fiscal year to the
close of such quarter;
(v) a report prepared by a petroleum engineer, who may be
an employee of the Company or its Subsidiaries,
setting forth the historical monthly production data
for Hydrocarbons produced and sold by the Company and
its Subsidiaries for such quarter; all of items
<PAGE>
(i) through (iv) above prepared on substantially
the same accounting basis as the annual reports
described in Subsection 9.1(a), subject to normal
changes resulting from year-end adjustments; and
(c) Company Report - promptly after becoming available and in any
event on or before September 1 of each year, a Company Report; and
(d) Other Bank Requirements - at such time as the same are required to
be furnished to other lenders under other financing arrangements to which the
Company or any of its Subsidiaries may be a party or be bound from time to time,
a copy of any report, certificate, affidavit or other information required to be
furnished to any such lender; and
(e) SEC and Other Reports - promptly upon their becoming publicly
available, one copy of each financial statement, report, notice or definitive
proxy statement sent by the Company or any Subsidiary to shareholders generally,
and of each regular or periodic report and any registration statement,
prospectus or written communication (other than transmittal letters) in respect
thereof filed by the Company or any of its Subsidiaries with, or received by the
Company or any of its Subsidiaries in connection therewith from, any securities
exchange or the Securities and Exchange Commission or any successor agency; and
(f) Engineering Report and other Component Values - promptly after
becoming available and in any event on or before March 15 of each year,
commencing with March 15, 1997, an Engineering Report.
All of the balance sheets and other financial statements referred to
in this Section 9.1 will be in such detail as any Bank may reasonably request
and will conform to GAAP applied on a basis consistent with those of the
Financial Statements as of December 31, 1995. In addition, if GAAP shall change
with respect to any matter relative to determination of compliance with this
Agreement, the Company will also provide financial information necessary for the
Banks to determine compliance with this Agreement.
9.2 Officers' Certificates.
(a) Concurrently with the furnishing of the annual financial
statements pursuant to Subsection 9.1(a), commencing with the annual financial
statements required to be delivered in 1997, the Company will furnish or cause
to be furnished to Agent certificates of compliance, as follows:
(i) a certificate signed by the principal financial officer of the
Company in the form of ExhiHbit G; and
<PAGE>
(ii) a certificate from the independent public accountants
stating that their audit has not disclosed the existence of
any condition which constitutes a Default, or if their audit
has disclosed the existence of any such condition,
specifying the nature and period of existence.
(b) Concurrently with the furnishing of the quarterly financial
statements pursuant to Subsection 9.1(b), the Company will furnish to Agent a
principal financial officer's certificate in the form of Exhibit G.
(c) Not later than concurrently with the furnishing of any annual
reports pursuant to Section 9.1(a) or concurrently with any request by the
Company for a Requested Redetermination (using then available Financial
Statements) and within ten (10) Business Days after any request by the
Requesting Banks for a Requested Redetermination (using then available Financial
Statements), the Company will furnish to Agent a Borrowing Base Certificate.
(d) Concurrently with the furnishing of any Engineering Report or
Company Report, the Company will furnish to Agent a certificate signed by an
appropriate officer of the Company and the applicable Relevant Party in the form
of Exhibit I.
9.3 Taxes and Other Liens. The Company will and will cause each
Subsidiary of the Company to pay and discharge promptly all taxes, assessments
and governmental charges or levies imposed upon the Company or such Subsidiary,
or upon the income or any property of the Company or such Subsidiary, as well as
all claims of any kind (including claims for labor, materials, supplies, rent
and payment of proceeds attributable to Hydrocarbon production) which, if
unpaid, might result in or become a Lien upon any or all of the property of the
Company or such Subsidiary; provided, however, that neither the Company nor such
Subsidiary will be required to pay any such tax, assessment, charge, levy or
claims if the amount, applicability or validity thereof will currently be
contested in good faith by appropriate proceedings diligently conducted and if
the Company or such Subsidiary will have set up reserves therefor adequate under
GAAP.
9.4 Maintenance. Except as referred to in Sections 8.1 and 8.13 and
except as permitted under Section 10.5 the Company will and will cause each
Subsidiary of the Company to: (i) maintain its corporate existence; (ii)
maintain its rights and franchises, except for any mergers or consolidations
otherwise permitted by this Agreement and except to the extent failure to so
maintain the same would not have a Material Adverse Effect; (iii) observe and
comply (to the extent that any failure would have a Material Adverse Effect)
with all valid Legal Requirements (including without limitation Requirements of
Environmental Law); and (iv) maintain (except to the extent failure to so
maintain the same would not have a Material Adverse Effect) its properties (and
any properties leased by or consigned to it or held under title retention or
conditional sales contracts) consistent with the standards of a reasonably
prudent operator at all times and make all repairs, replacements, additions,
<PAGE>
betterments and improvements to its properties consistent with the standards of
a reasonably prudent operator.
9.5 Further Assurances. The Company will and will cause each
Subsidiary of the Company to cure promptly any defects in the creation and
issuance of the Notes and the execution and delivery of the Loan Documents,
including this Agreement. The Company at its expense will promptly execute and
deliver to Agent upon request all such other and further documents, agreements
and instruments (or cause any of its Subsidiaries to take such action) in
compliance with or accomplishment of the covenants and agreements of the Company
or any of its Subsidiaries in the Loan Documents, including this Agreement, or
to correct any omissions in the Loan Documents, or to make any recordings, to
file any notices, or obtain any consents, all as may be necessary or appropriate
in connection therewith.
9.6 Performance of Obligations. The Company will pay the Notes
according to the reading, tenor and effect thereof; and the Company will do and
perform every act and discharge all of the obligations provided to be performed
and discharged by the Company under this Agreement and the other Loan Documents
at the time or times and in the manner specified, and cause each of its
Subsidiaries to take such action with respect to their obligations to be
performed and discharged under the Loan Documents to which they respectively are
parties.
9.7 Reimbursement of Expenses. Whether or not any Loan is ever made or
any Letter of Credit is ever issued, the Company agrees to pay or reimburse
Agent for paying the reasonable fees and expenses of Liddell, Sapp, Zivley, Hill
& LaBoon, L.L.P., special counsel to Agent, together with the reasonable fees
and expenses of local counsel engaged by Agent, in connection with the
negotiation of the terms and structure of the Obligations, the preparation,
execution and delivery of this Agreement and the other Loan Documents and the
making of the Loans and the issuance of Letters of Credit hereunder, as well as
any modification, supplement or waiver of any of the terms of this Agreement and
the other Loan Documents. The Company will promptly upon request and in any
event within 30 days from the date of receipt by the Company of a copy of a bill
for such amounts, reimburse any Bank or Agent for all amounts reasonably
expended, advanced or incurred by such Bank or Agent to satisfy any obligation
of the Company under this Agreement or any other Loan Document, to protect the
properties or business of the Company or any Subsidiary of the Company, to
collect the Obligations, or to enforce the rights of such Bank or Agent under
this Agreement or any other Loan Document, which amounts will include without
limitation all court costs, attorneys' fees (but not including allocated costs
of in-house counsel), any engineering fees and expenses, fees of auditors,
accountants and appraisers, investigation expenses, all transfer, stamp,
documentary or similar taxes, assessments or charges levied by any governmental
or revenue authority in respect of any of the Loan Documents or any other
document referred to therein, all costs, expenses, taxes, assessments and other
charges incurred in connection with any filing, registration, recording or
perfection of any lien contemplated by any of the Loan Documents or any document
referred to therein, fees and expenses incurred in connection with such Bank's
participation as a member of a creditors' committee in a case commenced under
<PAGE>
the Bankruptcy Code or other similar law of the United States or any state
thereof, fees and expenses incurred in connection with lifting the automatic
stay prescribed in ss.362 Title 11 of the United States Code, and fees and
expenses incurred in connection with any action pursuant to ss.1129 Title 11 of
the United States Code and all other customary out-of-pocket expenses incurred
by such Bank or Agent in connection with such matters, together with interest
after the expiration of the 30-day period stated above in this Section if no
Event of Default has occurred and is continuing, or from the date of the request
to the Company if an Event of Default has occurred and is continuing, at either
(i) the Post-Default Rate on each such amount until the date of reimbursement to
such Bank or Agent, or (ii) if no Event of Default will have occurred and be
continuing, the Alternate Base Rate plus the highest Applicable Margin for
Alternate Base Rate Loans (not to exceed the Highest Lawful Rate) on each such
amount until the date of the Company's receipt of written demand or request by
such Bank or Agent for the reimbursement of same, and thereafter at the
applicable Post-Default Rate until the date of reimbursement to such Bank or
Agent. The obligations of the Company under this Section are compensatory in
nature, shall be deemed liquidated as to amount upon receipt by the Company of a
copy of any invoice therefor, and will survive the non-assumption of this
Agreement in a case commenced under the Bankruptcy Code or other similar law of
the United States or any state thereof, and will remain binding on the Company
and any trustee, receiver, or liquidator of the Company appointed in any such
case.
9.8 Insurance. The Company and its Subsidiaries will maintain, with
financially sound and reputable insurers, insurance with respect to their
respective properties and business against such liabilities, casualties, risks
and contingencies and in such types and amounts as is customary in the case of
corporations engaged in the same or similar businesses and similarly situated.
Upon the request of Agent acting at the instruction of the Majority Banks, the
Company will furnish or cause to be furnished to Agent from time to time a
summary of the insurance coverage of the Company and its Subsidiaries in form
and substance satisfactory to the Majority Banks in their reasonable judgment,
and if requested will furnish Agent copies of the applicable policies. Subject
to the terms of Section 3 hereof, in the case of any fire, accident or other
casualty causing loss or damage to any properties of the Company or any of its
Subsidiaries, the proceeds of such policies will be used (i) to repair or
replace the damaged property or (ii) to prepay the Obligations, at the election
of the Company.
9.9 Accounts and Records. The Company will keep and will cause each
Subsidiary of the Company to keep books of record and account which fairly
reflect all dealings or transactions in relation to their respective businesses
and activities, in accordance with GAAP, which books of record and account will
be maintained, to the extent necessary to enable compliance with all provisions
of this Agreement, separately for each such Subsidiary, the Company and any
division of the Company.
9.10 Rights of Inspection. The Company will permit and will cause each
of its Subsidiaries to permit any officer, employee, or agent of Agent or any
Bank to meet with the consultants who prepared any applicable Engineering Report
<PAGE>
and to review such Engineering Report with such consultants and to visit and
inspect any of the properties of the Company or such Subsidiary, examine the
Company's or such Subsidiary's books of record and accounts, take copies and
extracts therefrom, and discuss the affairs, finances and accounts of the Bank
or such Subsidiary with the Company's or such Subsidiary's officers, accountants
and auditors, all at such reasonable times during normal business hours and as
often as Agent or such Bank may reasonably desire, and will assist in all such
matters.
9.11 Notice of Certain Events. The Company will promptly notify Agent
(and Agent will then notify all of the Banks) if a Responsible Officer of the
Company learns of the occurrence of, or if the Company causes or intends to
cause, as the case may be:
(i) any event which constitutes a Default, together with a detailed
statement by a responsible officer of the Company of the steps being taken to
cure the effect of such Default; or
(ii) the receipt of any notice from, or the taking of any other action
by, the holder of any promissory note, debenture or other evidence of
indebtedness of the Company or any Subsidiary of the Company or of any security
(as defined in the Securities Act of 1933, as amended) of the Company or any
Subsidiary of the Company with respect to a claimed default, together with a
detailed statement by a Responsible Officer of the Company specifying the notice
given or other action taken by such holder and the nature of the claimed default
and what action the Company or such Subsidiary is taking or proposes to take
with respect thereto; or
(iii) any legal, judicial or regulatory proceedings affecting the
Company or any Subsidiary of the Company or any of the properties of the Company
or any Subsidiary of the Company in which the amount involved is materially
adverse to the Company and its Subsidiaries taken as a whole, and is not covered
by insurance or which, if adversely determined, would have a Material Adverse
Effect; or
(iv) any dispute between the Company or any Subsidiary of the Company
and any Governmental Authority or any other Person which, if adversely
determined, could reasonably be expected to have a Material Adverse Effect; or
(v) the occurrence of a default or event of default by the Company or
any Subsidiary of the Company under any other agreement to which it is a party,
which default or event of default could reasonably be expected to have a
Material Adverse Effect; or
(vi) any change in the accuracy of the representations and warranties
of the Company or any Subsidiary contained in this Agreement or any other Loan
Document; or
<PAGE>
(vii) any material violation or alleged material violation of any
Requirements of Environmental Law or Environmental Permit or any Environmental
Claim or any Environmental Liability; or
(viii) any tariff and rate cases and other material reports filed by
the Company or any of its Subsidiaries with any Governmental Authority and any
notice to the Company or any of its Subsidiaries from any Governmental Authority
concerning noncompliance with any applicable Legal Requirement; or
(ix) the existence of any Borrowing Base Deficiency; or
(x) within 10 days after the date on which a Responsible Officer of
the Company has actual knowledge thereof, the receipt of any notice by the
Company or any of its Subsidiaries of any claim of nonpayment of, or any attempt
to collect or enforce, accounts payable of the Company or any of its
Subsidiaries exceeding, in the case of any one account payable at one time
outstanding, $1,000,000 and in the case of all accounts payable in the aggregate
at any one time outstanding, $3,000,000; or
(xi) any requirement for the payment of all or any portion of any
Indebtedness of the Company or any of its Subsidiaries prior to the stated
maturity thereof (whether by acceleration or otherwise) or as the result of any
failure to maintain or the reaching of any threshold amount provided in any
promissory note, bond, debenture, or other evidence of Indebtedness or under any
credit agreement, loan agreement, indenture or similar agreement executed in
connection with any of the foregoing; or
(xii) any notice from the Securities and Exchange Commission with
respect to any Application (as defined in Section 8.18 hereof).
9.12 ERISA Information and Compliance. The Company will promptly
furnish to Agent (i) immediately upon receipt, a copy of any notice of complete
or partial withdrawal liability under Title IV of ERISA and any notice from the
PBGC under Title IV of ERISA of an intent to terminate or appoint a trustee to
administer any Plan, (ii) if requested by Agent, acting on the instruction of
the Majority Banks, promptly after the filing thereof with the United States
Secretary of Labor or the PBGC or the Internal Revenue Service, copies of each
annual and other report with respect to each Plan or any trust created
thereunder, (iii) immediately upon becoming aware of the occurrence of any
"reportable event", as such term is defined in Section 4043 of ERISA, for which
the disclosure requirements of Regulation Section 2615.3 promulgated by the PBGC
have not been waived, or of any "prohibited transaction", as such term is
defined in Section 4975 of the Code, in connection with any Plan or any trust
created thereunder, a written notice signed by the President or the principal
financial officer of the Company or the applicable ERISA Affiliate specifying
the nature thereof, what action the Company or the applicable ERISA Affiliate is
taking or proposes to take with respect thereto, and, when known, any action
<PAGE>
taken by the PBGC, the Internal Revenue Service or the Department of Labor with
respect thereto, (iv) promptly after the filing or receiving thereof by the
Company or any ERISA Affiliate of any notice of the institution of any
proceedings or other actions which may result in the termination of any Plan,
and (v) each request for waiver of the funding standards or extension of the
amortization periods required by Sections 303 and 304 of ERISA or Section 412 of
the Code promptly after the request is submitted by the Company or any ERISA
Affiliate to the Secretary of the Treasury, the Department of Labor or the
Internal Revenue Service, as the case may be. To the extent required under
applicable statutory funding requirements, the Company will fund, or will cause
each ERISA Affiliate to fund, all current service pension liabilities as they
are incurred under the provisions of all Plans from time to time in effect, and
comply with all applicable provisions of ERISA, except to the extent that any
such failure to comply could not reasonably be expected to have a Material
Adverse Effect. The Company covenants that it shall and shall cause each ERISA
Affiliate to (1) make contributions to each Plan in a timely manner and in an
amount sufficient to comply with the contribution obligations under such Plan
and the minimum funding standards requirements of ERISA; (2) prepare and file in
a timely manner all notices and reports required under the terms of ERISA
including but not limited to annual reports; and (3) pay in a timely manner all
required PBGC premiums, in each case, to the extent failure to do so would have
a Material Adverse Effect.
Section 10. Negative Covenants. A deviation from the provisions of
this Section 10 will not constitute a Default under this Agreement if such
deviation is consented to in writing by the Majority Banks. The Company agrees
with the Banks and Agent that, so long as any of the Commitments is in effect
and until payment in full of all Loans hereunder, the termination or expiry of
all Letters of Credit and payment in full of Letter of Credit Liabilities, all
interest thereon and all amounts payable by the Company hereunder:
10.1 Debts, Guaranties and Other Obligations. The Company will not and
will not permit any of its Subsidiaries (other than APC) to incur, create,
assume or in any manner become or be liable in respect of any Indebtedness
(including obligations for the payment of rentals); and the Company will not and
will not permit any of its Subsidiaries (other than APC) to Guarantee or
otherwise in any way become or be responsible for obligations of any other
Person, whether by agreement to purchase the Indebtedness of any other Person or
agreement for the furnishing of funds to any other Person through the purchase
or lease of goods, supplies or services (or by way of stock purchase, capital
contribution, advance or loan) for the purpose of paying or discharging the
Indebtedness of any other Person, or otherwise, except that the foregoing
restrictions will not apply to:
(a) the Notes or other Indebtedness under the Loan Documents;
(b) liabilities, direct or contingent, of the Company or any
Subsidiary of the Company existing on the date of this Agreement which are
<PAGE>
reflected in the Financial Statements or the Disclosure Statement and all
renewals, extensions, refinancings and rearrangements, but not increases,
thereof;
(c) endorsements of negotiable or similar instruments for collection
or deposit in the ordinary course of business;
(d) trade payables, lease acquisition and lease maintenance
obligations, extensions of credit from suppliers or contractors, liabilities
incurred in exploration, development and operation of the Company's or any
Subsidiary's oil and gas properties or similar obligations from time to time
incurred in the ordinary course of business, other than for borrowed money,
which are paid within 90 days after the invoice date (inclusive of applicable
grace periods) or (i) are being contested in good faith, if such reserve as
required by GAAP has been made therefor or (ii) trade accounts payable of the
Company and its Subsidiaries (with respect to which no legal proceeding to
enforce collection has been commenced or, to the knowledge of a Responsible
Officer of the Company, threatened) not exceeding, in the aggregate at any time
outstanding, $25,000,000;
(e) taxes, assessments or other government charges which are not yet
due or are being contested in good faith by appropriate action promptly
initiated and diligently conducted, if such reserve as will be required by GAAP
will have been made therefor;
(f) Borrowing Base Debt of the Company; provided that the aggregate of
all Indebtedness permitted under this Subsection 10.1(f) shall not exceed the
amount by which the then current Borrowing Base exceeds the then current
Revolving Credit Obligations;
(g) to the extent, if any, not covered by Subsection (b) hereinabove,
the Indebtedness of the Company to APC evidenced solely by the Intercompany
Notes, as defined in the Beluga Financing Documents and the APC Long Term
Financing Documents, together with any renewals, extensions, amendments,
refinancings, rearrangements, modifications, restatements or supplements, but
not increases (other than increases which are permitted under the present terms
of the Beluga Financing Documents and the APC Long Term Financing Documents)
thereof from time to time;
(h) intercompany Indebtedness owed to the Company by any Subsidiary of
the Company and intercompany Indebtedness owed to any Subsidiary of the Company
by the Company or any other Subsidiary of the Company which is fully
subordinated to the Obligations;
(i) loans, advances or extensions of credit to the Company for the
purpose of financing no more than 75% of the purchase price of any fixed assets
which are not included in the property taken into account in determining the
Borrowing Base and which are considered in the categories of property, plant or
equipment according to GAAP applied on a consistent basis;
<PAGE>
(j) obligations of the Company under the Gas Sales Contract, together
with any renewals, extensions, amendments, refinancings, rearrangements,
modifications, restatements or supplements, but not increases, thereof from time
to time;
(k) the Guarantee by the Company or any Subsidiary of the Company of
payment or performance by any Subsidiary of the Company under any agreement so
long as the obligation guaranteed does not constitute Indebtedness for borrowed
money;
(l) obligations of the Company or any of its Subsidiaries under gas
purchase contracts for gas not taken, as to which the Company or its respective
Subsidiary is liable to pay if not made up;
(m) obligations of the Company or any of its Subsidiaries under any
contract for sale for future delivery of oil or gas (whether or not the subject
oil or gas is to be delivered), hedging contract, forward contract, swap
agreement, futures contract or other similar agreement;
(n) obligations of the Company or any of its Subsidiaries under any
interest rate swap agreement, or any contract implementing any interest rate
cap, collar or floor, or any similar interest hedging contract;
(o) obligations in connection with gas imbalances arising in the
ordinary course of business;
(p) Indebtedness not exceeding $1,000,000 in the aggregate borrowed
from the Amarillo Economic Development Commission and related Guarantees and
related obligations of the Company and its Subsidiaries;
(q) liabilities under leases and lease agreements which do not cover
oil and gas properties to the extent the incurrence and existence of such
liabilities will still enable the Company and each Subsidiary to comply with all
other requirements of this Agreement and the other Loan Documents to which they
respectively are parties;
(r) Subordinated Debt;
(s) Funded Indebtedness of any Oil and Gas Subsidiary for borrowed
money payable solely by recourse to properties not included in the Borrowing
Base and Indebtedness incurred by any Gas and Liquids Pipeline Subsidiary in
connection with the construction or acquisition of new assets in connection with
the Pipeline Operations which is payable solely by recourse to the assets so
constructed or acquired, each to the extent not otherwise expressly permitted by
this Section 10.1;
<PAGE>
(t) the Canadian Facility (and the "Bankers' Acceptances" provided for
therein) and the guaranty by the Company of the Canadian Facility; and
(u) Indebtedness of Seagull Energy Canada Ltd. having a maturity of
364 days or less from the date of its incurrence in an aggregate principal
amount not exceeding Canadian $10,000,000 at any one time outstanding.
10.2 Liens. The Company will not and will not permit any of its
Subsidiaries to create, incur, assume or permit to exist any Lien on any of its
or their properties (now owned or hereafter acquired), except:
(a) Liens securing the Indebtedness described in Subsection 10.1(a);
(b) Liens for taxes, assessments or other governmental charges or
levies not yet due or which are being contested in good faith by appropriate
action promptly initiated and diligently conducted, if such reserve as will be
required by GAAP will have been made therefor;
(c) Liens of landlords, vendors, contractors, subcontractors,
carriers, warehousemen, mechanics, laborers or materialmen or other like Liens
arising by law in the ordinary course of business for sums not yet due or being
contested in good faith by appropriate action promptly initiated and diligently
conducted, if such reserve as will be required by GAAP will have been made
therefor;
(d) Liens existing on property owned by the Company or any of its
Subsidiaries on the date of this Agreement which have been disclosed to the
Banks in the Disclosure Statement, together with any renewals, extensions,
amendments, refinancings, rearrangements, modifications, restatements or
supplements, but not increases, thereof from time to time;
(e) pledges or deposits made in the ordinary course of business in
connection with worker's compensation, unemployment insurance, social security
and other like laws;
(f) inchoate liens arising under ERISA to secure the contingent
liability of the Company permitted by Section 9.12;
(g) Liens in the ordinary course of business, not to exceed in the
aggregate $10,000,000 as to the Company and its Subsidiaries at any time in
effect, regarding (i) the performance of bids, tenders, contracts (other than
for the repayment of borrowed money or the deferred purchase price of property
or services) or leases, (ii) statutory obligations, (iii) surety appeal bonds or
(iv) Liens to secure progress or partial payments made to the Company or any of
its Subsidiaries and other Liens of like nature;
<PAGE>
(h) covenants, restrictions, easements, servitudes, permits,
conditions, exceptions, reservations, minor rights, minor encumbrances, minor
irregularities in title or conventional rights of reassignment prior to
abandonment which do not materially interfere with the occupation, use and
enjoyment by the Company or any Subsidiary of the Company of its respective
assets in the normal course of business as presently conducted, or materially
impair the value thereof for the purpose of such business;
(i) Liens of operators under joint operating agreements or similar
contractual arrangements with respect to the relevant entity's proportionate
share of the expense of exploration, development and operation of oil, gas and
mineral leasehold or fee interests owned jointly with others, to the extent that
same relate to sums not yet due or which are being contested in good faith by
appropriate action promptly initiated and diligently conducted, if such reserve
as will be required by GAAP will have been made therefor;
(j) Liens created pursuant to the creation of trusts or other
arrangements funded solely with cash, cash equivalents or other marketable
investments or securities of the type customarily subject to such arrangements
in customary financial practice with respect to long-term or medium-term
indebtedness for borrowed money, the sole purpose of which is to make provision
for the retirement or defeasance, without prepayment, of Indebtedness permitted
under Section 10.1;
(k) Liens on the assets or properties of ENSTAR Alaska;
(l) the Vendor Financing Arrangements (as defined in the Mesa
Contract), to the extent that the same shall have been deducted in calculating
the Borrowing Base;
(m) purchase money Liens for the acquisition of fixed assets pursuant
to Subsection 10.1(i), so long as such Liens exist solely against the relevant
fixed asset acquired and secure only the purchase money debt; provided, that the
aggregate amount of Indebtedness which is secured by Liens described in this
subsection (other than Indebtedness which is payable solely by recourse to the
applicable property) shall not exceed $10,000,000 at any one time outstanding;
(n) any Lien existing on any real or personal property of any
corporation or partnership at the time it becomes a Subsidiary of the Company or
of any other Subsidiary of the Company, or existing prior to the time of
acquisition upon any real or personal property acquired by the Company or any of
its Subsidiaries; provided, that such Liens may at all times be deducted in
calculating the Borrowing Base from time to time in effect;
(o) legal or equitable encumbrances deemed to exist by reason of the
existence of any litigation or other legal proceeding or arising out of a
judgment or award with respect to which an appeal is being prosecuted in good
faith by appropriate action promptly initiated and diligently conducted, if such
reserve as will be required by GAAP will have been made therefor;
<PAGE>
(p) any Liens securing Indebtedness neither assumed nor guaranteed by
the Company or any of its Subsidiaries nor on which it customarily pays
interest, existing upon real estate or rights in or relating to real estate
acquired by the Company or any of its Subsidiaries for substation, metering
station, pump station, storage, gathering line, transmission line,
transportation line, distribution line or right-of-way purposes, and any Liens
reserved in leases for rent and full compliance with the terms of the leases in
the case of leasehold estates, to the extent that any such Lien referred to in
this clause arises in the normal course of business as presently conducted and
does not materially impair the use of the property covered by such Lien for the
purposes for which such property is held by the Company or its applicable
Subsidiary;
(q) rights reserved to or vested in any municipality or governmental,
statutory or public authority by the terms of any right, power, franchise,
grant, license or permit, or by any provision of law, to terminate such right,
power, franchise, grant, license or permit or to purchase, condemn, expropriate
or recapture or to designate a purchaser of any of the property of the Company
or any of its Subsidiaries;
(r) rights reserved to or vested in any municipality or governmental,
statutory or public authority to control or regulate any property of the Company
or any of its Subsidiaries, or to use such property in a manner which does not
materially impair the use of such property for the purposes for which it is held
by the Company or its applicable Subsidiary;
(s) any obligations or duties affecting the property of the Company or
any of its Subsidiaries to any municipality, governmental, statutory or public
authority with respect to any franchise, grant, license or permit;
(t) rights of a common owner of any interest in real estate,
rights-of-way or easements held by the Company or any of its Subsidiaries and
such common owner as tenants in common or through other common ownership;
(u) any Liens arising from the matters described in Schedule 3.19 of
the Mesa Contract;
(v) Liens securing Indebtedness permitted under Section 10.1(s) hereof
(to the extent such Liens are permitted under such Section 10.1(s));
(w) as to assets located in Canada, reservations, limitations,
provisos and conditions in any original grant from the Crown or freehold lessor
of any of the properties of the Company or its Subsidiaries;
(x) other Liens securing Indebtedness not exceeding, in the aggregate,
$10,000,000 at any one time outstanding;
<PAGE>
(y) other Liens securing Senior Debt, but only so long as such Liens
shall also secure the Obligations on a pari passu basis, in a manner and
pursuant to documentation acceptable to the Majority Banks;
(z) Liens (i) granted to or existing in favor of third parties on
margin accounts of the Company or any of its Subsidiaries relating to exchange
traded contracts for the delivery of natural gas pursuant to which the Company
or any such Subsidiary intends to take actual delivery of such natural gas
within forty (40) days from the then current date in the ordinary course of
business and not for speculative purposes, and (ii) on margin accounts of the
Company or any of its Subsidiaries relating to exchange traded contracts for the
delivery of natural gas, provided, however, the aggregate balance of the margin
accounts subject to the Liens permitted by this clause (ii) shall not exceed
from time to time $10,000,000.
10.3 Investments, Loans and Advances. The Company will not and will
not permit its Subsidiaries to make or permit to remain outstanding any
advances, loans or other extensions of credit or capital contributions (other
than prepaid expenses in the ordinary course of business) to (by means of
transfers of property or assets or otherwise), or purchase or own any stocks,
bonds, notes, debentures or other securities of, or incur contingent liability
with respect to (except for the endorsement of checks in the ordinary course of
business and except for the Indebtedness and Liens permitted under this
Agreement) any Person (all such transactions being herein called "Investments"),
except that the foregoing restriction will not apply to:
(a) Investments (all prior to the date hereof) the material details of
which have been set forth in the Financial Statements delivered to Agent prior
to the date hereof or the Disclosure Statement;
(b) Liquid Investments;
(c) advances or extensions of credit in the form of accounts
receivable incurred in the ordinary course of business;
(d) the acquisition of all of the capital stock of wholly owned
Subsidiaries incorporated or acquired subsequent to the date of this Agreement;
(e) investments where the consideration paid is capital stock of the
Company, plus cash paid in lieu of issuing fractional shares and cash paid in
settlement of claims of dissenters, such cash not to exceed 10% of the aggregate
purchase price in any such transaction;
(f) Investments in any Person which after giving effect thereto will
be a Subsidiary of the Company, so long as the Investment in such Person, when
consummated, would not result in a breach of the covenants set forth in Section
10.1;
<PAGE>
(g) intercompany loans, advances or investments by the Company to or
in any Subsidiary of the Company (other than a Subsidiary that is obligated to
pay Funded Indebtedness for borrowed money payable solely by recourse to
properties not included in the Borrowing Base) or, to the extent permitted under
Section 10.1(h) hereof, by any Subsidiary of the Company to or in the Company or
to or in any other Subsidiary of the Company, provided, however, that APC may
not make any intercompany loans, advances or investments in any Subsidiary of
the Company pursuant to this clause (g);
(h) intercompany loans, advances or investments by the Company, solely
from income or cash flow of the Company subject to the Beluga Financing
Documents, to APC as required under the Beluga Financing Documents and the APC
Long Term Financing Documents;
(i) to the extent, if any, not covered by Subsection (a) hereinabove,
the Indebtedness of the Company to APC evidenced solely by the Intercompany
Notes, as defined in the Beluga Financing Documents and the APC Long Term
Financing Documents, together with any renewals, extensions, amendments,
refinancings, rearrangements, modifications, restatements or supplements, but
not increases (other than increases which are permitted under the present terms
of the Beluga Financing Documents and the APC Long Term Financing Documents)
thereof from time to time;
(j) loans or advances to employees made in the ordinary course of
business, up to the aggregate principal amount at any one time outstanding of
$5,000,000;
(k) Investments in reasonable amounts of securities for purposes of
funding employee benefit plans maintained by the Company;
(l) advances or extensions of credit made in the ordinary course of
business to third parties under applicable contracts and agreements in
connection with (i) oil, gas or other mineral exploration, development and
production activities or (ii) Hydrocarbon or chemical pipeline gathering or
transportation activities;
(m) Investments where the consideration paid is assets of the Company
or its Subsidiaries other than capital stock, cash or oil and gas reserves;
(n) Investments in EBOC Energy Ltd. made in connection with and
pursuant to that certain Sale Agreement dated November 19, 1993 executed by and
between Novacor Petrochemicals Ltd., as Vendor, and the Company, as Purchaser;
(o) any payment, prepayment, purchase or retirement of Indebtedness of
the Company (other than payments, prepayments, purchases or retirement of
Subordinated Debt prohibited under the definition of "Subordinated Debt"); and
<PAGE>
(p) any other Investments which in the aggregate do not cause the
Company to be in violation of the Investments Tests.
10.4 Dividend Payment Restrictions. The Company will not declare or
make any Dividend Payment if any Default or Event of Default has occurred and is
continuing or if there exists any Borrowing Base Deficiency.
10.5 Mergers and Sales of Assets. The Company will not (a) merge or
consolidate with, or sell, assign, lease or otherwise dispose of, whether in one
transaction or in a series of transactions, more than ten percent (10%) in the
aggregate of the Company's and its Subsidiaries' consolidated total assets
(whether now owned or hereafter acquired) to any Person or Persons during the
period since the most recent Borrowing Base Determination, or permit any
Subsidiary of the Company to do so (other than to the Company or another
Subsidiary of the Company or the issuance by any Subsidiary of the Company of
any stock to the Company or another Subsidiary of the Company), or (b) sell,
assign, lease or otherwise dispose of, whether in one transaction or in a series
of transactions, any other properties if receiving therefor consideration other
than cash or other consideration readily convertible to cash or which is less
than the fair market value of the relevant properties, or permit any Subsidiary
of the Company to do so; provided that the Company or any Subsidiary of the
Company may merge or consolidate with any other Person and any Subsidiary of the
Company may transfer properties to any other Subsidiary of the Company or to the
Company so long as, in each case, (i) immediately thereafter and giving effect
thereto, no event will occur and be continuing which constitutes a Default, (ii)
in the case of any such merger or consolidation to which the Company is a party,
the Company is the surviving Person, (iii) in the case of any such merger or
consolidation to which any Subsidiary of the Company is a party (but not the
Company), after giving effect to all transactions closing concurrently relating
to such merger or consolidation, the surviving Person is a Subsidiary of the
Company and (iv) the surviving Person ratifies each applicable Loan Document and
provided further that any Subsidiary of the Company may merge or consolidate
with any other Subsidiary of the Company so long as, in each case (i)
immediately thereafter and giving effect thereto, no event will occur and be
continuing which constitutes a Default and (ii) the surviving Person ratifies
each applicable Loan Document.
10.6 Proceeds of Notes. The Company will not permit the proceeds of
the Notes to be used for any purpose other than those permitted by this
Agreement.
10.7 ERISA Compliance. The Company will not at any time permit any
Plan maintained by it or any Subsidiary of the Company to:
(a) engage in any "prohibited transaction" as such term is defined in
Section 4975 of the Code;
<PAGE>
(b) incur any "accumulated funding deficiency" as such term is defined
in Section 302 of ERISA; or
(c) terminate or be terminated in a manner which could result in the
imposition of a Lien on the property of the Company or any Subsidiary of the
Company pursuant to Section 4068 of ERISA, in each case, to the extent that
permitting the Plan to do so would have a Material Adverse Effect.
10.8 Amendment of Certain Documents. The Company will not amend,
modify or obtain or grant a waiver of (except for waivers only of cross-defaults
created by a Default under this Agreement), or allow APC to enter into any
amendment or modification or obtain or grant any waiver of (except for waivers
only of cross-defaults created by a Default under this Agreement), any provision
of those documents relating to or constituting the Beluga Financing Documents or
the APC Long Term Financing Documents, without prior written notification to
Agent.
10.9 Tangible Net Worth. The Company will not permit the Tangible Net
Worth of the Company and its Subsidiaries, on a consolidated basis, at any time
to be less than $465,000,000 plus 50% of net income of the Company and its
Subsidiaries on a consolidated basis, if positive, beginning with the fiscal
year ended December 31, 1997 and calculated annually thereafter based upon
positive net income of the Company and its Subsidiaries for each applicable
fiscal year taken cumulatively.
10.10 Company Debt/Capitalization Ratio. The Company will not permit
the Debt/Capitalization Ratio to be, at any time, more than 65%.
10.11 EBITDAX/Interest Ratio. The Company will not permit the
EBITDAX/Interest Ratio to be, at any time, less than
(a) 3.00:1.00 for any twelve month period ending on the last day
of any calendar quarter for the period from the Effective
Date through and including March 31, 1997; and
(b) 3.50:1.00 for any twelve month period ending on the last day
of any calendar quarter thereafter.
10.12 Nature of Business. The Company will not engage in, and will not
permit any Subsidiary of the Company to engage in, businesses other than oil and
gas exploration and production, gas processing, transmission, distribution,
marketing and storage and gas and liquids pipeline operations and activities
related or ancillary thereto; provided, that if the Company acquires one or more
Subsidiaries in transactions otherwise permitted by the terms hereof, any such
<PAGE>
Subsidiary may be engaged in businesses other than those listed in this Section
so long as the assets of such Subsidiaries which are used in the conduct of such
other businesses do not constitute more than five percent (5%) of the
consolidated total assets of the Company (inclusive of the assets of the
Subsidiary so acquired).
10.13 Futures Contracts. The Company will not, and will not permit any
Subsidiary of the Company to, enter into or be obligated under any contract for
sale for future delivery of oil or gas (whether or not the subject oil or gas is
to be delivered), hedging contract, forward contract, swap agreement, futures
contract or other similar agreement except for (i) such contracts (x) which fall
within the parameters set forth on Exhibit J hereto or are otherwise approved in
writing by the Majority Banks and (y) which in the aggregate do not cover at any
time a volume of oil and/or gas equal to or greater than 50% of the proved
producing reserves attributable to the oil and gas properties of the Company and
its Subsidiaries, taken as a whole, as evidenced by the most current Engineering
and Company Reports and (ii) production sales contracts entered into in the
ordinary course of the Company's or the applicable Subsidiary's business.
10.14 Covenants in Other Agreements. The Company will not and will not
permit any of its Subsidiaries to become a party to or to agree that it or any
of its property is bound by any agreement, indenture, mortgage, deed of trust or
any other instrument directly or indirectly
(i) restricting any loans, advances or any other Investments to or in
the Company by any of its Subsidiaries;
(ii) restricting the ability of any Subsidiary of the Company to make
tax payments or management fee payments;
(iii) restricting the capitalization structure of any Subsidiary of
the Company; or
(iv) restricting the ability or capacity of any Subsidiary of the
Company to make Dividend Payments; provided, however, nothing in this Section
10.14 shall restrict the existence of negative covenants otherwise prohibited by
this Section in documentation evidencing or related to Indebtedness permitted by
Subsection 10.1(t) and, to the extent that the applicable Subsidiary does not
own any property included in the Borrowing Base, Subsections 10.1(m), (n) and
(s). Notwithstanding the foregoing, either of ENSTAR Alaska or APC may become a
party to, or grant a Lien in any of its property by way of, or agree that it
will be bound by, any indenture, mortgage, deed of trust or other instrument
containing provisions of the types described above in this Section 10.14 so long
as the terms and provisions thereof are not materially more restrictive than the
terms or provisions which are legally binding on ENSTAR Alaska or APC on the
Effective Date.
<PAGE>
Section 11. Defaults.
11.1 Events of Default. If one or more of the following events (herein
called "Events of Default") shall occur and be continuing:
(a) Payments - (i) the Company or any other Relevant Party fails to
make any payment or prepayment of any installment of principal on the Loans or
any Reimbursement Obligation payable under the Notes, this Agreement or the
other Loan Documents when due or (ii) the Company or any other Relevant Party
fails to make any payment or prepayment of interest with respect to the Loans,
any Reimbursement Obligation or any other fee or amount under the Notes, this
Agreement or the other Loan Documents and such failure to pay continues
unremedied for a period of five (5) Business Days; or
(b) Representations and Warranties - any representation or warranty
made by the Company or any other Relevant Party in this Agreement or in any
other Loan Document or in any instrument executed in connection herewith or
therewith proves to have been incorrect in any material respect as of the date
thereof; or any representation, statement (including Financial Statements),
certificate or data furnished or made by the Company or any other Relevant Party
(or any officer of the Company or any other Relevant Party) under or in
connection with this Agreement or any other Loan Document, including without
limitation in the Disclosure Statement, proves to have been untrue in any
material respect, as of the date as of which the facts therein set forth were
stated or certified; or
(c) Affirmative Covenants - (i) default shall be made in the due
observance or performance of any of the covenants or agreements contained in
Sections 9.11 (or in Section 9.6 to the extent such default is considered an
Event of Default under the other Subsections of this Section 11.1) or (ii)
default is made in the due observance or performance of any of the other
covenants or agreements contained in Section 9 of this Agreement or any other
affirmative covenant of the Company or any other Relevant Party contained in
this Agreement or any other Loan Document and such default continues unremedied
for a period of 30 days after (x) notice thereof is given by Agent to the
Company or (y) such default otherwise becomes known to the Company, whichever is
earlier; or
(d) Negative Covenants - (i) default shall be made in the observance
or performance of any of the covenants or agreements contained in Section 10.8
and such default continues unremedied for a period of five (5) Business Days
after (x) notice thereof is given by Agent to the Company or (y) such default
otherwise becomes known to the Company, whichever is earlier, or (ii) default is
made in the due observance or performance by the Company of any of the other
covenants or agreements contained in Section 10 of this Agreement or of any
other negative covenant of the Company or any other Relevant Party contained in
this Agreement or any other Loan Document; or
<PAGE>
(e) Other Obligations - default is made in the due observance or
performance by the Company or any of its Subsidiaries (as principal or guarantor
or other surety) of any of the covenants or agreements contained in any bond,
debenture, note or other evidence of Indebtedness in excess of $25,000,000
(singly or aggregating several such bonds, debentures, notes or other evidence
of Indebtedness) which default gives the holder the right to accelerate the
maturity of such Indebtedness, other than the Loan Documents, or under any
credit agreement, loan agreement, indenture, promissory note or similar
agreement or instrument executed in connection with any of the foregoing, to
which it (respectively) is a party and such default is unwaived or continues
unremedied beyond the expiration of any applicable grace period which may be
expressly allowed under such instrument or agreement; or
(f) Involuntary Bankruptcy or Receivership Proceedings - a receiver,
conservator, liquidator or trustee of the Company or of any of its property is
appointed by the order or decree of any court or agency or supervisory authority
having jurisdiction, and such decree or order remains in effect for more than 60
days; or the Company is adjudicated bankrupt or insolvent; or any of its
property is sequestered by court order and such order remains in effect for more
than 60 days; or a petition is filed against the Company under any state or
federal bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution, liquidation or receivership law of any jurisdiction, whether
now or hereafter in effect, and is not dismissed within 60 days after such
filing; or
(g) Voluntary Petitions or Consents - the Company commences a
voluntary case or other proceeding seeking liquidation, reorganization,
arrangement, insolvency, readjustment of debt, dissolution, liquidation or other
relief with respect to itself or its debt or other liabilities under any
bankruptcy, insolvency or other similar law nor or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or consents to
any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it, or
fails generally to, or cannot, pay its debts generally as they become due or
takes any corporate action to authorize or effect any of the foregoing; or
(h) Assignments for Benefit of Creditors or Admissions of Insolvency -
the Company makes an assignment for the benefit of its creditors, or admits in
writing its inability to pay its debts generally as they become due, or consents
to the appointment of a receiver, trustee, or liquidator of the Company or of
all or any part of its property; or
(i) Undischarged Judgments - judgments (individually or in the
aggregate) for the payment of money in excess of $10,000,000 is rendered by any
court or other governmental body against the Company or any of its Subsidiaries
and the Company or such Subsidiary does not discharge the same or provide for
its discharge in accordance with its terms, or procure a stay of execution
thereof within 60 days from the date of entry thereof, and within said period of
60 days from the date of entry thereof or such longer period during which
<PAGE>
execution of such judgment will have been stayed, the Company or such Subsidiary
fails to appeal therefrom and cause the execution thereof to be stayed during
such appeal while providing such reserves therefor as may be required under
GAAP; or
(j) Subsidiary Defaults - any Subsidiary of the Company takes,
suffers, or permits to exist any of the events or conditions referred to in
Subsections 11.1(f), (g) or (h); or
(k) Change in Control - there should occur any Change of Control.
THEREUPON: Agent may (and, if directed by the Majority Banks, shall) (a) declare
the Commitments terminated (whereupon the Commitments shall be terminated)
and/or (b) terminate any Letter of Credit providing for such termination by
sending a notice of termination as provided therein and/or (c) declare the
principal amount then outstanding of and the accrued interest on the Loans and
Reimbursement Obligations and all fees and all other amounts payable hereunder
and under the Notes to be forthwith due and payable, whereupon such amounts
shall be and become immediately due and payable, without notice (including
without limitation notice of acceleration and notice of intent to accelerate),
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Company; provided that in the case of the
occurrence of an Event of Default with respect to the Company referred to in
clause (f) or (g) of this Section 11.1 or in clause (j) of this Section 11.1 to
the extent it refers to clauses (f) or (g), the Commitments shall be
automatically terminated and the principal amount then outstanding of and the
accrued interest on the Loans and Reimbursement Obligations and all fees and all
other amounts payable hereunder and under the Notes shall be and become
automatically and immediately due and payable, without notice (including but not
limited to notice of intent to accelerate and notice of acceleration) and
without presentment, demand, protest or other formalities of any kind, all of
which are hereby expressly waived by the Company and/or (d) exercise any and all
other rights available to it under the Loan Documents, at law or in equity.
11.2 Collateral Account. The Company hereby agrees, in addition to the
provisions of Section 11.1 hereof, that upon the occurrence and during the
continuance of any Event of Default, it shall, if requested by Agent or the
Majority Banks (through Agent), pay to Agent an amount in immediately available
funds equal to the then aggregate amount available for drawings under all
Letters of Credit issued for the account of the Company, which funds shall be
held by Agent as Cover.
11.3 Preservation of Security for Unmatured Reimbursement Obligations.
In the event that, following (i) the occurrence of an Event of Default and the
exercise of any rights available to Agent under the Loan Documents, and (ii)
payment in full of the principal amount then outstanding of and the accrued
interest on the Loans and Reimbursement Obligations and fees and all other
amounts payable hereunder and under the Notes, any Letters of Credit shall
remain outstanding and undrawn upon, Agent shall be entitled to hold (and the
Company hereby grants and conveys to Agent a security interest in and to) all
cash or other property ("Proceeds of Remedies") realized or arising out of the
<PAGE>
exercise by Agent of any rights available to it under the Loan Documents, at law
or in equity, including, without limitation, the proceeds of any foreclosure, as
collateral for the payment of any amounts due or to become due under or in
respect of such Letters of Credit. Such Proceeds of Remedies shall be held for
the ratable benefit of the applicable Issuers. The rights, titles, benefits,
privileges, duties and obligations of Agent with respect thereto shall be
governed by the terms and provisions of this Agreement. Agent may, but shall
have no obligation to, invest any such Proceeds of Remedies in such manner as
Agent, in the exercise of its sole discretion, deems appropriate. Such Proceeds
of Remedies shall be applied to Reimbursement Obligations arising in respect of
any such Letters of Credit and/or the payment of any Issuer's obligations under
any such Letter of Credit when such Letter of Credit is drawn upon. The Company
hereby agrees to execute and deliver to Agent and the Banks such security
agreements, pledges or other documents as Agent or any of the Banks may, from
time to time, require to perfect the pledge, lien and security interest in and
to any such Proceeds of Remedies provided for in this Section 11.3.
11.4 Right of Setoff. Upon (i) the occurrence and during the
continuance of any Event of Default referred to in clauses (f), (g) or (h) of
Section 11.1, or in clause (j) of Section 11.1 to the extent it refers to
clauses (f), (g) or (h), or upon (ii) the occurrence and continuance of any
other Event of Default and upon the making of the notice specified in Section
11.1 to authorize Agent to declare the Notes due and payable pursuant to the
provisions thereof, or if (iii) the Company or any of its Subsidiaries becomes
insolvent, however evidenced, the Banks are hereby authorized at any time and
from time to time, without notice to the Company or any of its Subsidiaries (any
such notice being expressly waived by the Company and its Subsidiaries), to
setoff and apply any and all deposits (general or special, time or demand,
provisional or final, whether or not such setoff results in any loss of interest
or other penalty, and including without limitation all certificates of deposit)
at any time held, and any other funds or property at any time held, and other
Indebtedness at any time owing by any Bank to or for the credit or the account
of the Company against any and all of the Obligations irrespective of whether or
not such Bank will have made any demand under this Agreement or the Notes and
although such obligations may be unmatured. Should the right of any Bank to
realize funds in any manner set forth hereinabove be challenged and any
application of such funds be reversed, whether by court order or otherwise, the
Banks shall make restitution or refund to the Company pro rata in accordance
with their Commitments. The Banks agree promptly to notify the Company and Agent
after any such setoff and application, provided that the failure to give such
notice will not affect the validity of such setoff and application. The rights
of Agent and the Banks under this Section are in addition to other rights and
remedies (including without limitation other rights of setoff) which Agent or
the Banks may have.
Section 12. Agent.
12.1 Appointment, Powers and Immunities. Each Bank hereby irrevocably
appoints and authorizes Agent to act as its agent hereunder and under the
Letters of Credit and the other Loan Documents with such powers as are
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specifically delegated to Agent by the terms hereof and thereof, together with
such other powers as are reasonably incidental thereto. Agent (which term as
used in this Section 12 shall include reference to its affiliates and its own
and their affiliates' officers, directors, employees and agents) shall not (a)
have any duties or responsibilities except those expressly set forth in this
Agreement, the Letters of Credit, and the other Loan Documents, or shall by
reason of this Agreement or any other Loan Document be a trustee or fiduciary
for any Bank; (b) be responsible to any Bank for any recitals, statements,
representations or warranties contained in this Agreement, the Letters of Credit
or any other Loan Document, or in any certificate or other document referred to
or provided for in, or received by any of them under, this Agreement, the
Letters of Credit or any other Loan Document, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement, the
Letters of Credit, or any other Loan Document or any other document referred to
or provided for herein or therein or any property covered thereby or for any
failure by any Relevant Party or any other Person to perform any of its
obligations hereunder or thereunder; (c) be required to initiate or conduct any
litigation or collection proceedings hereunder or under the Letters of Credit or
any other Loan Document except to the extent Agent is so requested by the
Majority Banks, or (d) be responsible for any action taken or omitted to be
taken by it hereunder or under the Letters or Credit or any other Loan Document
or any other document or instrument referred to or provided for herein or
therein or in connection herewith or therewith, including, without limitation,
pursuant to their own negligence, except for its own gross negligence or willful
misconduct. Agent may employ agents and attorneys-in-fact and shall not be
responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. Without in any way
limiting any of the foregoing, each Bank acknowledges that neither Agent nor any
Issuer shall have any greater responsibility in the operation of the Letters of
Credit than is specified in the Uniform Customs and Practice for Documentary
Credits (1993 Revision, International Chamber of Commerce Publication No. 500).
In any foreclosure proceeding concerning any collateral for the Notes, each
holder of a Note if bidding for its own account or for its own account and the
accounts of other Banks is prohibited from including in the amount of its bid an
amount to be applied as a credit against its Note or Notes or the Notes of the
other Banks; instead, such holder must bid in cash only; provided that this
provision is for the sole benefit of Agent and the Banks and shall not inure to
the benefit of the Company or any of its Subsidiaries. However, in any such
foreclosure proceeding, Agent may (but shall not be obligated to) submit a bid
for all Banks (including itself) in the form of a credit against the Notes of
all of the Banks, and Agent or its designee may (but shall not be obligated to)
accept title to such collateral for and on behalf of all Banks.
12.2 Reliance by Agent. Agent shall be entitled to rely upon any
certification, notice or other communication (including any thereof by
telephone, telex, telegram or cable) believed by it to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person or Persons,
and upon advice and statements of legal counsel (which may be counsel for the
Company), independent accountants and other experts selected by Agent. As to any
matters not expressly provided for by this Agreement, the Letters of Credit, or
any other Loan Document, Agent shall in all cases be fully protected in acting,
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or in refraining from acting, hereunder and thereunder in accordance with
instructions of the Majority Banks (or, where unanimous consent is required by
the terms hereof or of the other Loan Documents, all of the Banks), and any
action taken or failure to act pursuant thereto shall be binding on all of the
Banks. Pursuant to instructions of the Majority Banks (except as otherwise
provided in Section 13.4 hereof), Agent shall have the authority to execute
releases of security documents on behalf of the Banks without the joinder of any
Bank.
12.3 Defaults. Agent shall not be deemed to have knowledge of the
occurrence of a Default (other than the non-payment of principal of or interest
on Loans or Reimbursement Obligations) unless it has received notice from a Bank
or the Company specifying such Default and stating that such notice is a "Notice
of Default". In the event that Agent receives such a notice of the occurrence of
a Default, Agent shall give prompt notice thereof to the Banks (and shall give
each Bank prompt notice of each such non-payment). Agent shall (subject to
Section 12.7 hereof) take such action with respect to such Default as shall be
directed by the Majority Banks and within its rights under the Loan Documents
and at law or in equity, provided that, unless and until Agent shall have
received such directions, Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, permitted hereby with respect to
such Default as it shall deem advisable in the best interests of the Banks and
within its rights under the Loan Documents, at law or in equity.
12.4 Rights as a Bank. With respect to its Commitments and the Loans
made and Letter of Credit Liabilities, Chase in its capacity as a Bank hereunder
shall have the same rights and powers hereunder as any other Bank and may
exercise the same as though it were not acting as Agent and the term "Bank" or
"Banks" shall, unless the context otherwise indicates, include the Chase in its
individual capacity. Agent may (without having to account therefor to any Bank)
accept deposits from, lend money to and generally engage in any kind of banking,
trust, letter of credit, agency or other business with the Company (and any of
its Affiliates) as if it were not acting as Agent, and Agent may accept fees and
other consideration from the Company and its Affiliates (in addition to the fees
heretofore agreed to between the Company and Agent) for services in connection
with this Agreement or otherwise without having to account for the same to the
Banks.
12.5 Indemnification. The Banks agree to indemnify Agent (to the
extent not reimbursed under Section 2.2(c), Section 9.7 or Section 13.3 hereof,
but without limiting the obligations of the Company under said Sections 2.2(c),
9.7 and 13.3), ratably in accordance with their respective Commitments, for any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever (including but not limited to, the consequences of the negligence of
Agent) which may be imposed on, incurred by or asserted against Agent in any way
relating to or arising out of this Agreement, the Letters of Credit or any other
Loan Document or any other documents contemplated by or referred to herein or
therein or the transactions contemplated hereby or thereby (including, without
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limitation, the costs and expenses which the Company is obligated to pay under
Sections 2.2(c), 9.8 and 13.3 hereof but excluding, unless a Default has
occurred and is continuing, normal administrative costs and expenses incident to
the performance of their respective agency duties hereunder) or the enforcement
of any of the terms hereof or thereof or of any such other documents, provided
that no Bank shall be liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the party to be indemnified.
The obligations of the Banks under this Section 12.5 shall survive the
termination of this Agreement and the repayment of the Obligations.
12.6 Non-Reliance on Agent and Other Banks. Each Bank agrees that it
has received current financial information with respect to the Company and that
it has, independently and without reliance on Agent or any other Bank and based
on such documents and information as it has deemed appropriate, made its own
credit analysis of the Company and decision to enter into this Agreement and
that it will, independently and without reliance upon Agent or any other Bank,
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own analysis and decisions in taking or not taking
action under this Agreement or any of the other Loan Documents. Agent shall not
be required to keep itself informed as to the performance or observance by any
Relevant Party of this Agreement, the Letters of Credit or any of the other Loan
Documents or any other document referred to or provided for herein or therein or
to inspect the properties or books of the Company or any Relevant Party. Except
for notices, reports and other documents and information expressly required to
be furnished to the Banks by Agent hereunder, under the Letters of Credit or the
other Loan Documents, Agent shall not have any duty or responsibility to provide
any Bank with any credit or other information concerning the affairs, financial
condition or business of the Company or any other Relevant Party (or any of
their affiliates) which may come into the possession of Agent.
12.7 Failure to Act. Except for action expressly required of Agent
hereunder, under the Letters of Credit and under the other Loan Documents, Agent
shall in all cases be fully justified in failing or refusing to act hereunder
and thereunder unless it shall receive further assurances to its satisfaction by
the Banks of their indemnification obligations under Section 12.5 hereof against
any and all liability and expense which may be incurred by it by reason of
taking or continuing to take any such action.
12.8 Resignation or Removal of Agent. Subject to the appointment and
acceptance of a successor Agent as provided below, Agent may resign at any time
by giving notice thereof to the Banks and the Company, and Agent may be removed
at any time with or without cause by the Majority Banks. Upon any such
resignation or removal, the Majority Banks shall have the right to appoint a
successor Agent, provided deposits with a successor Agent shall be insured by
the Federal Deposit Insurance Corporation or its successor. If no successor
Agent shall have been so appointed by the Majority Banks and shall have accepted
such appointment within 30 days after the retiring Agent's giving of notice of
resignation or the Majority Banks' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Banks, appoint a successor Agent. Any
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successor Agent shall be a bank which has an office in the United States and a
combined capital and surplus of at least $250,000,000. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. A successor Agent shall
promptly specify by notice to the Company and the Banks its Principal Office
referred to in Sections 3.1 and 5.1. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Section 12 shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken by
it while it was acting as an Agent.
Section 13. Miscellaneous.
13.1 Waiver. No waiver of any Default shall be a waiver of any other
Default. No failure on the part of any Agent or any Bank to exercise and no
delay in exercising, and no course of dealing with respect to, any right, power
or privilege under any Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege thereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The remedies provided in the Loan Documents are
cumulative and not exclusive of any remedies provided by law or in equity.
13.2 Notices. All notices and other communications provided for herein
(including, without limitation, any modifications of, or waivers or consents
under, this Agreement) shall be given or made by telex, telegraph, telecopy
(confirmed by mail), cable, mail or other writing and telexed, telecopied,
telegraphed, cabled, mailed or delivered to the intended recipient at the
"Address for Notices" specified below its name on the signature pages hereof;
or, as to any party, at such other address as shall be designated by such party
in a notice to the Company, Agent given in accordance with this Section 13.2.
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly received when transmitted by telex or telecopier during
regular business hours, delivered to the telegraph or cable office or personally
delivered or, in the case of a mailed notice, three (3) days after deposit in
the United States mails, postage prepaid, certified mail with return receipt
requested (or upon actual receipt, if earlier), in each case given or addressed
as aforesaid.
13.3 Indemnification. The Company shall indemnify Agent, the Banks,
and each Affiliate thereof and their respective directors, officers, employees
and agents from, and hold each of them harmless against, any and all losses,
liabilities, claims or damages to which any of them may become subject
(regardless of whether caused in whole or in part by the simple (but not gross)
negligence of the Person indemnified), insofar as such losses, liabilities,
claims or damages arise out of or result from any (i) actual or proposed use by
the Company of the proceeds of any extension of credit (whether a Loan or a
Letter of Credit) by any Bank hereunder, (ii) breach by the Company of this
Agreement or any other Loan Document, (iii) violation by the Company or any of
its Subsidiaries of any Legal Requirement, including but not limited to those
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relating to Hazardous Substances, (iv) Liens or security interests previously or
hereafter granted on any real or personal property, to the extent resulting from
any Hazardous Substance located in, on or under any such property, (v) ownership
by the Banks or Agent of any real or personal property following foreclosure, to
the extent such losses, liabilities, claims or damages arise out of or result
from any Hazardous Substance located in, on or under such property, including,
without limitation, losses, liabilities, claims or damages which are imposed
upon Persons under laws relating to or regulating Hazardous Substances solely by
virtue of ownership, (vi) Bank's or Agent's being deemed an operator of any such
real or personal property by a court or other regulatory or administrative
agency or tribunal in circumstances in which neither Agent nor any of the Banks
is generally operating or generally exercising control over such property, to
the extent such losses, liabilities, claims or damages arise out of or result
from any Hazardous Substance located in, on or under such property, (vii)
investigation, litigation or other proceeding (including any threatened
investigation or proceeding) relating to any of the foregoing, and the Company
shall reimburse Agent, each Bank, and each Affiliate thereof and their
respective directors, officers, employees and agents, upon demand, for any
expenses (including legal fees) incurred in connection with any such
investigation or proceeding or (viii) taxes (excluding income taxes and
franchise taxes) payable or ruled payable by any Governmental Authority in
respect of the Notes or any other Loan Document, together with interest and
penalties, if any; provided, however, that the Company shall not have any
obligations pursuant to this Section 13.3 with respect to any losses,
liabilities, claims, damages or expenses (a) arising from or relating solely to
events, conditions or circumstances which, as to clauses (iv), (v) or (vi)
above, first came into existence or which first occurred after the date on which
the Company or any of its Subsidiaries conveyed to an unrelated third party all
of the Company's or the applicable Subsidiary's rights, titles and interests to
the applicable real or personal property (whether by deed, deed-in-lieu,
foreclosure or otherwise) other than a conveyance made in violation of any Loan
Document or (b) incurred by the Person seeking indemnification by reason of the
gross negligence or willful misconduct of such Person. If the Company ever
disputes a good faith claim for indemnification under this Section 13.3 on the
basis of the proviso set forth in the preceding sentence, the full amount of
indemnification provided for shall nonetheless be paid, subject to later
adjustment or reimbursement at such time (if any) as a court of competent
jurisdiction enters a final judgment as to the applicability of any such
exceptions.
13.4 Amendments, Etc. No amendment or waiver of any provision of this
Agreement, the Notes or any other Loan Document, nor any consent to any
departure by the Company therefrom, shall in any event be effective unless the
same shall be agreed or consented to by the Majority Banks and the Company, and
each such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given; provided, that no amendment, waiver or
consent shall, unless in writing and signed by each Bank affected thereby, do
any of the following: (a) increase the Commitment of such Bank (it being
understood that the waiver of any reduction in the Commitments or any mandatory
repayment other than (x) the repayment of all Loans at the end of the Revolving
Credit Availability Period and (y) the mandatory reductions of the Commitments
provided for in Section 2.3(a) and (z) the mandatory prepayments required by the
<PAGE>
terms of Section 3.2(b), shall not be deemed to be an increase in any
Commitment) or subject the Banks to any additional obligation; (b) reduce the
principal of, or interest on, any Loan, Reimbursement Obligation or fee
hereunder; (c) postpone any scheduled date fixed for any payment or mandatory
prepayment of principal of, or interest on, any Loan, Reimbursement Obligation,
fee or other sum to be paid hereunder; (d) change the percentage of any of the
Commitments or of the aggregate unpaid principal amount of any of the Loans and
Letter of Credit Liabilities, or the number of Banks, which shall be required
for the Banks or any of them to take any action under this Agreement; (e) change
any provision contained in Sections 2.2(c), 9.7 or 13.3 hereof or this Section
13.4 or Section 6.7 hereof, or (f) release all or substantially all of any
security for the obligations of the Company under this Agreement or any Note or
all or substantially all of the personal liability of any obligor created under
any of the Loan Documents. Anything in this Section 13.4 to the contrary, no
amendment, waiver or consent shall be made with respect to Section 12 without
the consent of Agent. The consent of the Super Majority Banks shall be required
to any amendment of any requirement under this Agreement or the other the Loan
Documents that the consent of the Super Majority Banks be obtained.
13.5 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the benefit of
the Company, Agent and the Banks and their respective successors and assigns.
The Company may not assign or transfer any of its rights or obligations
hereunder without the prior written consent of all of the Banks. Each Bank may
sell participations to any Person in all or part of any Loan or Letter of
Credit, or all or part of its Notes or Commitments, in which event, without
limiting the foregoing, the provisions of Section 6 shall inure to the benefit
of each purchaser of a participation and the pro rata treatment of payments, as
described in Section 5.2, shall be determined as if such Bank had not sold such
participation. In the event any Bank shall sell any participation, such Bank
shall retain the sole right and responsibility to enforce the obligations of the
Company relating to the Loans or Letters of Credit, including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of this Agreement other than amendments, modifications or waivers with
respect to (i) any fees payable hereunder to the Banks and (ii) the amount of
principal or the rate of interest payable on, or the dates fixed for the
scheduled repayment of principal of, the Loans.
(b) Each Bank may assign to one or more Banks or any other Person all
or a portion of its interests, rights and obligations under this Agreement,
provided, however, that (i) other than in the case of an assignment to another
Bank that is, at the time of such assignment, a party hereto or an Affiliate of
such Bank, the Company must give its prior written consent, which consent will
not be unreasonably withheld, (ii) the aggregate amount of the Commitment and/or
Loans or Letters of Credit of the assigning Bank subject to each such assignment
(determined as of the date the Assignment and Acceptance (as defined below) with
respect to such assignment is delivered to Agent) shall in no event be less than
$10,000,000 (or $5,000,000 in the case of an assignment to an Affiliate of a
Bank or between Banks), (iii) no assignment shall have the effect of reducing
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the pro rata share of the Loans or Letters of Credit and the Commitments held by
the assignor and its Affiliates below $10,000,000, (iv) notwithstanding any
other term or provision of this Agreement, unless the Company shall have
otherwise consented in writing (such consent not to be unreasonably withheld),
each such assignment shall be pro rata with respect to the Loans, the Letters of
Credit and the Commitment of the assignor, and (v) the parties to each such
assignment shall execute and deliver to Agent, for its acceptance and recording
in the Register (as defined below), an Assignment and Acceptance in the form of
Exhibit H hereto (each an "Assignment and Acceptance") with blanks appropriately
completed, together with any Note or Notes subject to such assignment and a
processing and recordation fee of $2,500 paid by the assignee (for which the
Company shall have no liability). Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five Business Days after the
execution thereof, (A) 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 Bank hereunder and (B) the Bank thereunder shall, to the extent
provided in such Assignment and Acceptance, be released from its obligations
under this Agreement. Notwithstanding anything contained in this Agreement to
the contrary, any Bank may at any time assign all or any portion of its rights
under this Agreement and the Notes issued to it as collateral to a Federal
Reserve Bank; provided, that no such assignment shall release the assigning Bank
from any of its obligations hereunder.
(c) By executing and delivering an Assignment and Acceptance, the Bank
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than the representation
and warranty that it is the legal and beneficial owner of the interest being
assigned thereby free and clear of any adverse claim, such Bank assignor makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or any of the other Loan Documents or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
any of the other Loan Documents or any other instrument or document furnished
pursuant thereto; (ii) such Bank assignor makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Company or the performance or observance by the Company of any of its
obligations under this Agreement or any of the other Loan Documents or any other
instrument or document furnished pursuant hereto; (iii) such assignee confirms
that it has received a copy of this Agreement, together with copies of the
financial statements referred to in Section 8.6 and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon any Agent, such Bank assignor or any
other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement and the other Loan Documents; (v) such
assignee appoints and authorizes Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement and the other Loan
Documents as are delegated to Agent by the terms hereof, together with such
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powers as are reasonably incidental thereto; and (vi) such assignee agrees that
it will perform in accordance with their terms all obligations that by the terms
of this Agreement and the other Loan Documents are required to be performed by
it as a Bank.
(d) Agent shall maintain at its office a copy of each Assignment and
Acceptance delivered to it and a register for the recordation of the names and
addresses of the Banks and the Commitments of, and principal amount of the Loans
owing to, each Bank from time to time (the "Register"). The entries in the
Register shall be conclusive, in the absence of manifest error, and the Company,
Agent and the Banks may treat each person the name of which is recorded in the
Register as a Bank hereunder for all purposes of this Agreement and the other
Loan Documents. The Register shall be available for inspection by the Company or
any Bank 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 Bank and the assignee thereunder together with any Note or Notes
subject to such assignment, the written consent to such assignment executed by
the Company and the fee payable in respect thereto, Agent shall, if such
Assignment and Acceptance has been completed with blanks appropriately filled,
(i) accept such Assignment and Acceptance, (ii) record the information contained
therein in the Register and (iii) give prompt notice thereof to the Company.
Within five Business Days after receipt of notice, the Company, at its own
expense, shall execute and deliver to Agent in exchange for the surrendered
Notes new Notes to the order of such assignee in an amount equal to the
Commitments and/or Loans or Letters of Credit assumed by it pursuant to such
Assignment and Acceptance and, if the assigning Bank has retained Commitments
and/or Loans hereunder, new Notes to the order of the assigning Bank in an
amount equal to the Commitment and/or Loans retained by it hereunder. Such new
Notes shall be in an aggregate principal amount equal to the aggregate principal
amount of such surrendered Notes, shall be dated the effective date of such
Assignment and Acceptance and shall otherwise be in substantially the form of
the respective Note. Thereafter, such surrendered Notes shall be marked renewed
and substituted and the originals delivered to the Company (with copies,
certified by the Company as true, correct and complete, to be retained by
Agent).
(f) Any Bank may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 13.5, disclose
to the assignee or participant or proposed assignee or participant, any
information relating to the Company furnished to such Bank by or on behalf of
the Company; provided, however, that, prior to any such disclosure, the Company
shall have consented thereto, which consent shall not be unreasonably withheld,
and each such assignee or participant, or proposed assignee or participant,
shall execute an agreement whereby such assignee or participant shall agree to
preserve the confidentiality of any Confidential Information (defined in Section
13.13) on terms substantially the same as those provided in Section 13.13.
<PAGE>
(g) The Company will have the right to consent to any material
intercreditor arrangements in connection with an assignment by any Bank of any
interest, right or obligation under this Agreement which is not pro rata with
respect to the Loans, the Letters of Credit and the Commitment of the assignor
and the Company may deny its consent to any such arrangements which, in the
reasonable judgement of the Company, would adversely affect the Company in a
material respect.
(h) The provisions of this Section shall not apply to the assignment
and pledge of a Bank's rights hereunder or under any Note to any Federal Reserve
Bank for collateral purposes pursuant to Regulation A of the Board of Governors
of the Federal Reserve System and any Operating Circular issued by such Federal
Reserve Bank; provided that such assignment and pledge shall not relieve such
Bank of any of its obligations hereunder.
13.6 Limitation of Interest. The Company and the Banks intend to
strictly comply with all applicable laws, including applicable usury laws.
Accordingly, the provisions of this Section 13.6 shall govern and control over
every other provision of this Agreement or any other Loan Document which
conflicts or is inconsistent with this Section, even if such provision declares
that it controls. As used in this Section, the term "interest" includes the
aggregate of all charges, fees, benefits or other compensation which constitute
interest under applicable law, provided that, to the maximum extent permitted by
applicable law, (a) any non-principal payment shall be characterized as an
expense or as compensation for something other than the use, forbearance or
detention of money and not as interest, and (b) all interest at any time
contracted for, reserved, charged or received shall be amortized, prorated,
allocated and spread, in equal parts during the full term of the Obligations. In
no event shall the Company or any other Person be obligated to pay, or any Bank
have any right or privilege to reserve, receive or retain, (a) any interest in
excess of the maximum amount of nonusurious interest permitted under the laws of
the State of Texas or the applicable laws (if any) of the United States or of
any other applicable state, or (b) total interest in excess of the amount which
such Bank could lawfully have contracted for, reserved, received, retained or
charged had the interest been calculated for the full term of the Obligations at
the Highest Lawful Rate. On each day, if any, that the interest rate (the
"Stated Rate") called for under this Agreement or any other Loan Document
exceeds the Highest Lawful Rate, the rate at which interest shall accrue shall
automatically be fixed by operation of this sentence at the Highest Lawful Rate
for that day, and shall remain fixed at the Highest Lawful Rate for each day
thereafter until the total amount of interest accrued equals the total amount of
interest which would have accrued if there were no such ceiling rate as is
imposed by this sentence. Thereafter, interest shall accrue at the Stated Rate
unless and until the Stated Rate again exceeds the Highest Lawful Rate when the
provisions of the immediately preceding sentence shall again automatically
operate to limit the interest accrual rate. The daily interest rates to be used
in calculating interest at the Highest Lawful Rate shall be determined by
dividing the applicable Highest Lawful Rate per annum by the number of days in
the calendar year for which such calculation is being made. None of the terms
and provisions contained in this Agreement or in any other Loan Document which
directly or indirectly relate to interest shall ever be construed without
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reference to this Section 13.6, or be construed to create a contract to pay for
the use, forbearance or detention of money at an interest rate in excess of the
Highest Lawful Rate. If the term of any Obligation is shortened by reason of
acceleration of maturity as a result of any Default or by any other cause, or by
reason of any required or permitted prepayment, and if for that (or any other)
reason any Bank at any time, including but not limited to, the stated maturity,
is owed or receives (and/or has received) interest in excess of interest
calculated at the Highest Lawful Rate, then and in any such event all of any
such excess interest shall be canceled automatically as of the date of such
acceleration, prepayment or other event which produces the excess, and, if such
excess interest has been paid to such Bank, it shall be credited pro tanto
against the then-outstanding principal balance of the Company's obligations to
such Bank, effective as of the date or dates when the event occurs which causes
it to be excess interest, until such excess is exhausted or all of such
principal has been fully paid and satisfied, whichever occurs first, and any
remaining balance of such excess shall be promptly refunded to its payor.
13.7 Survival. The obligations of the Company under Sections 2.2(c),
6, 9.7 and 13.3 hereof and the obligations of the Banks under Section 13.6
hereof shall survive the repayment of the Loans and Reimbursement Obligations
and the termination of the Commitments and the Letters of Credit.
13.8 Captions. Captions and section headings appearing herein are
included solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
13.9 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
agreement and any of the parties hereto may execute this Agreement by signing
any such counterpart.
13.10 Governing Law. This Agreement and the Notes and (except as
therein provided) the other Loan Documents are performable in Harris County,
Texas, which shall be a proper place of venue for suit on or in respect thereof.
The Company irrevocably agrees that any legal proceeding in respect of this
Agreement or the other Loan Documents shall be brought in the district courts of
Harris County, Texas or the United States District Court for the Southern
District of Texas, Houston Division (collectively, the "Specified Courts"). The
Company hereby irrevocably submits to the nonexclusive jurisdiction of the state
and federal courts of the State of Texas. The Company hereby irrevocably waives,
to the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to any Loan Document brought in any Specified Court, and
hereby further irrevocably waives any claims that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
The Company further (1) agrees to designate and maintain an agent for service of
process in the City of Houston in connection with any such suit, action or
proceeding and to deliver to Agent evidence thereof and (2) irrevocably consents
to the service of process out of any of the aforementioned courts in any such
<PAGE>
suit, action or proceeding by the mailing of copies thereof by certified mail,
return receipt requested, postage prepaid, to the Company at its address as
provided in this Agreement or as otherwise provided by Texas law. Nothing herein
shall affect the right of any Agent or any Bank to commence legal proceedings or
otherwise proceed against the Company in any jurisdiction or to serve process in
any manner permitted by applicable law. The Company agrees that a final judgment
in any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law. THIS AGREEMENT AND (EXCEPT AS THEREIN PROVIDED) THE OTHER LOAN DOCUMENTS
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS (OTHER
THAN THE CONFLICT OF LAWS RULES) OF THE STATE OF TEXAS AND THE UNITED STATES OF
AMERICA FROM TIME TO TIME IN EFFECT.
13.11 Severability. Whenever possible, each provision of the Loan
Documents shall be interpreted in such manner as to be effective and valid under
applicable law. If any provision of any Loan Document shall be invalid, illegal
or unenforceable in any respect under any applicable law, the validity, legality
and enforceability of the remaining provisions of such Loan Document shall not
be affected or impaired thereby.
13.12 Chapter 15 Not Applicable. Chapter 15, Subtitle 3, Title 79,
Revised Civil Statutes of Texas, 1925, as amended, shall not apply to this
Agreement or to any Loan or Letter of Credit, nor shall this Agreement or any
Loan or Letter of Credit be governed by or be subject to the provisions of such
Chapter 15 in any manner whatsoever.
13.13 Confidential Information. Agent and each Bank separately agrees
that:
(a) As used herein, the term "Confidential Information" means written
information about the Company or the transactions contemplated herein furnished
by the Company to Agent and/or the Banks which is specifically designated as
confidential by the Company; Confidential Information, however, shall not
include information which (i) was publicly known or available, or otherwise
available on a non-confidential basis to any Bank, at the time of disclosure
from a source other than the Company, (ii) subsequently becomes publicly known
through no act or omission by such Bank, (iii) otherwise becomes available on a
non-confidential basis to any Bank other than through disclosure by the Company
or (iv) has been in the possession of any Bank for a period of more than two
years from the date on which such information originally was furnished to such
Bank by the Company, unless the Company shall have requested Agent and the Banks
in writing, at least 30 days prior to the end of such two-year period, to
maintain the confidentiality of such information for another two (2) year period
(or for successive two (2) year periods); provided that the Company shall not
unreasonably withhold its consent to a request made after the initial two (2)
year period to eliminate information from "Confidential Information".
(b) Agent and each Bank agrees that it will take normal and reasonable
precautions to maintain the confidentiality of any Confidential Information
furnished to such Person; provided, however, that such Person may disclose
<PAGE>
Confidential Information (i) upon the Company's consent; (ii) to its auditors;
(iii) when required by any Legal Requirement; (iv) as may be required or
appropriate in any report, statement or testimony submitted to any Governmental
Authority having or claiming to have jurisdiction over it; (v) to such Person's
and its Subsidiaries' or Affiliates' officers, directors, employees, agents,
representatives and professional consultants in connection with this Agreement
or administration of the Loans and Letters of Credit; (vi) as may be required or
appropriate, should such Bank elect to assign or grant participations in any of
the Obligations in connection with (1) the enforcement of the Obligations to any
such Person under any of the Loan Documents or related agreements, or (2) any
potential transfer pursuant to this Agreement of any Obligation owned by any
Bank (provided any potential transferee has been approved by the Company if
required by this Agreement, which approval shall not be unreasonably withheld,
and has agreed in writing to be bound by substantially the same provisions
regarding Confidential Information contained in this Section); (vii) as may be
required or appropriate in response to any summons or subpoena or in connection
with any litigation or administrative proceeding; (viii) to any other Bank; (ix)
to the extent reasonably required in connection with the exercise of any remedy
hereunder or under the other Loan Documents; or (x) to correct any false or
misleading information which may become public concerning such Person's
relationship to the Company.
13.14 Tax Forms. With respect to each Bank which is organized under
the laws of a jurisdiction outside the United States, on the day of the initial
borrowing hereunder and from time to time thereafter if requested by the Company
or Agent, such Bank shall provide Agent and the Company with the forms
prescribed by the Internal Revenue Service of the United States certifying as to
such Bank's status for purposes of determining exemption from United States
withholding taxes with respect to all payments to be made to such Bank hereunder
or other documents satisfactory to the Bank and Agent indicating that all
payments to be made to such Bank hereunder are subject to such tax at a rate
reduced by an applicable tax treaty. Unless the Company and Agent shall have
received such forms or such documents indicating that payments hereunder are not
subject to United States withholding tax or are subject to such tax at a rate
reduced by an applicable tax treaty, the Company or Agent shall withhold taxes
from such payments at the applicable statutory rate in the case of payments to
or for any Bank organized under the laws of a jurisdiction outside the United
States.
13.15 Amendment and Restatement. This Agreement amends and restates in
its entirety that certain Credit Agreement dated as of May 24, 1994 executed by
and among the Company, the Banks and Agent, as amended.
13.16 Intercreditor Agreement. Reference is hereby made to the
Intercreditor Agreement, which provides for certain matters relating to both the
Loans and the Canadian Facility. To the extent of any conflict between the terms
hereof and the terms of the Intercreditor Agreement, the Intercreditor Agreement
shall control. The execution and delivery by Agent of the Intercreditor
<PAGE>
Agreement on behalf of the Banks is hereby ratified and confirmed by each of the
Banks. Any Bank that becomes a party to this Agreement after the Effective Date
agrees to be bound by the terms and provisions of the Intercreditor Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
SEAGULL ENERGY CORPORATION,
a Texas corporation
By: /s/ William L. Transier
Name: William L. Transier
Title: Senior Vice
President and Chief
Financial Officer
Address for Notices:
1001 Fannin, Suite 1700
Houston, Texas 77002
Attention: Steve Thorington
<PAGE>
THE CHASE MANHATTAN BANK,
as Agent
By: /s/ Edward L. Nelson, Jr.
Name: Edward L. Nelson, Jr.
Title: Managing Director
Commitment:
Address for Notices:
$62,000,000
1 Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Agent Services
with a copy to:
Texas Commerce Bank National Association
712 Main Street
Houston, Texas 77002
Attention: Manager, Energy Division
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By: /s/ John Kowalczuk
Commitment: Name: John Kowalczuk
Title: Vice President
$60,000,000
Address for Notices:
60 Wall Street
New York, New York 10260-0060
Attention: Loan Department
<PAGE>
NATIONSBANK OF TEXAS, N.A.
By: /s/ Paul A. Squires
Commitment: Name: Paul A. Squires
Title: Senior Vice President
$60,000,000
Address for Notices:
700 Louisiana, 8th Floor
Houston, Texas 77002
Attention: Jo A. Tamalis
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ George W. Passela
Commitment: Name: George W. Passela
Title: Managing Director
$40,000,000
Address for Notices:
100 Federal Street
Energy & Utilities 01-15-04
Boston, Massachusetts 02110
Attention: George W. Passela
H1995A/73788
7002/3623
93
<PAGE>
ABN AMRO BANK N.V., HOUSTON AGENCY
By: ABN AMRO North America, Inc., as agent
By: /s/ Cheryl I. Lipshutz
Commitment: Name: Cheryl I. Lipshutz
Title: Group Vice President and Director
$30,000,000
By: /s/ H. Gene Shiels
Name: H. Gene Shiels
Title: Vice President and Director
Address for Notices:
Three Riverway, Suite 1700
Houston, Texas 77056
Attention: Ms. Cheryl Lipshultz
<PAGE>
THE BANK OF NEW YORK
By:
Commitment: Name:
Title:
$30,000,000
Address for Notices:
One Wall Street, 19th Floor
New York, New York 10296
Attention: Ms. Renee Bijlani
<PAGE>
BANQUE PARIBAS HOUSTON AGENCY
By: /s/ Marian Livingston
Commitment: Name: Marian Livingston
Title: Vice President
$25,000,000
By: /s/ Barton D. Schouest
Name: Barton D. Schouest
Title: Group Vice President
Address for Notices:
1200 Smith, Suite 3100
Houston, Texas 77002
Attention: Barton D. Schouest
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Pascal Poupelle
Commitment: Name: Pascal Poupelle
Title: Senior Vice President
$40,000,000
Address for Notices:
1000 Louisiana, Suite #5360
Houston, Texas 77002
Attention: Mr. A. David Dodd
<PAGE>
THE FUJI BANK, LIMITED HOUSTON AGENCY
By: /s/ Yoshiaki Inoue
Commitment: Name: Yoshiaki Inoue
Title: Vice President and Manager
$25,000,000
Address for Notices:
One Houston Center
Suite 4100
1221 McKinney Street
Houston, Texas 77010
Attention: Mr. Roger Frey
<PAGE>
FIRST NATIONAL BANK OF CHICAGO
By: /s/ Dixon P. Schultz
Commitment: Name: Dixon P. Schultz
Title: Vice President
$30,000,000
Address for Notices:
1100 Louisiana, Suite 3200
Houston, Texas 77002
Attention: Mr. Dennis Petito
<PAGE>
SOCIETE GENERALE, SOUTHWEST AGENCY
By: /s/ Richard A. Erbert
Commitment: Name: Richard A. Erbert
Title: Vice President
$35,000,000
Address for Notices:
2001 Ross Avenue, Suite 4800
Dallas, Texas 75201
Attention: Ms. Angela Aldridge
with a copy to:
1111 Bagby, Suite 2020
Houston, Texas 77002
Attention: Mr. Richard Erbert
<PAGE>
THE BANK OF TOKYO-MITSUBISHI, LTD.
By: /s/ Michael G. Meiss
Commitment: Name: Michael G. Meiss
Title: Vice President
$16,500,000
Address for Notices:
1100 Louisiana, Suite 2800
Houston, Texas 770002-5216
Attention: Mr. John M. McIntyre
<PAGE>
BANK OF SCOTLAND
By: /s/ Catherine M. Oniffrey
Commitment: Name: Catherine M. Oniffrey
Title: Vice President
Bank of Scotland
$25,000,000
Address for Notices:
565 Fifth Avenue
New York, New York 10017
Attention: Ms. Catherine Onifrey
<PAGE>
CAISSE NATIONALE DE CREDIT AGRICOLE
By: /s/ David E. Bouhl
Commitment: Name: David E. Bouhl
Title: First Vice President
$16,500,000
Address for Notices:
600 Travis, Suite 2340
Houston, Texas 77002
Attention: Mr. Brian Knezeak
<PAGE>
CHRISTIANIA BANK OG KREDITKASSE
By: /s/ Peter M. Dodge
Commitment: Name: Peter M. Dodge
Title: First Vice President
$30,000,000
By: /s/ Justin F. McCarty, III
Name: Justin F. McCarty, III
Title: Vice President
Address for Notices:
11 West 42nd Street
7th Floor
New York, New York 10036
Attention: Mr. Jahn Roising
<PAGE>
DEN NORSKE BANK AS
By: /s/ Byron L. Cooley
Commitment: Name: Byron L. Cooley
Title: Senior Vice President
$21,000,000
By: /s/ William V. Moyer
Name: William V. Moyer
Title: Vice President
Address for Notices:
333 Clay
Suite 4890
Houston, Texas 77002
Attention: Mr. Byron L. Cooley
<PAGE>
WELL FARGO BANK
By: /s/Gregory J. Petruska
Commitment: Name: Gregory J. Petruska
Title: Vice President
$21,000,000
Address for Notices:
1000 Louisiana
3rd Floor/MS #156
Houston, Texas 77002
Attention: Mr. John Fields
<PAGE>
THE BANK OF NOVA SCOTIA
By: /s/ F.C.H. Ashby
Commitment: Name: F.C.H. Ashby
Title: Senior Manager
Loan Operations
$17,500,000
Address for Notices:
Suite 3000, 1100 Louisiana
Houston, Texas 77002
Attention: Mr. Mark Ammerman
<PAGE>
CIBC INC.
By: /s/ Aleksandra K. Dymanus
Commitment: Name: Aleksandra K. Dymanus
Title: Authorized Signatory
$17,500,000
Address for Notices:
Two Paces West
2727 Paces Ferry Road
Suite 1200
Atlanta, Georgia 30339
Attention: Loan Operations
with a copy to:
Canadian Imperial Bank of Commerce
Two Houston Center
909 Fannin Street
Houston, Texas 77010
Attention: Mr. Brian Myers
<PAGE>
MELLON BANK
By: /s/ E. Marc Cuenod, Jr.
Commitment: Name: E. Marc Cuenod, Jr.
Title: First Vice President
$16,000,000
Address for Notices:
Mellon Bank
One Mellon Bank Center
Room 151-4425
Pittsburgh, Pennsylvania 15258-0001
Attention: Manager, Energy and Utilities Group
with a copy to:
Mellon Financial Services
1100 Louisiana, 36th Floor
Houston, Texas 77002-5210
Attention: Ms. Melissa Bauman
<PAGE>
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By: First Union Corporation of North Carolina
By: /s/ Michael J. Kolosowsky
Commitment: Name: Michael J. Kolosowsky
Title: Vice President
$21,000,000
Address for Notices:
First Union Corporation of North Carolina
1001 Fannin, Suite 2255
Houston, Texas 77002
Attention: Mr. Jay M. Chernosky
<PAGE>
BANK OF MONTREAL
By: /s/ Michael P. Stuckey
Commitment: Name: Michael P. Stuckey
$11,000,000 Title: Managing Director
Address for Notices:
700 Louisiana, Suite 4400
Houston, Texas 77002
Attention: Ms. Christa Hash
CREDIT AGREEMENT
U.S. $100,000,000 REDUCING REVOLVING CREDIT FACILITY
AMONG
SEAGULL ENERGY CANADA LTD.
AND
THE CHASE MANHATTAN BANK OF CANADA,
Individually and as Arranger and Administrative Agent,
THE BANK OF NOVA SCOTIA,
Individually and as Paying Agent and Co-Agent,
CANADIAN IMPERIAL BANK OF COMMERCE,
Individually and as Co-Agent,
AND
THE OTHER BANKS SIGNATORY HERETO
December 23, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Section 1. Definitions and Accounting Matters...........................1
1.1 Certain Defined Terms........................................1
1.2 Accounting Terms and Determinations.........................25
1.3 Types of Loans..............................................25
1.4 Miscellaneous...............................................25
Section 2. Commitments; Designation of Maximum Outstanding Amount......25
2.1 Loans and Bankers' Acceptances..............................25
2.2 Letters of Credit...........................................26
2.3 Reductions and Changes of Commitments.......................30
2.4 Fees........................................................31
2.5 Affiliates; Lending Offices.................................32
2.6 Several Obligations.........................................32
2.7 Notes.......................................................32
2.8 Use of Proceeds.............................................33
Section 3. Borrowings, Prepayments and Selection of Interest Rates.....33
3.1 Borrowings..................................................33
3.2 Prepayments.................................................34
3.3 Selection of Interest Rates.................................34
3.4 Conditions Applicable to Bankers' Acceptances...............35
3.5 Paying Agent's Duties Re Bankers' Acceptances...............37
3.6 Certain Provisions Relating to Bankers' Acceptances Forms...38
Section 4. Payments of Principal and Interest..........................38
4.1 Repayment of Loans and Reimbursement Obligations............38
4.2 Interest....................................................39
4.3 Acceptance Fees.............................................39
Section 5. Payments; Pro Rata Treatment; Computations, Etc.............40
5.1 Payments....................................................40
5.2 Pro Rata Treatment..........................................40
5.3 Computations................................................41
5.4 Minimum and Maximum Amounts.................................41
5.5 Certain Actions, Notices, Etc...............................41
5.6 Non-Receipt of Funds by the Paying Agent....................43
5.7 Sharing of Payments, Etc....................................44
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 6. Yield Protection and Illegality.............................44
6.1 Additional Costs............................................44
6.2 Limitations.................................................46
6.3 Illegality..................................................47
6.4 Substitute Alternate Base Rate Loans or Canadian
Prime Rate Loans..........................................48
6.5 Compensation................................................48
6.6 Additional Costs in Respect of Letters of Credit............49
6.7 Capital Adequacy............................................49
6.8 Limitation on Additional Charges; Substitute Banks;
Non-Discrimination........................................50
Section 7. Conditions Precedent........................................51
7.1 Initial Loans and Acceptance and Purchase of
Bankers' Acceptances......................................51
7.2 Initial and Subsequent Loans................................53
Section 8. Representations and Warranties..............................53
8.1 Corporate Existence.........................................54
8.2 Corporate Power and Authorization...........................54
8.3 Binding Obligations.........................................54
8.4 No Legal Bar or Resultant Lien..............................54
8.5 No Consent..................................................54
8.6 Financial Condition.........................................55
8.7 Investments and Guaranties..................................55
8.8 Liabilities and Litigation..................................55
8.9 Taxes and Governmental Charges..............................56
8.10 Title to Properties.........................................56
8.11 Defaults....................................................56
8.12 Location of Businesses and Offices..........................56
8.13 Compliance with Law.........................................56
8.14 Margin Stock................................................57
8.15 Subsidiaries................................................57
8.16 ERISA.......................................................57
8.17 Investment Company Act......................................57
8.18 Public Utility Holding Company Act..........................58
8.19 Environmental Matters.......................................58
8.20 Claims and Liabilities......................................59
8.21 Solvency....................................................59
Section 9. Affirmative Covenants.......................................59
9.1 Financial Statements and Reports............................59
9.2 Officers' Certificates......................................62
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
9.3 Taxes and Other Liens.......................................63
9.4 Maintenance.................................................63
9.5 Further Assurances..........................................63
9.6 Performance of Obligations..................................63
9.7 Reimbursement of Expenses...................................64
9.8 Insurance...................................................65
9.9 Accounts and Records........................................65
9.10 Rights of Inspection........................................65
9.11 Notice of Certain Events....................................65
9.12 ERISA Information and Compliance............................67
Section 10. Negative Covenants..........................................68
10.1 Debts, Guarantees and Other Obligations.....................68
10.2 Liens.......................................................71
10.3 Investments, Loans and Advances.............................74
10.4 Dividend Payment Restrictions...............................76
10.5 Mergers, Amalgamations and Sales of Assets..................76
10.6 Use of Proceeds.............................................77
10.7 ERISA Compliance............................................77
10.8 Amendment of Certain Documents..............................77
10.9 Tangible Net Worth..........................................77
10.10 Parent Debt/Capitalization Ratio............................77
10.11 EBITDAX/Interest Ratio......................................77
10.12 Nature of Business..........................................78
10.13 Futures Contracts...........................................78
10.14 Covenants in Other Agreements...............................78
Section 11. Defaults....................................................79
11.1 Events of Default...........................................79
11.2 Collateral Account..........................................82
11.3 Preservation of Security for Unmatured Reimbursement
Obligations...............................................82
11.4 Right of Setoff.............................................82
Section 12. The Agents..................................................83
12.1 Appointment, Powers and Immunities..........................83
12.2 Reliance by Agents..........................................84
12.3 Defaults....................................................85
12.4 Rights as a Bank............................................85
12.5 Indemnification.............................................85
12.6 Non-Reliance on Agents and Other Banks......................86
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
12.7 Failure to Act..............................................86
12.8 Resignation or Removal of Agents............................86
Section 13. Miscellaneous...............................................87
13.1 Waiver......................................................87
13.2 Notices.....................................................87
13.3 Indemnification.............................................87
13.4 Amendments, Etc.............................................89
13.5 Successors and Assigns......................................89
13.6 Limitation of Interest......................................92
13.7 Interest Act (Canada); Interest Generally...................93
13.8 Certain Saskatchewan Legislation............................94
13.9 Survival....................................................94
13.10 Captions....................................................94
13.11 Counterparts................................................94
13.12 Governing Law...............................................94
13.13 Severability................................................95
13.14 Confidential Information....................................95
13.15 Amendment and Restatement...................................96
13.16 Intercreditor Agreement.....................................96
13.17 Judgement Currency..........................................96
13.18 Withholding Tax Remittances.................................97
Exhibit A Oil and Gas Subsidiaries
Exhibit B Form of Request for Extension of Credit
Exhibit C-1 Form of Revolving Credit Loan Note (U.S. Dollars)
Exhibit C-2 Form of Revolving Credit Loan Note (Canadian Dollars)
Exhibit D Subsidiaries (with Addresses)
Exhibit E Form of Compliance Certificate
Exhibit F Assignment and Acceptance
Exhibit G Form of Engineering Report Certificate
Exhibit H Parameters Interest Rate Protection and Commodities
Futures Programs
Exhibit I Form of Second Amendment to Intercreditor Agreement
Exhibit J Form of Bankers' Acceptance
</TABLE>
<PAGE>
CREDIT AGREEMENT
This CREDIT AGREEMENT, dated as of December 23, 1996, is by and among
SEAGULL ENERGY CANADA LTD. (the "Company"), a corporation duly organized and
validly existing under the laws of the Province of Alberta, Canada; each of the
banks which is or which may from time to time become a signatory hereto
(individually, a "Bank" and, collectively, the "Banks"); THE CHASE MANHATTAN
BANK OF CANADA ("Chase"), as arranger and administrative agent for the Banks (in
such capacity, together with its successors in such capacity, the
"Administrative Agent"); THE BANK OF NOVA SCOTIA ("BNS"), as paying agent and
co- agent for the Banks (in such capacity, together with its successors in such
capacity, the "Paying Agent"), and CANADIAN IMPERIAL BANK OF COMMERCE ("CIBC"),
as co-agent for the Banks (in such capacity, together with its successors in
such capacity, the "Co-Agent").
The parties hereto agree as follows:
Section 1. Definitions and Accounting Matters
1.1 Certain Defined Terms. As used herein, the following terms shall
have the following meanings (all terms defined in this Section 1.1 or in other
provisions of this Agreement in the singular to have the same meanings when used
in the plural and vice versa):
"Additional Costs" shall have the meaning ascribed to such term in
Section 6.1 hereof.
"Affiliate" shall mean, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person and, if such Person is an individual, any member of
the immediate family (including parents, siblings, spouse, children,
stepchildren, grandchildren, nephews and nieces) of such individual and any
trust whose principal beneficiary is such individual or one or more members of
such immediate family and any Person who is controlled by any such member or
trust. As used in this definition, "control" (including, with correlative
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise).
"Agents" shall mean the Administrative Agent, the Paying Agent and the
Co-Agent, collectively.
"Agreement" shall mean this Credit Agreement, as the same may be
amended, modified, restated or supplemented from time to time.
<PAGE>
"Alternate Base Rate" shall mean, for any day, a rate per annum equal
to the higher of (a) the U.S. Prime Rate in effect on such day or (b) 1/2 of 1%
plus the Federal Funds Rate in effect for such day (rounded upwards, if
necessary, to the nearest 1/16th of 1%). For purposes hereof, "Federal Funds
Rate" shall mean, for any period, a fluctuating interest rate per annum equal
for each day during such period to the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published for such day (or, if such day is
not a Business Day, for the next preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such transactions
received by the Paying Agent from three Federal funds brokers of recognized
standing selected by it. For purposes of this Agreement, any change in the
Alternate Base Rate due to a change in the Federal Funds Rate shall be effective
on the effective date of such change in the Federal Funds Rate. If for any
reason the Paying Agent shall have determined (which determination shall be
conclusive and binding, absent manifest error) that it is unable to ascertain
the Federal Funds Rate for any reason, including, without limitation, the
inability or failure of the Paying Agent to obtain sufficient bids or
publications in accordance with the terms hereof, the Alternate Base Rate shall
be the U.S. Prime Rate until the circumstances giving rise to such inability no
longer exist. For the purposes hereof, "U.S. Prime Rate" shall mean the annual
rate of interest announced from time to time by the Paying Agent in Canada as
its U.S. Base Rate for U.S. Dollar loans made by the Paying Agent in Canada.
Without notice to the Company or any other Person, the U.S. Prime Rate shall
change automatically from time to time as and in the amount by which said annual
rate of interest shall fluctuate. The U.S. Prime Rate is a reference rate and
does not necessarily represent the lowest or best rate actually charged to any
customer. The Chase Manhattan Bank, any Agent or any Bank may make commercial
loans or other loans at rates of interest at, above or below the U.S. Prime
Rate. For purposes of this Agreement any change in the Alternate Base Rate due
to a change in the U.S. Prime Rate shall be effective on the date such change in
the U.S. Prime Rate is announced.
"Alternate Base Rate Loans" shall mean Loans which bear interest at a
rate based upon the Alternate Base Rate.
"APC" shall mean Alaska Pipeline Company, an Alaska corporation, a
Subsidiary of the Parent.
"APC Long Term Financing Documents" shall mean that certain Inducement
Agreement and that certain Note Agreement (together with the Notes, as defined
therein), each dated as of May 14, 1992, by and among the Parent, Aid
Association for Lutherans, The Equitable Life Assurance Society of the United
States, Equitable Variable Life Insurance Company, Provident Life and Accident
Insurance Company and Teachers Insurance & Annuity Association of America, any
documentation executed in connection with any renewal, extension or
rearrangement of the Indebtedness that is the subject of the foregoing
documents, the Gas Sales Contract, the Intercompany Mortgage, as defined in the
<PAGE>
above-mentioned Note Agreement, and any documents executed in replacement of any
of the foregoing documents, if any, and only if the Administrative Agent has
received notice thereof pursuant to Section 10.8.
"Applicable Lending Office" shall mean, for each Bank and for each Type
of Loan and for each Bankers' Acceptance, such office of such Bank (or of an
affiliate of such Bank) as such Bank may from time to time specify to the Paying
Agent and the Company as the office by which its Loans of such Type are to be
made and/or issued and maintained and at which Bankers' Acceptances are to be
accepted and purchased; provided, however, that each such office shall be
located in Canada.
"Applicable Margin" shall mean, on any day and with respect to any
Loan, the applicable per annum percentage set forth at the appropriate
intersection in the table shown below, based on the Debt/Capitalization Ratio as
of the last day of the most recently ending fiscal quarter of the Parent and its
Subsidiaries with respect to which the Administrative Agent shall have received
the financial statements and other information (the "Current Information")
required to be delivered to the Administrative Agent pursuant to Section 9.1
hereof (said calculation to be made by the Administrative Agent as soon as
practicable after receipt by the Administrative Agent of all required Current
Information):
<TABLE>
<CAPTION>
Applicable Margin For
Alternate Base Rate Applicable
Loans and Canadian Margin for
Prime Rate Eurodollar
Debt/Capitalization Ratio Loans Loans
<S> <C> <C>
Greater than or equal to 60% 0.375 1.375
Greater than or equal to 55%
but less than 60% 0.00 1.00
Greater than or equal to 50%
but less than 55% 0.00 0.75
Less than 50% 0.00 0.625
</TABLE>
Notwithstanding the foregoing, at all times that a Borrowing Base Deficiency
shall exist and is continuing for more than 30 days, the Applicable Margins
provided for in this definition shall each be increased by adding 1.00%. Each
change in the Applicable Margin based on a change in the Current Information
shall be effective as of the fifteenth day of the month during which the Current
<PAGE>
Information used to calculate the new Applicable Margin was delivered to the
Administrative Agent.
"Applications" shall mean all applications and agreements for Letters
of Credit, or similar instruments or agreements, now or hereafter executed by
any Person in connection with any Letter of Credit now or hereafter issued or to
be issued.
"Bank Guarantee" shall mean that certain Guarantee dated concurrently
herewith executed by the Parent in favour of the Administrative Agent.
"Bankers' Acceptances" means bankers' acceptances issued by the Company
and denominated in Canadian Dollars, which are accepted and purchased by the
Banks at the request of the Company pursuant to Section 2.1.
"B.A. Reference Banks" shall mean the Paying Agent and one (1) other
Bank selected by the Paying Agent (after consultation with the Company) which is
a "Schedule 1" accepting bank.
"B/A Stamping Rate" means, with respect to Bankers' Acceptances
accepted by a Bank, the Applicable Margin for Eurodollar Loans in effect on the
date of acceptance of the Bankers' Acceptance.
"Bankruptcy Code" shall mean (i) the United States Bankruptcy Code, as
amended, and any successor statute and (ii) the Bankruptcy and Insolvency Act
(Canada), as amended, and any successor statute.
"Beluga Financing Documents" shall mean that certain Inducement
Agreement and that certain Note Agreement (together with the Notes, as defined
therein), each dated June 17, 1985, and amended as of June 15, 1990, by and
among the Parent and The Equitable Life Assurance Society of the United States
and the Travelers Insurance Company, any documentation executed in connection
with any renewal, extension or rearrangement of the Indebtedness that is the
subject of the foregoing documents, the Gas Sales Contract, the Intercompany
Mortgage, as defined in the above-mentioned Note Agreement, and any documents
executed in replacement of any of the foregoing documents, if and only if the
Administrative Agent has received notice thereof pursuant to Section 10.8.
"Borrowing Base" shall have the meaning ascribed to such term in the
U.S. Facility (without amendment except as permitted pursuant to the
Intercreditor Agreement).
"Borrowing Base Debt" shall have the meaning ascribed to such term in
the U.S. Facility (without amendment except as permitted pursuant to the
Intercreditor Agreement).
<PAGE>
"Borrowing Base Deficiency" shall have the meaning ascribed to such
term in the U.S. Facility (without amendment except as permitted pursuant to the
Intercreditor Agreement).
"Business Day" shall mean any day other than a day on which commercial
banks are authorized or required to close in Houston, Texas, United States,
Calgary, Alberta, Canada, or Toronto, Ontario, Canada, and where such term is
used in the definition of "Quarterly Date" in this Section 1.1 or if such day
relates to a borrowing of, a payment or prepayment of principal of or interest
on, or an Interest Period for, a Eurodollar Loan or a notice by the Company with
respect to any such borrowing, payment, prepayment or Interest Period, a day
which is also a day on which dealings in U.S. Dollar deposits are carried out in
the relevant interbank market.
"Canadian Bankers' Acceptance Discount Proceeds" means, in respect of
any Bankers' Acceptance required to be accepted and purchased by a Bank
hereunder, an amount (rounded to the nearest whole cent with one-half of one
cent being rounded up) calculated on the date of acceptance of the Bankers'
Acceptance by multiplying:
(a) the face amount of such Bankers' Acceptance divided by one
hundred (100); by
(b) the price, where the price is determined by dividing one
hundred (100) by the sum of one plus the product of:
(i) the Canadian Bankers' Acceptance Discount Rate (expressed
as a decimal); and
(ii) a fraction, the numerator of which is the term (expressed
in days) of such Bankers' Acceptance and the denominator
of which is three hundred sixty-five (365);
with the price as so determined being rounded up or down to the fifth decimal
place and .000005 being rounded up;
"Canadian Bankers' Acceptance Discount Rate" shall mean
(i) with respect to each Bankers' Acceptance which is required to
be accepted and purchased by a Bank hereunder and which has a
term of more than 90 days, the percentage discount rate
(expressed to two decimal places) determined by the Paying
Agent to be the average of the quoted discount rates at which
Canadian Dollar Bankers' Acceptances having a comparable issue
and maturity date are being bid for discount by the B.A.
Reference Banks at approximately 11:00 a.m. Toronto, Ontario
time (or as soon thereafter as practicable) on the day of the
issuance and acceptance of the Bankers' Acceptances. If either
B.A. Reference Bank does not furnish a timely quotation, the
<PAGE>
Paying Agent shall determine the relevant discount rate on
the basis of the quotation or quotations furnished by the
remaining B.A. Reference Bank; if neither of such quotations
is available on a timely basis, the provisions of Section 6.2
shall apply; and
(ii) with respect to each Bankers' Acceptance which is required to
be accepted and purchased by a Bank hereunder and which has a
term of 90 days or less, the percentage discount rate
(expressed to two decimal places) for Canadian Dollar Bankers'
Acceptances having a comparable issue and maturity date which
is quoted on the Reuter's Canadian Discount Offer Rate Screen
for "Schedule 1" accepting banks (or if such screen shall not
be available, any successor or similar services may be
selected by the Paying Agent and the Company) as of 11:00 a.m.
Toronto, Ontario time (or as soon thereafter as practicable)
on the day of acceptance of the Bankers' Acceptances. If none
of such screen nor any successor or similar services is
available then the "Canadian Bankers' Acceptance Discount
Rate" shall mean, with respect to each Bankers' Acceptance
which is required to be accepted and purchased by a Bank
hereunder and which has a term of 90 days or less, the
percentage discount rate (expressed to two decimal places)
determined by the Paying Agent to be the average of the quoted
discount rates at which Canadian Dollar Bankers' Acceptances
having a comparable issue and maturity date are being bid for
discount by the B.A. Reference Banks at approximately 11:00
a.m. Toronto, Ontario time (or as soon thereafter as
practicable) on the day of the issuance and acceptance of the
Bankers' Acceptances. If either B.A. Reference Bank does not
furnish a timely quotation, the Paying Agent shall determine
the relevant discount rate on the basis of the quotation
or quotations furnished by the remaining B.A. Reference Bank;
if neither of such quotations is available on a timely basis,
the provisions of Section 6.2 shall apply.
Each determination of the Canadian Bankers' Acceptance
Discount Rate shall be conclusive and binding, absent manifest
error, and may be computed using any reasonable averaging and
attribution method.
"Canadian Dollars" and "Canadian $" shall mean lawful money of Canada.
"Canadian Prime Rate" for any day shall mean the variable lending rate
of interest (expressed as a rate per annum) established on such day by the
Paying Agent from time to time as the reference rate of interest which the
Paying Agent employs in order to determine the interest rate it will charge for
demand loans denominated in Canadian Dollars to its customers in Canada and
which it designates as its prime rate. Without notice to the Company or any
other Person, the Canadian Prime Rate shall change automatically from time to
time as and in the amount by which said prime rate shall fluctuate. The Canadian
Prime Rate is a reference rate and does not necessarily represent the lowest or
<PAGE>
best rate actually charged to any customer. Any Agent or any Bank may make
commercial loans or other loans at rates of interest at, above or below the
Canadian Prime Rate. For purposes of this Agreement any change in the
Canadian Prime Rate due to a change in the said prime rate shall be effective
on the date such change in said prime rate is announced.
"Canadian Prime Rate Loans" shall mean Loans which bear interest at a
rate based upon the Canadian Prime Rate.
"Capital Expenditures" shall mean expenditures in respect of fixed or
capital assets (calculated in accordance with GAAP) excluding expenditures for
the restoration, repair or replacement of any fixed or capital asset which was
destroyed or damaged, in whole or in part, to the extent financed by the
proceeds of an insurance policy. Expenditures in respect of replacements and
maintenance consistent with the business practices of the Parent and its
Subsidiaries in respect of plant facilities, machinery, fixtures and other like
capital assets utilized in the ordinary course of business are not Capital
Expenditures to the extent such expenditures are not capitalized in preparing a
balance sheet of the Parent in accordance with GAAP.
"Capital Lease Obligations" shall mean, as to any Person, the
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) real and/or personal property which
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP and, for purposes of this
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Capitalization" shall mean an amount equal to the sum of (a) Funded
Indebtedness of the Parent and its Subsidiaries on a consolidated basis plus (b)
Current Maturities of the Parent and its Subsidiaries on a consolidated basis
plus (c) borrowed money Indebtedness of the Parent and its Subsidiaries on a
consolidated basis that is not Funded Indebtedness plus (d) Indebtedness of the
Parent and its Subsidiaries on a consolidated basis constituting obligations
payable out of Hydrocarbons (except such obligations payable solely by recourse
to properties not included in the Borrowing Base) plus (e) Tangible Net Worth of
the Parent and its Subsidiaries on a consolidated basis.
"Change of Control" shall mean a change resulting when any Unrelated
Person or any Unrelated Persons acting together which would constitute a Group
together with any Affiliates or Related Persons thereof (in each case also
constituting Unrelated Persons) shall at any time either (i) Beneficially Own
more than 50% of the aggregate voting power of all classes of Voting Stock of
the Parent or (ii) succeed in having sufficient of its or their nominees elected
to the Board of Directors of the Parent such that such nominees, when added to
any existing director remaining on the Board of Directors of the Parent after
such election who is an Affiliate or Related Person of such Person or Group,
<PAGE>
shall constitute a majority of the Board of Directors of the Parent. As used
herein (a) "Beneficially Own" means "beneficially own" as defined in Rule 13d-3
of the United States Securities Exchange Act of 1934, as amended, or any
successor provision thereto; provided, however, that, for purposes of this
definition, a Person shall not be deemed to Beneficially Own securities tendered
pursuant to a tender or exchange offer made by or on behalf of such Person or
any of such Person's Affiliates until such tendered securities are accepted for
purchase or exchange; (b) "Group" means a "group" for purposes of Section 13(d)
of the United States Securities Exchange Act of 1934, as amended; (c)
"Unrelated Person" means at any time any Person other than the Parent or any
Subsidiary and other than any trust for any employee benefit plan of the Parent
or any Subsidiary of the Parent; (d) "Related Person" of any Person shall
mean any other Person owning (1) 5% or more of the outstanding common stock
of such Person or (2) 5% or more of the Voting Stock of such Person; and (e)
"Voting Stock" of any Person shall mean capital stock of such Person which
ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Code" shall mean, as applicable, (i) the Internal Revenue Code of
1986, as amended, or any successor statute, together with all regulations,
rulings and interpretations thereof or thereunder by the Internal Revenue
Service or (ii) the Income Tax Act (Canada), as amended, or any successor
statute, together with all regulations, rulings and interpretations thereof or
thereunder.
"Commitment Percentage" shall mean, as to any Bank, the percentage
equivalent of a fraction the numerator of which is the amount of such Bank's
Commitment and the denominator of which is the aggregate amount of the
Commitments of all Banks.
"Commitment" shall mean, as to any Bank, the obligation, if any, of
such Bank to make Loans, accept and purchase Bankers' Acceptances and incur
Letter of Credit Liabilities in an aggregate principal amount (including therein
the full face amount of all Bankers' Acceptances then outstanding) at any one
time outstanding up to but not exceeding the amount, if any, set forth opposite
such Bank's name on the signature pages hereof under the caption "Commitment"
(as the same may be reduced from time to time pursuant to Section 2.3).
"Cover" for Letter of Credit Liabilities shall be effected by paying to
the Paying Agent immediately available funds, to be held by the Paying Agent in
a collateral account maintained by Paying Agent at its Payment Office and
collaterally assigned as security for the financial accommodations extended
pursuant to this Agreement using documentation satisfactory to the
Administrative Agent, in an amount equal to any required prepayment. Such amount
shall be retained by the Paying Agent in such collateral account until such time
as (x) in the case of Cover being provided pursuant to Section 2.2(a), the
applicable Letter of Credit shall have expired and Reimbursement Obligations, if
any, with respect thereto shall have been fully satisfied or (y) in the case of
<PAGE>
Cover being provided pursuant to Section 3.2(b)(1), the outstanding principal
amount of all Revolving Credit Obligations is not greater than the aggregate
amount of the Commitments.
"Current Maturities" shall mean, on any day on which Current Maturities
are calculated, the sum of (a) scheduled principal payments on Funded
Indebtedness which are payable within one (1) year after such day plus (b) the
principal component of payments required to be made with respect to Capital
Lease Obligations within one (1) year of said date plus (c), to the extent not
included above, all items which in accordance with GAAP would be classified as
current maturities of long term debt.
"Debt/Capitalization Ratio" shall mean the ratio of (a) the sum of
Funded Indebtedness of the Parent and its Subsidiaries on a consolidated basis
plus Current Maturities of the Parent and its Subsidiaries on a consolidated
basis plus borrowed money Indebtedness of the Parent and its Subsidiaries on a
consolidated basis that is not Funded Indebtedness plus Indebtedness of the
Parent and its Subsidiaries on a consolidated basis constituting obligations
payable out of Hydrocarbons (except such obligations payable solely by recourse
to properties not included in the Borrowing Base) to (b) Capitalization.
"Default" shall mean an Event of Default or an event which with notice
or lapse of time or both would, unless cured or waived, become an Event of
Default.
"Disclosure Statement" shall mean the Disclosure Statement dated
concurrently herewith delivered to the Administrative Agent by the Company.
"Dividend Payment" shall mean, with respect to any Person, dividends
(in cash, property or obligations) on, or other payments or distributions on
account of, or the redemption of, or the setting apart of money for a sinking or
other analogous fund for the purchase, redemption, retirement or other
acquisition of, any shares of any class of capital stock of such Person, or the
exchange or conversion of any shares of any class of capital stock of such
Person for or into any obligations of or shares of any other class of capital
stock of such Person or any other property, but excluding dividends to the
extent payable in, or exchanges or conversions for or into, shares of common
stock of the Parent or options or warrants to purchase common stock of the
Parent.
"EBITDAX" shall mean net earnings (excluding gains and losses on sales
and retirement of assets, non-cash write downs, charges resulting from
accounting convention changes and deductions for dry hole expenses) before
deduction for federal, provincial, municipal and state taxes, interest expense
(including capitalized interest), operating lease rentals or depreciation,
depletion and amortization expense, all determined in accordance with GAAP.
"EBITDAX/Interest Ratio" shall mean the ratio of (a) EBITDAX of the
Parent and its Subsidiaries on a consolidated basis to (b) operating lease
rentals and interest expense (including capitalized interest but excluding
<PAGE>
non-cash amortization of deferred financing costs) on all Indebtedness of the
Parent and its Subsidiaries on a consolidated basis for any twelve-month
period ending on the last day of every calendar quarter during the period with
respect to which the EBITDAX/Interest Ratio is to be calculated.
"Engineering Report" shall mean one or more reports, in form
satisfactory to the Administrative Agent and the Majority Banks, prepared by one
or more independent consulting firms acceptable to the Administrative Agent and
the Majority Banks in their reasonable business judgment, which shall evaluate
at least 85% of the present value of the Included Reserves (as defined in the
U.S. Facility, without amendment except as permitted under the Intercreditor
Agreement) as of the immediately preceding January 1. Each Engineering Report
shall set forth a projection of the future rate of production, Net Proceeds of
Production and present value of the Net Proceeds of Production, in each case
based upon economic assumptions acceptable to the Administrative Agent and
approved by the Majority Banks.
"ENSTAR Alaska" shall collectively mean (i) the gas distribution system
in south-central Alaska known as ENSTAR Natural Gas Company, a division of the
Parent, and (ii) APC.
"Environmental Claim" means any third party (including Governmental
Authorities and employees) action, lawsuit, claim or proceeding (including
claims or proceedings at common law or under the Occupational Safety and Health
Act or similar laws relating to safety of employees) which seeks to impose
liability for (i) noise; (ii) pollution or contamination of the air, surface
water, ground water or land or the clean-up of such pollution or contamination;
(iii) solid, gaseous or liquid waste generation, handling, treatment, storage,
disposal or transportation; (iv) exposure to Hazardous Substances; (v) the
safety or health of employees or (vi) the manufacture, processing, distribution
in commerce or use of Hazardous Substances. An "Environmental Claim" includes,
but is not limited to, a common law action, as well as a proceeding to issue,
modify or terminate an Environmental Permit, or to adopt or amend a regulation
to the extent that such a proceeding attempts to redress violations of an
applicable permit, license, or regulation as alleged by any Governmental
Authority.
"Environmental Liabilities" includes all liabilities arising from any
Environmental Claim, Environmental Permit or Requirement of Environmental Law
under any theory of recovery, at law or in equity, and whether based on
negligence, strict liability or otherwise, including but not limited to:
remedial, removal, response, abatement, investigative, monitoring, personal
injury and damage to property or injuries to persons, and any other related
costs, expenses, losses, damages, penalties, fines, liabilities and obligations,
and all costs and expenses necessary to cause the issuance, reissuance or
renewal of any Environmental Permit including reasonable attorneys' fees and
court costs.
<PAGE>
"Environmental Permit" means any permit, license, approval or other
authorization under any applicable Legal Requirement relating to pollution or
protection of health or the environment, including laws, regulations or other
requirements relating to emissions, discharges, releases or threatened releases
of pollutants, contaminants or hazardous substances or toxic materials or wastes
into ambient air, surface water, ground water or land, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or Hazardous Substances.
"Equivalent U.S. Dollar Amount" shall mean, with respect to any amount
of Canadian Dollars, the equivalent amount of U.S. Dollars determined by using
the Bank of Canada noon day rate at which it offers to provide U.S. Dollars in
exchange for such amount of Canadian Dollars on the date as of which such
Equivalent U.S. Dollar Amount is to be determined.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and all rules, regulations and interpretations by
the Internal Revenue Service or the Department of Labor thereunder.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) which is a member of a group of which the Parent is a member and
which is under common control within the meaning of the regulations under
Section 414 of the Code.
"Eurodollar Base Rate" shall mean, with respect to any Interest Period
for any Eurodollar Loan, the lesser of (A) the rate per annum (rounded upwards,
if necessary, to the nearest 1/16th of 1%) equal to the average of the offered
quotations appearing on Telerate Page 3750 (or if such Telerate Page shall not
be available, any successor or similar service as may be selected by the Paying
Agent and the Company) as of 11:00 a.m., Toronto, Ontario time (or as soon
thereafter as practicable) on the day two Business Days prior to the first day
of such Interest Period for U.S. Dollar deposits having a term comparable to
such Interest Period and in an amount comparable to the principal amount of the
Eurodollar Loan to which such Interest Period relates or (B) the Highest Lawful
Rate. If none of such Telerate Page 3750 nor any successor or similar service is
available, then the "Eurodollar Base Rate" shall mean, with respect to any
Interest Period for any applicable Eurodollar Loan, the lesser of (A) the rate
per annum (rounded upwards, if necessary, to the nearest 1/16th of 1%)
determined by the Paying Agent to be the average of the rates quoted by the
Reference Banks at approximately 11:00 a.m., Toronto, Ontario time (or as soon
thereafter as practicable) on the day two Business Days prior to the first day
of such Interest Period for the offering by such Reference Banks to leading
banks in the interbank market of U.S. Dollar deposits having a term comparable
to such Interest Period and in an amount comparable to the principal amount of
the Eurodollar Loan to which such Interest Period relates or (B) the Highest
Lawful Rate. If any Reference Bank does not furnish a timely quotation, the
Paying Agent shall determine the relevant interest rate on the basis of the
quotation or quotations furnished by the remaining Reference Bank or Banks; if
none of such quotations is available on a timely basis, the provisions of
<PAGE>
Section 6.2 shall apply. Each determination of the Eurodollar Base Rate shall
be conclusive and binding, absent manifest error, and may be computed using any
reasonable averaging and attribution method.
"Eurodollar Loans" shall mean Loans the interest on which is determined
on the basis of rates referred to in the definition of "Eurodollar Base Rate" in
this Section 1.1.
"Eurodollar Rate" shall mean, for any Interest Period for any
Eurodollar Loan, a rate per annum determined by the Paying Agent to be equal to
the Eurodollar Base Rate for such Loan for such Interest Period.
"Event of Default" shall have the meaning assigned to such term in
Section 11 hereof.
"Financial Statements" shall mean the financial statement or
statements, together with the notes and schedules thereto, described or referred
to in Sections 8.6 and 9.1.
"Funded Indebtedness" shall mean all Indebtedness which by its terms
matures more than one (1) year from the date as of which any calculation of
Funded Indebtedness is made, and any Indebtedness maturing within one (1) year
from such date which is renewable at the option of the obligor to a date beyond
one (1) year from such date.
"GAAP" shall mean as to a particular Person, such accounting practice
as, in the opinion of KPMG Peat Marwick or other independent accountants of
recognized national standing retained by such Person and acceptable to the
Majority Banks, conforms at the time to generally accepted accounting
principles, consistently applied. Generally accepted accounting principles means
those principles and practices (a) which are recognized as such by the Financial
Accounting Standards Board, (b) which are applied for all periods after the date
hereof in a manner consistent with the manner in which such principles and
practices were applied to the most recent audited financial statements of the
relevant Person furnished to the Banks, except only for such changes in
principles and practices with which the applicable independent public
accountants concur and which are disclosed to the Banks in writing, and (c)
which are consistently applied for all periods after the date hereof so as to
reflect properly the financial condition and results of operations of such
Person.
"Gas and Liquids Pipeline Subsidiaries" shall mean each company (which
may include the Parent) engaged in the Pipeline Operations (as defined in the
U.S. Facility, without amendment except as permitted under the Intercreditor
Agreement).
"Gas Sale Contract" shall mean that certain Gas Sale Contract dated
January 1, 1984, between APC, as Seller, and ENSTAR Natural Gas Company, as
Purchaser, as amended on June 17, 1985, and from time to time thereafter, if
<PAGE>
and only if the Administrative Agent has received notice thereof pursuant to
Section 10.8.
"Governmental Authority" shall mean any sovereign governmental
authority, Canada, the United States of America, any Province of Canada, any
State of the United States and any political subdivision of any of the
foregoing, and any central bank, agency, instrumentality, department,
commission, board, bureau, authority, court or other tribunal or
quasi-governmental authority in each case whether executive, legislative,
judicial, regulatory or administrative, having jurisdiction over the Parent, any
of its Subsidiaries, any of their respective property, any Agent or any Bank.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of any such Person directly or indirectly guaranteeing any
Indebtedness of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness (whether arising by virtue of partnership
arrangements, by agreement to keep- well, to purchase assets, goods, securities
or services, to take-or-pay, or to maintain financial statement conditions or
otherwise, other than agreements to purchase assets, goods, securities or
services at an arm's length price in the ordinary course of business) or (ii)
entered into for the purpose of assuring in any other manner the holder of such
Indebtedness of the payment thereof or to protect such holder against loss in
respect thereof (in whole or in part), provided that the term "Guarantee" shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Hazardous Substance" shall mean petroleum products, and any hazardous
or toxic waste or substance defined or regulated as such from time to time by
any law, rule, regulation or order described in the definition of "Requirements
of Environmental Law".
"Highest Lawful Rate" shall mean, on any day, the maximum nonusurious
rate of interest permitted for that day by whichever of applicable Canadian or
provincial law permits the higher interest rate, stated as a rate per annum.
"Hydrocarbons" shall mean oil, gas, casinghead gas, drip gasoline,
natural gasoline, condensate and all other liquid or gaseous hydrocarbons and
related minerals, in each case whether in a natural or a processed state.
"Indebtedness" shall mean, as to any Person: (i) indebtedness of such
Person for borrowed money (whether by loan or the issuance and sale of debt
securities) or for the deferred purchase or acquisition price of property or
services, including, without limitation, obligations (excluding volumetric
obligations with respect to pre-sales of Hydrocarbon production which have
already been accounted for in the calculation of the Borrowing Base) payable out
of Hydrocarbon production; (ii) obligations, whether fixed or contingent, of
such Person in respect of letters of credit, acceptances or similar instruments
<PAGE>
issued or accepted by banks and other financial institutions for the account of
such Person or any other Person; (iii) Capital Lease Obligations of such Person;
(iv) Redemption Obligations of such Person and other obligations of such Person
to redeem or otherwise retire shares of capital stock of such Person or any
other Person, in each case to the extent that the redemption obligations will
arise prior to the stated maturity of the Obligations; (v) indebtedness of
others of the type described in clause (i), (ii), (iii) or (iv) above secured
by a Lien on the property of such Person, whether or not the respective
obligation so secured has been assumed by such Person; and (vii) indebtedness
of others of the type described in clause (i), (ii), (iii) o r (iv) above
Guaranteed by such Person.
"Intercreditor Agreement" shall mean that certain Intercreditor
Agreement dated December 30, 1993 executed by and among the Company, the Parent,
the Administrative Agent and the "Administrative Agent" (now known as "Agent")
under the U.S. Facility, as amended by that certain First Amendment to
Intercreditor Agreement dated May 24, 1994 and by that certain Second Amendment
to Intercreditor Agreement in the form of Exhibit I hereto dated concurrently
herewith, and as the same may be further amended or modified from time to time.
"Interest Period" shall mean:
(a) With respect to any Eurodollar Loan, the period commencing
on (i) the date such Loan is made or converted into or continued as a Eurodollar
Loan or (ii) in the case of a roll-over to a successive Interest Period, the
last day of the immediately preceding Interest Period and ending on the
numerically corresponding day in the first, second, third or sixth calendar
month thereafter, as the Company may select as provided in Section 3.3 hereof,
except that each such Interest Period which commences on any day for which there
is no numerically corresponding day in the appropriate subsequent calendar month
shall end on the last Business Day of the appropriate subsequent calendar month.
(b) With respect to any Alternate Base Rate Loan or any
Canadian Prime Rate Loan, the period commencing on the date such Loan is made
and ending on the next succeeding Quarterly Date.
Notwithstanding the foregoing: (i) no Interest Period with respect to a
Eurodollar Loan may commence before and end after the date of any scheduled
reduction in the Commitments if, after giving effect thereto, the aggregate
principal amount of the Eurodollar Loans having Interest Periods which end after
such reduction date shall be greater than the aggregate principal amount of the
Commitments scheduled to be in effect after such reduction date; (ii) each
Interest Period which would otherwise end on a day which is not a Business Day
shall end on the next succeeding Business Day (or, in the case of an Interest
Period for Eurodollar Loans, if such next succeeding Business Day falls in the
next succeeding calendar month, on the next preceding Business Day); (iii) no
Interest Period with respect to a Eurodollar Loan shall extend beyond the end of
the scheduled Revolving Credit Availability Period; and (iv) no Interest Period
<PAGE>
for any Eurodollar Loans shall have a duration of less than one month and, if
the Interest Period therefore would otherwise be a shorter period, such Loans
shall not be available hereunder.
"Investments" shall have the meaning assigned to such term in Section
10.3 hereof.
"Investments Tests" shall mean compliance with each of the following
restrictions (both before and immediately after giving effect to the applicable
Investments):
(i) there shall exist no Borrowing Base Deficiency;
(ii) no Default or Event of Default shall have occurred
and be continuing; and
(iii) the applicable Investment, when aggregated with any
prior permitted Investments, shall not exceed 10% of
Tangible Net Worth of the Parent and its Subsidiaries
on a consolidated basis.
"Issuer" shall mean each Bank issuing a Letter of Credit hereunder.
"Legal Requirement" shall mean any law, statute, ordinance, decree,
requirement, order, judgment, rule, regulation (or interpretation of any of the
foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority, now or hereafter in effect.
"Letter of Credit" shall have the meaning assigned to such term in
Section 2.2 hereof.
"Letter of Credit Fee" shall mean a per annum rate equal to the
Applicable Margin for Eurodollar Loans in effect from time to time.
"Letter of Credit Liabilities" shall mean, at any time and in respect
of any Letter of Credit, the sum of (i) the amount available for drawings under
such Letter of Credit plus (ii) the aggregate unpaid amount of all Reimbursement
Obligations at the time due and payable in respect of previous drawings made
under such Letter of Credit.
"Lien" shall mean, with respect to any asset, any mortgage, lien,
pledge, charge, collateral assignment, security interest or encumbrance of any
kind in respect of such asset. For the purposes of this Agreement, a Person
shall be deemed to own subject to a Lien any asset which it has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement relating to such
asset.
"Liquid Investments" shall mean:
<PAGE>
(I) in the case of investments of U.S. Dollars
(i) securities issued or directly, fully and
unconditionally guaranteed or insured by the United
States of America or any agency or instrumentality
thereof (provided that the full faith and credit of
the United States of America is pledged in support
thereof) having maturities of not more than one year
from the date of issue;
(ii) U.S. Dollar time deposits and certificates of deposit
(A) of any Bank having capital and surplus in excess
of U.S. $300,000,000, or (B) of any commercial bank
incorporated in the United States, of recognized
standing, having capital and surplus in excess of
U.S. $500,000,000 and which has (or which is a
Subsidiary of a holding company which has) publicly
traded debt securities rated, at the time of issuance
of such time deposits, AA or higher by Standard &
Poor's Corporation or Aa-2 or higher by Moody's
Investors Service, Inc. with maturities of not more
than one year from the date of issue;
(iii) repurchase obligations with a term of not more than
seven days for underlying securities of the types
described in clause (I)(i) above entered into with
any bank meeting the qualifications specified in
clause (I)(ii) above, provided that the terms of such
agreements comply with the guidelines set forth
in the Federal Financial Institution Examination
Counsel Supervisory Policy--Repurchase Agreements of
Depository Institutions With Securities Dealers and
Others, as adopted by the Comptroller of the Currency
on October 31, 1985;
(iv) commercial paper or other U.S. Dollar obligations
issued by the parent corporation (A) of any Bank
having capital and surplus in excess of U.S.
$300,000,000, or (B) of any commercial bank (provided
that the parent corporation and the bank are both
incorporated in the United States) of recognized
standing having capital and surplus in excess of U.S.
$500,000,000 and commercial paper or other U.S.
Dollar obligations issued by any Person incorporated
in the United States, which commercial paper is rated
at least A-2 or the equivalent thereof by Standard &
Poor's Corporation or at least P-2 or the equivalent
thereof by Moody's Investors Service, Inc. and in
each case maturing not more than six months after the
date of issue;
<PAGE>
(v) obligations of any state or political subdivision
thereof rated at least F-1 by Fitch Investors
Service, Inc. or AA by Standard & Poor's Corporation
with an original maturity of 180 days or less; and
(vi) investments in money market funds substantially all
the assets of which are comprised of securities of
the types described in clauses (I)(i) through (v)
above; and
(II) in the case of investments of Canadian dollars
(i) bonds or other evidences of indebtedness of, or the
principal and interest of which is fully guaranteed
by, the Government of Canada or any province of
Canada, payable in Canadian dollars and (in the case
of any provincial obligations and any Government of
Canada obligations that are rated) rated AAA or AA
(or the then equivalent grade) by Dominion Bond
Rating Service Limited, or any other nationally
recognized bond rating service, having a maturity not
in excess of one year,
(ii) certificates of deposit issued or guaranteed by a
bank or trust company organized under the laws of
Canada or any province thereof, provided such bank or
trust company has capital and retained earnings in
the aggregate in excess of Canadian $500,000,000 on
its most recent balance sheet (whether audited or
unaudited), having a maturity not in excess of one
year,
(iii) bankers' acceptances of any bank or trust company the
certificates of deposit of which would constitute
Liquid Investments as provided in clause (II)(ii)
above, if outstanding unsecured debt of such bank or
trust company is rated no less than AA (or the then
equivalent grade) by Dominion Bond Rating Service
Limited, or any other nationally recognized bond
rating service; and
(iv) commercial paper rated no less than R-1 (or the then
equivalent grade) by Dominion Bond Rating Service
Limited or A-1 (or the then equivalent grade) by CBRS
Inc., having a maturity not in excess of one year;
excluding any bonds or other evidences of
indebtedness, certificates of deposit or commercial
paper which a Canadian chartered bank may not hold as
security under the Bank Act (Canada).
"Loan Documents" shall mean this Agreement, the Notes, the Bank
Guarantee, the Intercreditor Agreement, the Bankers' Acceptances, all
Applications, all instruments, certificates and agreements now or hereafter
executed or delivered to any Agent or any Bank pursuant to any of the foregoing,
<PAGE>
and all amendments, modifications, renewals, extensions, increases and
rearrangements of, and substitutions for, any of the foregoing.
"Loans" shall mean the loans provided for by Section 2.1 hereof.
"Majority Banks" shall mean Banks having greater than 66-2/3% of the
aggregate amount of Commitments.
"Material Adverse Effect" shall mean a material adverse effect on the
business, condition (financial or otherwise), operations, properties (including
proven oil and gas reserves) or prospects of the Parent and its Subsidiaries,
taken as a whole, or on the ability of any Relevant Party to perform its
material obligations under any Loan Document to which it is a party.
"Maximum Outstanding Amount" shall have the meaning ascribed to such
term in Section 2.9 hereof.
"Maximum Revolving Credit Available Amount" shall mean, at any date, an
amount equal to the lesser of (i) the aggregate of the Commitments or (ii) the
Maximum Outstanding Amount designated from time to time by the Company in
accordance with the terms hereof.
"Mesa Contract" shall mean that certain Purchase and Sale Agreement
dated February 6, 1991 executed by and among Mesa Limited Partnership, a
Delaware limited partnership, Mesa Operating Limited Partnership, a Delaware
limited partnership, and Mesa Midcontinent Limited Partnership, a Delaware
limited partnership, as Sellers, and the Parent, as Buyer, as amended by that
certain First Amendment to Purchase and Sale Agreement dated February 22, 1991
and as further amended by that certain Second Amendment to Purchase and Sale
Agreement dated March 8, 1991.
"Net Proceeds of Production" shall mean, with respect to any Person,
all revenue received by or credited to the account of such Person from the sale
of Hydrocarbons and other minerals in, under or produced from their respective
oil, gas and mineral properties after deducting royalties, overriding royalties,
volumetric production payments with respect to pre-sales of Hydrocarbon
production, production payments pledged to secure non-recourse financing payable
solely out of such production payments, net profits interests and other burdens
payable out of production, normal and reasonable operating expenses and
severance, ad valorem, excise, freehold mineral and windfall profit taxes.
"Notes" shall mean the promissory notes of the Company evidencing the
Loans, in the form of Exhibit C hereto, together with all renewals, extensions,
modifications and replacements thereof and substitutions therefore.
<PAGE>
"Novalta" shall mean Novalta Resources Inc., a corporation incorporated
under the laws of the Province of Alberta.
"Novalta Contract" shall mean that certain Sale Agreement dated
November 19, 1993 executed by and between Novacor Petrochemicals Ltd., as
Vendor, and the Parent, as Purchaser.
"Obligations" shall mean, as at any date of determination thereof, the
sum of the following: (i) the aggregate principal amount of Loans outstanding
hereunder plus (ii) the aggregate face amount of all outstanding Bankers'
Acceptances plus (iii) the aggregate amount of the Letter of Credit Liabilities
hereunder plus (iv) all other liabilities, obligations and indebtedness of the
Parent or any Subsidiary of the Parent under any Loan Document.
"Oil and Gas Subsidiaries" shall mean any Subsidiary of the Parent
whose assets consist primarily of oil and gas properties. As of the date hereof,
the Oil and Gas Subsidiaries are listed as such on Exhibit A hereto.
"Organizational Documents" shall mean, with respect to a corporation,
the certificate of incorporation, articles of incorporation and bylaws of such
corporation; with respect to a partnership, the partnership agreement
establishing such partnership; with respect to a joint venture, the joint
venture agreement establishing such joint venture, and with respect to a trust,
the instrument establishing such trust; in each case including any and all
modifications thereof as of the date of the Loan Document referring to such
Organizational Document.
"Parent" shall mean Seagull Energy Corporation, a Texas corporation.
"Parent Report" shall mean one or more reports, in form satisfactory to
the Administrative Agent and the Majority Banks, prepared by petroleum engineers
employed by the Parent or its Subsidiaries, which shall evaluate (i) at least
85% of the present value of the Included Reserves (as defined in the U.S.
Facility, without amendment except as permitted under the Intercreditor
Agreement) and (ii) any other properties as to which the Parent has conducted
successful exploration activities subsequent to the most recent Engineering
Report, in each case effective as of the immediately preceding July 1. Each
Parent Report shall set forth production, drilling and acquisition information
and other information requested by the Administrative Agent and shall be based
upon updated economic assumptions acceptable to the Administrative Agent and
approved by the Majority Banks at the beginning of the applicable year.
"Payment Office" shall mean the Toronto, Ontario office of the Paying
Agent, presently located at The Bank of Nova Scotia, International Banking
Division-Loan Accounting, 14th Floor, 44 King Street West, Toronto, Ontario,
Canada M5H 1H1.
<PAGE>
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Person" shall mean an individual, a corporation, a company, a bank, a
voluntary association, a partnership, a trust, an unincorporated organization,
any Governmental Authority or any other entity.
"Plan" shall mean an employee pension benefit plan which is covered by
Title IV of ERISA or subject to the minimum funding standards under Section 412
of the Code and is either (a) maintained by the Parent or any ERISA Affiliate
for employees of the Parent or any ERISA Affiliate or (b) maintained pursuant to
a collective bargaining agreement or any other arrangement under which more than
one employer makes contributions and to which the Parent or any ERISA Affiliate
is then making or accruing an obligation to make contributions or has within the
preceding five plan years made contributions.
"Post-Default Rate" shall mean, in respect of any principal of any
Loan, any Reimbursement Obligation or any other amount payable by the Company
under this Agreement or any other Loan Document which is not paid when due
(whether at stated maturity, by acceleration, or otherwise), a rate per annum
during the period commencing on the due date until such amount is paid in full
equal to the lesser of (a) the sum of (w) with respect to Eurodollar Loans, 2%
per annum plus the applicable Eurodollar Rate then in effect plus the Applicable
Margin for Eurodollar Loans until the expiration of the applicable Interest
Period, (x) with respect to Canadian Prime Rate Loans, 2% per annum plus the
applicable Canadian Prime Rate as in effect from time to time plus the
Applicable Margin for Canadian Prime Rate Loans, and (y) with respect to
Alternate Base Rate Loans and with respect to Eurodollar Loans after the
expiration of the applicable Interest Period (and also with respect to
indebtedness other than Loans), 2% plus the Alternate Base Rate as in effect
from time to time plus the Applicable Margin for Alternate Base Rate Loans or
(b) the Highest Lawful Rate.
"Quarterly Dates" shall mean the last day of each March, June,
September and December, provided that, if any such date is not a Business Day,
then the relevant Quarterly Date shall be the next succeeding Business Day.
"Quarterly Equivalent" shall mean, as of any date, the Bank of Canada
noon day rate at which it offers to provide U.S. Dollars in exchange for
Canadian Dollars on the later of (i) the last Business Day immediately preceding
the then current calendar quarter or (ii) the last Business Day immediately
preceding the most recent revision of the Maximum Outstanding Amount pursuant to
Section 2.9.
"Redemption Obligations" shall mean with respect to any Person all
mandatory redemption obligations of such Person with respect to preferred stock
or other equity securities issued by such Person or put rights in favour of the
<PAGE>
holder of such preferred stock or other equity securities, to the extent that
the redemption obligations will arise prior to the stated maturity of the
Obligations.
"Reference Banks" shall mean The Bank of Nova Scotia and The Chase
Manhattan Bank of Canada and such other Banks (up to a maximum of two (2)
additional Banks) as the Company, with the approval of the Paying Agent (which
approval shall not be unreasonably withheld), may from time to time designate.
"Regulation D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from time to
time and any successor or other regulation relating to reserve requirements.
"Regulatory Change" shall mean, with respect to any Bank, any change on
or after the date of this Agreement in Legal Requirements (including Regulation
D) or the adoption or making on or after such date of any interpretation,
directive or request applying to a class of banks including such Bank under any
Legal Requirements (whether or not having the force of law) by any Governmental
Authority.
"Reimbursement Obligations" shall mean, as at any date, the obligations
of the Company then outstanding in respect of Letters of Credit under this
Agreement, to reimburse the Paying Agent for the account of the applicable
Issuer for the amount paid by the applicable Issuer in respect of any drawing
under such Letter of Credit.
"Relevant Party" shall mean the Company, the Parent and each other
party to any of the Loan Documents other than (a) the Banks and (b) the Agents.
"Request for Extension of Credit" shall mean a request for extension of
credit duly executed by the chief executive officer, chief financial officer, or
treasurer of the Company, appropriately completed and substantially in the form
of Exhibit B attached hereto.
"Requirements of Environmental Law" means all requirements imposed by
any law (including for example and without limitation The Resource Conservation
and Recovery Act (U.S.) and The Comprehensive Environmental Response,
Compensation, and Liability Act (U.S.), the Environmental Protection and
Enhancement Act (Alberta) and the Canadian Environmental Protection Act), rule,
regulation, or order of any federal, state, provincial or local executive,
legislative, judicial, regulatory or administrative agency, board or authority
in effect at the applicable time which relate to (i) noise; (ii) pollution,
protection or clean-up of the air, surface water, ground water or land; (iii)
solid, gaseous or liquid waste generation, treatment, storage, disposal or
transportation; (iv) exposure to Hazardous Substances; (v) the safety or health
of employees or (vi) regulation of the manufacture, processing, distribution in
commerce, use, discharge or storage of Hazardous Substances.
<PAGE>
"Reserve Requirement" shall mean, for any Eurodollar Loan for any
Interest Period therefor, the stated maximum rate for all reserves (including
any marginal, supplemental or emergency reserves) required to be maintained
during such Interest Period under applicable Legal Requirements by any Bank
against eurocurrency liabilities. Without limiting the effect of the foregoing,
the Reserve Requirement shall reflect and include any other reserves required to
be maintained by any Bank by reason of any Regulatory Change against (i) any
category of liabilities which includes deposits by reference to which the
Eurodollar Rate is to be determined as provided in the definition of "Eurodollar
Base Rate" in this Section 1.1 or (ii) any category of extensions of credit or
other assets which include Eurodollar Loans. Any determination by the Paying
Agent of the Reserve Requirement shall be conclusive and binding, absent
manifest error, and may be made using any reasonable averaging and attribution
method.
"Responsible Officer" shall mean the chairman of the board, the
president, any executive vice president, the vice president of finance and
administration, the chief executive officer or the chief operating officer or
any equivalent officer (regardless of title) and in the case of the Company, any
other vice president, and in respect of financial or accounting matters, shall
also include the chief financial officer, the treasurer and the controller or
any equivalent officer (regardless of title).
"Revolving Credit Availability Period" shall mean the period from and
including the date hereof to but not including December 31, 2002 or the date the
Commitments are terminated pursuant to Section 11.1, whichever is first to
occur.
"Revolving Credit Commitment Fee Percentage" shall mean 0.225% per
annum.
"Revolving Credit Obligations" shall mean, as at any date of
determination thereof, the sum of the following (determined without
duplication): (i) the aggregate principal amount of Loans outstanding hereunder
plus (ii) the aggregate of the face amounts of all outstanding Bankers'
Acceptances plus (iii) the aggregate amount of the Letter of Credit Liabilities
hereunder.
"Senior Debt" shall mean Indebtedness having a weighted average
maturity at least seven (7) years from the date of issuance and having no
conditions precedent or covenants materially more onerous to the Parent than the
conditions precedent and covenants contained herein and in the other Loan
Documents with respect to the Loans. The documents evidencing any Senior Debt
shall contain a provision substantially identical to Section 10.2(y) hereof
permitting Liens securing the Notes and the other Obligations on a pari passu
basis with such Senior Debt.
"Subordinated Debt" shall mean Indebtedness of the Parent having a
weighted average maturity at least seven (7) years from the date of issuance and
having no conditions precedent or covenants materially more onerous to the
Parent than the conditions precedent and covenants contained in the U.S.
Facility, in this Agreement and in the other Loan Documents with respect to the
<PAGE>
Loans and which is expressly made subordinate and junior in right of payment
to the Obligations and in respect of any collateral or security by the express
terms of the instruments evidencing the Subordinated Debt or the indenture
or other similar instrument under which the Subordinated Debt is issued (which
indenture or other instrument will be binding on all holders of such
Subordinated Debt), by provisions not more favourable to the holders of the
Subordinated Debt than the following:
(a) in the event a Default exists and is continuing, no payment of
principal or interest will be made on account of Subordinated Debt and no remedy
for default shall be exercised until (i) such Default will have been cured or
waived or until the Obligations will have been paid in full (or provisions made
therefor reasonably satisfactory to the Banks) or (ii) 179 days after the
occurrence of such Default (as to which the Banks have knowledge as a result of
having received notice from the Company pursuant to this Agreement or otherwise)
and no action being taken by the Banks with respect to such Default, whichever
occurs earlier;
(b) upon the occurrence of any of the events or proceedings specified
in Subsections 11.1(f) or (g) hereof (or, as to any Subsidiary of the Parent,
Subsection 11.1(j) to the extent that it refers to Subsections 11.1(f) or (g)),
the holders of any Obligations will be entitled to receive payment in full of
all principal or interest on all Obligations before the holders of the
Subordinated Debt are entitled to receive any payment on account of principal or
interest on the Subordinated Debt, and to that end (but subject to the power of
a court of competent jurisdiction to make other provision) the holders of the
Obligations will be entitled to receive distributions of any kind or character,
whether in cash or property or securities (other than equity securities and
other securities establishing rights in the holders thereof which are
subordinate to the rights of the holders of the Obligations in accordance with
this definition of Subordinated Debt), which may be or would otherwise be
payable or deliverable in any such proceedings in respect of the Subordinated
Debt (provided that, the Subordinated Debt may provide that if the Obligations
have been paid in full or provision therefor reasonably satisfactory to the
Banks has been made, the holders of the Subordinated Debt will be subrogated to
the rights of the holders of the Obligations);
(c) in the event that any Subordinated Debt is declared due and payable
before its expressed maturity because of the occurrence of an event of default
thereunder (under circumstances when the provisions of the foregoing clauses (a)
and (b) will not be applicable), the holders of the Obligations at the time such
Subordinated Debt becomes due and payable because of such an event of default
will be entitled to receive payment in full of all Obligations (or have
provision therefor satisfactory to the Banks made) before the holders of the
Subordinated Debt are entitled to receive any payment on account of the
principal or interest on the Subordinated Debt; and
<PAGE>
(e) no holder of the Obligations will be prejudiced in its right to
enforce subordination of the Subordinated Debt by any act or failure to act on
the part of the Parent or the part of the holders of the Obligations; provided
that, the Subordinated Debt may provide that the foregoing provisions are solely
for the purpose of defining the relative rights of the holders of the
Obligations on the one hand, and the holders of the Subordinated Debt on the
other hand, and that nothing therein will impair, as between the Parent and the
holders of the Subordinated Debt, the obligation of the Parent, which may be
unconditional and absolute, to pay to the holders of the Subordinated Debt the
principal and interest thereon in accordance with its terms, nor will anything
herein prevent the holders of the Subordinated Debt from exercising all remedies
otherwise permitted by applicable law or thereunder upon default thereunder,
subject to the rights under clauses (a), (b) and (c) above of the holders of the
Obligations to receive cash, property or securities otherwise payable or
deliverable to the holders of the Subordinated Debt.
"Subsidiary" shall mean, with respect to any Person (the "parent"), (a)
any corporation of which at least a majority of the outstanding shares of stock
having by the terms thereof ordinary voting power to elect a majority of the
board of directors of such corporation (irrespective of whether or not at the
time stock of any other class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by the parent or one or more of the
Subsidiaries of the parent or by the parent and one or more of the Subsidiaries
of the parent, and (b) any partnership, limited partnership, joint venture or
other form of entity, the majority of the legal or beneficial ownership of which
is at the time directly or indirectly owned or controlled by the parent or one
or more of the Subsidiaries of the parent or by the parent and one or more of
the Subsidiaries of the parent.
"Tangible Net Worth" shall mean the sum of the redemption price of
preferred stock, par value of common stock, capital in excess of par value of
common stock (additional paid-in capital) and retained earnings, less treasury
stock, goodwill, deferred development costs, franchises, licenses, patents,
trademarks and copyrights and all other assets which are properly classified as
intangible assets in accordance with GAAP less any Redemption Obligations.
"Type" shall have the meaning assigned to such term in Section 1.3
hereof.
"Unfunded Liabilities" shall mean, with respect to any Plan, at any
time, the amount (if any) by which (a) the present value of all benefits under
such Plan exceeds (b) the fair market value of all Plan assets allocable to such
benefits, all determined as of the then most recent actuarial valuation report
for such Plan, but only to the extent that such excess represents a potential
liability of any ERISA Affiliate to the PBGC or a Plan under Title IV of ERISA.
"U.S. Dollars" and "U.S. $" shall mean lawful money of the United
States of America.
<PAGE>
"U.S. Facility" shall mean that certain Credit Agreement dated
concurrently herewith executed by and among the Parent, The Chase Manhattan
Bank, as Agent, and certain banks therein named, as amended by the Intercreditor
Agreement and as the same may be further amended or modified from time to time.
1.2 Accounting Terms and Determinations. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be delivered hereunder shall be prepared, in accordance with GAAP.
To enable the ready determination of compliance with the provisions hereof, the
Parent will not change from December 31 in each year the date on which its
fiscal year ends, nor from March 31, June 30 and September 30 the dates on which
the first three fiscal quarters in each fiscal year end.
1.3 Types of Loans. Loans hereunder are distinguished by "Type". The
"Type" of a Loan refers to the determination whether such Loan is a Eurodollar
Loan, an Alternate Base Rate Loan or a Canadian Prime Rate Loan.
1.4 Miscellaneous. The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. Any
reference to Sections shall refer to Sections of this Agreement. Whenever it is
necessary to convert an amount denominated in Canadian Dollars to U.S. Dollars,
such as calculating the aggregate outstanding principal amount of the Revolving
Credit Obligations, such conversion shall be effected using the Equivalent U.S.
Dollar Amount or, where applicable, the Quarterly Equivalent. Unless payments
are otherwise required by the terms of this Agreement or by any other applicable
Loan Document to be made in U.S. Dollars or Canadian Dollars, such payment shall
be made in U.S. Dollars or in Canadian Dollars converted by using the Equivalent
U.S. Dollar Amount as of the date of such payment calculated, where applicable,
using the Quarterly Equivalent.
Section 2. Commitments; Designation of Maximum Outstanding Amount.
2.1 Loans and Bankers' Acceptances. From time to time on or after the
date hereof and during the Revolving Credit Availability Period, each Bank
shall:
(a) make Loans under this Section 2.1, in Canadian Dollars or U.S.
Dollars, to the Company; and
(b) accept and purchase Bankers' Acceptances and deliver the
Canadian Bankers' Acceptance Discount Proceeds (less the
applicable acceptance fees payable by the Company to such
<PAGE>
Bank pursuant to Sections 4.3) in respect thereof for the
account of the Company through the Paying Agent at the
Payment Office, in an aggregate principal amount (including
therein the aggregate face amount of any outstanding Bankers'
Acceptances) at any one time outstanding (including its
Commitment Percentage of all Letter of Credit Liabilities at
such time) up to but not exceeding such Bank's Commitment
Percentage of the Maximum Revolving Credit Available Amount.
Subject to the conditions herein, any such Loan or Bankers'
Acceptance repaid prior to the end of the Revolving Credit
Availability Period may be reborrowed or reissued, as the case
may be, pursuant to the terms of this Agreement; provided,
that any and all such Loans and the full face amount of all
outstanding Bankers' Acceptances shall be due and payable in
full at the end of the Revolving Credit Availability
Period. For purposes of determining the amount available
for borrowing hereunder (or the maximum availability for
the issuance of Bankers' Acceptances or Letters of Credit),
the Equivalent U.S. Dollar Amount as of the Business Day
preceding the Loan request, Bankers' Acceptance Request or
Letter of Credit request shall be used to determine
availability hereunder, rather than the Quarterly Equivalent.
2.2 Letters of Credit.
(a) Letters of Credit. Subject to the terms and conditions hereof, and
on the condition that aggregate Letter of Credit Liabilities shall never exceed
U.S. $10,000,000, the Company shall have the right, in addition to Loans
provided for in Section 2.1 hereof, to utilize the Commitments from time to time
from and after the date hereof through the expiration of the Revolving Credit
Availability Period by obtaining the issuance of letters of credit for the
account of the Company and on behalf of the Company by the applicable Issuer if
the Company shall so request in the notice referred to in Section 2.2(b)(i)
(such letters of credit being collectively referred to as the "Letters of
Credit"). Letters of Credit may, upon written request of the Company, be
denominated in Canadian Dollars and if so all payments and fees with respect
thereto shall be paid in Canadian Dollars. Upon the date of the issuance of a
Letter of Credit, the applicable Issuer shall be deemed, without further action
by any party hereto, to have sold to each Bank, and each Bank shall be deemed,
without further action by any party hereto, to have purchased from the
applicable Issuer, a participation, to the extent of such Bank's Commitment
Percentage, in such Letter of Credit and the related Letter of Credit
Liabilities. Any Letter of Credit having an expiry date after the end of the
Revolving Credit Availability Period shall have been fully Covered or shall be
backed by a letter of credit in form and substance, and issued by an issuer,
acceptable to the Administrative Agent in its reasonably exercised discretion.
Subject to the terms and conditions hereof, upon the request of the Company, if
BNS is the designated Issuer, BNS shall issue the applicable Letter of Credit
and if any other Bank is the designated Issuer, such Bank may, but shall not be
obligated to, issue such Letter of Credit.
<PAGE>
(b) Additional Provisions. The following additional provisions shall
apply to each Letter of Credit:
(i) The Company shall give the Administrative Agent and the Paying
Agent at least three (3) Business Days' prior notice (effective upon receipt)
specifying the proposed Issuer and the date such Letter of Credit is to be
issued and describing the proposed terms of such Letter of Credit and the nature
of the transaction proposed to be supported thereby, and shall furnish such
additional information regarding such transaction as the Administrative Agent,
the Paying Agent or the applicable Issuer may reasonably request. Upon receipt
of such notice the Paying Agent shall promptly notify each Bank of the contents
thereof and of such Bank's Commitment Percentage of the amount of such proposed
Letter of Credit.
(ii) No Letter of Credit may be issued if after giving effect thereto
the sum of (A) the aggregate outstanding principal amount of Loans plus (B) the
aggregate Letter of Credit Liabilities would exceed the Maximum Revolving Credit
Available Amount. On each day during the period commencing with the issuance of
any Letter of Credit and until such Letter of Credit shall have expired or been
terminated, the Commitment of each Bank shall be deemed to be utilized for all
purposes hereof in an amount equal to such Bank's Commitment Percentage of the
amount then available for drawings under such Letter of Credit.
(iii) Upon receipt from the beneficiary of any Letter of Credit of any
demand for payment thereunder, the applicable Issuer shall promptly notify the
Company and each Bank as to the amount to be paid as a result of such demand and
the payment date. If at any time the applicable Issuer shall have made a payment
to a beneficiary of a Letter of Credit in respect of a drawing under such Letter
of Credit, each Bank will pay to the applicable Issuer immediately upon demand
by the applicable Issuer at any time during the period commencing after such
payment until reimbursement thereof in full by the Company, an amount equal to
such Bank's Commitment Percentage of such payment, together with interest on
such amount for each day from the date of demand for such payment (or, if such
demand is made after 11:00 a.m. Toronto, Ontario time on such date, from the
next succeeding Business Day) to the date of payment by such Bank of such amount
at a per annum rate of interest determined by the Issuer (such rate to be
conclusive and binding on the Banks) in accordance with the Issuer's usual
banking practice for similar advances to financial institutions of like standing
to the applicable Bank.
(iv) The Company shall be irrevocably and unconditionally obligated
forthwith to reimburse the applicable Issuer for any amount paid by the
applicable Issuer upon any drawing under any Letter of Credit, without
presentment, demand, protest or other formalities of any kind. Such
reimbursement may, subject to satisfaction of the conditions in Sections 7.1 and
7.2 hereof and to the existence of the Maximum Revolving Credit Available Amount
(after adjustment in the same to reflect the elimination of the corresponding
Letter of Credit Liability) be made by borrowing of Loans. In the event any such
<PAGE>
reimbursement is not made by borrowing of Loans, the Company shall make such
reimbursement in immediately available funds within five (5) days after demand
therefor by the applicable Issuer. The applicable Issuer will pay to each Bank
such Bank's Commitment Percentage of all amounts received from the Company for
application in payment, in whole or in part, of the Reimbursement Obligation in
respect of any Letter of Credit, but only to the extent such Bank has made
payment to the applicable Issuer in respect of such Letter of Credit pursuant to
clause (iii) above.
(v) The Company will pay to the Paying Agent at the Payment Office for
the account of each Bank a fee on such Bank's Commitment Percentage of the daily
average amount available for drawings under each Letter of Credit, in each case
for the period from and including the date of issuance of such Letter of Credit
to and including the date of expiration or termination thereof at a rate per
annum equal to the Letter of Credit Fee in effect from time to time, such fee to
be paid in arrears on the Quarterly Dates and on the date of the expiration or
termination thereof. The Paying Agent will pay to each Bank, promptly after
receiving any payment in respect of letter of credit fees referred to in the
preceding sentence of this clause (v), an amount equal to such Bank's Commitment
Percentage of such fees. The Company shall pay to the applicable Issuer an
administration and issuance fee in an amount equal to 1/8 of 1% per annum of the
daily average amount available for drawings under such Letter of Credit, in each
case for the period from and including the date of issuance of such Letter of
Credit to and including the date of expiration or termination thereof, such fee
to be paid in arrears on the Quarterly Dates and on the date of the expiration
or termination thereof. Such administration and issuance fee shall be retained
by the applicable Issuer.
(vi) The issuance by the applicable Issuer of each Letter of Credit
shall, in addition to the conditions precedent set forth in Section 7 hereof, be
subject to the conditions precedent that such Letter of Credit shall be in such
form and contain such terms as shall be reasonably satisfactory to the
applicable Issuer and that the Company shall have executed and delivered such
other instruments and agreements relating to such Letter of Credit as the
applicable Issuer shall have reasonably requested and are not inconsistent with
the terms of this Agreement including an Application therefor. In the event of a
conflict between the terms of this Agreement and the terms of any Application,
the terms of this Agreement shall control. Without limiting the generality of
the foregoing sentence, in the event any such Application shall include
requirements for Cover, it is agreed that there shall be no requirements for the
Company to provide Cover except as expressly required in this Agreement.
(c) Indemnification. The Company hereby indemnifies and holds harmless
each Agent, the applicable Issuer and each Bank from and against any and all
claims and damages, losses, liabilities, costs or expenses which such Bank, the
applicable Issuer or such Agent may incur (or which may be claimed against such
Bank, the applicable Issuer or such Agent by any Person whatsoever) in
connection with the execution and delivery or transfer of or payment or failure
to pay under any Letter of Credit, including, without limitation, any claims,
damages, losses, liabilities, costs or expenses which such
<PAGE>
Agent, the applicable Issuer or such Bank, as the case may be, may incur
(whether incurred as a result of its own negligence or otherwise) by reason of
or in connection with the failure of any other Bank (whether as a result of its
own negligence or otherwise) to fulfill or comply with its obligations to such
Agent, the applicable Issuer or such Bank, as the case may be, hereunder (but
nothing herein contained shall affect any rights the Company may have against
such defaulting Bank); provided that, the Company shall not be required to
indemnify any Bank, the applicable Issuer or any Agent for any claims, damages,
losses, liabilities, costs or expenses to the extent, but only to the extent,
caused by (i) the willful misconduct or gross negligence of the party seeking
indemnification, or (ii) by such Bank's, the applicable Issuer's or such
Agent's, as the case may be, failure to pay under any Letter of Credit after the
presentation to it of a request required to be paid under applicable law.
Nothing in this Section 2.2(c) is intended to limit the obligations of the
Company under any other provision of this Agreement.
(d) Co-issuance or Separate Issuance of Letters of Credit. The Company
may, at its option, request that any requested Letter of Credit which exceeds
U.S. $1,000,000 be issued severally, but not jointly, by any two or more of the
Banks or issued through separate Letters of Credit issued by any two or more of
the Banks, respectively, each in an amount equal to a portion of the amount of
the applicable Letter of Credit requested by the Company. In either such event,
the Banks issuing such Letters of Credit shall each constitute an "Issuer" and
the Letters of Credit so issued shall each constitute a "Letter of Credit" for
all purposes hereunder and under the Loan Documents. Notwithstanding the
foregoing, no Bank other than BNS shall have any obligation to issue any Letter
of Credit, but may do so at its option.
<PAGE>
2.3 Reductions and Changes of Commitments.
(a) Mandatory.
(i) The total Commitment of the Banks shall be reduced as follows:
<TABLE>
<CAPTION>
Reduction Resulting Revolving
Reduction Date Amount Credit Commitment
<S> <C> <C>
March 31, 1999 U.S. $6,250,000 U.S. $93,750,000
June 30, 1999 U.S. $6,250,000 U.S. $87,500,000
September 30, 1999 U.S. $6,250,000 U.S. $81,250,000
December 31, 1999 U.S. $6,250,000 U.S. $75,000,000
March 31, 2000 U.S. $6,250,000 U.S. $68,750,000
June 30, 2000 U.S. $6,250,000 U.S. $62,500,000
September 30, 2000 U.S. $6,250,000 U.S. $56,250,000
December 31, 2000 U.S. $6,250,000 U.S. $50,000,000
March 31, 2001 U.S. $6,250,000 U.S. $43,750,000
June 30, 2001 U.S. $6,250,000 U.S. $37,500,000
September 30, 2001 U.S. $6,250,000 U.S. $31,250,000
December 31, 2001 U.S. $6,250,000 U.S. $25,000,000
March 31, 2002 U.S. $6,250,000 U.S. $18,750,000
June 30, 2002 U.S. $6,250,000 U.S. $12,500,000
September 30, 2002 U.S. $6,250,000 U.S. $6,250,000
December 31, 2002 U.S. $6,250,000 U.S. $0
</TABLE>
(ii) On December 31, 1999, all Commitments shall be terminated in their
entirety unless terminated at an earlier date pursuant to Section 11.1.
(b) Optional. The Company shall have the right to terminate or reduce
the unused portion of the Commitments a t any time or from time to time,
provided that: (i) the Company shall give notice of each such termination or
reduction to the Administrative Agent and the Paying Agent as provided in
Section 5.5 hereof and (ii) each such partial reduction shall be permanent and
in an aggregate amount at least equal to U.S. $5,000,000.
(c) No Reinstatement. Any reduction in or termination of the
Commitments may not be reinstated without the approval of the Administrative
Agent and each of the Banks.
<PAGE>
2.4 Fees.
(a) The Company shall pay to the Paying Agent for the account of each
Bank a commitment fee with respect to such Bank's Commitment accruing from the
date hereof, computed for each day at a rate per annum equal to the Revolving
Credit Commitment Fee Percentage with respect to the Commitments of the
respective Banks and based on the amount, if any, by which such Bank's pro rata
share of the lesser of the aggregate Commitments or the Maximum Outstanding
Amount on such day exceeds the sum of (i) the unpaid principal balance of such
Bank's Note outstanding on such day plus (ii) the full face amount of all
outstanding Bankers' Acceptances accepted by such Bank plus (iii) such Bank's
allocated share of the aggregate Letter of Credit Liabilities outstanding on
such day. Commitment fees accruing pursuant to this clause (a) shall be payable
on the Quarterly Dates and on the earlier of the date the Commitments are
terminated or the last day of the Revolving Credit Availability Period. Such
fees shall be calculated in U.S. Dollars, but paid in Canadian Dollars converted
by using the Equivalent U.S. Dollar Amount as of the date of payment.
(b) The Company shall pay to the Paying Agent for the account of each
Bank an additional commitment fee with respect to such Bank's Commitment
accruing from the date hereof, computed for each day at a rate per annum equal
to one-half (1/2) of the Revolving Credit Commitment Fee Percentage with respect
to the Commitments of the respective Banks and based on the amount, if any, by
which the amount set forth opposite such Bank's name on the signature pages
hereto under the heading "Commitment" (but only to the extent that such amount
has not been permanently and irrevocably terminated and reduced by written
notice from the Company to the Administrative Agent, with a copy to the Paying
Agent; provided, however that any such termination or reduction must be
allocated among the Banks pro rata in accordance with their respective
Commitment Percentages) exceeds such Bank's pro rata share of the Maximum
Outstanding Amount on such day. Commitment fees accruing pursuant to this clause
(b) shall be payable on the Quarterly Dates and on the earlier of the date the
Commitments are terminated or the last day of the Revolving Credit Availability
Period. Such fees shall be calculated in U.S. Dollars, but paid in Canadian
Dollars converted by using the Equivalent U.S. Dollar Amount as of the date of
payment.
(c) The Company shall pay to the Paying Agent for the account of each
Bank an additional commitment fee effective upon any increase in borrowing
availability hereunder. Such additional commitment fee shall be in an amount
equal to the amount by which the commitment fee which such Bank would have
received under Sections 2.4(a) and (b) if such increased borrowing availability
had been effective six (6) calendar months earlier exceeds the commitment fee
actually received by such Bank under Sections 2.4(a) and (b) during such six (6)
calendar month period. Payment of such additional commitment fee shall be due
and payable upon the effective date of such increase in the Maximum Outstanding
Amount. The commitment fee provided for in this Section 2.4(c) shall be payable
notwithstanding any prior decrease in the available
<PAGE>
Commitments which may have occurred. Such fees shall be calculated in U.S.
Dollars, but paid in Canadian Dollars converted by using the Equivalent U.S.
Dollar Amount as of the date of payment.
(d) For purposes of determining the amount of any payment required to
be made under this Section 2.4, the Quarterly Equivalent shall be used as the
conversion rate with respect to Canadian Dollars.
2.5 Affiliates; Lending Offices.
(a) Any Bank may, if it so elects, fulfill its Commitment as to any
Eurodollar Loan by causing a branch, foreign or otherwise, or Affiliate of such
Bank to make such Loan and may transfer and carry such Loan at, to or for the
account of any branch office or Affiliate of such Bank which is a resident of
Canada under the Income Tax Act (Canada); provided that, in such event for the
purposes of this Agreement such Loan shall be deemed to have been made by such
Bank and the obligation of the Company to repay such Loan shall nevertheless be
to such Bank and shall be deemed to be held by such Bank and, to the extent of
such Loan, to have been made for the account of such branch or Affiliate.
(b) Notwithstanding any provision of this Agreement to the contrary,
each Bank shall be entitled to fund and maintain its funding of all or any part
of its Loans hereunder in any manner it sees fit, it being understood, however,
that for the purposes of this Agreement all determinations hereunder shall be
made as if such Bank had actually funded and maintained each Eurodollar Loan
during each Interest Period through the purchase of deposits having a maturity
corresponding to such Interest Period and bearing an interest rate equal to the
Eurodollar Rate, as the case may be, for such Interest Period for such Interest
Period.
2.6 Several Obligations. The failure of any Bank to make any Loan to be
made by it or accept and purchase Bankers' Acceptances to be purchased by it on
the date specified therefor shall not relieve any other Bank of its obligation
to make its Loan or accept and purchase such Bankers' Acceptances on such date,
but neither any Agent nor any Bank shall be responsible for the failure of any
other Bank to make a Loan to be made by such other Bank or to accept and
purchase any Bankers' Acceptances to be accepted and purchased by such other
Bank.
2.7 Notes. The Loans made by each Bank shall be evidenced by a single
Canadian Dollar denominated Note of the Company in the case of Loans denominated
in Canadian Dollars and by a single U.S. Dollar denominated Note of the Company
in the case of Loans denominated in U.S. Dollars, such notes to be in
substantially the forms of Exhibit C-1 and C-2, respectively, hereto payable to
the order of such Bank in a principal amount equal to the Commitment of such
Bank, and otherwise duly completed. Each Bank is hereby authorized by the
Company to endorse on the schedule (or a continuation thereof) attached to the
<PAGE>
Note of such Bank, to the extent applicable, the date, amount and Type of and
the Interest Period for each Loan made by such Bank to the Company hereunder,
and the amount of each payment or prepayment of principal of such Loan received
by such Bank, provided, that any failure by such Bank to make any such
endorsement shall not affect the obligations of the Company under such Note or
hereunder in respect of such Loan.
2.8 Use of Proceeds. The proceeds of the Loans and the Canadian
Bankers' Acceptance Discount Proceeds, as the case may be, shall be used for
general corporate purposes.
2.9 Designation of Maximum Outstanding Amount. The Company shall from
time to time designate a maximum principal amount, denominated in U.S. Dollars,
permitted to be outstanding hereunder for the period during which such
designation is effective (such amount being herein called the "Maximum
Outstanding Amount"). The initial Maximum Outstanding Amount, effective from the
date hereof, is U.S. $95,000,000. The Company may, at any time, by written
notice delivered to the Administrative Agent and the Paying Agent no later than
two (2) Business Days prior to the effective date thereof, revise the Maximum
Outstanding Amount upwards or downwards; provided, however, that (i) the Maximum
Outstanding Amount may not at any time exceed the aggregate amount of the
Commitments, as reduced from time to time pursuant to Section 2.3 hereof and
(ii) the Maximum Outstanding Amount may not at any time exceed the amount by
which the Borrowing Base from time to time in effect exceeds the sum of the
aggregate amount of all "Revolving Credit Obligations" from time to time
outstanding under the U.S. Facility plus the aggregate amount of all other
Borrowing Base Debt of the Parent and its Subsidiaries from time to time
outstanding.
Section 3. Borrowings, Prepayments and Selection of Interest Rates.
3.1 Borrowings. The Company shall give the Administrative Agent and the
Paying Agent notice of each borrowing or the issuance of each Bankers'
Acceptance to be made hereunder as provided in Section 5.5 hereof. Not later
than 2:00 p.m. Toronto, Ontario time on the date specified for each such
borrowing or the issuance of each such Bankers' Acceptance hereunder, each Bank
shall make available the amount of the Loan, if any, to be made by it on such
date or make available Canadian Bankers' Acceptance Discount Proceeds in respect
of Bankers' Acceptances to be accepted and purchased by it on such date (less
the applicable acceptance fees payable by the Company in respect of such
Bankers' Acceptances), in each case to the Paying Agent, at the Payment Office,
in immediately available funds, for the account of the Company. The amount so
received by the Paying Agent shall, subject to the terms and conditions of this
Agreement, be made available to the Company by depositing the same, in
immediately available funds, in an account designated by the Company maintained
with the Paying Agent at the Payment Office.
<PAGE>
3.2 Prepayments.
(a) Optional Prepayments. Subject to the provisions of Sections 4, 5
and 6, the Company shall have the right to prepay, on any Business Day, in whole
or in part, without the payment of any penalty or fee, Loans at any time or from
time to time, provided that, the Company shall give the Administrative Agent and
the Paying Agent notice of each such prepayment as provided in Section 5.5
hereof. Eurodollar Loans may be prepaid on the last day of an Interest Period
applicable thereto and Bankers' Acceptances may be prepaid on their stated
maturity date. Eurodollar Loans and Bankers' Acceptances may not be otherwise
prepaid unless prepayment is accompanied by payment of all compensation required
by Section 6.
(b) Mandatory Prepayments and Cover.
(1) Reduction of Commitments. The Company shall from time to time on
demand by the Administrative Agent prepay the Loans (or provide Cover for Letter
of Credit Liabilities and the face amount of Bankers' Acceptances) in such
amounts as shall be necessary so that at all times the aggregate outstanding
principal amount (including therein the face amount of all outstanding Bankers'
Acceptances) of all Revolving Credit Obligations shall not be in excess of the
Maximum Outstanding Amount plus any Cover provided under this Section 3.2(b)(1).
(2) Borrowing Base Deficiency. Any payments required to cure any
Borrowing Base Deficiency shall be made by Parent to the lenders under the U.S.
Facility and by the Company to the Banks (with the Maximum Outstanding Amount to
be reduced by the amount of such payments by the Company) in the manner provided
in the Intercreditor Agreement.
(3) Use of Quarterly Equivalent. For purposes of determining whether
any payment is required to be made under this Section 3.2, and the amount
thereof, when such determination requires a conversion of U.S. Dollars into
Canadian Dollars and vice versa, the Quarterly Equivalent shall be used as the
conversion rate.
3.3 Selection of Interest Rates. Subject to Section 5.1 and Section 6
hereof, the Company shall have the right, by giving written notice to the
Administrative Agent and the Paying Agent as provided in Section 5.5 hereof,
either to convert any Bankers' Acceptance (in whole or in part) into a Loan, to
convert any Loan (in whole or in part) into a Bankers' Acceptance, to convert
any Loan (in whole or in part) into a Loan of another Type (provided that no
such conversion of Eurodollar Loans shall be permitted other than on the last
day of an Interest Period applicable thereto and no conversion of Bankers'
Acceptances shall be permitted other than on the maturity date thereof), to
continue any Bankers' Acceptance (in whole or in part) or to continue any Loan
(in whole or in part) as a Loan of the same Type. Any such notice of conversion
of a Bankers' Acceptance into a Loan or of conversion of a Loan into, or
continuation of a Loan as, a Eurodollar Loan or a Bankers' Acceptance shall
<PAGE>
specify the new Interest Period or maturity date, as applicable. In the event
the Company fails to so give such notice prior to the end of any Interest Period
for any Eurodollar Loan, such Loan shall become an Alternate Base Rate Loan on
the last day of such Interest Period.
3.4 Conditions Applicable to Bankers' Acceptances.
(a) Acceptance and Purchase of Bankers' Acceptances. Subject to the
terms and conditions of this Agreement, each Bank agrees to accept its
Commitment Percentage of Bankers' Acceptances issued by the Company and to
purchase same at the applicable Canadian Bankers' Acceptance Discount Rate and
to provide to the Paying Agent for the account of the Company the Canadian
Bankers' Acceptance Discount Proceeds in respect thereof less the applicable
acceptance fees payable by the Company to such Bank pursuant to Section 4.3.
Each such Bank may at any time and from time to time hold, sell, rediscount or
otherwise dispose of any or all Bankers' Acceptances purchased by it.
(b) Waiver of Presentment and Other Conditions. The Company waives
presentment for payment and any other defence to payment of any amounts due to a
Bank in respect of a Bankers' Acceptance accepted and purchased by it pursuant
to this Agreement which might exist solely by reason of such Bankers' Acceptance
being held, at the maturity thereof, by such Bank in its own right and the
Company agrees not to claim any days of grace if such Bank as holder sues the
Company on the Bankers' Acceptance for payment of the amount payable by the
Company thereunder. On the specified maturity date of a Bankers' Acceptance, or
such earlier date as may be required or permitted pursuant to the provisions of
this Agreement, the Company shall pay the Bank that has accepted and purchased
such Bankers' Acceptance the full face amount of such Bankers' Acceptance.
(c) Terms of Each Bankers' Acceptance: Each Bankers' Acceptance shall:
(1) have a maturity date which shall be on a Business Day;
(2) have a term of not less than thirty (30) days and not
more than one hundred and eighty (180) days
(excluding days of grace);
(3) be in the form of Exhibit J attached hereto or in
such other form as the Company may agree to in
writing;
(4) be issued in face amounts of Canadian $100,000 or
whole multiples thereof (each of the Banks agrees
that it will use its best efforts to minimize the
number of separate Bankers' Acceptances required to
be executed); and
<PAGE>
(5) not have a maturity date which extends beyond the
end of the scheduled Revolving Credit Availability
Period.
(d) Delivery of Blank Bankers' Acceptances. As a condition precedent to
each Banks' obligation to accept and purchase Bankers' Acceptances hereunder,
the Company shall have delivered to such Bank through the Paying Agent at the
Payment Office sufficient bankers' acceptances endorsed in blank in sufficient
time for such Bank to forward to and hold the same for issuance in accordance
with a request from the Company. Each Bank is hereby authorized to issue such
bankers' acceptances endorsed in blank in such face amounts as may be determined
by such Bank; provided that the aggregate amount thereof is equal to the
aggregate amount of Bankers' Acceptances required to be accepted and purchased
by such Bank hereunder. No Bank shall be liable for any damage, loss or other
claim arising by reason of any loss or improper use of any bankers' acceptance
endorsed in blank except any loss arising by reason of the negligence or wilful
misconduct of such Bank or its officers, employees, agents or representatives.
The Paying Agent shall maintain a record with respect to bankers' acceptances
endorsed in blank that are received from the Company and that are delivered to a
Bank hereunder. Each Bank shall maintain a record with respect to bankers'
acceptances endorsed in blank that are:
(1) received by such Bank from the Paying Agent hereunder;
(2) voided by such Bank for any reason;
(3) accepted and purchased by such Bank hereunder; and
(4) cancelled by such Bank at the maturity thereof.
Each Bank agrees to provide such record to the Paying Agent upon request
therefor by the Paying Agent as well as concurrently with any request by such
Bank to the Paying Agent for any additional bankers' acceptances endorsed in
blank required from the Company. The Paying Agent shall provide a report of such
records received by the Paying Agent to the Company upon request from the
Company.
(e) Failure to Give Notice of Repayment. If the Company fails to give
notice to the Paying Agent at the Payment Office of the method of repayment of a
Bankers' Acceptance prior to the date of maturity of such Bankers' Acceptance in
accordance with the same period of notice required for the original acceptance
of such Bankers' Acceptance as set forth herein, the face amount of such
Bankers' Acceptance shall, on its maturity, automatically be converted to a
Canadian Prime Rate Loan.
(f) Execution of Bankers' Acceptances. Bankers' acceptances of the
Company which are endorsed in blank and are to be accepted as Bankers'
Acceptances hereunder shall be signed by a duly
<PAGE>
authorized signatory or duly authorized signatories of the Company, and may, at
the option of the Company, be signed by way of affixing a reproduction of the
signature or signatures of such duly authorized signatory or signatories.
Notwithstanding that any person whose signature appears on any Bankers'
Acceptance as a signatory may no longer be an authorized signatory of the
Company at the date of issuance of a Bankers' Acceptance, and notwithstanding
that the signature affixed may be a reproduction only, such signature shall
nevertheless be valid and sufficient for all purposes as if such authority had
remained in force at the time of such issuance and as if such signature had been
manually applied, and any such Bankers' Acceptance so signed shall be binding on
the Company.
3.5 Paying Agent's Duties Re Bankers' Acceptances.
(a) Advice to the Lenders. The Paying Agent, promptly following receipt
of a Request for Extension of Credit by way of Bankers' Acceptance, shall so
advise the Banks and shall advise each Bank of the amount of each issue of
Bankers' Acceptances to be accepted and purchased by it and the term thereof,
which term shall be identical for all Banks.
(b) Agent's Confirmation of Bankers' Acceptance Issuance. At or prior
to 11:00 a.m. (Toronto, Ontario time) on the date on which the Bankers'
Acceptances are to be accepted and purchased hereunder, the Paying Agent shall
provide telephone advice to the Company and each Bank confirming the particulars
with respect to the issuance, acceptance and purchase of such Bankers'
Acceptances. Such advice shall be confirmed in writing at or prior to 4:30 p.m.
(Toronto, Ontario time) on such date by delivery to the Company and each Bank of
a written confirmation of such telephone advice with respect to the issuance,
acceptance and purchase of such Bankers' Acceptances. Each Bank will forthwith
advise the Paying Agent of the particulars of the Bankers' Acceptances accepted
and purchased by it.
(c) Completion of Bankers' Acceptance. Upon receipt of the telephone
advice referred to in Section 3.5(a), each Bank is thereupon authorized to
complete bankers' acceptances held by it in blank in accordance with the
particulars so advised by the Paying Agent.
(d) Paying Agent's Discretion on Allocation. In the event it is not
practicable to allocate Bankers' Acceptances to each Lender in accordance with
Section 5.2 such that the aggregate amount of Bankers' Acceptances required to
be accepted and purchased by such Bank hereunder is in a whole multiple of
Canadian $100,000, the Paying Agent is authorized by the Company and each Bank
to make such allocation as the Paying Agent determines in its sole and
unfettered discretion may be equitable in the circumstances.
<PAGE>
3.6 Certain Provisions Relating to Bankers' Acceptances Forms.
(a) The Company shall hold and use prudently the bankers' acceptance
forms delivered to it in blank from time to time and shall return them from time
to time to the Paying Agent for onward conveyance to the respective Banks,
properly pre-signed and pre-endorsed and in sufficient quantities to be dealt
with by each Bank in conformity with this Agreement. The Paying Agent shall
provide to the Company written acknowledgment of the receipt of such pre-signed
and pre-endorsed bankers' acceptance forms.
(b) The Paying Agent and each Bank shall deal prudently with any
bankers' acceptance forms pre-signed and pre-endorsed by the Company and
delivered from time to time by the Company and shall use them only in accordance
with the instructions of the Company given to the Paying Agent, in conformity
with this Agreement.
(c) In accordance with the instructions given from time to time by the
Company, each Bank is hereby authorized to complete the aforementioned bankers'
acceptance forms, to provide its acceptance thereon and, at such Bank's option,
to put them into circulation, the whole as provided in and subject to this
Agreement.
(d) Neither the Paying Agent nor any Bank shall be responsible or
liable for any failure to make credit available by way of Bankers' Acceptances
under the terms of the Credit Agreement if such failure is due to the failure of
the Company to return duly pre-signed and pre-endorsed bankers' acceptance forms
to the Paying Agent on a timely basis.
(e) On request by the Paying Agent on behalf of the Banks, the Company
shall return to the Paying Agent all bankers' acceptance forms then held by the
Company, provided that all such bankers' acceptance forms which have been
pre-signed or pre-endorsed by the Company may be cancelled prior to their return
and on request by the Company made to the Paying Agent, a Bank shall cancel all
pre-signed or pre-endorsed bankers' acceptance forms held by such Bank and not
yet issued in accordance with the Company's instructions and shall confirm such
cancellation to the Paying Agent who shall in turn inform the Company.
Section 4. Payments of Principal and Interest.
4.1 Repayment of Loans and Reimbursement Obligations. The Company will
pay to the Paying Agent for the account of each Bank (a) the principal of each
Loan made by such Bank on the dates provided in the respective Notes and as
provided hereunder, (b) the face amount of each Bankers' Acceptance on its
maturity date and (c) the amount of each Reimbursement Obligation promptly upon
its occurrence. The face amount of any Bankers' Acceptance or the amount of any
Reimbursement Obligation may, if the applicable conditions precedent specified
in Section 7 hereof have been satisfied, be paid with the proceeds of Loans.
<PAGE>
Repayments of Loans or Reimbursement Obligations denominated in Canadian Dollars
and repayments of Bankers' Acceptances shall be made in Canadian Dollars and
repayments of Loans or Reimbursement Obligations denominated in U.S. Dollars
shall be made in U.S. Dollars.
4.2 Interest.
(a) Subject to Section 13.6 hereof, the Company will pay to the Paying
Agent for the account of each Bank interest on the unpaid principal amount of
each Loan made by such Bank for the period commencing on the date of such Loan
to but excluding the date such Loan shall be paid in full, in the currency in
which the Loan is denominated, at the lesser of (I) the following rates per
annum:
(i) if such Loan is an Alternate Base Rate Loan, the Alternate Base
Rate plus the Applicable Margin, and
(ii) if such Loan is a Canadian Prime Rate Loan, the Canadian Prime
Rate plus the Applicable Margin, and
(iii) if such Loan is a Eurodollar Loan, the applicable Eurodollar Rate
plus the Applicable Margin, or (II) the Highest Lawful Rate.
(b) Notwithstanding any of the foregoing but subject to Section 13.6
hereof, the Company will pay to the Paying Agent for the account of each Bank
interest in the applicable currency at the applicable Post-Default Rate on any
principal of any Loan made by such Bank, on any Reimbursement Obligation and on
any other amount payable by the Company hereunder to or for the account of such
Bank (but, if such amount is interest, only to the extent legally allowed),
which shall not be paid in full when due (whether at stated maturity, by
acceleration or otherwise), for the period commencing on the due date thereof
until the same is paid in full.
(c) Accrued interest on each Loan shall be payable on the last day of
each Interest Period for such Loan (and, if such Interest Period exceeds three
months' duration, quarterly, commencing on the first quarterly anniversary of
the first day of such Interest Period), except that (i) accrued interest payable
at the Post-Default Rate shall be due and payable from time to time on demand of
the Administrative Agent or the Majority Banks (through the Administrative
Agent) and (ii) accrued interest on any amount prepaid or converted pursuant to
Section 6 hereof shall be paid on the amount so prepaid or converted.
4.3 Acceptance Fees. The Company shall pay to each Bank acceptance fees
in Canadian Dollars forthwith upon the acceptance by such Bank of each Bankers'
Acceptance issued by the Company at a rate per annum equal to the B/A Stamping
<PAGE>
Rate in effect at the time of the acceptance of such Bankers' Acceptance,
calculated on the face amount of such Bankers' Acceptance and on the basis of
the number of days in the term of such Bankers' Acceptance divided by three
hundred sixty-five (365). Acceptance fees payable to the Banks pursuant to this
Section 4.3 shall be paid in the manner specified in Section 3.4(a).
Section 5. Payments; Pro Rata Treatment; Computations, Etc.
5.1 Payments.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest, the full face amount of Bankers' Acceptances, Reimbursement
Obligations and other amounts to be made by the Company hereunder and under the
Notes and the other Loan Documents shall be made in U.S. Dollars or Canadian
Dollars, as the case may be, in immediately available funds, to the Paying Agent
at the Payment Office (or in the case of a successor Paying Agent, at the
payment office designated by such successor Paying Agent in Canada), not later
than 11:00 a.m. Toronto, Ontario time on the date on which such payment shall
become due (each such payment made after such time on such due date to be deemed
to have been made on the next succeeding Business Day). The Paying Agent, or any
Bank for whose account any such payment is made, may (but shall not be obligated
to) debit the amount of any such payment which is not made by such time to any
ordinary deposit account of the Company with the Paying Agent or such Bank, as
the case may be.
(b) The Company shall, at the time of making each payment hereunder or
under any Note or any other Loan Document, specify to the Paying Agent the
Loans, the Bankers' Acceptances or other amounts payable by the Company
hereunder or thereunder to which such payment is to be applied. Each payment
received by the Paying Agent hereunder or under any Note, Bankers' Acceptance or
any other Loan Document for the account of a Bank shall be paid promptly to such
Bank, in immediately available funds for the account of such Bank's Applicable
Lending Office.
(c) If the due date of any payment hereunder or under any Note or any
other Loan Document falls on a day which is not a Business Day, the due date for
such payment (subject to the definition of Interest Period) shall be extended to
the next succeeding Business Day and interest shall be payable for any principal
so extended for the period of such extension.
5.2 Pro Rata Treatment. Except to the extent otherwise provided herein:
(a) each borrowing from the Banks under Section 2.1 hereof shall be made ratably
from the Banks on the basis of their respective Commitments and each payment of
commitment fees shall be made for the account of the Banks, and each termination
or reduction of the Commitments of the Banks under Section 2.3 hereof shall be
applied, pro rata, according to the Banks' respective Commitments; (b) each
<PAGE>
payment by the Company of the full face amount of Bankers' Acceptances and
principal of or interest on Loans of a particular Type shall be made to the
Paying Agent for the account of the Banks pro rata in accordance with the
respective full face amount of such Bankers' Acceptances or the unpaid principal
amounts of such Loans held by the Banks; and (c) the Banks (other than the
applicable Issuer) shall purchase from the applicable Issuer participations in
the Letters of Credit to the extent of their respective Commitment Percentages.
5.3 Computations. Subject to Section 13.7, interest based on the
Eurodollar Base Rate or the Federal Funds Rate will be computed on the basis of
a year of 360 days and actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable, unless the
effect of so computing shall be to cause the rate of interest to exceed the
Highest Lawful Rate, in which case interest shall be calculated on the basis of
the actual number of days elapsed in a year composed of 365 or 366 days, as the
case may be. All other interest and fees shall be computed on the basis of a
year of 365 (or 366) days and actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable.
5.4 Minimum and Maximum Amounts. Except for prepayments made pursuant
to Section 3.2(b) hereof, each borrowing and repayment of principal of Loans,
each acceptance, purchase and repayment of Bankers' Acceptances and each
termination or reduction of Commitments, each optional prepayment and each
conversion of Type shall be in an aggregate principal amount at least equal to
(a) in the case of Eurodollar Loans, U.S. $5,000,000,(b) in the case of Bankers'
Acceptances, Canadian $5,000,000, (c) in the case of Canadian Prime Rate Loans,
Canadian $1,000,000, and (d) in the case of Alternate Base Rate Loans, U.S.
$1,000,000 (borrowings or prepayments of Loans of different Types or, in the
case of Eurodollar Loans, having different Interest Periods at the same time
hereunder to be deemed separate borrowings and prepayments for purposes of the
foregoing, one for each Type or Interest Period). Upon any mandatory prepayment
that would reduce Eurodollar Loans having the same Interest Period to less than
U.S. $5,000,000 such Loans shall automatically be converted into Alternate Base
Rate Loans. Notwithstanding anything to the contrary contained in this
Agreement, there shall not be, at any one time, more than eight (8) Interest
Periods in effect with respect to Eurodollar Loans.
5.5 Certain Actions, Notices, Etc. Notices to the Administrative Agent
and the Paying Agent of any termination or reduction of Commitments, of
borrowings and prepayments, of issuance, acceptance and purchase of Bankers'
Acceptances, of conversions and continuations of Loans and Bankers' Acceptances,
of the term of Bankers' Acceptances and of the duration of Interest Periods
shall be irrevocable and shall be effective only if received by the
Administrative Agent and the Paying Agent not later than 11:00 a.m. Toronto,
Ontario time on the number of Business Days prior to the date of the relevant
termination, reduction, borrowing and/or repayment, conversion or continuance
specified below:
<PAGE>
<TABLE>
<CAPTION>
Number of
Business
Notice Days Prior
------ ----------
<S> <C>
Termination or
Reduction of Commitments 2
Borrowing or prepayment
of or conversion into or
continuance of
Alternate Base Rate
Loans or Canadian same day
Prime Rate Loans
which are equal to or less
than (in the aggregate with
respect to all Loans
requested on a given day)
U.S. $20,000,000
Borrowing or prepayment
of or conversion into or
continuance of
Alternate Base Rate 1
Loans or Canadian
Prime Rate Loans
which exceed
(in the aggregate with
respect to all Loans
requested on a given day)
U.S. $20,000,000
Issuance of Bankers' Acceptances 2
Borrowing or
prepayment of or conversion
into or continuance of 3
Eurodollar Loans
</TABLE>
<PAGE>
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing or
prepayment shall specify the amount of Bankers' Acceptances to be accepted and
purchased or prepaid and the Type of the Loans to be borrowed or prepaid
(subject to Sections 3.2(a) and 5.4 hereof), the date of borrowing, acceptance
and purchase or prepayment (which shall be a Business Day) and, in the case of
Eurodollar Loans, the duration of the Interest Period therefor (subject to the
definition of "Interest Period") and, in the case of Bankers' Acceptances, the
term and maturity date therefor (subject to Section 3.4(c)). Each such notice of
conversion of a Bankers' Acceptance into a Loan or conversion of a Loan into a
Loan of another Type or a Bankers' Acceptance shall identify such Bankers'
Acceptance or Loan (or portion thereof) being converted and specify the Type of
Loan into which such Bankers' Acceptance or Loan is being converted (subject to
Section 5.4 hereof) and the date for conversion (which shall be a Business Day)
and, unless such Bankers' Acceptance or Loan is being converted into an
Alternate Base Rate Loan or a Canadian Prime Rate Loan, the duration (subject to
the definition of "Interest Period") of the Interest Period therefor which is to
commence as of the last day of the then current Interest Period therefor (or the
date of conversion, if such Loan is being converted from an Alternate Base Rate
Loan or a Canadian Prime Rate Loan). In the case of any such notice for a
Bankers' Acceptance, the term and maturity date of such Bankers' Acceptance
shall also be specified. Each such notice of continuation of a Loan (or portion
thereof) as the same Type of Loan shall identify such Loan (or portion thereof)
being continued (subject to Section 5.4 hereof) and, unless such Loan is an
Alternate Base Rate Loan or a Canadian Prime Rate Loan, the duration (subject to
the definition of "Interest Period") of the Interest Period therefor which is to
commence as of the last day of the then current Interest Period therefor. The
Paying Agent shall promptly notify the affected Banks of the contents of each
such notice. Notice of any prepayment having been given, the principal amount
specified in such notice, together with interest thereon to the date of
prepayment, shall be due and payable on such prepayment date.
5.6 Non-Receipt of Funds by the Paying Agent. Unless the Paying Agent
shall have been notified by a Bank or the Company (the "Payor") prior to the
date on which such Bank is to make payment to the Paying Agent of the Canadian
Bankers' Acceptance Discount Proceeds in respect of a Bankers' Acceptance to be
purchased by it or the proceeds of a Loan to be made by it hereunder (or the
payment of any amount by such Bank to reimburse the applicable Issuer for a
drawing under any Letter of Credit) or the Company is to make a payment to the
Paying Agent for the account of one or more of the Banks, as the case may be
(such payment being herein called the "Required Payment"), which notice shall be
effective upon receipt, that the Payor does not intend to make the Required
Payment to the Paying Agent, the Paying Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption (but shall not
be required to), make the amount thereof available to the intended recipient on
such date and, if the Payor has not in fact made the Required Payment to the
Paying Agent on or before such date, the recipient of such payment (or, if such
recipient is the beneficiary of a Letter of Credit, the Company and, if the
<PAGE>
Company fails to pay the amount thereof to the Paying Agent forthwith upon
demand, the Banks ratably in proportion to their respective Commitment
Percentages) shall, on demand, pay to the Paying Agent the amount made available
to it together with interest thereon in respect of the period commencing on the
date such amount was so made available by the Paying Agent until the date the
Paying Agent recovers such amount at a per annum rate of interest determined by
the Paying Agent (such rate to be conclusive and binding on the Banks) in
accordance with the Paying Agent's usual banking practice for similar advances
to financial institutions of like standing to the applicable Bank.
5.7 Sharing of Payments, Etc. If a Bank shall obtain payment of the
full face amount of an outstanding Bankers' Acceptance accepted and purchased by
it under this Agreement or of any principal of or interest on any Loan made by
it under this Agreement, or on any Reimbursement Obligation or other obligation
then due to such Bank hereunder, through the exercise of any right of set-off,
banker's lien, counterclaim or similar right, or otherwise, it shall promptly
purchase from the other Banks participations in the Loans made, the outstanding
Bankers' Acceptances or Reimbursement Obligations or other obligations held, by
the other Banks in such amounts, and make such other adjustments from time to
time as shall be equitable to the end that all the Banks shall share the benefit
of such payment (net of any expenses which may be incurred by such Bank in
obtaining or preserving such benefit) pro rata in accordance with the unpaid
principal and interest on the Obligations then due to each of them. To such end
all the Banks shall make appropriate adjustments among themselves (by the resale
of participations sold or otherwise) if such payment is rescinded or must
otherwise be restored. The Company agrees, to the fullest extent it may
effectively do so under applicable law, that any Bank so purchasing a
participation in the Loans made, the outstanding Bankers' Acceptances or
Reimbursement Obligations or other obligations held, by other Banks may exercise
all rights of set-off, bankers' lien, counterclaim or similar rights with
respect to such participation as fully as if such Bank were a direct holder of
Loans, Bankers' Acceptances and Reimbursement Obligations or other obligations
in the amount of such participation. Nothing contained herein shall require any
Bank to exercise any such right or shall affect the right of any Bank to
exercise, and retain the benefits of exercising, any such right with respect to
any other Indebtedness or obligation of the Company.
Section 6. Yield Protection and Illegality.
6.1 Additional Costs.
(a) Subject to Section 13.6, the Company shall pay to the Paying Agent,
on demand for the account of each Bank from time to time such amounts as such
Bank may determine to be necessary to compensate it for any costs incurred by
such Bank which such Bank determines are attributable to its making or
maintaining of any Eurodollar Loan or any Bankers' Acceptance hereunder or its
obligation to make any such Loan hereunder, or any reduction in any amount
receivable by such Bank hereunder in respect of any of such Loans or such
obligation
<PAGE>
(such increases in costs and reductions in amounts receivable being herein
called "Additional Costs"), in each case resulting from any Regulatory Change
which:
(i) subjects such Bank (or makes it apparent that such Bank is subject)
to any tax, levy, impost, duty, charge or fee (collectively, "Taxes"), or any
deduction or withholding for any Taxes on or from the payment due in respect of
any Bankers' Acceptance or under any Eurodollar Loan or other amounts due
hereunder, other than income and franchise taxes of the jurisdiction (or any
subdivision thereof) in which such Bank has an office or its Applicable Lending
Office; or
(ii) changes the basis of taxation of any amounts payable to such Bank
under this Agreement or its Notes in respect of any of such Loans or in respect
of Bankers' Acceptances (other than changes which affect taxes measured by or
imposed on the overall net income or franchise taxes of such Bank or of its
Applicable Lending Office for any of such Loans by the jurisdiction (or any
subdivision thereof) in which such Bank has an office or such Applicable Lending
Office); or
(iii) imposes or modifies or increases or deems applicable any reserve,
special deposit or similar requirements (including, without limitation, any such
requirement imposed by the Office of the Superintendent of Financial
Institutions Canada) relating to any extensions of credit or other assets of, or
any deposits with or other liabilities of, such Bank or loans made by such Bank,
or Bankers' Acceptances accepted by such Bank or against any other funds,
obligations or other property owned or held by such Bank (including any of such
Loans or, where applicable, any deposits referred to in the definition of
"Eurodollar Base Rate" in Section 1.1 hereof or any Bankers' Acceptances) and
such Bank actually incurs such additional costs.
Each Bank (if so requested by the Company through the Administrative Agent) will
designate a different available Applicable Lending Office for the Eurodollar
Loans or the Bankers' Acceptances of such Bank or take such other action as the
Company may request if such designation or action will avoid the need for, or
reduce the amount of, such compensation and will not, in the sole opinion of
such Bank, be disadvantageous to such Bank (provided that such Bank shall have
no obligation so to designate an Applicable Lending Office for Eurodollar Loans
located in the United States of America or to designate an Applicable Lending
Office for Bankers' Acceptances located in any jurisdiction that is not located
in Canada). Each Bank will furnish the Company with a statement setting forth
the basis and amount of each request by such Bank for compensation under this
Section 6.1(a); subject to Section 6.8, such certificate shall be conclusive,
absent manifest error, and may be prepared using any reasonable averaging and
attribution methods.
(b) Without limiting the effect of the foregoing provisions of this
Section 6.1, in the event that, by reason of any Regulatory Change, any Bank
either (i) incurs Additional Costs
<PAGE>
based on or measured by the excess above a specified level of the amount of a
category of deposits or other liabilities of such Bank which includes deposits
by reference to which the interest rate on Eurodollar Loans is determined as
provided in this Agreement or a category of extensions of credit or other assets
of such Bank which includes Eurodollar Loans or Bankers' Acceptances or (ii)
becomes subject to restrictions on the amount of such a category of liabilities
or assets which it may hold, then, if such Bank so elects by notice to the
Company (with a copy to the Administrative Agent and the Paying Agent), the
obligation of such Bank to make Eurodollar Loans or accept and purchase Bankers'
Acceptances, as applicable, hereunder shall be suspended until the date such
Regulatory Change ceases to be in effect (in which case the provisions of
Section 6.4 hereof shall be applicable).
(c) Good faith determinations and allocations by any Bank for purposes
of this Section 6.1 of the effect of any Regulatory Change on its costs of
maintaining its obligations to make Loans or accept and purchase Bankers'
Acceptances or of making or maintaining Loans or accepting and purchasing
Bankers' Acceptances on amounts receivable by it in respect of Loans or Bankers'
Acceptances, and of the additional amounts required to compensate such Bank in
respect of any Additional Costs, shall be conclusive, absent manifest error.
(d) The Company's obligation to pay Additional Costs and compensation
with regard to each Eurodollar Loan and each Bankers' Acceptance shall survive
termination of this Agreement.
6.2 Limitations. Anything herein to the contrary notwithstanding, if,
with respect to any Eurodollar Loans or Bankers' Acceptance:
(a) the Paying Agent determines in good faith (which determination
shall be conclusive) that quotations of interest rates for the relevant deposits
referred to in the definition of "Eurodollar Base Rate" in Section 1.1 hereof
are not being provided by the Reference Banks in the relevant amounts or for the
relevant maturities for purposes of determining the rate of interest for such
Loans for Interest Periods therefor as provided in this Agreement; or
(b) the Paying Agent determines in good faith (which determination
shall be conclusive) that quotations of discount rates for the purchase of
Canadian Dollar bankers' acceptances referred to in the definition of "Canadian
Bankers' Acceptance Discount Rate" in Section 1.1 hereof are not available in
the relevant amounts or for the relevant maturities for purposes of determining
the Canadian Bankers' Acceptance Discount Rate thereforE as provided in this
Agreement; or
(c) the Majority Banks determine (which determination shall be
conclusive) and notify the Paying Agent (with a copy to the Administrative
Agent) that the relevant rates of interest referred to in the definition of
"Eurodollar Base Rate" in Section 1.1 hereof upon the basis of which the rates
of
<PAGE>
interest for such Loans (where applicable) are to be determined do not
accurately reflect the cost to such Banks of making or maintaining such Loans
for Interest Periods therefore; or
(d) the Paying Agent determines in good faith (which determination
shall be conclusive) that by reason of circumstances affecting the interbank
U.S. Dollar market generally, deposits in United States dollars in the relevant
interbank U.S. Dollar market are not being offered for the applicable Interest
Period and in an amount equal to the amount of the Eurodollar Loan requested by
the Company;
then the Paying Agent shall promptly notify the Company and each
Bank thereof, and, so long as such condition remains in effect, the Banks shall
be under no obligation to make Eurodollar Loans or accept and purchase Bankers'
Acceptances, as the case may be (but shall maintain until the end of the
Interest Period then in effect the Eurodollar Loans and until the specified
maturity date of the Bankers' Acceptances, as the case may be, then
outstanding).
6.3 Illegality. Notwithstanding any other provision of this Agreement
to the contrary, if (x) by reason of the adoption of any applicable Legal
Requirement or any change in any applicable Legal Requirement or in the
interpretation or administration thereof by any Governmental Authority or
compliance by any Bank with any request or directive (whether or not having the
force of law) of any central bank or other Governmental Authority or (y) with
respect to Eurodollar Loans, circumstances affecting the relevant interbank U.S.
Dollar market or the position of a Bank therein or (z) with respect to Bankers'
Acceptances, circumstances affecting the market for Canadian Dollar bankers'
acceptance or the position of a Bank therein shall at any time make it unlawful
or impracticable in the sole discretion of a Bank exercised in good faith for
such Bank or its Applicable Lending Office to (a) honour its obligation to make
Eurodollar Loans or accept and purchase Bankers' Acceptances, as the case may
be, hereunder, or (b) maintain Eurodollar Loans or Bankers' Acceptances, as the
case may be, hereunder, then such Bank shall promptly notify the Company thereof
through the Paying Agent and such Bank's obligation to make or maintain
Eurodollar Loans or accept and purchase Bankers' Acceptances, as the case may
be, hereunder shall be suspended until such time as such Bank may again make and
maintain Eurodollar Loans or accept and purchase Bankers' Acceptances, as the
case may be (in which case the provisions of Section 6.4 hereof shall be
applicable). Before giving such notice pursuant to this Section 6.3 with respect
to Eurodollar Loans only, such Bank will designate a different available
Applicable Lending Office for the Eurodollar Loans of such Bank or take such
other action as the Company may request if such designation or action will avoid
the need to suspend such Bank's obligation to make Eurodollar Loans hereunder
and will not, in the sole opinion of such Bank exercised in good faith, be
disadvantageous to such Bank (provided, that such Bank may not designate an
Applicable Lending Office that is not located in Canada).
<PAGE>
6.4 Substitute Alternate Base Rate Loans or Canadian Prime Rate Loans.
If the obligation of any Bank to make or maintain Eurodollar Loans shall be
suspended pursuant to Section 6.1, 6.2 or 6.3 hereof, all Loans which would
otherwise be made by such Bank as Eurodollar Loans shall be made instead as
Alternate Base Rate Loans (and, if an event referred to in Section 6.1(b) or 6.3
hereof has occurred and such Bank so requests by notice to the Company with a
copy to the Paying Agent, each Eurodollar Loan of such Bank then outstanding
shall be automatically converted into an Alternate Base Rate Loan on the date
specified by such Bank in such notice) and, to the extent that Eurodollar Loans
are so made as (or converted into) Alternate Base Rate Loans, all payments of
principal which would otherwise be applied to such Eurodollar Loans shall be
applied instead to such Alternate Base Rate Loans. If the obligation of any Bank
to accept and purchase Bankers' Acceptances shall be suspended pursuant to
Section 6.1, 6.2 or 6.3 hereof, all advances which would otherwise be made by
such Bank by way of acceptance and purchase of Bankers' Acceptances shall be
made instead as Canadian Prime Rate Loans (and, if an event referred to in
Section 6.1(b) or 6.3 hereof has occurred and such Bank so requests by notice to
the Company with a copy to the Paying Agent, the face amount of each Bankers'
Acceptance of such Bank then outstanding shall be automatically converted into a
Canadian Prime Rate Loan on the date specified by such Bank in such notice).
6.5 Compensation. Subject to Section 13.6 hereof, the Company shall pay
to the Paying Agent for the account of each Bank, within four (4) Business Days
after demand therefor by such Bank through the Administrative Agent, such amount
or amounts as shall be sufficient (in the reasonable opinion of such Bank) to
compensate it for any loss, cost or expense actually incurred by it (exclusive
of any lost profits or opportunity costs) as a result of:
(a) any payment, prepayment or conversion of a Eurodollar Loan made by
such Bank or a Bankers' Acceptance accepted by such Bank on a date other than
the last day of an Interest Period for such Eurodollar Loan or the specified
maturity date for such Bankers' Acceptance, as the case may be; or
(b) any failure by the Company to borrow a Eurodollar Loan to be made
by such Bank or to issue a Bankers' Acceptance to be accepted and purchased by
such Bank on the date for such borrowing or such issuance specified in the
relevant notice under Section 5.5 hereof or to convert a Eurodollar Loan into a
Bankers' Acceptance or a Loan of another Type or to convert a Bankers'
Acceptance into a Loan on such date after giving notice of such conversion;
such compensation to include, without limitation, any loss or expense incurred
by reason of the liquidation or reemployment of deposits or other funds acquired
by the applicable Bank to fund or maintain its share of any Loan or to fund the
acceptance and purchase of any Bankers' Acceptance. Compensation due pursuant to
this Section with respect to Bankers' Acceptances shall be calculated using the
Canadian Bankers' Acceptance Discount Rate for bankers' acceptances maturing on
(or as close as reasonably possible) to the maturity date of the Bankers'
<PAGE>
Acceptances with respect to which such compensation arises (versus the actual
Canadian Bankers' Acceptance Discount Rate for such Bankers' Acceptances).
Subject to Section 6.8, each determination of the amount of such compensation by
a Bank shall be conclusive and binding, absent manifest error, and may be
computed using any reasonable averaging and attribution method.
6.6 Additional Costs in Respect of Letters of Credit. If as a result of
any Regulatory Change there shall be imposed, modified or deemed applicable any
tax, reserve, special deposit or similar requirement against or with respect to
or measured by reference to Letters of Credit issued or to be issued hereunder
or participations in such Letters of Credit, and the result shall be to increase
the cost to any Bank of issuing or maintaining any Letter of Credit or any
participation therein, or reduce any amount receivable by any Bank hereunder in
respect of any Letter of Credit or any participation therein (which increase in
cost, or reduction in amount receivable, shall be the result of such Bank's
reasonable allocation of the aggregate of such increases or reductions resulting
from such event), then such Bank shall notify the Company through the
Administrative Agent, and upon demand therefor by such Bank through the
Administrative Agent, the Company (subject to Section 13.6 hereof) shall pay to
such Bank, from time to time as specified by such Bank, such additional amounts
as shall be sufficient to compensate such Bank for such increased costs or
reductions in amount. Before making such demand pursuant to this Section 6.6,
such Bank will designate a different available Applicable Lending Office for the
Letter of Credit of such Bank or take such other action as the Company may
request, if such designation or action will avoid the need for, or reduce the
amount of, such compensation and will not, in the sole opinion of such Bank
exercised in good faith, be disadvantageous to such Bank. A statement as to such
increased costs or reductions in amount incurred by such Bank, submitted by such
Bank to the Company, shall be conclusive as to the amount thereof, absent
manifest error.
6.7 Capital Adequacy. If any Bank shall have determined that the
adoption after the date hereof or effectiveness after the date hereof (whether
or not previously announced) of any applicable law, rule, regulation or treaty
regarding capital adequacy, or any change therein after the date hereof, or any
change in the interpretation or administration thereof after the date hereof by
any Governmental Authority charged with the interpretation or administration
thereof, or compliance by any Bank (or its Applicable Lending Office) with any
request or directive after the date hereof regarding capital adequacy (whether
or not having the force of law) of any such Governmental Authority has or would
have the effect of reducing the rate of return on such Bank's capital as a
consequence of such Bank's obligations hereunder, under the Loans made by it,
under the Bankers' Acceptances accepted and purchased by it, under the Letters
of Credit and under the Notes held by it to a level below that which such Bank
could have achieved but for such adoption, change or compliance (taking into
consideration such Bank's policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time, upon
satisfaction of the conditions precedent set forth in this Section 6.7, upon
demand by such Bank (with a copy to the Administrative Agent and the Paying
<PAGE>
Agent), the Company (subject to Section 13.6 hereof) shall pay to such Bank such
additional amount or amounts as will compensate such Bank for such reduction. A
certificate as to such amounts, submitted to the Company and the Administrative
Agent and the Paying Agent by such Bank, setting forth the basis for such Bank's
determination of such amounts, shall constitute a demand therefor and shall be
conclusive and binding for all purposes, absent manifest error. The Company
shall pay the amount shown as due on any such certificate within four (4)
Business Days after delivery of such certificate. Subject to Section 6.8, in
preparing such certificate, a Bank may employ such assumptions and allocations
of costs and expenses as it shall in good faith deem reasonable and may use any
reasonable averaging and attribution method.
6.8 Limitation on Additional Charges; Substitute Banks;
Non-Discrimination. Anything in this Section 6 notwithstanding:
(a) the Company shall not be required to pay to any Bank reimbursement
with regard to any costs or expenses, unless such Bank notifies the Company of
such costs or expenses within 90 days after the date paid or incurred;
(b) none of the Banks shall be permitted to pass through to the Company
charges and costs under this Section 6 on a discriminatory basis (i.e., which
are not also passed through by such Bank to other customers of such Bank
similarly situated where such customer is subject to documents providing for
such pass through); and
(c) if any Bank elects to pass through to the Company any material
charge or cost under this Section 6 or elects to terminate the availability of
Eurodollar Loans or Bankers' Acceptances for any material period of time, the
Company may, within 60 days after the date of such event and so long as no
Default shall have occurred and be continuing, elect to terminate such Bank as a
party to this Agreement; provided that, concurrently with such termination the
Company shall (i) if the Administrative Agent and each of the other Banks shall
consent, pay that Bank all principal, interest and fees and other amounts owed
to such Bank through such date of termination or (ii) have arranged for another
financial institution approved by the Administrative Agent (such approval not to
be unreasonably withheld) as of such date, to become a substitute Bank for all
purposes under this Agreement in the manner provided in Section 13.5; provided
further that, prior to substitution for any Bank, the Company shall have given
written notice to the Administrative Agent and the Paying Agent of such
intention and the Banks shall have the option, but no obligation, for a period
of 60 days after receipt of such notice, to increase their Commitments in order
to replace the affected Bank in lieu of such substitution.
<PAGE>
Section 7. Conditions Precedent.
7.1 Initial Loans and Acceptance and Purchase of Bankers' Acceptances.
The obligation of each Bank or any applicable Issuer to make its initial Loans
after the date hereof or to accept and purchase the initial Bankers' Acceptance
after the date hereof or issue or participate in a Letter of Credit after the
date hereof (whichever shall first occur) hereunder is subject to the following
conditions precedent, each of which shall have been fulfilled or waived to the
satisfaction of the Majority Banks:
(a) Corporate Action and Status. The Administrative Agent shall have
received from the appropriate Governmental Authorities certified copies of the
Organizational Documents (other than bylaws) of the Parent and each of its
Subsidiaries, and evidence satisfactory to the Administrative Agent of all
corporate action taken by the Parent or any of its Subsidiaries authorizing the
execution, delivery and performance of the Loan Documents and all other
documents related to this Agreement to which it is a party (including, without
limitation, a certificate of the secretary of each such party setting forth the
resolutions of its Board of Directors authorizing the transactions contemplated
thereby and attaching a copy of its bylaws), together with such certificates as
may be appropriate to demonstrate the qualification and good standing of and
payment of taxes by the Parent and each of its Subsidiaries in each state or
province in which such qualification is necessary.
(b) Incumbency. The Parent and each Relevant Party shall have delivered
to the Administrative Agent a certificate in respect of the name and signature
of each of the officers (i) who is authorized to sign on its behalf the
applicable Loan Documents related to any Loan or the issuance of any Letter of
Credit and (ii) who will, until replaced by another officer or officers duly
authorized for that purpose, act as its representative for the purposes of
signing documents and giving notices and other communications in connection with
any Loan or the issuance of any Letter of Credit. The Agents and each Bank may
conclusively rely on such certificates until they receive notice in writing from
the Parent or the appropriate Relevant Party to the contrary.
(c) Notes. The Administrative Agent shall have received the appropriate
Notes of the Company for each Bank, duly completed and executed.
(d) Loan Documents. The Company and each other Relevant Party shall
have duly executed and delivered the other Loan Documents to which it is a party
(in such number of copies as the Administrative Agent shall have requested) and
each such Loan Document shall be in form satisfactory to Administrative Agent.
Each such Loan Document shall be in substantially the form furnished to the
Banks prior to their execution of this Agreement, together with such changes
therein as the Administrative Agent may approve.
<PAGE>
(e) Fees and Expenses. The Company shall have paid to the Paying Agent
for the account of each Bank all accrued and unpaid commitment fees and other
fees in the amounts previously agreed upon in writing among the Company and the
respective Agents; and shall have in addition paid to the Paying Agent all
amounts payable under Section 9.7 hereof, on or before the date of this
Agreement.
(f) Opinions of Counsel. The Administrative Agent shall have received
(1) an opinion of Vinson & Elkins L.L.P., counsel to the Parent and its
Subsidiaries, in form and substance reasonably satisfactory to the
Administrative Agent and (2) an opinion of Bennett Jones Verchere, Canadian
counsel to the Parent and its Subsidiaries, in form and substance reasonably
satisfactory to the Administrative Agent.
(g) Execution by Banks. The Administrative Agent shall have received
counterparts of this Agreement executed and delivered by or on behalf of each of
the Banks or the Administrative Agent shall have received evidence satisfactory
to it of the execution and delivery by each of the Banks of a counterpart
hereof.
(h) Consents. The Administrative Agent shall have received evidence
satisfactory to it that, except as disclosed in the Disclosure Statement, all
material consents of each Governmental Authority and of each other Person, if
any, reasonably required in connection with (a) the Loans, the Bankers'
Acceptances and the Letters of Credit and (b) the execution, delivery and
performance of this Agreement and the other Loan Documents have been
satisfactorily obtained.
(i) Amendment to Intercreditor Agreement. The Administrative Agent
shall have received counterparts of the Second Amendment to Intercreditor
Agreement referred to in the definition of "Intercreditor Agreement" in Section
1.1 hereof executed and delivered by or on behalf of each of the Company and by
the "Agent" under the U.S. Facility or the Administrative Agent shall have
received evidence satisfactory to it of the execution and delivery by each such
Person of a counterpart of such Second Amendment to Intercreditor Agreement.
(j) U.S. Facility. The Administrative Agent shall have received
counterparts of the Credit Agreement referred to in the definition of "U.S.
Facility" in Section 1.1 hereof executed and delivered by or on behalf of each
of Parent, The Chase Manhattan Bank, as Agent, and certain banks parties thereto
or Administrative Agent shall have received evidence satisfactory to it of the
execution and delivery by each such Person of a counterpart of such Credit
Agreement.
(k) Other Documents. The Administrative Agent shall have received such
other documents consistent with the terms of this Agreement and relating to the
transactions contemplated hereby as the Administrative Agent may reasonably
request.
<PAGE>
All provisions and payments required by this Section 7.1 are subject to
the provisions of Section 13.6.
7.2 Initial and Subsequent Loans. The obligation of each Bank or any
applicable Issuer to make any Loan (including, without limitation, its initial
Loan) to be made by it hereunder or to accept and purchase Bankers' Acceptances
or to issue or participate in any Letter of Credit is subject to the additional
conditions precedent that (i) the Administrative Agent and the Paying Agent
shall have received a Request for Extension of Credit and such other
certifications as the Administrative Agent may reasonably require and (ii) as of
the date of such Loan or such acceptance and purchase or such issuance, and
after giving effect thereto:
(a) no Default shall have occurred and be continuing;
(b) except for facts timely disclosed to the Administrative Agent from
time to time in writing, which facts (I) are not materially more adverse to the
Parent and its Subsidiaries, (II) do not materially decrease the ability of the
Banks to collect the Obligations as and when due and payable and (III) do not
materially increase the liability of any of the Agent or any of the Banks, in
each case compared to those facts existing on the date hereof and the material
details of which have been set forth in the Financial Statements delivered to
the Administrative Agent prior to the date hereof or in the Disclosure
Statement, and except for the representations set forth in the Loan Documents
which, by their terms, are expressly (or by means of similar phrasing) made as
of the date hereof only, the representations and warranties made in each Loan
Document shall be true and correct in all material respects on and as of the
date of the making of such Loan or such acceptance and purchase or such
issuance, with the same force and effect as if made on and as of such date;
(c) the making of such Loan or the acceptance and purchase of such
Bankers' Acceptance or the issuance of such Letter of Credit shall not violate
any Legal Requirement applicable to any Bank.
Each Request for Extension of Credit by the Company hereunder or
request for issuance of a Letter of Credit shall include a representation and
warranty by the Company to the effect set forth in Subsections 7.2(a) and (b)
(both as of the date of such notice and, unless the Company otherwise notifies
the Administrative Agent prior to the date of such borrowing or issuance, as of
the date of such borrowing or issuance).
Section 8. Representations and Warranties. To induce the Banks to enter
into this Agreement and to make the Loans, accept and purchase Bankers'
Acceptances and issue or participate in the Letters of Credit, the Company (or,
where applicable, the Parent) represents and warrants (such representations and
<PAGE>
warranties to survive any investigation and the making of the Loans, the
acceptance and purchase Bankers' Acceptances and the issuance of the Letters of
Credit) to the Banks and the Agents as follows:
8.1 Corporate Existence. The Parent and each Subsidiary of the Parent
are corporations duly incorporated and organized, legally existing and in good
standing under the laws of the respective jurisdictions in which they are
incorporated, and are duly qualified as foreign corporations in all
jurisdictions wherein the property owned or the business transacted by them
makes such qualification necessary and the failure to so qualify could
reasonably be expected to result in a Material Adverse Effect.
8.2 Corporate Power and Authorization. Each of the Company and the
other Relevant Parties is duly authorized and empowered to execute, deliver, and
perform the Loan Documents to which it is a party; and all corporate action on
the part of the Company and the other Relevant Parties requisite for the due
creation and issuance of the Notes and for the due execution, delivery, and
performance of this Agreement and the other Loan Documents to which each of the
Company and the other Relevant Parties is a party has been duly and effectively
taken.
8.3 Binding Obligations. This Agreement, the Notes and the other Loan
Documents constitute legal, valid and binding obligations of the Company and the
other Relevant Parties, to the extent each is a party thereto, enforceable
against the Company and the other Relevant Parties, to the extent each is a
party thereto, in accordance with their respective terms, except as may be
limited by (i) any applicable bankruptcy, insolvency, fraudulent transfer,
winding up, arrangement, liquidation, reorganization, moratorium or other
similar laws affecting creditors' rights generally, (ii) equitable limitations
on the availability of remedies, (iii) the statutory power of a court to grant
relief from forfeiture, (iv) applicable laws regarding limitations of actions,
(v) general principles of equity which may apply to any proceeding in equity or
at law, and (vi) the powers of a court to stay proceedings before it and to stay
the execution of judgments.
8.4 No Legal Bar or Resultant Lien. The Company's and each of the other
Relevant Parties' creation, issuance, execution, delivery and performance of
this Agreement, the Notes and the other Loan Documents, to the extent they are
parties thereto, do not and will not violate any provisions of the
Organizational Documents of the Company or any other Relevant Party or any
Subsidiary of the Parent, or any Legal Requirement to which the Company or any
other Relevant Party or any Subsidiary of the Parent is subject or by which its
property may be presently bound or encumbered, or result in the creation or
imposition of any Lien upon any properties of the Company or any other Relevant
Party or any Subsidiary of the Parent, other than those permitted by this
Agreement.
8.5 No Consent. Except as set forth in the Disclosure Statement, the
Company's creation and issuance of the Notes and the Company's and each of the
other Relevant Parties' execution, delivery, and performance of this Agreement,
<PAGE>
the Notes and the other Loan Documents to which they are parties do not and will
not require the consent or approval of any Person other than such consents
and/or approvals obtained contemporaneously with or prior to the execution of
this Agreement, including, without limitation, any Governmental Authorities,
other than those consents the failure to obtain which could not be reasonably
expected to have a Material Adverse Effect.
8.6 Financial Condition. The audited consolidated and unaudited
consolidating annual financial statements of the Parent and its Subsidiaries for
the year ended December 31, 1995 and the unaudited consolidated interim
financial statements of the Parent and its Subsidiaries for the quarters and
three-month periods ended March 31, 1996 and June 30, 1996, which have been
delivered to the Banks, have been prepared in accordance with GAAP, and present
fairly the financial condition and results of the operations of the Parent and
its Subsidiaries for the period or periods stated (subject only to normal
year-end audit adjustments with respect to the unaudited interim statements). No
material adverse change, either in any case or in the aggregate, has occurred
since June 30, 1996 in the assets, liabilities, financial condition, business,
operations, affairs or circumstances of the Parent and its Subsidiaries taken as
a whole, except as disclosed to the Banks in the Disclosure Statement. Each
Engineering Report and Parent Report fairly presents the values and prospective
performances of the property described therein and there are no statements or
conclusions therein which were based upon or included materially misleading
information or fail to take into account material information.
8.7 Investments and Guaranties. As of the date hereof, neither the
Parent nor any Subsidiary of the Parent had made Investments in, advances to, or
Guarantees of, the obligations of any Person, except as (a) disclosed to the
Banks in the Disclosure Statement or (b) not prohibited by applicable provisions
of Section 10.
8.8 Liabilities and Litigation. Neither the Parent nor any Subsidiary
of the Parent has any material (individually or in the aggregate) liabilities,
direct or contingent, except as (a) disclosed or referred to in the Financial
Statements, (b) disclosed to the Banks in the Disclosure Statement, (c)
disclosed in a notice to the Administrative Agent pursuant to Section 9.11 with
respect to such as could reasonably be expected to have a Material Adverse
Effect or (d) not prohibited by applicable provisions of Section 10. Except as
(a) described in the Financial Statements, (b) otherwise disclosed to the Banks
in the Disclosure Statement, (c) disclosed in a notice to the Administrative
Agent pursuant to Section 9.11 with respect to such as could reasonably be
expected to have a Material Adverse Effect or (d) not prohibited by applicable
provisions of Section 10, no litigation, legal, administrative or arbitral
proceeding, investigation, or other action of any nature exists or (to the
knowledge of the Parent or the Company) is threatened against or affecting the
Parent or any Subsidiary of the Parent which could reasonably be expected to
result in any judgment which could reasonably be expected to have a Material
Adverse Effect, or which in any manner challenges or may challenge or draw into
<PAGE>
question the validity of this Agreement, the Notes or any other Loan Document,
or enjoins or threatens to enjoin or otherwise restrain any of the transactions
contemplated by any of them.
8.9 Taxes and Governmental Charges. The Parent and its Subsidiaries
have filed, or obtained extensions with respect to the filing of, all material
tax returns and reports required to be filed and have paid all material taxes,
assessments, fees and other governmental charges levied upon any of them or upon
any of their respective properties or income which are due and payable,
including interest and penalties, or have provided adequate reserves for the
payment thereof.
8.10 Title to Properties. The Parent and its Subsidiaries have good and
defensible title to their respective properties included in the Borrowing Base
(including, without limitation, all fee and leasehold interests), free and clear
of all Liens except (a) those referred to in the Financial Statements, (b) as
disclosed to the Banks in the Disclosure Statement or (c) as permitted by
Section 10.2.
8.11 Defaults. Neither the Parent nor any Subsidiary of the Parent is
in default, which default could reasonably be expected to have a Material
Adverse Effect, under any indenture, mortgage, deed of trust, agreement or other
instrument to which the Parent or any Subsidiary of the Parent is a party or by
which the Parent or any Subsidiary of the Parent or the property of the Parent
or any Subsidiary of the Parent is bound, except as (a) disclosed to the Banks
in the Disclosure Statement, (b) disclosed in a notice to the Administrative
Agent pursuant to Section 9.11 with respect to such as could reasonably be
expected to have a Material Adverse Effect or (c) specifically permitted by
applicable provisions of Section 10. No Default under this Agreement, the Notes
or any other Loan Document has occurred and is continuing.
8.12 Location of Businesses and Offices. Except to the extent that the
Administrative Agent has been furnished written notice to the contrary or of
additional locations, pursuant to Section 9.11, the Company's principal place of
business and chief executive offices are located at the address stated on the
signature page hereof and the principal places of business and chief executive
offices of each Subsidiary of the Parent are described on Exhibit D hereto. The
Parent's principal place of business and chief executive office is at 1001
Fannin, Suite 1700, Houston, Texas 77002.
8.13 Compliance with Law. Neither the Parent nor any Subsidiary of the
Parent (except as (a) disclosed to the Banks in the Disclosure Statement, (b)
disclosed in a notice to the Administrative Agent pursuant to Section 9.11 with
respect to such as could reasonably be expected to have a Material Adverse
Effect or (c) not prohibited by applicable provisions of Section 10):
(a) is in violation of any Legal Requirement; or
<PAGE>
(b) has failed to obtain any license, permit, franchise or other
governmental authorization necessary to the ownership of any of their respective
properties or the conduct of their respective business; which violation or
failure could reasonably be expected to have a Material Adverse Effect.
8.14 Margin Stock. None of the proceeds of the Loans will be used for
the purpose of, and neither the Parent nor any Subsidiary of the Parent is
engaged in the business of extending credit for the purpose of (a) purchasing or
carrying any "margin stock" as defined in Regulation U of the Board of Governors
of the Federal Reserve System (12 C.F.R. Part 221) or (b) reducing or retiring
any indebtedness which was originally incurred to purchase or carry margin
stock, if such purpose under either (a) or (b) above would constitute this
transaction a "purpose credit" within the meaning of said Regulation U, or for
any other purpose which would constitute this transaction a "purpose credit".
Neither the Parent nor any Subsidiary of the Parent is engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stocks. Neither the Parent nor any
Subsidiary of the Parent nor any Person acting on behalf of the Parent or any
Subsidiary of the Parent has taken or will take any action which might cause the
Notes or any of the Loan Documents, including this Agreement, to violate
Regulation U or any other regulation of the Board of Governors of the Federal
Reserve System, or to violate any similar provision of the Securities Exchange
Act of 1934 or any rule or regulation under any such provision thereof.
8.15 Subsidiaries. The Parent has no Subsidiaries as of the date of
this Agreement except those shown in Exhibit D hereto.
8.16 ERISA. With respect to each Plan, the Parent and each ERISA
Affiliate have fulfilled their obligations, including obligations under the
minimum funding standards of ERISA and the Code, and are in compliance in all
material respects with the provisions of ERISA and the Code. The Parent has no
knowledge of any event which could result in a liability of the Parent or any
ERISA Affiliate to the PBGC or a Plan (other than to make contributions in the
ordinary course). Since the effective date of Title IV of ERISA, there have not
been any nor are there now existing any events or conditions that would cause
the Lien provided under Section 4068 of ERISA to attach to any property of the
Parent or any ERISA Affiliate. There are no Unfunded Liabilities with respect to
any Plan other than those specifically described in the certificate delivered in
accordance with Section 7.1(i). No "prohibited transaction" has occurred with
respect to any Plan.
8.17 Investment Company Act. Neither the Parent nor any of its
Subsidiaries is an investment company within the meaning of the Investment
Company Act of 1940, as amended, or, directly or indirectly, controlled by or
acting on behalf of any Person which is an investment company, within the
meaning of said Act.
<PAGE>
8.18 Public Utility Holding Company Act. Neither the Parent nor any of
its Subsidiaries (i) is subject to regulation under the Public Utility Holding
Company Act of 1935, as amended (the "PUHC Act"), except as to Section 9(a)(2)
thereof (15 U.S.C.A. ss.79(i)(a)(2)), or (ii) is in violation of any of the
provisions, rules, regulations or orders of or under the PUHC Act. Further, none
of the transactions contemplated under this Agreement, including without
limitation, the making of the Loans, the issuance of the Letters of Credit and
the creation of any Liens pursuant to the Loan Documents, shall cause or
constitute a violation of any of the provisions, rules, regulations or orders of
or under the PUHC Act and the PUHC Act does not in any manner impair the
legality, validity or enforceability of the Notes or any Liens created pursuant
to the Loan Documents. The Parent has duly filed with the Securities and
Exchange Commission good faith applications (each an "Application") under
Section 2(a)(8) of the PUHC Act (15 U.S.C.A. ss.79(b)(a)(8)) for a declaration
of non-subsidiary status pursuant to such Section 2(a)(8) with respect to each
Person (each a "Specified Shareholder") which owns, controls or holds with power
to vote, directly or indirectly, a sufficient quantity of the voting securities
of the Parent to be construed as a "holding company", as such term is defined in
the PUHC Act, in respect of the Parent. All of the information contained in such
Applications, as amended, was true as of the most recent filing date with
respect thereto (provided that the Parent may, unless it has actual current
knowledge to the contrary, rely solely upon written information furnished by any
Specified Shareholder with respect to background information about the Specified
Shareholder and the nature of the ownership by such Specified Shareholder or its
Affiliates of the voting securities of the Parent), and the Parent knows of no
reason why each such Application, if acted upon by the Securities and Exchange
Commission, would not be approved. True and correct copies of each such
Application and any amendments thereto, as filed, have been furnished to the
Administrative Agent. The Parent has not received any written notice from the
Securities and Exchange Commission with respect to any such Application other
than as disclosed in writing to the Administrative Agent.
8.19 Environmental Matters. Except as disclosed in the Disclosure
Statement, (i) the Parent and it Subsidiaries have obtained and maintained in
effect all Environmental Permits (or has initiated the necessary steps to
transfer the Environmental Permits into its name), the failure to obtain which
could reasonably be expected to have a Material Adverse Effect, (ii) the Parent
and its Subsidiaries and their properties, assets, business and operations have
been and are in compliance with all applicable Requirements of Environmental Law
and Environmental Permits failure to comply with which could reasonably be
expected to have a Material Adverse Effect, (iii) the Parent and its
Subsidiaries and their properties, assets, business and operations are not
subject to any (A) Environmental Claims or (B) Environmental Liabilities, in
either case direct or contingent, and whether known or unknown, arising from or
based upon any act, omission, event, condition or circumstance occurring or
existing on or prior to the date hereof which could reasonably be expected to
have a Material Adverse Effect, and (iv) no Responsible Officer of the Parent or
any of its Subsidiaries has received any notice of any violation or alleged
violation of any Requirements of Environmental Law or Environmental Permit or
any Environmental Claim in connection with its assets, properties, business or
<PAGE>
operations which could reasonably be expected to have a Material Adverse Effect.
The liability (including without limitation any Environmental Liability and any
other damage to persons or property), if any, of the Parent and its Subsidiaries
and with respect to their properties, assets, business and operations which is
reasonably expected to arise in connection with Requirements of Environmental
Laws currently in effect and other environmental matters presently known by a
Responsible Officer of the Parent will not have a Material Adverse Effect. No
Responsible Officer of the Parent knows of any event or condition with respect
to Environmental Matters with respect to any of its properties or the properties
of any of its Subsidiaries which could reasonably be expected to have a Material
Adverse Effect. For purposes of this Section 8.19, "Environmental Matters" shall
mean matters relating to pollution or protection of the environment, including,
without limitation, emissions, discharges, releases or threatened releases of
Hazardous Substances into the environment (including, without limitation,
ambient air, surface water or ground water, or land surface or sub surface), or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Substances.
8.20 Claims and Liabilities. Except as disclosed to the Banks in
writing, neither the Parent nor any of its Subsidiaries has accrued any
liabilities under gas purchase contracts for gas not taken, but for which it is
liable to pay if not made up and which, if not paid, would have a Material
Adverse Effect. Except as disclosed to the Banks in writing, no claims exist
against the Parent or its Subsidiaries for gas imbalances which claims if
adversely determined would have a Material Adverse Effect. No purchaser of
product supplied by the Parent or any of its Subsidiaries has any claim against
the Parent or any of its Subsidiaries for product paid for, but for which
delivery was not taken as and when paid for, which claim if adversely determined
would have a Material Adverse Effect.
8.21 Solvency. Neither the Parent nor the Parent and its Subsidiaries,
on a consolidated basis, is "insolvent", as such term is used (and, where
applicable, defined) in (i) the Bankruptcy Code and (ii) the Companies'
Creditors Arrangement Act (Canada).
Section 9. Affirmative Covenants. A deviation from the provisions of
this Section 9 will not constitute a Default under this Agreement if such
deviation is consented to in writing by the Majority Banks. Without the prior
written consent of the Majority Banks, the Company (or, where applicable, the
Parent) agrees with the Banks and the Agents that, so long as any of the
Commitments is in effect and until payment in full of all Loans hereunder, the
repayment in full of the full face amount of all outstanding Bankers'
Acceptances, the termination or expiry of all Letters of Credit and payment in
full of Letter of Credit Liabilities, all interest thereon and all other amounts
payable by the Company hereunder:
9.1 Financial Statements and Reports. The Parent will promptly furnish
to any Bank from time to time upon request such information regarding the
business and affairs and financial condition of the Parent and its Subsidiaries
<PAGE>
as such Bank may reasonably request, and will furnish to the Administrative
Agent and each of the Banks:
(a) Annual Reports - promptly after becoming available and in any
event within 100 days after the close of each fiscal year of
the Parent:
(i) the audited consolidated balance sheet of the Parent
and its Subsidiaries as of the end of such year;
(ii) the audited consolidated statement of earnings of the
Parent and its Subsidiaries for such year;
(iii) the audited consolidated statement of cash flows of
the Parent and its Subsidiaries for such year;
(iv) the unaudited consolidating balance sheet and
statement of earnings of the Parent and its
Subsidiaries, each for such year or as of the end of
such year, as the case may be;
(v) the unaudited consolidated balance sheet, statement of
earnings and statement of cash flows and unaudited
consolidating balance sheet and statement of earnings
of the Company and its Subsidiaries, each for such
year or as of the end of such year, as the case may
be;
(vi) a report prepared by a petroleum engineer, who may be
an employee of the Parent or its Subsidiaries, setting
forth the historical monthly production data for
Hydrocarbons produced and sold by the Parent and its
Subsidiaries for such year;
setting forth in each case in comparative form the corresponding figures for the
preceding fiscal year, and, in the case of the audited Financial Statements,
audited and accompanied by the related opinion of KPMG Peat Marwick or other
independent certified public accountants of recognized national standing
acceptable to the Majority Banks, which opinion shall state that such audited
balance sheets and statements have been prepared in accordance with GAAP
consistently followed throughout the period indicated and fairly present the
consolidated financial condition and results of operations of the applicable
Persons as at the end of, and for, such fiscal year; and
(b) Quarterly Reports - as soon as available and in any event
within 50 days after the end of each of the first three
quarterly periods in each fiscal year of the Parent:
<PAGE>
(i) the unaudited consolidated balance sheet of the Parent
and its Subsidiaries as of the end of such quarter;
(ii) the unaudited consolidated statement of earnings of
the Parent and its Subsidiaries for such quarter and
for the period from the beginning of the fiscal year
to the close of such quarter;
(iii) the unaudited consolidated statement of cash flows of
the Parent and its Subsidiaries for such quarter and
for the period from the beginning of the fiscal year
to the close of such quarter;
(iv) the unaudited consolidating balance sheet and
statement of earnings of the Parent and its
Subsidiaries, each for such quarter and for the period
from the beginning of the fiscal year to the close of
such quarter;
(v) the unaudited consolidated balance sheet, statement of
earnings and statement of cash flows and unaudited
consolidating balance sheet and statement of earnings
of the Company and its Subsidiaries, each for such
quarter and for the period from the beginning of the
fiscal year to the close of such quarter;
(vi) a report prepared by a petroleum engineer, who may be
an employee of the Parent or its Subsidiaries, setting
forth the historical monthly production data for
Hydrocarbons produced and sold by the Parent and its
Subsidiaries for such quarter;
all of items (i) through (iv) above prepared on substantially the same
accounting basis as the annual reports described in Subsection 9.1(a), subject
to normal changes resulting from year-end adjustments; and
(c) Parent Report - promptly after becoming available and in any event
on or before September 1 of each year, a Parent Report; and
(d) Other Bank Requirements - at such time as the same are required to
be furnished to other lenders under other financing arrangements to which the
Parent or any of its Subsidiaries may be a party or be bound from time to time,
a copy of any report, certificate, affidavit or other information required to be
furnished to any such lender; and
(e) SEC and Other Reports - promptly upon their becoming publicly
available, one copy of each financial statement, report, notice or definitive
proxy statement sent by the Parent or any of its Subsidiaries to shareholders
generally, and of each regular or periodic report and any registration
<PAGE>
statement, prospectus or written communication (other than transmittal letters)
in respect thereof filed by the Parent or any of its Subsidiaries with, or
received by the Parent or any of its Subsidiaries in connection therewith from,
any securities exchange or the Securities and Exchange Commission or any
successor agency; and
(f) Engineering Report - promptly after becoming available and in any
event on or before March 15 of each year, commencing with March 15, 1997, an
Engineering Report.
All of the balance sheets and other financial statements referred to in
this Section 9.1 will be in such detail as any Bank may reasonably request and
will conform to GAAP applied on a basis consistent with those of the Financial
Statements as of December 31, 1995. In addition, if GAAP shall change with
respect to any matter relative to determination of compliance with this
Agreement, the Parent will also provide financial information necessary for the
Banks to determine compliance with this Agreement.
9.2 Officers' Certificates.
(a) Concurrently with the furnishing of the annual financial statements
pursuant to Subsection 9.1(a), commencing with the annual financial statements
required to be delivered in 1997, the Parent will furnish or cause to be
furnished to the Administrative Agent certificates of compliance, as follows:
(i) a certificate signed by the principal financial
officer of the Parent and the principal financial
officer of the Company in the form of Exhibit E; and
(ii) a certificate from the independent public accountants
stating that their audit has not disclosed the
existence of any condition which constitutes a
Default, or if their audit has disclosed the existence
of any such condition, specifying the nature and
period of existence.
(b) Concurrently with the furnishing of the quarterly financial
statements pursuant to Subsection 9.1(b), the Parent will furnish to the
Administrative Agent a certificate signed by the principal financial officer of
the Parent and the principal financial officer of the Company in the form of
Exhibit E.
(c) Concurrently with the delivery of any Borrowing Base Certificate
under the U.S. Facility, the Parent will furnish to the Administrative Agent and
the Paying Agent a true, correct and complete copy thereof.
<PAGE>
(d) Concurrently with the furnishing of any Engineering Report or
Parent Report, the Company will furnish to the Administrative Agent a
certificate signed by an appropriate officer of the Parent and any other
applicable Relevant Party in the form of Exhibit G.
9.3 Taxes and Other Liens. The Parent will and will cause each
Subsidiary of the Parent to pay and discharge promptly all taxes, assessments
and governmental charges or levies imposed upon the Parent or such Subsidiary,
or upon the income or any property of the Parent or such Subsidiary, as well as
all claims of any kind (including claims for labor, materials, supplies, rent
and payment of proceeds attributable to Hydrocarbon production) which, if
unpaid, might result in or become a Lien upon any or all of the property of the
Parent or such Subsidiary; provided, however, that neither the Parent nor such
Subsidiary will be required to pay any such tax, assessment, charge, levy or
claims if the amount, applicability or validity thereof will currently be
contested in good faith by appropriate proceedings diligently conducted and if
the Parent or such Subsidiary will have set up reserves therefor adequate under
GAAP.
9.4 Maintenance. Except as referred to in Sections 8.1 and 8.13 and
except as permitted under Section 10.5, the Parent will and will cause each
Subsidiary of the Parent to: (i) maintain its corporate existence; (ii) maintain
its rights and franchises, except for any mergers or consolidations otherwise
permitted by this Agreement and except to the extent failure to so maintain the
same would not have a Material Adverse Effect; (iii) observe and comply (to the
extent that any failure would have a Material Adverse Effect) with all valid
Legal Requirements (including without limitation Requirements of Environmental
Law); and (iv) maintain (except to the extent failure to so maintain the same
would not have a Material Adverse Effect) its properties (and any properties
leased by or consigned to it or held under title retention or conditional sales
contracts) consistent with the standards of a reasonably prudent operator at all
times and make all repairs, replacements, additions, betterments and
improvements to its properties consistent with the standards of a reasonably
prudent operator.
9.5 Further Assurances. The Parent will and will cause each Subsidiary
of the Parent to cure promptly any defects in the creation and issuance of the
Notes and the execution and delivery of the Loan Documents, including this
Agreement. The Parent at its expense will promptly execute and deliver to the
Administrative Agent upon request all such other and further documents,
agreements and instruments (or cause any of its Subsidiaries to take such
action) in compliance with or accomplishment of the covenants and agreements of
the Parent or any of its Subsidiaries in the Loan Documents, including this
Agreement, or to correct any omissions in the Loan Documents, or to make any
recordings, to file any notices, or obtain any consents, all as may be necessary
or appropriate in connection therewith.
9.6 Performance of Obligations. The Company will pay the Notes
according to the reading, tenor and effect thereof; and the Company will do and
perform every act and discharge all of the obligations provided to be performed
<PAGE>
and discharged by the Company under this Agreement and the other Loan Documents
at the time or times and in the manner specified, and cause each of its
Subsidiaries to take such action with respect to their obligations to be
performed and discharged under the Loan Documents to which they respectively are
parties.
9.7 Reimbursement of Expenses. Whether or not any Loan is ever made or
any Letter of Credit is ever issued, the Company agrees to pay or reimburse the
Administrative Agent for paying the reasonable fees and expenses of Liddell,
Sapp, Zivley, Hill & LaBoon, L.L.P., special counsel to the Administrative
Agent, together with the reasonable fees and expenses of local counsel engaged
by the Administrative Agent, in connection with the negotiation of the terms and
structure of the Obligations, the preparation, execution and delivery of this
Agreement and the other Loan Documents and the making of the Loans and the
issuance of Letters of Credit hereunder, as well as any modification, supplement
or waiver of any of the terms of this Agreement and the other Loan Documents.
The Company will promptly upon request and in any event within 30 days from the
date of receipt by the Company of a copy of a bill for such amounts, reimburse
any Bank or any Agent for all amounts reasonably expended, advanced or incurred
by such Bank or such Agent to satisfy any obligation of the Company or any other
Relevant Party under this Agreement or any other Loan Document, to protect the
properties or business of the Parent or any Subsidiary of the Parent, to collect
the Obligations, or to enforce the rights of such Bank or such Agent under this
Agreement or any other Loan Document, which amounts will include without
limitation all court costs, attorneys' fees (but not including allocated costs
of in-house counsel), any engineering fees and expenses, fees of auditors,
accountants and appraisers, investigation expenses, all transfer, stamp,
documentary or similar taxes, assessments or charges levied by any governmental
or revenue authority in respect of any of the Loan Documents or any other
document referred to therein, all costs, expenses, taxes, assessments and other
charges incurred in connection with any filing, registration, recording or
perfection of any Lien contemplated by any of the Loan Documents or any document
referred to therein, fees and expenses incurred in connection with such Bank's
participation as a member of a creditors' committee in a case commenced under
the Bankruptcy Code or other similar law of the United States or any state
thereof or of Canada or any province thereof, fees and expenses incurred in
connection with lifting the automatic stay prescribed in ss.362 Title 11 of the
United States Code or in connection with any similar proceeding under the laws
of Canada or any province thereof, and fees and expenses incurred in connection
with any action pursuant to ss.1129 Title 11 of the United States Code or in
connection with any similar proceeding under the laws of Canada or any province
thereof, and all other customary out-of-pocket expenses incurred by such Bank or
such Agent in connection with such matters, together with interest after the
expiration of the 30-day period stated above in this Section if no Event of
Default has occurred and is continuing, or from the date of the request to the
Company if an Event of Default has occurred and is continuing, at either (i) the
Post-Default Rate on each such amount until the date of reimbursement to such
Bank or such Agent, or (ii) if no Event of Default will have occurred and be
continuing, the Alternate Base Rate plus the highest Applicable Margin for
Alternate Base Rate Loans (not to exceed the Highest Lawful Rate) on each such
amount until the date of the Company's receipt of written demand or request by
<PAGE>
such Bank or such Agent for the reimbursement of same, and thereafter at the
applicable Post-Default Rate until the date of reimbursement to such Bank or
such Agent. The obligations of the Company under this Section are compensatory
in nature, shall be deemed liquidated as to amount upon receipt by the Company
of a copy of any invoice therefor, and will survive the non-assumption of this
Agreement in a case commenced under the Bankruptcy Code or other similar law of
the United States or any state thereof or of Canada or any province thereof, and
will remain binding on the Company and any trustee, receiver, or liquidator of
the Company appointed in any such case.
9.8 Insurance. The Parent and its Subsidiaries will maintain, with
financially sound and reputable insurers, insurance with respect to their
respective properties and business against such liabilities, casualties, risks
and contingencies and in such types and amounts as is customary in the case of
corporations engaged in the same or similar businesses and similarly situated.
Upon the request of the Administrative Agent acting at the instruction of the
Majority Banks, the Parent will furnish or cause to be furnished to the
Administrative Agent from time to time a summary of the insurance coverage of
the Parent and its Subsidiaries in form and substance satisfactory to the
Majority Banks in their reasonable judgment, and if requested will furnish the
Administrative Agent copies of the applicable policies. Subject to the terms of
Section 3 hereof, in the case of any fire, accident or other casualty causing
loss or damage to any properties of the Parent or any of its Subsidiaries, the
proceeds of such policies will be used (i) to repair or replace the damaged
property or (ii) to prepay the Obligations, at the election of the Company.
9.9 Accounts and Records. The Parent will keep and will cause each
Subsidiary of the Parent to keep books of record and account which fairly
reflect all dealings or transactions in relation to their respective businesses
and activities, in accordance with GAAP, which books of record and account will
be maintained, to the extent necessary to enable compliance with all provisions
of this Agreement, separately for each such Subsidiary, the Parent and any
division of the Parent.
9.10 Rights of Inspection. The Parent will permit and will cause each
of its Subsidiaries to permit any officer, employee, or agent of any Agent or
any Bank to meet with the consultants who prepared any applicable Engineering
Report and to review such Engineering Report with such consultants and to visit
and inspect any of the properties of the Parent or such Subsidiary, examine the
Parent's or such Subsidiary's books of record and accounts, take copies and
extracts therefrom, and discuss the affairs, finances and accounts of the Bank
or such Subsidiary with the Parent's or such Subsidiary's officers, accountants
and auditors, all at such reasonable times during normal business hours and as
often as such Agent or such Bank may reasonably desire, and will assist in all
such matters.
9.11 Notice of Certain Events. The Parent will promptly notify the
Administrative Agent (and the Administrative Agent will then notify all of the
<PAGE>
Banks) if a Responsible Officer of the Parent learns of the occurrence of, or if
the Parent causes or intends to cause, as the case may be:
(i) any event which constitutes a Default, together with a detailed
statement by a responsible officer of the Parent of the steps being taken to
cure the effect of such Default; or
(ii) the receipt of any notice from, or the taking of any other action
by, the holder of any promissory note, debenture or other evidence of
indebtedness of the Parent or any Subsidiary of the Parent or of any security
(as defined in the Securities Act of 1933, as amended) of the Parent or any
Subsidiary of the Parent with respect to a claimed default, together with a
detailed statement by a Responsible Officer of the Parent specifying the notice
given or other action taken by such holder and the nature of the claimed default
and what action the Parent or such Subsidiary is taking or proposes to take with
respect thereto; or
(iii) any legal, judicial or regulatory proceedings affecting the
Parent or any Subsidiary of the Parent or any of the properties of the Parent or
any Subsidiary of the Parent in which the amount involved is materially adverse
to the Parent and its Subsidiaries taken as a whole, and is not covered by
insurance or which, if adversely determined, would have a Material Adverse
Effect; or
(iv) any dispute between the Parent or any Subsidiary of the Parent and
any Governmental Authority or any other Person which, if adversely determined,
could reasonably be expected to have a Material Adverse Effect; or
(v) the occurrence of a default or event of default by the Parent or
any Subsidiary of the Parent under any other agreement to which it is a party,
which default or event of default could reasonably be expected to have a
Material Adverse Effect; or
(vi) any change in the accuracy of the representations and warranties
of the Parent or any Subsidiary contained in this Agreement or any other Loan
Document; or
(vii) any material violation or alleged material violation of any
Requirements of Environmental Law or Environmental Permit or any Environmental
Claim or any Environmental Liability; or
(viii) any tariff and rate cases and other material reports filed by
the Parent or any of its Subsidiaries with any Governmental Authority and any
notice to the Parent or any of its Subsidiaries from any Governmental Authority
concerning noncompliance with any applicable Legal Requirement; or
(ix) the existence of any Borrowing Base Deficiency; or
<PAGE>
(x) within 10 days after the date on which a Responsible Officer of the
Parent has actual knowledge thereof, the receipt of any notice by the Parent or
any of its Subsidiaries of any claim of nonpayment of, or any attempt to collect
or enforce, accounts payable of the Parent or any of its Subsidiaries exceeding,
in the case of any one account payable at one time outstanding, U.S. $1,000,000
and in the case of all accounts payable in the aggregate at any one time
outstanding, U.S. $3,000,000; or
(xi) any requirement for the payment of all or any portion of any
Indebtedness of the Parent or any of its Subsidiaries prior to the stated
maturity thereof (whether by acceleration or otherwise) or as the result of any
failure to maintain or the reaching of any threshold amount provided in any
promissory note, bond, debenture, or other evidence of Indebtedness or under any
credit agreement, loan agreement, indenture or similar agreement executed in
connection with any of the foregoing; or
(xii) any notice from the Securities and Exchange Commission with
respect to any Application (as defined in Section 8.18 hereof).
9.12 ERISA Information and Compliance. The Parent will promptly furnish
to the Administrative Agent (i) immediately upon receipt, a copy of any notice
of complete or partial withdrawal liability under Title IV of ERISA and any
notice from the PBGC under Title IV of ERISA of an intent to terminate or
appoint a trustee to administer any Plan, (ii) if requested by the
Administrative Agent, acting on the instruction of the Majority Banks, promptly
after the filing thereof with the United States Secretary of Labor or the PBGC
or the Internal Revenue Service, copies of each annual and other report with
respect to each Plan or any trust created thereunder, (iii) immediately upon
becoming aware of the occurrence of any "reportable event", as such term is
defined in Section 4043 of ERISA, for which the disclosure requirements of
Regulation Section 2615.3 promulgated by the PBGC have not been waived, or of
any "prohibited transaction", as such term is defined in Section 4975 of the
Code, in connection with any Plan or any trust created thereunder, a written
notice signed by the President or the principal financial officer of the Parent
or the applicable ERISA Affiliate specifying the nature thereof, what action the
Parent or the applicable ERISA Affiliate is taking or proposes to take with
respect thereto, and, when known, any action taken by the PBGC, the Internal
Revenue Service or the Department of Labor with respect thereto, (iv) promptly
after the filing or receiving thereof by the Parent or any ERISA Affiliate of
any notice of the institution of any proceedings or other actions which may
result in the termination of any Plan, and (v) each request for waiver of the
funding standards or extension of the amortization periods required by Sections
303 and 304 of ERISA or Section 412 of the Code promptly after the request is
submitted by the Parent or any ERISA Affiliate to the Secretary of the Treasury,
the Department of Labor or the Internal Revenue Service, as the case may be. To
the extent required under applicable statutory funding requirements, the Parent
will fund, or will cause each ERISA Affiliate to fund, all current service
pension liabilities as they are incurred under the provisions of all Plans from
time to time in effect, and comply with all applicable provisions of ERISA,
<PAGE>
except to the extent that any such failure to comply could not reasonably be
expected to have a Material Adverse Effect. The Parent covenants that it shall
and shall cause each ERISA Affiliate to (1) make contributions to each Plan in a
timely manner and in an amount sufficient to comply with the contribution
obligations under such Plan and the minimum funding standards requirements of
ERISA; (2) prepare and file in a timely manner all notices and reports required
under the terms of ERISA including but not limited to annual reports; and (3)
pay in a timely manner all required PBGC premiums, in each case, to the extent
failure to do so would have a Material Adverse Effect.
Section 10. Negative Covenants. A deviation from the provisions of this
Section 10 will not constitute a Default under this Agreement if such deviation
is consented to in writing by the Majority Banks. The Company (or, where
applicable, the Parent) agrees with the Banks and the Agents that, so long as
any of the Commitments is in effect and until payment in full of all Loans
hereunder, the payment in full of the full face amount of all outstanding
Bankers' Acceptances, the termination or expiry of all Letters of Credit and
payment in full of Letter of Credit Liabilities, all interest thereon and all
amounts payable by the Company hereunder:
10.1 Debts, Guarantees and Other Obligations. The Parent will not and
will not permit any of its Subsidiaries (other than APC) to incur, create,
assume or in any manner become or be liable in respect of any Indebtedness
(including obligations for the payment of rentals); and the Parent will not and
will not permit any of its Subsidiaries (other than APC) to Guarantee or
otherwise in any way become or be responsible for obligations of any other
Person, whether by agreement to purchase the Indebtedness of any other Person or
agreement for the furnishing of funds to any other Person through the purchase
or lease of goods, supplies or services (or by way of stock purchase, capital
contribution, advance or loan) for the purpose of paying or discharging the
Indebtedness of any other Person, or otherwise, except that the foregoing
restrictions will not apply to:
(a) the Notes, the Bankers' Acceptances or other Indebtedness under the
Loan Documents;
(b) liabilities, direct or contingent, of the Parent or any Subsidiary
of the Parent existing on the date of this Agreement which are reflected in the
Financial Statements or the Disclosure Statement and all renewals, extensions,
refinancings and rearrangements, but not increases, thereof;
(c) endorsements of negotiable or similar instruments for collection or
deposit in the ordinary course of business;
(d) trade payables, lease acquisition and lease maintenance
obligations, extensions of credit from suppliers or contractors, liabilities
incurred in exploration, development and operation of the Parent's or any of its
Subsidiaries' oil
<PAGE>
and gas properties or similar obligations from time to time incurred in the
ordinary course of business, other than for borrowed money, which are paid
within 90 days after the invoice date (inclusive of applicable grace periods) or
(i) are being contested in good faith, if such reserve as required by GAAP has
been made therefor or (ii) trade accounts payable of the Parent and its
Subsidiaries (with respect to which no legal proceeding to enforce collection
has been commenced or, to the knowledge of a Responsible Officer of the Parent,
threatened) not exceeding, in the aggregate at any time outstanding, U.S.
$25,000,000;
(e) taxes, assessments or other government charges which are not yet
due or are being contested in good faith by appropriate action promptly
initiated and diligently conducted, if such reserve as will be required by GAAP
will have been made therefor;
(f) Borrowing Base Debt of the Parent; provided that the aggregate of
all Indebtedness permitted under this Subsection 10.1(f) shall not exceed the
amount by which the then current Borrowing Base exceeds the then current
"Revolving Credit Obligations" under the U.S. Facility;
(g) to the extent, if any, not covered by Subsection (b) hereinabove,
the Indebtedness of the Parent to APC evidenced solely by the Intercompany
Notes, as defined in the Beluga Financing Documents and the APC Long Term
Financing Documents, together with any renewals, extensions, amendments,
refinancings, rearrangements, modifications, restatements or supplements, but
not increases (other than increases which are permitted under the present terms
of the Beluga Financing Documents and the APC Long Term Financing Documents)
thereof from time to time;
(h) intercompany Indebtedness owed to the Parent by any Subsidiary of
the Parent and intercompany Indebtedness owed to any Subsidiary of the Parent by
the Parent or any other Subsidiary of the Parent which is fully subordinated to
the Obligations;
(i) loans, advances or extensions of credit to the Parent for the
purpose of financing no more than 75% of the purchase price of any fixed assets
which are not included in the property taken into account in determining the
Borrowing Base and which are considered in the categories of property, plant or
equipment according to GAAP applied on a consistent basis;
(j) obligations of the Parent under the Gas Sales Contract, together
with any renewals, extensions, amendments, refinancings, rearrangements,
modifications, restatements or supplements, but not increases, thereof from time
to time;
(k) the Guarantee by the Parent or any Subsidiary of the Parent of
payment or performance by any Subsidiary of the Parent under any agreement so
long as the obligation guaranteed does not constitute Indebtedness for borrowed
money;
<PAGE>
(l) obligations of the Parent and Wacker Oil Inc. pursuant to that
certain Agreement Regarding Contingent Payments For Well No. 3 and Well No. 9
dated as of June 18, 1990, by and among Costain Holdings Inc., Wacker Oil Inc.
and the Parent;
(m) obligations of the Parent or any of its Subsidiaries under gas
purchase contracts for gas not taken, as to which the Parent or its respective
Subsidiary is liable to pay if not made up;
(n) obligations of the Parent or any of its Subsidiaries under any
contract for sale for future delivery of oil or gas (whether or not the subject
oil or gas is to be delivered), hedging contract, forward contract, swap
agreement, futures contract or other similar agreement;
(o) obligations of the Parent or any of its Subsidiaries under any
interest rate swap agreement, or any contract implementing any interest rate
cap, collar or floor, or any similar interest hedging contract;
(p) obligations in connection with gas imbalances arising in the
ordinary course of business;
(q) Indebtedness not exceeding U.S. $1,000,000 in the aggregate
borrowed from the Amarillo Economic Development Commission and related
Guarantees and related obligations of the Parent and its Subsidiaries;
(r) liabilities under leases and lease agreements which do not cover
oil and gas properties to the extent the incurrence and existence of such
liabilities will still enable the Parent and each Subsidiary to comply with all
other requirements of this Agreement and the other Loan Documents to which they
respectively are parties;
(s) Subordinated Debt;
(t) Funded Indebtedness of any Oil and Gas Subsidiary for borrowed
money payable solely by recourse to properties not included in the Borrowing
Base and Indebtedness incurred by any Gas and Liquids Pipeline Subsidiary in
connection with the construction or acquisition of new assets in connection with
the Pipeline Operations (as defined in the U.S. Facility, without amendment
except as permitted under the Intercreditor Agreement) which is payable solely
by recourse to the assets so constructed or acquired, each to the extent not
otherwise expressly permitted by this Section 10.1;
(u) the note payable which is to be assumed by the Company in
connection with the consummation of the Novalta Contract and is to be fully paid
and satisfied out of the initial proceeds available under this Agreement from
the making of Loans or the acceptance and purchase of Bankers' Acceptances; and
<PAGE>
(v) the U.S. Facility;
(w) Indebtedness of the Company having a maturity of 364 days or less
from the date of its incurrence in an aggregate principal amount not exceeding
Canadian $10,000,000 at any one time outstanding.
10.2 Liens. The Parent will not and will not permit any of its
Subsidiaries to create, incur, assume or permit to exist any Lien on any of its
or their properties (now owned or hereafter acquired), except:
(a) Liens securing the Indebtedness described in Subsection 10.1(a) or
10.1(v);
(b) Liens for taxes, assessments or other governmental charges or
levies not yet due or which are being contested in good faith by appropriate
action promptly initiated and diligently conducted, if such reserve as will be
required by GAAP will have been made therefor;
(c) Liens of landlords, vendors, contractors, subcontractors, carriers,
warehousemen, mechanics, laborers or materialmen or other like Liens arising by
law in the ordinary course of business for sums not yet due or being contested
in good faith by appropriate action promptly initiated and diligently conducted,
if such reserve as will be required by GAAP will have been made therefor;
(d) Liens existing on property owned by the Parent or any of its
Subsidiaries on the date of this Agreement which have been disclosed to the
Banks in the Disclosure Statement, together with any renewals, extensions,
amendments, refinancings, rearrangements, modifications, restatements or
supplements, but not increases, thereof from time to time;
(e) pledges or deposits made in the ordinary course of business in
connection with worker's compensation, unemployment insurance, social security
and other like laws;
(f) inchoate liens arising under ERISA to secure the contingent
liability of the Parent permitted by Section 9.12;
(g) Liens in the ordinary course of business, not to exceed in the
aggregate U.S. $10,000,000 as to the Parent and its Subsidiaries at any time in
effect, regarding (i) the performance of bids, tenders, contracts (other than
for the repayment of borrowed money or the deferred purchase price of property
or services) or leases, (ii) statutory obligations, (iii) surety appeal bonds or
(iv) Liens to secure progress or partial payments made to the Parent or any of
its Subsidiaries and other Liens of like nature;
<PAGE>
(h) covenants, restrictions, easements, servitudes, permits,
conditions, exceptions, reservations, minor rights, minor encumbrances, minor
irregularities in title or conventional rights of reassignment prior to
abandonment which do not materially interfere with the occupation, use and
enjoyment by the Parent or any Subsidiary of the Parent of its respective assets
in the normal course of business as presently conducted, or materially impair
the value thereof for the purpose of such business;
(i) Liens of operators under joint operating agreements or similar
contractual arrangements with respect to the relevant entity's proportionate
share of the expense of exploration, development and operation of oil, gas and
mineral leasehold or fee interests owned jointly with others, to the extent that
same relate to sums not yet due or which are being contested in good faith by
appropriate action promptly initiated and diligently conducted, if such reserve
as will be required by GAAP will have been made therefor;
(j) Liens created pursuant to the creation of trusts or other
arrangements funded solely with cash, cash equivalents or other marketable
investments or securities of the type customarily subject to such arrangements
in customary financial practice with respect to long-term or medium-term
indebtedness for borrowed money, the sole purpose of which is to make provision
for the retirement or defeasance, without prepayment, of Indebtedness permitted
under Section 10.1;
(k) Liens on the assets or properties of ENSTAR Alaska;
(l) the Vendor Financing Arrangements (as defined in the Mesa
Contract), to the extent that the same shall have been deducted in calculating
the Borrowing Base;
(m) purchase money Liens for the acquisition of fixed assets pursuant
to Subsection 10.1(i), so long as such Liens exist solely against the relevant
fixed asset acquired and secure only the purchase money debt; provided, that the
aggregate amount of Indebtedness which is secured by Liens described in this
subsection (other than Indebtedness which is payable solely by recourse to the
applicable property) shall not exceed U.S. $10,000,000 at any one time
outstanding;
(n) any Lien existing on any real or personal property of any
corporation or partnership at the time it becomes a Subsidiary of the Parent or
of any other Subsidiary of the Parent, or existing prior to the time of
acquisition upon any real or personal property acquired by the Parent or any of
its Subsidiaries; provided, that such Liens may at all times be deducted in
calculating the Borrowing Base from time to time in effect;
(o) legal or equitable encumbrances deemed to exist by reason of the
existence of any litigation or other legal proceeding or arising out of a
judgment or award with respect to which
<PAGE>
an appeal is being prosecuted in good faith by appropriate action promptly
initiated and diligently conducted, if such reserve as will be required by GAAP
will have been made therefor;
(p) any Liens securing Indebtedness neither assumed nor guaranteed by
the Parent or any of its Subsidiaries nor on which it customarily pays interest,
existing upon real estate or rights in or relating to real estate acquired by
the Parent or any of its Subsidiaries for substation, metering station, pump
station, storage, gathering line, transmission line, transportation line,
distribution line or right-of-way purposes, and any Liens reserved in leases for
rent and full compliance with the terms of the leases in the case of leasehold
estates, to the extent that any such Lien referred to in this clause arises in
the normal course of business as presently conducted and does not materially
impair the use of the property covered by such Lien for the purposes for which
such property is held by the Parent or its applicable Subsidiary;
(q) rights reserved to or vested in any municipality or governmental,
statutory or public authority by the terms of any right, power, franchise,
grant, license or permit, or by any provision of law, to terminate such right,
power, franchise, grant, license or permit or to purchase, condemn, expropriate
or recapture or to designate a purchaser of any of the property of the Parent or
any of its Subsidiaries;
(r) rights reserved to or vested in any municipality or governmental,
statutory or public authority to control or regulate any property of the Parent
or any of its Subsidiaries, or to use such property in a manner which does not
materially impair the use of such property for the purposes for which it is held
by the Parent or its applicable Subsidiary;
(s) any obligations or duties affecting the property of the Parent or
any of its Subsidiaries to any municipality, governmental, statutory or public
authority with respect to any franchise, grant, license or permit;
(t) rights of a common owner of any interest in real estate,
rights-of-way or easements held by the Parent or any of its Subsidiaries and
such common owner as tenants in common or through other common ownership;
(u) any Liens arising from the matters described in Schedule 3.19 of
the Mesa Contract;
(v) Liens securing Indebtedness permitted under Section 10.1(t) hereof
(to the extent such Liens are permitted under such Section 10.1(t));
(w) reservations, limitations, provisos and conditions in any original
grant from the Crown or freehold lessor of any of the properties of the Company
or its Subsidiaries;
<PAGE>
(x) other Liens securing Indebtedness not exceeding, in the aggregate,
U.S. $3,000,000 at any one time outstanding;
(y) other Liens securing Senior Debt, but only so long as such Liens
shall also secure the Obligations on a pari passu basis, in a manner and
pursuant to documentation acceptable to the Majority Banks;
(z) Liens (i) granted to or existing in favor of third parties on
margin accounts of the Parent or any of its Subsidiaries relating to exchange
traded contracts for the delivery of natural gas pursuant to which the Parent or
any such Subsidiary intends to take actual delivery of such natural gas within
forty (40) days from the then current date in the ordinary course of business
and not for speculative purposes, and (ii) on margin accounts of the Parent or
any of its Subsidiaries relating to exchange traded contracts for the delivery
of natural gas, provided, however, the aggregate balance of the margin accounts
subject to the Liens permitted by this clause (ii) shall not exceed from time to
time $10,000,000.
10.3 Investments, Loans and Advances. The Parent will not and will not
permit its Subsidiaries to make or permit to remain outstanding any advances,
loans or other extensions of credit or capital contributions (other than prepaid
expenses in the ordinary course of business) to (by means of transfers of
property or assets or otherwise), or purchase or own any stocks, bonds, notes,
debentures or other securities of, or incur contingent liability with respect to
(except for the endorsement of checks in the ordinary course of business and
except for the Indebtedness and Liens permitted under this Agreement) any Person
(all such transactions being herein called "Investments"), except that the
foregoing restriction will not apply to:
(a) Investments (all prior to the date hereof) the material details of
which have been set forth in the Financial Statements delivered to the
Administrative Agent prior to the date hereof or the Disclosure Statement;
(b) Liquid Investments;
(c) advances or extensions of credit in the form of accounts receivable
incurred in the ordinary course of business;
(d) the acquisition of all of the capital stock of wholly owned
Subsidiaries incorporated or acquired subsequent to the date of this Agreement;
(e) investments where the consideration paid is capital stock of the
Parent, plus cash paid in lieu of issuing fractional shares and cash paid in
settlement of claims of dissenters, such cash not to exceed 10% of the aggregate
purchase price in any such transaction;
<PAGE>
(f) Investments in any Person which after giving effect thereto will be
a Subsidiary of the Parent, so long as the Investment in such Person, when
consummated, would not result in a breach of the covenants set forth in Section
10.1;
(g) intercompany loans, advances or investments by the Parent to or in
any Subsidiary of the Parent (other than a Subsidiary that is obligated to pay
Funded Indebtedness for borrowed money payable solely by recourse to properties
not included in the Borrowing Base) or, to the extent permitted under Section
10.1(h) hereof, by any Subsidiary of the Parent to or in the Parent or to or in
any other Subsidiary of the Parent, provided, however, that APC may not make any
intercompany loans, advances or investments in any Subsidiary of the Parent
pursuant to this clause (g);
(h) intercompany loans, advances or investments by the Parent, solely
from income or cash flow of the Parent subject to the Beluga Financing
Documents, to APC as required under the Beluga Financing Documents and the APC
Long Term Financing Documents;
(i) to the extent, if any, not covered by Subsection (a) hereinabove,
the Indebtedness of the Parent to APC evidenced solely by the Intercompany
Notes, as defined in the Beluga Financing Documents and the APC Long Term
Financing Documents, together with any renewals, extensions, amendments,
refinancings, rearrangements, modifications, restatements or supplements, but
not increases (other than increases which are permitted under the present terms
of the Beluga Financing Documents and the APC Long Term Financing Documents)
thereof from time to time;
(j) loans or advances to employees made in the ordinary course of
business, up to the aggregate principal amount at any one time outstanding of
U.S. $5,000,000;
(k) Investments in reasonable amounts of securities for purposes of
funding employee benefit plans maintained by the Parent;
(l) advances or extensions of credit made in the ordinary course of
business to third parties under applicable contracts and agreements in
connection with (i) oil, gas or other mineral exploration, development and
production activities or (ii) Hydrocarbon or chemical pipeline gathering or
transportation activities;
(m) Investments where the consideration paid is assets of the Parent or
its Subsidiaries other than capital stock, cash or oil and gas reserves;
(n) Investments in EBOC Energy Ltd. made in connection with and
pursuant to the Novalta Contract;
<PAGE>
(o) any payment, prepayment, purchase or retirement of Indebtedness of
the Parent (other than payments, prepayments, purchases or retirement of
Subordinated Debt prohibited under the definition of "Subordinated Debt"); and
(p) any other Investments which in the aggregate do not cause the
Parent to be in violation of the Investments Tests.
10.4 Dividend Payment Restrictions. The Parent will not declare or make
any Dividend Payment if any Default or Event of Default has occurred and is
continuing or if there exists any Borrowing Base Deficiency.
10.5 Mergers, Amalgamations and Sales of Assets. The Parent will not
(a) merge, amalgamate or consolidate with, or sell, assign, lease or otherwise
dispose of, whether in one transaction or in a series of transactions, more than
ten percent (10%) in the aggregate of the Parent's and its Subsidiaries'
consolidated total assets (whether now owned or hereafter acquired) to any
Person or Persons during the period since the most recent "Borrowing Base
Determination" (as defined in the U.S. Facility, without amendment except as
permitted under the Intercreditor Agreement), or permit any Subsidiary of the
Parent to do so (other than to the Parent or another Subsidiary of the Parent or
the issuance by any Subsidiary of the Parent of any stock to the Parent or
another Subsidiary of the Parent), or (b) sell, assign, lease or otherwise
dispose of, whether in one transaction or in a series of transactions, any other
properties if receiving therefor consideration other than cash or other
consideration readily convertible to cash or which is less than the fair market
value of the relevant properties, or permit any Subsidiary of the Parent to do
so; provided that the Parent or any Subsidiary of the Parent may merge,
amalgamate or consolidate with any other Person and any Subsidiary of the Parent
may transfer properties to any other Subsidiary of the Parent or to the Parent
so long as, in each case, (i) immediately thereafter and giving effect thereto,
no event will occur and be continuing which constitutes a Default, (ii) in the
case of any such merger, amalgamation or consolidation to which the Parent is a
party, the Parent is the surviving Person, (iii) in the case of any such merger,
amalgamation or consolidation to which any Subsidiary of the Parent is a party
(but not the Parent), after giving effect to all transactions closing
concurrently relating to such merger or consolidation, the surviving Person is a
Subsidiary of the Parent and (iv) the surviving Person ratifies each applicable
Loan Document and provided further that any Subsidiary of the Parent may merge
or consolidate with any other Subsidiary of the Parent so long as, in each case
(i) immediately thereafter and giving effect thereto, no event will occur and be
continuing which constitutes a Default and (ii) the surviving Person ratifies
each applicable Loan Document.
<PAGE>
10.6 Use of Proceeds. The Company will not permit the proceeds of the
Loans or the Canadian Bankers' Acceptance Discount Proceeds to be used for any
purpose other than those permitted by this Agreement.
10.7 ERISA Compliance. The Parent will not at any time permit any Plan
maintained by it or any Subsidiary of the Parent to:
(a) engage in any "prohibited transaction" as such term is defined in
Section 4975 of the Code;
(b) incur any "accumulated funding deficiency" as such term is defined
in Section 302 of ERISA; or
(c) terminate or be terminated in a manner which could result in the
imposition of a Lien on the property of the Parent or any Subsidiary of the
Parent pursuant to Section 4068 of ERISA, in each case, to the extent that
permitting the Plan to do so would have a Material Adverse Effect.
10.8 Amendment of Certain Documents. The Parent will not amend, modify
or obtain or grant a waiver of (except for waivers only of cross-defaults
created by a Default under this Agreement), or allow APC to enter into any
amendment or modification or obtain or grant any waiver of (except for waivers
only of cross-defaults created by a Default under this Agreement), any provision
of those documents relating to or constituting the Beluga Financing Documents or
the APC Long Term Financing Documents, without prior written notification to the
Administrative Agent.
10.9 Tangible Net Worth. The Parent will not permit the Tangible Net
Worth of the Parent and its Subsidiaries, on a consolidated basis, at any time
to be less than U.S. $465,000,000 plus 50% of net income of the Parent and its
Subsidiaries on a consolidated basis, if positive, beginning with the fiscal
year ended December 31, 1997 and calculated annually thereafter based upon
positive net income of the Parent and its Subsidiaries for each applicable
fiscal year taken cumulatively.
10.10 Parent Debt/Capitalization Ratio. The Parent will not permit the
Debt/Capitalization Ratio to be, at any time, more than 65%.
10.11 EBITDAX/Interest Ratio. The Parent will not permit the
EBITDAX/Interest Ratio to be, at any time, less than
<PAGE>
(a) 3.00:1.00 for any twelve month period ending on the last
day of any calendar quarter for the period from the date
hereof through and including March 31, 1997; and
(c) 3.50:1.00 for any twelve month period ending on the last day
of any calendar quarter thereafter.
10.12 Nature of Business. The Parent will not engage in, and will not
permit any Subsidiary of the Parent to engage in, businesses other than oil and
gas exploration and production, gas processing, transmission, distribution,
marketing and storage and gas and liquids pipeline operations and activities
related or ancillary thereto; provided, that if the Parent acquires one or more
Subsidiaries in transactions otherwise permitted by the terms hereof, any such
Subsidiary may be engaged in businesses other than those listed in this Section
so long as the assets of such Subsidiaries which are used in the conduct of such
other businesses do not constitute more than five percent (5%) of the
consolidated total assets of the Parent (inclusive of the assets of the
Subsidiary so acquired).
10.13 Futures Contracts. The Parent will not, and will not permit any
Subsidiary of the Parent to, enter into or be obligated under any contract for
sale for future delivery of oil or gas (whether or not the subject oil or gas is
to be delivered), hedging contract, forward contract, swap agreement, futures
contract or other similar agreement except for (i) such contracts (x) which fall
within the parameters set forth on Exhibit H hereto or are otherwise approved in
writing by the Majority Banks and (y) which in the aggregate do not cover at any
time a volume of oil and/or gas equal to or greater than 50% of the proved
producing reserves attributable to the oil and gas properties of the Parent and
its Subsidiaries, taken as a whole, as evidenced by the most current Engineering
and Parent Reports and (ii) production sales contracts entered into in the
ordinary course of the Parent's or the applicable Subsidiary's business.
10.14 Covenants in Other Agreements. The Parent will not and will not
permit any of its Subsidiaries to become a party to or to agree that it or any
of its property is bound by any agreement, indenture, mortgage, deed of trust or
any other instrument directly or indirectly
(i) restricting any loans, advances or any other Investments to or in
the Parent by any of its Subsidiaries;
(ii) restricting the ability of any Subsidiary of the Parent to make
tax payments or management fee payments;
<PAGE>
(iii) restricting the capitalization structure of any Subsidiary of the
Parent; or
(iv) restricting the ability or capacity of any Subsidiary of the
Parent to make Dividend Payments; provided, however, nothing in this Section
10.14 shall restrict the existence of negative covenants otherwise prohibited by
this Section in documentation evidencing or related to Indebtedness permitted by
Subsection 10.1(v) and, to the extent that the applicable Subsidiary does not
own any property included in the Borrowing Base, Subsections 10.1(n), (o) and
(p). Notwithstanding the foregoing, either of ENSTAR Alaska or APC may become a
party to, or grant a Lien in any of its property by way of, or agree that it
will be bound by, any indenture, mortgage, deed of trust or other instrument
containing provisions of the types described above in this Section 10.14 so long
as the terms and provisions thereof are not materially more restrictive than the
terms or provisions which were legally binding on ENSTAR Alaska or APC on the
date hereof.
Section 11. Defaults.
11.1 Events of Default. If one or more of the following events (herein
called "Events of Default") shall occur and be continuing:
(a) Payments - (i) the Company or any other Relevant Party fails to
make any payment or prepayment of any installment of principal on the Loans or
any Reimbursement Obligation payable under the Notes, this Agreement or the
other Loan Documents or the full face amount of any outstanding Bankers'
Acceptances when due or (ii) the Company or any other Relevant Party fails to
make any payment or prepayment of interest with respect to the Loans, any
Reimbursement Obligation or any other fee or amount under the Notes, the
Bankers' Acceptances, this Agreement or the other Loan Documents and such
failure to pay continues unremedied for a period of five (5) Business Days; or
(b) Representations and Warranties - any representation or warranty
made by the Company or any other Relevant Party in this Agreement or in any
other Loan Document or in any instrument executed in connection herewith or
therewith proves to have been incorrect in any material respect as of the date
thereof; or any representation, statement (including Financial Statements),
certificate or data furnished or made by the Company or any other Relevant Party
(or any officer of the Company or any other Relevant Party) under or in
connection with this Agreement or any other Loan Document, including without
limitation in the Disclosure Statement, proves to have been untrue in any
material respect, as of the date as of which the facts therein set forth were
stated or certified; or
(c) Affirmative Covenants - (i) default shall be made in the due
observance or performance of any of the covenants or agreements contained in
Sections 9.11 (or in Section 9.6 to
<PAGE>
the extent such default is considered an Event of Default under the other
Subsections of this Section 11.1) or (ii) default is made in the due observance
or performance of any of the other covenants or agreements contained in Section
9 of this Agreement or any other affirmative covenant of the Company or any
other Relevant Party contained in this Agreement or any other Loan Document and
such default continues unremedied for a period of 30 days after (x) notice
thereof is given by the Administrative Agent to the Company or (y) such default
otherwise becomes known to the Company, whichever is earlier; or
(d) Negative Covenants - (i) default shall be made in the observance or
performance of any of the covenants or agreements contained in Section 10.8 and
such default continues unremedied for a period of five (5) Business Days after
(x) notice thereof is given by the Administrative Agent to the Company or (y)
such default otherwise becomes known to the Parent, whichever is earlier, or
(ii) default is made in the due observance or performance by the Company or the
Parent, as the case may be, of any of the other covenants or agreements
contained in Section 10 of this Agreement or of any other negative covenant of
the Company or any other Relevant Party contained in this Agreement or any other
Loan Document; or
(e) Other Obligations - default is made in the due observance or
performance by the Parent or any of its Subsidiaries (as principal or guarantor
or other surety) of any of the covenants or agreements contained in any bond,
debenture, note or other evidence of Indebtedness in excess of U.S. $25,000,000
(singly or aggregating several such bonds, debentures, notes or other evidence
of Indebtedness) which default gives the holder the right to accelerate the
maturity of such Indebtedness, other than the Loan Documents, or under any
credit agreement, loan agreement, indenture, promissory note or similar
agreement or instrument executed in connection with any of the foregoing, to
which it (respectively) is a party and such default is unwaived or continues
unremedied beyond the expiration of any applicable grace period which may be
expressly allowed under such instrument or agreement; or
(f) Involuntary Bankruptcy or Receivership Proceedings - a receiver,
conservator, liquidator or trustee of the Parent or of any of its property is
appointed by the order or decree of any court or agency or supervisory authority
having jurisdiction, and such decree or order remains in effect for more than 60
days; or the Parent is adjudicated bankrupt or insolvent; or any of its property
is sequestered by court order and such order remains in effect for more than 60
days; or a petition is filed against the Parent under any provincial, state or
federal bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution, liquidation or receivership law of any jurisdiction, whether
now or hereafter in effect, and is not dismissed within 60 days after such
filing; or
(g) Voluntary Petitions or Consents - the Parent commences a voluntary
case or other proceeding seeking liquidation, reorganization, arrangement,
insolvency, readjustment of debt, dissolution, liquidation or other relief with
respect to itself or its debt or other liabilities under any bankruptcy,
<PAGE>
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or consents to any such
relief or to the appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it, or fails generally
to, or cannot, pay its debts generally as they become due or takes any corporate
action to authorize or effect any of the foregoing, or files a notice of
intention to make a proposal under the Bankruptcy Code; or
(h) Assignments for Benefit of Creditors or Admissions of Insolvency -
the Parent makes an assignment for the benefit of its creditors, or admits in
writing its inability to pay its debts generally as they become due, or consents
to the appointment of a receiver, trustee, or liquidator of the Parent or of all
or any part of its property; or
(i) Undischarged Judgments - judgments (individually or in the
aggregate) for the payment of money in excess of U.S. $10,000,000 is rendered by
any court or other governmental body against the Parent or any of its
Subsidiaries and the Parent or such Subsidiary does not discharge the same or
provide for its discharge in accordance with its terms, or procure a stay of
execution thereof within 60 days from the date of entry thereof, and within said
period of 60 days from the date of entry thereof or such longer period during
which execution of such judgment will have been stayed, the Parent or such
Subsidiary fails to appeal therefrom and cause the execution thereof to be
stayed during such appeal while providing such reserves therefor as may be
required under GAAP; or
(j) Subsidiary Defaults - any Subsidiary of the Parent takes, suffers,
or permits to exist any of the events or conditions referred to in Subsections
11.1(f), (g) or (h); or
(k) Change in Control - there should occur any Change of Control.
THEREUPON: the Administrative Agent may (and, if directed by the Majority Banks,
shall) (a) declare the Commitments terminated (whereupon the Commitments shall
be terminated) and/or (b) terminate any Letter of Credit providing for such
termination by sending a notice of termination as provided therein and/or (c)
declare the principal amount then outstanding of and the accrued interest on the
Loans and Reimbursement Obligations and all fees and all other amounts payable
hereunder and under the Notes to be forthwith due and payable and/or (d) declare
the full face amount of all outstanding Bankers' Acceptances to be forthwith due
and payable, whereupon such amounts shall be and become immediately due and
payable, without notice (including without limitation notice of acceleration and
notice of intent to accelerate), presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by the
Company; provided that in the case of the occurrence of an Event of Default with
respect to the Parent referred to in clause (f) or (g) of this Section 11.1 or
in clause (j) of this Section 11.1 to the extent it refers to clauses (f) or
(g), the Commitments shall be automatically terminated and the principal amount
<PAGE>
then outstanding of and the accrued interest on the Loans and Reimbursement
Obligations and all fees and all other amounts payable hereunder and under the
Notes and the full face amount of all outstanding Bankers' Acceptances shall
be and become automatically and immediately due and payable, without notice
(including but not limited to notice of intent to accelerate and notice of
acceleration) and without presentment, demand, protest or other formalities
of any kind, all of which are hereby expressly waived by the Company and/or (d)
exercise any and all other rights available to it under the Loan Documents,
at law or in equity.
11.2 Collateral Account. The Company hereby agrees, in addition to the
provisions of Section 11.1 hereof, that upon the occurrence and during the
continuance of any Event of Default, it shall, if requested by the
Administrative Agent or the Majority Banks (through the Administrative Agent),
pay to the Paying Agent an amount in immediately available funds equal to the
then aggregate amount available for drawings under all Letters of Credit issued
for the account of the Company, which funds shall be held by the Paying Agent as
Cover.
11.3 Preservation of Security for Unmatured Reimbursement Obligations.
In the event that, following (i) the occurrence of an Event of Default and the
exercise of any rights available to any Agent under the Loan Documents, and (ii)
payment in full of the principal amount then outstanding of and the accrued
interest on the Loans and Reimbursement Obligations and fees and all other
amounts payable hereunder and under the Notes and under the other Loan
Documents, and (iii) payment in full of the full face amount of all outstanding
Bankers' Acceptances, any Letters of Credit shall remain outstanding and undrawn
upon, the each Agent shall be entitled to hold (and the Company hereby grants
and conveys to each Agent a security interest in and to) all cash or other
property ("Proceeds of Remedies") realized or arising out of the exercise by
such Agent of any rights available to it under the Loan Documents, at law or in
equity, including, without limitation, the proceeds of any foreclosure, as
collateral for the payment of any amounts due or to become due under or in
respect of such Letters of Credit. Such Proceeds of Remedies shall be held for
the ratable benefit of the applicable Issuers. The rights, titles, benefits,
privileges, duties and obligations of each applicable Agent with respect thereto
shall be governed by the terms and provisions of this Agreement. The applicable
Agent may, but shall have no obligation to, invest any such Proceeds of Remedies
in such manner as such Agent, in the exercise of its sole discretion, deems
appropriate. Such Proceeds of Remedies shall be applied to Reimbursement
Obligations arising in respect of any such Letters of Credit and/or the payment
of any Issuer's obligations under any such Letter of Credit when such Letter of
Credit is drawn upon. The Company hereby agrees to execute and deliver to the
Administrative Agent and the Banks such security agreements, pledges or other
documents as the Administrative Agent or any of the Banks may, from time to
time, require to perfect the pledge, lien and security interest in and to any
such Proceeds of Remedies provided for in this Section 11.3.
11.4 Right of Setoff. Upon (i) the occurrence and during the
continuance of any Event of Default referred to in clauses (f), (g) or (h) of
Section 11.1, or in clause (j) of Section 11.1 to the extent it refers to
<PAGE>
clauses (f), (g) or (h), or upon (ii) the occurrence and continuance of any
other Event of Default and upon the making of the notice specified in Section
11.1 to authorize the Administrative Agent to declare the Notes and the full
face amount of all Bankers' Acceptances outstanding due and payable pursuant to
the provisions thereof, or if (iii) the Parent or any of its Subsidiaries
becomes insolvent, however evidenced, the Banks are hereby authorized at any
time and from time to time, without notice to the Parent or any of its
Subsidiaries (any such notice being expressly waived by the Parent and its
Subsidiaries), to setoff and apply any and all deposits (general or special,
time or demand, provisional or final, whether or not such setoff results in any
loss of interest or other penalty, and including without limitation all
certificates of deposit) at any time held, and any other funds or property at
any time held, and other Indebtedness at any time owing by any Bank to or for
the credit or the account of the Company against any and all of the Obligations
irrespective of whether or not such Bank will have made any demand under this
Agreement, any Bankers' Acceptances or the Notes and although such obligations
may be unmatured. Should the right of any Bank to realize funds in any manner
set forth hereinabove be challenged and any application of such funds be
reversed, whether by court order or otherwise, the Banks shall make restitution
or refund to the Company pro rata in accordance with their Commitments. The
Banks agree promptly to notify the Company and the Administrative Agent and the
Paying Agent after any such setoff and application, provided that the failure to
give such notice will not affect the validity of such setoff and application.
The rights of the Agents and the Banks under this Section are in addition to
other rights and remedies (including without limitation other rights of setoff)
which the Agents or the Banks may have.
Section 12. The Agents.
12.1 Appointment, Powers and Immunities. Each Bank hereby irrevocably
appoints and authorizes the Administrative Agent to act as arranger and
administrative agent hereunder and under the Letters of Credit and the other
Loan Documents with such powers as are specifically delegated to the
Administrative Agent by the terms hereof and thereof, together with such other
powers as are reasonably incidental thereto. Each Bank hereby irrevocably
appoints and authorizes the Paying Agent to act as co-agent and paying agent
hereunder and under the Bankers' Acceptances, the Letters of Credit and the
other Loan Documents with such powers as are specifically delegated to the
Paying Agent by the terms hereof and thereof, together with such other powers as
are reasonably incidental thereto. Each Bank hereby irrevocably appoints and
authorizes the Co-Agent to act as co-agent hereunder and under the Letters of
Credit and the other Loan Documents with such powers as are specifically
delegated to the Co-Agent by the terms hereof and thereof, together with such
other powers as are reasonably incidental thereto. None of the Agents (which
term as used in this Section 12 shall include reference to their affiliates and
their own and their affiliates' officers, directors, employees and agents) (a)
shall have any duties or responsibilities except those expressly set forth in
this Agreement, the Bankers' Acceptances, the Letters of Credit, and the other
Loan Documents, or shall by reason of this Agreement or any other Loan Document
be a trustee or fiduciary for any Bank; (b) shall be responsible to any Bank for
<PAGE>
any recitals, statements, representations or warranties contained in this
Agreement, the Bankers' Acceptances, the Letters of Credit or any other Loan
Document, or in any certificate or other document referred to or provided for
in, or received by any of them under, this Agreement, the Bankers' Acceptances,
the Letters of Credit or any other Loan Document, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement, the
Bankers' Acceptances, the Letters of Credit, or any other Loan Document or any
other document referred to or provided for herein or therein or any property
covered thereby or for any failure by any Relevant Party or any other Person to
perform any of its obligations hereunder or thereunder; (c) shall be required to
initiate or conduct any litigation or collection proceedings hereunder or under
the Bankers' Acceptances, the Letters of Credit or any other Loan Document
except to the extent requested by the Majority Banks, and (d) shall be
responsible for any action taken or omitted to be taken by them hereunder or
under the Bankers' Acceptances, the Letters of Credit or any other Loan Document
or any other document or instrument referred to or provided for herein or
therein or in connection herewith or therewith, including, without limitation,
pursuant to their own negligence, except for their own gross negligence or
wilful misconduct. The Agents may employ agents and attorneys-in-fact and shall
not be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by them with reasonable care. Without in any way
limiting any of the foregoing, each Bank acknowledges that neither any Agent nor
any Issuer shall have any greater responsibility in the operation of the Letters
of Credit than is specified in the Uniform Customs and Practice for Documentary
Credits (1993 Revision, International Chamber of Commerce Publication No. 500).
In any foreclosure proceeding concerning any collateral for the Obligations,
each holder of an Obligation if bidding for its own account or for its own
account and the accounts of other Banks is prohibited from including in the
amount of its bid an amount to be applied as a credit against its Obligation or
Obligations or the Obligations of the other Banks; instead, such holder must bid
in cash only; provided that this provision is for the sole benefit of the Agents
and the Banks and shall not inure to the benefit of the Parent or any of its
Subsidiaries. However, in any such foreclosure proceeding, the Administrative
Agent may (but shall not be obligated to) submit a bid for all Banks (including
itself) in the form of a credit against the Notes of all of the Banks, and the
Administrative Agent or its designee may (but shall not be obligated to) accept
title to such collateral for and on behalf of all Banks.
12.2 Reliance by Agents. Each of the Agents shall be entitled to rely
upon any certification, notice or other communication (including any thereof by
telephone, telex, telegram or cable) believed by them to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person or Persons,
and upon advice and statements of legal counsel (which may be counsel for the
Company and/or the Parent and/or any Subsidiary of the Parent), independent
accountants and other experts selected by any Agent. As to any matters not
expressly provided for by this Agreement, the Bankers' Acceptances, the Letters
of Credit, or any other Loan Document, the Agents shall in all cases be fully
protected in acting, or in refraining from acting, hereunder and thereunder in
accordance with instructions of the Majority Banks (or, where unanimous consent
is required by the terms hereof or of the other Loan Documents, all of the
<PAGE>
Banks), and any action taken or failure to act pursuant thereto shall be binding
on all of the Banks. Pursuant to instructions of the Majority Banks (except as
otherwise provided in Section 13.4 hereof), the Administrative Agent shall have
the authority to execute releases of any Liens created by the Loan Documents on
behalf of the Banks without the joinder of any Bank.
12.3 Defaults. The Agents shall not be deemed to have knowledge of the
occurrence of a Default unless they have received notice from a Bank or the
Company specifying such Default and stating that such notice is a "Notice of
Default"; provided, however, that the Paying Agent shall be deemed to have
knowledge of the non-payment of principal of or interest on Loans or the full
face amount of outstanding Bankers' Acceptances or Reimbursement Obligations at
the time of such non-payment. In the event that the Administrative Agent
receives such a notice of the occurrence of a Default, the Administrative Agent
shall give prompt notice thereof to the Banks. The Paying Agent shall give each
Bank prompt notice to the Banks of each non-payment of principal of or interest
on Loans, the full face amount of outstanding Bankers' Acceptances or
Reimbursement Obligations. The Administrative Agent shall (subject to Section
12.7 hereof) take such action with respect to such Default as shall be directed
by the Majority Banks and within its rights under the Loan Documents and at law
or in equity, provided that, unless and until the Administrative Agent shall
have received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, permitted
hereby with respect to such Default as it shall deem advisable in the best
interests of the Banks and within its rights under the Loan Documents, at law or
in equity.
12.4 Rights as a Bank. With respect to their Commitments and the Loans
made, Bankers' Acceptances accepted and purchased and Letter of Credit
Liabilities, the Agents in their capacities as Banks hereunder shall have the
same rights and powers hereunder as any other Bank and may exercise the same as
though they were not acting as Agents, and the term "Bank" or "Banks" shall,
unless the context otherwise indicates, include the Agents in their individual
capacities. The Agents may (without having to account therefor to any Bank)
accept deposits from, lend money to and generally engage in any kind of banking,
trust, letter of credit, agency or other business with the Parent or its
Subsidiaries (and any of their Affiliates) as if they were not acting as Agents,
and the Agents may accept fees and other consideration from the Parent or its
Subsidiaries (and any of their Affiliates), in addition to the fees heretofore
agreed to between the Company and the Agents, for services in connection with
this Agreement or otherwise without having to account for the same to the Banks.
12.5 Indemnification. The Banks agree to indemnify the Agents (to the
extent not reimbursed under Section 2.2(c), Section 9.7 or Section 13.3 hereof,
but without limiting the obligations of the Company under said Sections 2.2(c),
9.7 and 13.3), ratably in accordance with their respective Commitments, for any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever (including but not limited to, the consequences of the negligence of
the Agents) which may be
<PAGE>
imposed on, incurred by or asserted against the Agents in any way relating to or
arising out of this Agreement, the Bankers' Acceptances, the Letters of Credit
or any other Loan Document or any other documents contemplated by or referred to
herein or therein or the transactions contemplated hereby or thereby (including,
without limitation, the costs and expenses which the Company is obligated to pay
under Sections 2.2(c), 9.8 and 13.3 hereof but excluding, unless a Default has
occurred and is continuing, normal administrative costs and expenses incident to
the performance of their agency duties hereunder) or the enforcement of any of
the terms hereof or thereof or of any such other documents, including but not
limited to the negligence of the Agents, provided that no Bank shall be liable
for any of the foregoing to the extent they arise from the gross negligence or
wilful misconduct of the party to be indemnified. The obligations of the Banks
under this Section 12.5 shall survive the termination of this Agreement and the
repayment of the Obligations.
12.6 Non-Reliance on Agents and Other Banks. Each Bank agrees that it
has received current financial information with respect to the Parent and its
Subsidiaries and that it has, independently and without reliance on the Agents
or any other Bank and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Parent and its Subsidiaries and
decision to enter into this Agreement and that it will, independently and
without reliance upon the Agents or any other Bank, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own analysis and decisions in taking or not taking action under this Agreement
or any of the other Loan Documents. The Agents shall not be required to keep
themselves informed as to the performance or observance by any Relevant Party of
this Agreement, the Bankers' Acceptances, the Letters of Credit or any of the
other Loan Documents or any other document referred to or provided for herein or
therein or to inspect the properties or books of the Parent or its Subsidiaries.
Except for notices, reports and other documents and information expressly
required to be furnished to the Banks by the Agents hereunder, under the
Bankers' Acceptances, under the Letters of Credit or the other Loan Documents,
the Agents shall not have any duty or responsibility to provide any Bank with
any credit or other information concerning the affairs, financial condition or
business of the Parent or its Subsidiaries (or any of their Affiliates) which
may come into the possession of the Agents.
12.7 Failure to Act. Except for action expressly required of the Agents
hereunder, under the Bankers' Acceptances, under the Letters of Credit and under
the other Loan Documents, the Agents shall in all cases be fully justified in
failing or refusing to act hereunder and thereunder unless they shall receive
further assurances to their satisfaction by the Banks of their indemnification
obligations under Section 12.5 hereof against any and all liability and expense
which may be incurred by them by reason of taking or continuing to take any such
action.
12.8 Resignation or Removal of Agents. Subject to the appointment and
acceptance of a successor Agent as provided below, any Agent may resign at any
time by giving notice thereof to the Banks and the Company, and any Agent may be
removed at any time with or without cause by the Majority Banks. Upon any such
resignation or removal, the Majority Banks shall have the right to appoint a
<PAGE>
successor Agent, provided deposits with such successor Agent shall be insured by
the Canada Deposit Insurance Corporation or its successor. If no successor Agent
shall have been so appointed by the Majority Banks and shall have accepted such
appointment within 30 days after the retiring Agent's giving of notice of
resignation or the Majority Banks' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Banks, appoint a successor Agent. Any
successor Agent shall be a bank which has an office in Canada and a combined
capital and surplus of at least U.S. $250,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations hereunder. Any successor Paying Agent shall
promptly specify by notice to the Company its Payment Office referred to in
Sections 3.1 and 5.1. After any retiring Agent's resignation or removal
hereunder as Agent, the provisions of this Section 12 shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as the Agent.
Section 13. Miscellaneous.
13.1 Waiver. No waiver of any Default shall be a waiver of any other
Default. No failure on the part of any Agent or any Bank to exercise and no
delay in exercising, and no course of dealing with respect to, any right, power
or privilege under any Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege thereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The remedies provided in the Loan Documents are
cumulative and not exclusive of any remedies provided by law or in equity.
13.2 Notices. All notices and other communications provided for herein
(including, without limitation, any modifications of, or waivers or consents
under, this Agreement) shall be given or made by telex, telegraph, telecopy
(confirmed by mail), cable, mail or other writing and telexed, telecopied,
telegraphed, cabled, mailed or delivered to the intended recipient at the
"Address for Notices" specified below its name on the signature pages hereof;
or, as to any party, at such other address as shall be designated by such party
in a notice to the Company and the Administrative Agent given in accordance with
this Section 13.2. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly received when transmitted by
telex or telecopier during regular business hours, delivered to the telegraph or
cable office or personally delivered or, in the case of a mailed notice, three
(3) days after deposit in the Canadian mails, postage prepaid, registered mail
with return receipt requested (or upon actual receipt, if earlier), in each case
given or addressed as aforesaid.
13.3 Indemnification. The Company shall indemnify the Agents, the
Banks, and each Affiliate thereof and their respective directors, officers,
employees and agents from, and hold each of them harmless against, any and all
losses, liabilities, claims or damages to which any of them may become subject
<PAGE>
(except as provided in clause (c) of this Section 13.3, regardless of whether
caused in whole or in part by the simple (but not gross) negligence of the
Person indemnified), insofar as such losses, liabilities, claims or damages
arise out of or result from any (i) actual or proposed use by the Company of the
proceeds of any extension of credit (whether a Loan, Bankers' Acceptance or a
Letter of Credit) by any Bank hereunder, (ii) breach by the Company or any other
Relevant Party of this Agreement or any other Loan Document, (iii) violation by
the Parent or any of its Subsidiaries of any Legal Requirement, including but
not limited to those relating to Hazardous Substances, (iv) Liens or security
interests previously or hereafter granted on any real or personal property, to
the extent resulting from any Hazardous Substance located in, on or under any
such property, (v) ownership by the Banks or the Agents of any real or personal
property following foreclosure, to the extent such losses, liabilities, claims
or damages arise out of or result from any Hazardous Substance located in, on or
under such property, including, without limitation, losses, liabilities, claims
or damages which are imposed upon Persons under laws relating to or regulating
Hazardous Substances solely by virtue of ownership, (vi) Banks' or Agents' being
deemed an operator of any such real or personal property by a court or other
regulatory or administrative agency or tribunal in circumstances in which
neither any of the Agents nor any of the Banks is generally operating or
generally exercising control over such property, to the extent such losses,
liabilities, claims or damages arise out of or result from any Hazardous
Substance located in, on or under such property, (vii) investigation, litigation
or other proceeding (including any threatened investigation or proceeding)
relating to any of the foregoing, and the Company shall reimburse each Agent,
each Bank, and each Affiliate thereof and their respective directors, officers,
employees and agents, upon demand, for any expenses (including legal fees)
incurred in connection with any such investigation or proceeding or (viii) taxes
(excluding income taxes and franchise taxes) payable or ruled payable by any
Governmental Authority in respect of the principal and interest of the Loans,
the Bankers' Acceptances or any other Loan Document, together with interest and
penalties, if any; provided, however, that the Company shall not have any
obligations pursuant to this Section 13.3 with respect to any losses,
liabilities, claims, damages or expenses (a) arising from or relating solely to
events, conditions or circumstances which, as to clauses (iv), (v) or (vi)
above, first came into existence or which first occurred after the date on which
the Parent or any of its Subsidiaries conveyed to an unrelated third party all
of the Parent's or the applicable Subsidiary's rights, titles and interests to
the applicable real or personal property (whether by deed, deed-in-lieu,
foreclosure or otherwise) other than a conveyance made in violation of any Loan
Document, (b) incurred by the Person seeking indemnification by reason of the
gross negligence or wilful misconduct of such Person, (c) in the case of
liability arising with respect to Bankers' Acceptances, incurred by the Person
seeking indemnification by reason of the negligence or wilful misconduct of such
Person or (d) resulting from withholding tax liability incurred in connection
with payments made by the Company to any Agent, any Bank or any Affiliate
thereof. If the Company ever disputes a good faith claim for indemnification
under this Section 13.3 on the basis of the proviso set forth in the preceding
sentence, the full amount of indemnification provided for shall nonetheless be
paid, subject to later adjustment or reimbursement at such time (if any) as a
<PAGE>
court of competent jurisdiction enters a final judgment as to the applicability
of any such exceptions.
13.4 Amendments, Etc. No amendment or waiver of any provision of this
Agreement, the Notes or any other Loan Document, nor any consent to any
departure by the Company or any other Relevant Party therefrom, shall in any
event be effective unless the same shall be agreed or consented to by the
Majority Banks and the Company, and each such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, that no amendment, waiver or consent shall, unless in writing
and signed by each Bank affected thereby, do any of the following: (a) increase
the Commitment of such Bank (it being understood that the waiver of any
reduction in the Commitments or any mandatory repayment other than (x) the
repayment of all Loans at the end of the Revolving Credit Availability Period
and (y) the mandatory reductions of the Commitments provided for in Section
2.3(a) and (z) the mandatory prepayments required by the terms of Section
3.2(b), shall not be deemed to be an increase in any Commitment) or subject the
Banks to any additional obligation; (b) reduce the principal of, or interest on,
any Loan, Reimbursement Obligation or fee hereunder or the face amount of any
outstanding Bankers' Acceptances; (c) postpone any scheduled date fixed for any
payment or mandatory prepayment of principal of, or interest on, any Loan,
Reimbursement Obligation, fee or the face amount of any outstanding Bankers'
Acceptances or other sum to be paid hereunder; (d) change the percentage of any
of the Commitments or of the aggregate unpaid principal amount of any of the
Loans or the face amount of any outstanding Bankers' Acceptances and Letter of
Credit Liabilities, or the number of Banks, which shall be required for the
Banks or any of them to take any action under this Agreement; (e) change any
provision contained in Sections 2.2(c), 9.7 or 13.3 hereof or this Section 13.4
or Section 6.7 hereof, or (f) release all or substantially all of any security
for the obligations of the Company under this Agreement or any Note or all or
substantially all of the personal liability of any obligor created under any of
the Loan Documents. Anything in this Section 13.4 to the contrary, no amendment,
waiver or consent shall be made with respect to Section 12 without the consent
of the applicable Agent or Agents affected thereby.
13.5 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the benefit of
the Company, the Agents and the Banks and their respective successors and
assigns. The Company may not assign or transfer any of its rights or obligations
hereunder without the prior written consent of all of the Banks. Each Bank may
sell participations to any Person which is a resident of Canada under the Income
Tax Act (Canada) in all or part of any Loan, Bankers' Acceptance or Letter of
Credit, or all or part of its Notes or Commitments, in which event, without
limiting the foregoing, the provisions of Section 6 shall inure to the benefit
of each purchaser of a participation and the pro rata treatment of payments, as
described in Section 5.2, shall be determined as if such Bank had not sold such
participation. In the event any Bank shall sell any participation, such Bank
shall retain the sole right and responsibility to enforce the obligations of the
Company or any other Relevant Party
<PAGE>
relating to the Loans, Bankers' Acceptances or Letters of Credit, including,
without limitation, the right to approve any amendment, modification or waiver
of any provision of this Agreement other than amendments, modifications or
waivers with respect to (i) any fees payable hereunder to the Banks and (ii) the
amount of principal or the rate of interest payable on, or the dates fixed for
the scheduled repayment of principal of, the Loans.
(b) Each Bank may assign to one or more Banks or any other Person, in
each case which is a resident of Canada under the Income Tax Act (Canada), all
or a portion of its interests, rights and obligations under this Agreement,
provided, however, that (i) other than in the case of an assignment to another
Bank that is, at the time of such assignment, a party hereto or an Affiliate of
such Bank which is a resident of Canada under the Income Tax Act (Canada), the
Company must give its prior written consent, which consent will not be
unreasonably withheld, (ii) the aggregate amount of the Commitment and/or Loans,
the face amount of all outstanding Bankers' Acceptances or Letters of Credit of
the assigning Bank subject to each such assignment (determined as of the date
the Assignment and Acceptance (as defined below) with respect to such assignment
is delivered to the Administrative Agent) shall in no event be less than U.S.
$10,000,000 (or U.S. $5,000,000 in the case of an assignment to an Affiliate of
a Bank or between Banks), (iii) no assignment shall have the effect of reducing
the pro rata share of the Loans, the face amount of all outstanding Bankers'
Acceptances or Letters of Credit and the Commitments held by the assignor and
its Affiliates below U.S. $10,000,000, (iv) notwithstanding any other term or
provision of this Agreement, unless the Company shall have otherwise consented
in writing (such consent not to be unreasonably withheld), each such assignment
shall be pro rata with respect to the Loans, the Bankers' Acceptances, the
Letters of Credit and the Commitment of the assignor, and (v) the parties to
each such assignment shall execute and deliver to the Administrative Agent, for
its acceptance and recording in the Register (as defined below), an Assignment
and Acceptance in the form of Exhibit F hereto (each an "Assignment and
Acceptance") with blanks appropriately completed, together with any Note or
Notes subject to such assignment and a processing and recordation fee of U.S.
$2,500 paid by the assignee (for which the Company shall have no liability).
Upon such execution, delivery, acceptance and recording, from and after the
effective date specified in each Assignment and Acceptance, which effective date
shall be at least five Business Days after the execution thereof, (A) 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 Bank hereunder
and (B) the Bank thereunder shall, to the extent provided in such Assignment and
Acceptance, be released from its obligations under this Agreement.
(c) By executing and delivering an Assignment and Acceptance, the Bank
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than the representation
and warranty that it is the legal and beneficial owner of the interest being
assigned thereby free and clear of any adverse claim, such Bank assignor makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties
<PAGE>
or representations made in or in connection with this Agreement or any of the
other Loan Documents or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Agreement or any of the other Loan
Documents or any other instrument or document furnished pursuant thereto; (ii)
such Bank assignor makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Parent or any of
its Subsidiaries or the performance or observance by the Company or any other
Relevant Party of any of its obligations under this Agreement or any of the
other Loan Documents or any other instrument or document furnished pursuant
hereto; (iii) such assignee confirms that it has received a copy of this
Agreement, together with copies of the financial statements referred to in
Section 8.6 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon any Agent, such Bank assignor or any other Bank and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement and the other Loan Documents; (v) such assignee appoints and
authorizes the Agents to take such action as agent on its behalf and to exercise
such powers under this Agreement and the other Loan Documents as are delegated
to the Agents by the terms hereof, together with such powers as are reasonably
incidental thereto; and (vi) such assignee agrees that it will perform in
accordance with their terms all obligations that by the terms of this Agreement
and the other Loan Documents are required to be performed by it as a Bank.
(d) The Administrative Agent shall maintain at its office a copy of
each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Banks and the Commitments of, and
principal amount of the Loans owing to, and the face amount of all Bankers'
Acceptances accepted and purchased by, each Bank from time to time (the
"Register"). The entries in the Register shall be conclusive, in the absence of
manifest error, and the Company, the Agents and the Banks may treat each person
the name of which is recorded in the Register as a Bank hereunder for all
purposes of this Agreement and the other Loan Documents. The Register shall be
available for inspection by the Company or any Bank 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 Bank and the assignee thereunder together with any Note or Notes
subject to such assignment, the written consent to such assignment executed by
the Company and the fee payable in respect thereto, the Administrative Agent
shall, if such Assignment and Acceptance has been completed with blanks
appropriately filled, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Company. Within five Business Days after receipt of notice, the
Company, at its own expense, shall execute and deliver to the Administrative
Agent in exchange for the surrendered Notes new Notes to the order of such
assignee in an amount equal to the Commitments and/or Loans or the face amount
of outstanding Bankers' Acceptances or Letters of Credit assumed by it pursuant
to such Assignment and Acceptance and, if the
<PAGE>
assigning Bank has retained Commitments and/or Loans hereunder, new Notes to the
order of the assigning Bank in an Amount equal to the Commitment and/or Loans
retained by it hereunder. Such new Notes shall be in an aggregate principal
amount equal to the aggregate principal amount of such surrendered Notes, shall
be dated the effective date of such Assignment and Acceptance and shall
otherwise be in substantially the form of the respective Note. Thereafter, such
surrendered Notes shall be marked renewed and substituted and the originals
delivered to the Company (with copies, certified by the Company as true, correct
and complete, to be retained by the Administrative Agent).
(f) Any Bank may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 13.5, disclose to
the assignee or participant or proposed assignee or participant, any information
relating to the Parent or its Subsidiaries furnished to such Bank by or on
behalf of the Parent or its Subsidiaries; provided, however, that, prior to any
such disclosure, the Parent shall have consented thereto, which consent shall
not be unreasonably withheld, and each such assignee or participant, or proposed
assignee or participant, shall execute an agreement whereby such assignee or
participant shall agree to preserve the confidentiality of any Confidential
Information (defined in Section 13.12) on terms substantially the same as those
provided in Section 13.12.
(g) The Company will have the right to consent to any material
intercreditor arrangements in connection with an assignment by any Bank of any
interest, right or obligation under this Agreement which is not pro rata with
respect to the Loans, or the face amount of outstanding Bankers' Acceptances,
the Letters of Credit and the Commitment of the assignor and the Company may
deny its consent to any such arrangements which, in the reasonable judgement of
the Company, would adversely affect the Company in a material respect.
13.6 Limitation of Interest. The Company and the Banks intend to
strictly comply with all applicable laws, including applicable usury laws.
Accordingly, the provisions of this Section 13.6 shall govern and control over
every other provision of this Agreement or any other Loan Document which
conflicts or is inconsistent with this Section, even if such provision declares
that it controls. As used in this Section, the term "interest" includes the
aggregate of all charges, fees, benefits or other compensation which constitute
interest under applicable law, provided that, to the maximum extent permitted by
applicable law, (a) any non-principal payment shall be characterized as an
expense or as compensation for something other than the use, forbearance or
detention of money and not as interest, and (b) all interest at any time
contracted for, reserved, charged or received shall be amortized, prorated,
allocated and spread, in equal parts during the full term of the Obligations. In
no event shall the Company or any other Person be obligated to pay, or any Bank
have any right or privilege to reserve, receive or retain, (a) any interest in
excess of the maximum amount of nonusurious interest permitted under the laws of
the Province of Alberta or the applicable laws (if any) of Canada or of any
other applicable jurisdiction, or (b) total interest in excess of the amount
which such Bank could lawfully have contracted for, reserved, received, retained
<PAGE>
or charged had the interest been calculated for the full term of the Obligations
at the Highest Lawful Rate. On each day, if any, that the interest rate (the
"Stated Rate") called for under this Agreement or any other Loan Document
exceeds the Highest Lawful Rate, the rate at which interest shall accrue shall
automatically be fixed by operation of this sentence at the Highest Lawful Rate
for that day, and shall remain fixed at the Highest Lawful Rate for each day
thereafter until the total amount of interest accrued equals the total amount of
interest which would have accrued if there were no such ceiling rate as is
imposed by this sentence. Thereafter, interest shall accrue at the Stated Rate
unless and until the Stated Rate again exceeds the Highest Lawful Rate when the
provisions of the immediately preceding sentence shall again automatically
operate to limit the interest accrual rate. The daily interest rates to be used
in calculating interest at the Highest Lawful Rate shall be determined by
dividing the applicable Highest Lawful Rate per annum by the number of days in
the calendar year for which such calculation is being made. None of the terms
and provisions contained in this Agreement or in any other Loan Document which
directly or indirectly relate to interest shall ever be construed without
reference to this Section 13.6, or be construed to create a contract to pay for
the use, forbearance or detention of money at an interest rate in excess of the
Highest Lawful Rate. If the term of any Obligation is shortened by reason of
acceleration of maturity as a result of any Default or by any other cause, or by
reason of any required or permitted prepayment, and if for that (or any other)
reason any Bank at any time, including but not limited to, the stated maturity,
is owed or receives (and/or has received) interest in excess of interest
calculated at the Highest Lawful Rate, then and in any such event all of any
such excess interest shall be canceled automatically as of the date of such
acceleration, prepayment or other event which produces the excess, and, if such
excess interest has been paid to such Bank, it shall be credited pro tanto
against the then-outstanding principal balance of the Company's obligations to
such Bank, effective as of the date or dates when the event occurs which causes
it to be excess interest, until such excess is exhausted or all of such
principal has been fully paid and satisfied, whichever occurs first, and any
remaining balance of such excess shall be promptly refunded to its payor.
13.7 Interest Act (Canada); Interest Generally. For the purposes of
this Agreement, the Notes and the other Loan Documents, whenever interest or
fees to be paid hereunder are to be calculated on the basis of a year of 365 or
360 days, the yearly rate of interest to which the rate determined pursuant to
such calculation is equivalent is the rate so determined multiplied by the
actual number of days in the 12 month period commencing on the first day of the
period for which such calculation is made and divided by 365 or 360, as
applicable. The theory of deemed reinvestment shall not apply to the calculation
of interest or payment of fees or other amounts hereunder or under the Notes or
under the other Loan Documents, notwithstanding anything contained in this
Agreement or in the Notes or in the other Loan Documents, or in any other
instrument referred to herein or in the Notes or in the other Loan Documents,
and all interest and fees payable by the Borrower to the Lender shall accrue
from day to day and be computed as described herein or in the Notes or in the
other Loan Documents in accordance with the "nominal rate" method of interest
calculation. To the extent permitted by law, any provision of the Judgment
<PAGE>
Interest Act (Alberta) and the Interest Act (Canada) which restricts the rate of
interest on any judgment debt shall be inapplicable to this Agreement and is
hereby waived by the Borrower.
13.8 Certain Saskatchewan Legislation. The Land Contracts (Actions) Act
of the Province of Saskatchewan shall have no application to any action, as
defined in the said Land Contracts (Actions) Act, with respect to this
Agreement; and the Limitation of Civil Rights Act in the Province of
Saskatchewan shall have no application to this Agreement. The Company agrees
that the provisions of both the Land Contracts (Actions) Act and the Limitation
of Civil Rights Act are hereby waived.
13.9 Survival. The obligations of the Company under Sections 2.2(c), 6,
9.7 and 13.3 hereof and the obligations of the Banks under Section 13.6 hereof
shall survive the repayment of the Loans and Reimbursement Obligations and the
termination of the Commitments and the Letters of Credit.
13.10 Captions. Captions and section headings appearing herein are
included solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
13.11 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
agreement and any of the parties hereto may execute this Agreement by signing
any such counterpart.
13.12 Governing Law. This Agreement and the Notes and the Bankers'
Acceptances and (except as therein provided) the other Loan Documents are
performable in Calgary, Alberta, Canada, which shall be a proper place of venue
for suit on or in respect thereof. The Company irrevocably agrees that any legal
proceeding in respect of this Agreement or the other Loan Documents shall be
brought in the courts of the Province of Alberta and the courts of appeal
therefrom (collectively, the "Specified Courts"). The Company hereby irrevocably
submits to the nonexclusive jurisdiction of such courts. The Company hereby
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to any Loan Document brought in any
Specified Court, and hereby further irrevocably waives any claims that any such
suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. The Company further (1) agrees to designate and maintain an
agent for service of process in Calgary, Alberta, Canada in connection with any
such suit, action or proceeding and to deliver to the Administrative Agent
evidence thereof and (2) irrevocably consents to the service of process out of
any of the aforementioned courts in any such suit, action or proceeding by the
mailing of copies thereof by registered mail, return receipt requested, postage
prepaid, to the Company at its address as provided in this Agreement or as
otherwise provided by governing law. Nothing herein shall affect the right of
<PAGE>
any Agent or any Bank to commence legal proceedings or otherwise proceed against
the Company in any jurisdiction or to serve process in any manner permitted by
applicable law. The Company agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. THIS AGREEMENT AND
(EXCEPT AS THEREIN PROVIDED) THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS (OTHER THAN THE CONFLICT OF
LAWS RULES) OF THE PROVINCE OF ALBERTA AND OF CANADA FROM TIME TO TIME IN
EFFECT.
13.13 Severability. Whenever possible, each provision of the Loan
Documents shall be interpreted in such manner as to be effective and valid under
applicable law. If any provision of any Loan Document shall be invalid, illegal
or unenforceable in any respect under any applicable law, the validity, legality
and enforceability of the remaining provisions of such Loan Document shall not
be affected or impaired thereby.
13.14 Confidential Information. Each Agent and each Bank separately
agrees that:
(a) As used herein, the term "Confidential Information" means written
information about the Parent or its Subsidiaries or the transactions
contemplated herein furnished by the Parent or its Subsidiaries to the Agents
and/or the Banks which is specifically designated as confidential by the Parent;
Confidential Information, however, shall not include information which (i) was
publicly known or available, or otherwise available on a non-confidential basis
to any Bank, at the time of disclosure from a source other than the Parent or
its Subsidiaries, (ii) subsequently becomes publicly known through no act or
omission by such Bank, (iii) otherwise becomes available on a non-confidential
basis to any Bank other than through disclosure by the Parent or its
Subsidiaries or (iv) has been in the possession of any Bank for a period of more
than two years from the date on which such information originally was furnished
to such Bank by the Parent or its Subsidiaries, unless the Parent shall have
requested the Agents and the Banks in writing, at least 30 days prior to the end
of such two-year period, to maintain the confidentiality of such information for
another two (2) year period (or for successive two (2) year periods); provided
that the Parent shall not unreasonably withhold its consent to a request made
after the initial two (2) year period to eliminate information from
"Confidential Information".
(b) Each Agent and each Bank agrees that it will take normal and
reasonable precautions to maintain the confidentiality of any Confidential
Information furnished to such Person; provided, however, that such Person may
disclose Confidential Information (i) upon the Parent's consent; (ii) to its
auditors; (iii) when required by any Legal Requirement; (iv) as may be required
or appropriate in any report, statement or testimony submitted to any
Governmental Authority having or claiming to have jurisdiction over it; (v) to
such Person's and its Subsidiaries' or Affiliates' officers, directors,
employees, agents, representatives and professional
<PAGE>
consultants in connection with this Agreement or administration of the Loans and
Letters of Credit; (vi) as may be required or appropriate, should such Bank
elect to assign or grant participations in any of the Obligations in connection
with (1) the enforcement of the Obligations to any such Person under any of the
Loan Documents or related agreements, or (2) any potential transfer pursuant to
this Agreement of any Obligation owned by any Bank (provided any potential
transferee has been approved by the Company if required by this Agreement, which
approval shall not be unreasonably withheld, and has agreed in writing to be
bound by substantially the same provisions regarding Confidential Information
contained in this Section); (vii) as may be required or appropriate in response
to any summons or subpoena or in connection with any litigation or
administrative proceeding; (viii) to any other Bank; (ix) to the extent
reasonably required in connection with the exercise of any remedy hereunder or
under the other Loan Documents; or (x) to correct any false or misleading
information which may become public concerning such Person's relationship to the
Parent or its Subsidiaries.
13.15 Amendment and Restatement. This Agreement amends and restates in
its entirety that certain Credit Agreement dated as of December 30, 1993
executed by and among the Company, the Banks and the Agents, as amended.
13.16 Intercreditor Agreement. Reference is hereby made to the
Intercreditor Agreement, which provides for certain matters relating to both the
Obligations and the U.S. Facility. To the extent of any conflict between the
terms hereof and the terms of the Intercreditor Agreement, the Intercreditor
Agreement shall control. The execution and delivery by the Administrative Agent
of the Intercreditor Agreement on behalf of the Banks is hereby ratified and
confirmed by each of the Banks. Any Bank that becomes a party to this Agreement
after the date hereof agrees to be bound by the terms and provisions of the
Intercreditor Agreement.
13.17 Judgement Currency. Notwithstanding that this Agreement is
governed by the laws of the Province of Alberta, Canada, monies outstanding in
connection herewith may be stipulated in terms of lawful money of the United
States of America (which stipulation or expression is of the essence) and
payments to be made in regard thereto pursuant to this Agreement, or otherwise,
are and are intended to be payable in lawful money of the United States of
America; and to the extent permitted by law any judgment in respect of any such
monies outstanding as aforesaid or any obligation pertaining thereto arising
under this Agreement may be obtained or enforced either in lawful money of the
United States of America or the equivalent in lawful money of Canada, as the
Administrative Agent may elect, and the Administrative Agent shall to the extent
permitted by law be entitled to such election and the benefit (if any) from the
consequent conversion of currency at the date of payment or enforcement of the
judgment. Any such payment obligation stipulated or expressed in lawful money of
the United States of America shall not be discharged by an amount paid in lawful
money of Canada, whether pursuant to a judgment or otherwise, to the extent that
the amount so paid on prompt conversion into lawful money of the United States
of America does not, after deduction of any and all premiums and/or costs of
exchange paid or payable by the Administrative Agent in connection with such
<PAGE>
conversion, yield the required amount of payment expressed in terms of lawful
money of the United States of America. In the event that any payment in lawful
money of Canada in respect of a payment in lawful money of Canada in respect of
a payment obligation stipulated or expressed in terms of lawful money of the
United States of America as aforesaid, whether pursuant to a judgment or
otherwise, upon conversion as aforesaid does not, after deduction of any and all
premiums and/or costs of exchange paid or payable by any Agent or any Bank in
connection with such conversion, yield the required amount expressed in terms of
lawful money of the United States of America, the Administrative Agent shall, on
behalf of and for the benefit of the affected Person, have a separate cause of
action for the additional amount required to yield the required amount expressed
in terms of lawful money of the United States of America.
13.18 Withholding Tax Remittances. If any withholding for, or on
account of, any present or future tax, duty or charge of whatsoever nature is
imposed or levied by or on behalf of any taxing jurisdiction or authority
(together with any interest and penalties thereon and additions thereto) in
respect of any payments to be made pursuant to this Agreement or the Notes, the
Company shall be entitled to withhold and remit such payment to the applicable
taxing authority whereupon such payment, for the purposes of this Agreement and
the Notes, shall be deemed to have been made as required hereunder or under the
Notes, notwithstanding anything contained elsewhere in this Agreement or in the
Notes.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
SEAGULL ENERGY CANADA LTD.
By: /s/William L. Transier
Name: William L. Transier
Title: Senior Vice President
and Chief Financial
Officer
Address for Notices:
1001 Fannin, Suite 1700
Houston, Texas 77002
Attention: Steve Thorington
with a copy to:
2900 Western Canadian Place
707 8th Avenue S.W.
Calgary, Alberta T2P 2M7
Attention: Mr. Lorne Martin
<PAGE>
THE CHASE MANHATTAN BANK OF CANADA,
as Arranger, as Administrative Agent and as a Bank
By: /s/ DG McGorman
Name:DG McGorman
Commitment: Title: Vice President
U.S. $20,000,000
By: /s/ Owen G. Roberts
Name: Owen G. Roberts
Title: Vice President
Address for Notices:
First Canadian Place
100 King Street West, Suite 6900
Toronto, Ontario M5X 1A4
Attention: Mr. David McGorman
with copies to:
The Chase Manhattan Bank
1 Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Agent Services
and
Texas Commerce Bank National Association
712 Main Street
Houston, Texas 77002
Attention: Manager, Energy Division
<PAGE>
THE BANK OF NOVA SCOTIA, as Paying Agent,
as Co-Agent and as a Bank
By: /s/ J.G. McNeil
Commitment: Name: J.G. McNeil
Title: Unit Head
U.S. $22,500,000
By: /s/ R.D. Lee
Name: R.D. Lee
Title: Senior Manager
Address for Notices:
International Banking Division-Loan Accounting
14th Floor
44 King Street West
Toronto, Ontario CANADA M5H 1H1
Attention: Assistant Manager
with a copies to:
The Bank of Nova Scotia
Corporate Banking Calgary
Suite #3820, 700-2nd Street S.W.
Calgary, Alberta CANADA T2P 2N7
Attention: Vice President
and to:
The Bank of Nova Scotia
Suite 3000, 1100 Louisiana
Houston, Texas 77002
Attention: Mr. Mark A. Ammerman
<PAGE>
CANADIAN IMPERIAL BANK OF COMMERCE,
as Co-Agent and as a Bank
By: /s/ David J. Swain
Commitment: Name: David J. Swain
Title: Managing Director
U.S. $22,500,000
Address for Notices:
Oil and Gas Group
10th Floor, 855 2nd Street, S.W.
Calgary, Alberta CANADA T2P 2P2
Attention: Director
with a copy to:
Canadian Imperial Bank of Commerce
Two Houston Center, Suite 1200
909 Fannin Street
Houston, Texas 77010
Attention: Brian Myers
<PAGE>
ABN AMRO BANK CANADA
By: /s/ Jane Taylor
Commitment: Name: Jane Taylor
Title: Assistant Vice President
U.S. $10,000,000
By: /s/ P.K. Chan
Name: P.K. Chan
Title:Vice President, Credit
Address for Notices:
2500-650 West Georgia Street
Vancouver, British Columbia
CANADA V6B 4N8
Attention: Jane Taylor
with a copy to:
ABN AMRO Bank N.V., Houston Agency
Three Riverway, Suite 1700
Houston, Texas 77056
Attention: Ms. Cheryl Lipshutz
<PAGE>
FIRST CHICAGO NBD BANK, CANADA
By: /s/ Jeremiah A. Hynes
Commitment: Name: Jeremiah A. Hynes
Title: First Vice President
U.S. $5,000,000
Address for Notices:
BCE Place
161 Bay Street
P.O. Box 613
Toronto, Ontario CANADA M5J 2S1
Attention: Ms. Janet Beadle
with a copy to:
First National Bank of Chicago
1100 Louisiana, Suite 3200
Houston, Texas 77002
Attention: Mr. Dennis Petito
<PAGE>
SOCIETE GENERALE (CANADA)
By:
Commitment: Name:
Title:
U.S. $5,000,000
Address for Notices:
Scotia Plaza
100 Yonge Street, Suite 1002
Toronto, Ontario CANADA M5C 2W1
Attention: Mr. Michael Klopchic
with a copy to:
Societe Generale, Southwest Agency
1111 Bagby, Suite 2020
Houston, Texas 77002
Attention: Mr. Richard Erbert
<PAGE>
BANK OF MONTREAL
By: /s/ Randall Johnson
Commitment: Name: Randall Johnson
Title: Managing Director
U.S. $10,000,000
Address for Notices:
360-7th Avenue S.W.
24th Floor
Calgary, Alberta CANADA T29 3N9
Attention: Ms. Marge Wassenaar
<PAGE>
MELLON BANK
By: /s/ Joseph Cavanaugh
Commitment: Name: Joseph Cavanaugh
Title: Vice President
U.S. $5,000,000
Address for Notices:
Suite 3200
Royal Trust Tower
T-D Centre
Toronto, Ontario CANADA M5K 1K2
Attention: Mr. Joseph Cavanaugh
SEAGULL ENERGY CORPORATION
1996
EXECUTIVE INCENTIVE PLAN
(As revised and approved May 13, 1996)
Background
The 1996 Executive Incentive Plan (the "Incentive Plan") for Seagull Energy
Corporation is designed to motivate key employees of the Company to achieve
tough, but realistic, performance goals and to reward those employees who
perform at or above the expected level. The Incentive Plan defines participants,
award opportunities and performance goals for the 1996 performance year. It is,
of course, based upon the 1996 Operating Plan (the "Operating Plan") and is
designed to maximize performance incentives while allowing for the recognition
of individual efforts through a significant discretionary component.
Participation
Approximately 125 key employees are or may become participants in the Incentive
Plan. They are officers or individuals whose positions have been valued in the
salary structure in and above Grade 12. These are the persons responsible for
the annual and longer-term success of the company.
Timing of Payments
Seventy-five percent of any Incentive Plan award is paid to the recipient early
in the year following the performance year, and the remaining 25% in the next
year. In this case, the performance year is 1996. The award will be determined
and the first 75% increment paid in early 1997, and the remaining installment in
early 1998. The recipient must be an employee on the payment dates in order to
receive any of the respective payments.
Award Opportunities
Annual incentive targets are expressed as a percentage of total salary earned
during a given year and can increase to double the targeted amounts or decrease
to zero, relative to the achievement of predetermined performance goals and
subject to senior management and Board of Director discretion at year-end. The
Compensation Committee of the Board reserves the right to modify the performance
measures and award levels specified in the objective components of the Incentive
Plan if presently unforeseen circumstances should occur during the year which
invalidate any of the material assumptions that underlie the Operating Plan, or
if, in the opinion of the Compensation Committee, such modifications are
required to avoid a result that is inequitable to either the company or the
Incentive Plan participants.
<PAGE>
Performance Measures
The performance measures for the Incentive Plan are summarized on pages 3-5.
Four performance criteria are included with the following weightings:
Pre-tax cash flow from operations 25% weight
Pre-tax cash flow from operations
to revenue ratio to E&P peers 25% weight
Discretionary individual performance assessment 25% weight
Company stock performance assessment 25% weight
The first component, pre-tax cash flow from operations ("PCFO"), is defined as
earnings before income taxes, plus operating and non-operating depreciation,
depletion and amortization, plus pre-tax incentive compensation expense, and is
based on actual corporate performance for the year as compared to the Company's
Operating Plan projection of PCFO.
The second component compares the ratio of PCFO from E&P to E&P revenue with the
same measures for our E&P peers. The definition of PCFO is the same as described
above, except incentive compensation expenditures are not added back to the
results, and the data is for E&P only. The PCFO and revenue figures will be for
the sum of the last four quarters ending September 30 of the performance year.
The third component, discretionary individual performance assessment, will be
determined individually and subjectively based on the respective participant's
individual job performance.
The fourth component, Company stock performance assessment, will be determined
by subjectively comparing the Company's stock price performance to the average
stock price performance by a selected group of "peer companies" over three
separate time periods. The time periods are:
year-end 1995 to year-end 1996;
rolling three-year average from year-end 1993 to year-end 1996; and
rolling five-year average from year-end 1991 to year-end 1996.
Each performance component will be measured at year-end independently of the
other. At that time, the Chief Executive Officer will recommend specific awards,
subject to final approval of each element of the total awards by the
Compensation Committee and ultimately the Board of Directors.
<PAGE>
Performance Weightings:
25% on pre-tax cash flow from operations
25% on pre-tax cash flow from operations to revenue ratio to E&P peers
25% on subjective individual performance assessment
25% on subjective Company stock performance assessment
I. Objective Performance Assessment - 50%:
Pre-Tax Cash Flow from Operations ("PCFO") - 25%
The performance award will be calculated as follows:
<TABLE>
<CAPTION>
Column 1 Column 2 Column 3 Column 4
-------- -------- -------- --------
Pre-Tax Cash Percentage of Percentage of PCFO Percentage of Total
Flow From Operating Plan Target Award Target Award
Operations (1) Projection (2) Earned (3) Earned (3)
-------------- -------------- ---------- ----------
<S> <C> <C> <C>
97,988 85 0 0.00
103,752 90 25 6.25
109,516 95 50 12.50
115,280 100 100 25.00
121,044 105 110 27.50
126,808 110 120 30.00
132,572 115 130 32.50
138,336 120 140 35.00
144,100 125 150 37.50
149,864 130 160 40.00
155,628 135 170 42.50
161,392 140 180 45.00
167,156 145 190 47.50
172,920 150 200
</TABLE>
(1) Earnings before income taxes plus operating and non-operating
depreciation, depletion and amortization and also plus pre-tax
incentive compensation expense (dollars in thousands).
(2) If subsequent events over the course of the performance year
invalidate any of the basic assumptions in the Operating Plan,
then the original Operating Plan projections will be revised to
conform the Operating Plan assumptions to reality. The initial
PCFO performance criteria for the Incentive Plan shown in Column
1 will then be adjusted by applying the percentages shown in
Column 2 to the revised Operating Plan projection of PCFO.
(3) If, after the actual PCFO for the performance for the year is
determined, it falls within the ranges shown in Column 1, the
exact incentive award percentages from Columns 3 and 4 will be
calculated by interpolation.
<PAGE>
Pre-Tax Cash Flow from Operations ("PCFO") to revenue ratio to E&P
peers - 25%
Pre-tax cash flow will be defined in the same way as in the other
objective measures of the plan (i.e., pre-tax income plus amortization,
depreciation and depletion). In order to allow the appropriate
performance comparisons to industry peers, only pre-tax cash flow from
the E&P segment is considered in the calculation. Further, pre-tax cash
flow levels will be expressed as a percent of E&P revenues (which are
defined as gross sales less write-offs). The PCFO pre-tax cash flow and
revenue figures will be for the sum of the last four quarters ending
September 30 of the performance year.
Performance on the pre-tax cash flow to revenue ratio will be assessed
relative to the industry peer group used in the Company's Total
Shareholder Return Graph in the proxy statement. As a result, the
Company will be measured against other companies that face volatility
in the price of energy.
The performance award will be calculated as follows:
<TABLE>
<CAPTION>
Percentage of PCFO Percentage of Total
PCFO Relative Against Peers Target Target Award
to Peers (1) Award Earned Earned
<S> <C> <C>
Less than 25th percentile 0 0
40th percentile 40 10
50th percentile 80 20
55th percentile 100 25
60th percentile 120 30
70th percentile 160 40
80th percentile 200 50
(1) Awards for performance between stated levels will be calculated
using straight-line interpolation.
</TABLE>
<PAGE>
II. Discretionary Performance Assessment - 50%
Both the discretionary individual performance assessment and the
Company stock performance assessment will be determined informally and
subjectively.
25% on the respective participant's individual job performance, based
primarily on the extent to which individual and collective goals and
objectives established at the beginning of the year are achieved.
25% on the Company's stock price performance based on rolling five-year
and three-year averages and year-end 1995 to year-end 1996 comparisons
with the average stock price performance by a selected group of "peer
companies" over the same three periods. The five-year and three-year
comparative calculations will be done on a "total return" basis,
weighted for variances in beginning market capitalization and in all
respects consistent with the SEC proxy disclosure rules.
Gatekeeper Performance Level
For this component, regardless of performance against the peer group,
if the five-year stock price performance has not resulted in a positive
return, no award will be made.
At year-end, the Chief Executive Officer will counsel with his direct
reports in completing discretionary performance assessments for each
participant and recommend specific awards, which will be subject to
final approval by the Compensation Committee and ultimately the Board
of Directors.
Total Plan Payout Potential
Maximum potential is 200% (1)
Target goal is 100% (1)
Minimum potential is 0% (1)
(1) Expressed as a percentage of the executive's targeted incentive
opportunity as defined in the Incentive Plan.
SEAGULL ENERGY CORPORATION
PERFORMANCE MEASURES
FOR THE 1996 EXECUTIVE INCENTIVE PLAN
AMENDMENT TO
STOCK OPTION AGREEMENT(S)
WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has previously
adopted the SEAGULL ENERGY CORPORATION 1981 STOCK OPTION PLAN, the SEAGULL
ENERGY CORPORATION 1981 STOCK OPTION PLAN (RESTATED), the SEAGULL ENERGY
CORPORATION 1983 STOCK OPTION PLAN, the SEAGULL ENERGY CORPORATION 1983 STOCK
OPTION PLAN (RESTATED), the SEAGULL ENERGY CORPORATION 1986 STOCK OPTION PLAN,
the SEAGULL ENERGY CORPORATION 1986 STOCK OPTION PLAN (RESTATED), the SEAGULL
ENERGY CORPORATION 1990 STOCK OPTION PLAN, the SEAGULL ENERGY CORPORATION 1993
STOCK OPTION PLAN and the SEAGULL ENERGY CORPORATION 1995 OMNIBUS STOCK PLAN
(collectively, the "Option Plans"); and
WHEREAS, certain nonstatutory stock options and incentive stock options
(collectively, "Options") have heretofore been granted to the optionee, a
full-time active employee of the Company (the "Employee"), that are currently
outstanding under the Option Plans, each of such Options being listed on the
schedule attached hereto and evidenced by a Nonstatutory Stock Option Agreement
or an Incentive Stock Option Agreement (collectively, the "Agreements"); and
WHEREAS, the Employee's employment with the Company has been terminated
in connection with the consummation of the merger contemplated by the Agreement
and Plan of Merger by and among Seagull Energy Corporation, GNR Merger
Corporation and Global Natural Resources Inc. dated as of July 22, 1996, and the
Company desires to amend the Agreements in certain respects;
NOW, THEREFORE, the Agreements shall be amended as follows, effective
as of _______________ (Employee's employment termination date):
1. The vesting schedule contained in the Agreements shall be
waived and all Options outstanding under such Agreements shall be exercisable in
full.
2. Notwithstanding any provision in the Agreements to the
contrary, all Options shall continue to be exercisable by the Employee, his
estate or the person who acquires such Options by will or the laws of
descent and distribution, at any time on or before the first anniversary of
Employee's employment termination date.
3. As amended hereby, the Agreements are specifically ratified
and reaffirmed.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this amendment to be duly
executed by one of its officers thereunto duly authorized, and the Employee has
executed this amendment, effective as of ________________ (Employee's employment
termination date).
SEAGULL ENERGY CORPORATION
By _______________________
--------------------------
Employee
AMENDMENT TO
STOCK OPTION AGREEMENT(S)
WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has previously
adopted the SEAGULL ENERGY CORPORATION 1981 STOCK OPTION PLAN, the SEAGULL
ENERGY CORPORATION 1981 STOCK OPTION PLAN (RESTATED), the SEAGULL ENERGY
CORPORATION 1983 STOCK OPTION PLAN, the SEAGULL ENERGY CORPORATION 1983 STOCK
OPTION PLAN (RESTATED), the SEAGULL ENERGY CORPORATION 1986 STOCK OPTION PLAN,
the SEAGULL ENERGY CORPORATION 1986 STOCK OPTION PLAN (RESTATED), the SEAGULL
ENERGY CORPORATION 1990 STOCK OPTION PLAN, the SEAGULL ENERGY CORPORATION 1993
STOCK OPTION PLAN and the SEAGULL ENERGY CORPORATION 1995 OMNIBUS STOCK PLAN
(collectively, the "Option Plans"); and
WHEREAS, certain nonstatutory stock options and incentive stock options
(collectively, "Options") have heretofore been granted to the optionee, a
full-time active employee of the Company (the "Employee"), that are currently
outstanding under the Option Plans, each of such Options being listed on the
schedule attached hereto and evidenced by a Nonstatutory Stock Option Agreement
or an Incentive Stock Option Agreement (collectively, the "Agreements"); and
WHEREAS, the Employee's employment with the Company has been terminated
in connection with the consummation of the merger contemplated by the Agreement
and Plan of Merger by and among Seagull Energy Corporation, GNR Merger
Corporation and Global Natural Resources Inc. dated as of July 22, 1996, and the
Company desires to amend the Agreements in certain respects;
NOW, THEREFORE, the Agreements shall be amended as follows, effective
as of _______________ (Employee's employment termination date):
1. The vesting schedule contained in the Agreements shall be
waived and all Options outstanding under such Agreements shall be exercisable in
full.
2. Notwithstanding any provision in the Agreements to the
contrary, all Options shall continue to be exercisable by the Employee, his
estate or the person who acquires such Options by will or the laws of
descent and distribution, at any time on or before the first anniversary of
Employee's employment termination date.
3. As amended hereby, the Agreements are specifically ratified
and reaffirmed.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this amendment to be duly
executed by one of its officers thereunto duly authorized, and the Employee has
executed this amendment, effective as of ________________ (Employee's employment
termination date).
SEAGULL ENERGY CORPORATION
By _______________________
--------------------------
Employee
AMENDMENT TO
STOCK OPTION AGREEMENT(S)
WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has previously
adopted the SEAGULL ENERGY CORPORATION 1981 STOCK OPTION PLAN, the SEAGULL
ENERGY CORPORATION 1981 STOCK OPTION PLAN (RESTATED), the SEAGULL ENERGY
CORPORATION 1983 STOCK OPTION PLAN, the SEAGULL ENERGY CORPORATION 1983 STOCK
OPTION PLAN (RESTATED), the SEAGULL ENERGY CORPORATION 1986 STOCK OPTION PLAN,
the SEAGULL ENERGY CORPORATION 1986 STOCK OPTION PLAN (RESTATED), the SEAGULL
ENERGY CORPORATION 1990 STOCK OPTION PLAN, the SEAGULL ENERGY CORPORATION 1993
STOCK OPTION PLAN and the SEAGULL ENERGY CORPORATION 1995 OMNIBUS STOCK PLAN
(collectively, the "Option Plans"); and
WHEREAS, certain nonstatutory stock options and incentive stock options
(collectively, "Options") have heretofore been granted to the optionee, a
full-time active employee of the Company (the "Employee"), that are currently
outstanding under the Option Plans, each of such Options being listed on the
schedule attached hereto and evidenced by a Nonstatutory Stock Option Agreement
or an Incentive Stock Option Agreement (collectively, the "Agreements"); and
WHEREAS, the Employee's employment with the Company has been terminated
in connection with the consummation of the merger contemplated by the Agreement
and Plan of Merger by and among Seagull Energy Corporation, GNR Merger
Corporation and Global Natural Resources Inc. dated as of July 22, 1996, and the
Company desires to amend the Agreements in certain respects;
NOW, THEREFORE, the Agreements shall be amended as follows, effective
as of _______________ (Employee's employment termination date):
1. The vesting schedule contained in the Agreements shall be
waived and all Options outstanding under such Agreements shall be exercisable in
full.
2. Notwithstanding any provision in the Agreements to the
contrary, all Options shall continue to be exercisable by the Employee, his
estate or the person who acquires such Options by will or the laws of
descent and distribution, at any time on or before the first anniversary of
Employee's employment termination date.
3. As amended hereby, the Agreements are specifically ratified
and reaffirmed.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this amendment to be duly
executed by one of its officers thereunto duly authorized, and the Employee has
executed this amendment, effective as of ________________ (Employee's employment
termination date).
SEAGULL ENERGY CORPORATION
By _______________________
--------------------------
Employee
AMENDMENT TO
STOCK OPTION AGREEMENT(S)
WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has previously
adopted the SEAGULL ENERGY CORPORATION 1981 STOCK OPTION PLAN, the SEAGULL
ENERGY CORPORATION 1981 STOCK OPTION PLAN (RESTATED), the SEAGULL ENERGY
CORPORATION 1983 STOCK OPTION PLAN, the SEAGULL ENERGY CORPORATION 1983 STOCK
OPTION PLAN (RESTATED), the SEAGULL ENERGY CORPORATION 1986 STOCK OPTION PLAN,
the SEAGULL ENERGY CORPORATION 1986 STOCK OPTION PLAN (RESTATED), the SEAGULL
ENERGY CORPORATION 1990 STOCK OPTION PLAN, the SEAGULL ENERGY CORPORATION 1993
STOCK OPTION PLAN and the SEAGULL ENERGY CORPORATION 1995 OMNIBUS STOCK PLAN
(collectively, the "Option Plans"); and
WHEREAS, certain nonstatutory stock options and incentive stock options
(collectively, "Options") have heretofore been granted to the optionee, a
full-time active employee of the Company (the "Employee"), that are currently
outstanding under the Option Plans, each of such Options being listed on the
schedule attached hereto and evidenced by a Nonstatutory Stock Option Agreement
or an Incentive Stock Option Agreement (collectively, the "Agreements"); and
WHEREAS, the Employee's employment with the Company has been terminated
in connection with the consummation of the merger contemplated by the Agreement
and Plan of Merger by and among Seagull Energy Corporation, GNR Merger
Corporation and Global Natural Resources Inc. dated as of July 22, 1996, and the
Company desires to amend the Agreements in certain respects;
NOW, THEREFORE, the Agreements shall be amended as follows, effective
as of _______________ (Employee's employment termination date):
1. The vesting schedule contained in the Agreements shall be
waived and all Options outstanding under such Agreements shall be exercisable in
full.
2. Notwithstanding any provision in the Agreements to the
contrary, all Options shall continue to be exercisable by the Employee, his
estate or the person who acquires such Options by will or the laws of
descent and distribution, at any time on or before the first anniversary of
Employee's employment termination date.
3. As amended hereby, the Agreements are specifically ratified
and reaffirmed.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this amendment to be duly
executed by one of its officers thereunto duly authorized, and the Employee has
executed this amendment, effective as of ________________ (Employee's employment
termination date).
SEAGULL ENERGY CORPORATION
By _______________________
--------------------------
Employee
AMENDMENT TO
STOCK OPTION AGREEMENT(S)
WHEREAS, GLOBAL NATURAL RESOURCES INC. ("Global") has previously
adopted the GLOBAL NATURAL RESOURCES INC. KEY EMPLOYEE STOCK OPTION PLAN (1989)
and the GLOBAL NATURAL RESOURCES INC. 1992 STOCK OPTION PLAN (collectively, the
"Global Option Plans"); and
WHEREAS, Section 3.3 of the Agreement and Plan of Merger (the "Merger")
by and among Seagull Energy Corporation ("Seagull"), GNR Merger Corporation and
Global Natural Resources Inc. dated as of July 22, 1996 (the "Merger Agreement")
provides that options outstanding under the Global Option Plans (the "Global
Options") shall be assumed by Seagull and become options to purchase Seagull
common stock in accordance with the provisions thereof; and
WHEREAS, in conjunction with the Merger, Seagull agreed to adopt a
policy (the "Policy") of vesting and extending the exercise period of Global
Options granted to Retained Employees (as such term is defined in the Merger
Agreement) who terminate employment with Global or Seagull on or before the
second anniversary of the Effective Time (as such term is defined in the Merger
Agreement); and
WHEREAS, certain nonstatutory stock options (the "Options") have
heretofore been granted to the undersigned employee of Global, who is subject to
the Policy (the "Employee"), that are currently outstanding under the Global
Option Plans, each of such Options being listed on the schedule attached hereto
and evidenced by a Nonstatutory Stock Option Agreement (the "Agreements"); and
WHEREAS, the Employee's employment with the Company has been terminated
and Seagull desires to amend the Agreements in certain respects;
NOW, THEREFORE, the Agreements shall be amended as follows, effective
as of _______________ (Employee's employment termination date):
1. The vesting schedule contained in the Agreements shall be
waived and all Options outstanding under such Agreements shall be exercisable in
full.
2. Notwithstanding any provision in the Agreements to the
contrary, all Options shall continue to be exercisable by the Employee, his
estate or the person who acquires such Options by will or the laws of
descent and distribution, at any time on or before the first anniversary of
Employee's employment termination date.
3. As amended hereby, the Agreements are specifically ratified
and reaffirmed.
<PAGE>
IN WITNESS WHEREOF, Seagull has caused this amendment to be duly
executed by one of its officers thereunto duly authorized, and the Employee has
executed this amendment, effective as of ________________ (Employee's employment
termination date).
SEAGULL ENERGY CORPORATION
By _______________________
--------------------------
Employee
AMENDMENT TO
STOCK OPTION AGREEMENT(S)
WHEREAS, GLOBAL NATURAL RESOURCES INC. ("Global") has previously
adopted the GLOBAL NATURAL RESOURCES INC. KEY EMPLOYEE STOCK OPTION PLAN (1989)
and the GLOBAL NATURAL RESOURCES INC. 1992 STOCK OPTION PLAN (collectively, the
"Global Option Plans"); and
WHEREAS, Section 3.3 of the Agreement and Plan of Merger (the "Merger")
by and among Seagull Energy Corporation ("Seagull"), GNR Merger Corporation and
Global Natural Resources Inc. dated as of July 22, 1996 (the "Merger Agreement")
provides that options outstanding under the Global Option Plans (the "Global
Options") shall be assumed by Seagull and become options to purchase Seagull
common stock in accordance with the provisions thereof; and
WHEREAS, in conjunction with the Merger, Seagull agreed to adopt a
policy (the "Policy") of vesting and extending the exercise period of Global
Options granted to Retained Employees (as such term is defined in the Merger
Agreement) who terminate employment with Global or Seagull on or before the
second anniversary of the Effective Time (as such term is defined in the Merger
Agreement); and
WHEREAS, certain nonstatutory stock options (the "Options") have
heretofore been granted to the undersigned employee of Global, who is subject to
the Policy (the "Employee"), that are currently outstanding under the Global
Option Plans, each of such Options being listed on the schedule attached hereto
and evidenced by a Nonstatutory Stock Option Agreement (the "Agreements"); and
WHEREAS, the Employee's employment with the Company has been terminated
and Seagull desires to amend the Agreements in certain respects;
NOW, THEREFORE, the Agreements shall be amended as follows, effective
as of _______________ (Employee's employment termination date):
1. The vesting schedule contained in the Agreements shall be
waived and all Options outstanding under such Agreements shall be exercisable in
full.
2. Notwithstanding any provision in the Agreements to the
contrary, all Options shall continue to be exercisable by the Employee, his
estate or the person who acquires such Options by will or the laws of
descent and distribution, at any time on or before the first anniversary of
Employee's employment termination date.
3. As amended hereby, the Agreements are specifically ratified
and reaffirmed.
<PAGE>
IN WITNESS WHEREOF, Seagull has caused this amendment to be duly
executed by one of its officers thereunto duly authorized, and the Employee has
executed this amendment, effective as of ________________ (Employee's employment
termination date).
SEAGULL ENERGY CORPORATION
By _______________________
--------------------------
Employee
AMENDMENT TO
STOCK OPTION AGREEMENT(S)
WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has previously
adopted the SEAGULL ENERGY CORPORATION 1981 STOCK OPTION PLAN, the SEAGULL
ENERGY CORPORATION 1981 STOCK OPTION PLAN (RESTATED), the SEAGULL ENERGY
CORPORATION 1983 STOCK OPTION PLAN, the SEAGULL ENERGY CORPORATION 1983 STOCK
OPTION PLAN (RESTATED), the SEAGULL ENERGY CORPORATION 1986 STOCK OPTION PLAN,
the SEAGULL ENERGY CORPORATION 1986 STOCK OPTION PLAN (RESTATED), the SEAGULL
ENERGY CORPORATION 1990 STOCK OPTION PLAN, the SEAGULL ENERGY CORPORATION 1993
STOCK OPTION PLAN and the SEAGULL ENERGY CORPORATION 1995 OMNIBUS STOCK PLAN
(collectively, the "Option Plans"); and
WHEREAS, certain nonstatutory stock options and incentive stock options
(collectively, "Options") have heretofore been granted to the optionee, a
full-time active employee of the Company (the "Employee"), that are currently
outstanding under the Option Plans, each of such Options being listed on the
schedule attached hereto and evidenced by a Nonstatutory Stock Option Agreement
or an Incentive Stock Option Agreement (collectively, the "Agreements"); and
WHEREAS, the Employee's employment with the Company has been terminated
in connection with the consummation of the merger contemplated by the Agreement
and Plan of Merger by and among Seagull Energy Corporation, GNR Merger
Corporation and Global Natural Resources Inc. dated as of July 22, 1996, and the
Company desires to amend the Agreements in certain respects;
NOW, THEREFORE, the Agreements shall be amended as follows, effective
as of _______________ (Employee's employment termination date):
1. The vesting schedule contained in the Agreements shall be
waived and all Options outstanding under such Agreements shall be exercisable in
full.
2. Notwithstanding any provision in the Agreements to the
contrary, all Options shall continue to be exercisable by the Employee, his
estate or the person who acquires such Options by will or the laws of
descent and distribution, at any time on or before the first anniversary of
Employee's employment termination date.
3. As amended hereby, the Agreements are specifically ratified
and reaffirmed.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this amendment to be duly
executed by one of its officers thereunto duly authorized, and the Employee has
executed this amendment, effective as of ________________ (Employee's employment
termination date).
SEAGULL ENERGY CORPORATION
By _______________________
--------------------------
Employee
AMENDMENT TO
STOCK OPTION AGREEMENT(S)
WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has previously
adopted the SEAGULL ENERGY CORPORATION 1981 STOCK OPTION PLAN, the SEAGULL
ENERGY CORPORATION 1981 STOCK OPTION PLAN (RESTATED), the SEAGULL ENERGY
CORPORATION 1983 STOCK OPTION PLAN, the SEAGULL ENERGY CORPORATION 1983 STOCK
OPTION PLAN (RESTATED), the SEAGULL ENERGY CORPORATION 1986 STOCK OPTION PLAN,
the SEAGULL ENERGY CORPORATION 1986 STOCK OPTION PLAN (RESTATED), the SEAGULL
ENERGY CORPORATION 1990 STOCK OPTION PLAN, the SEAGULL ENERGY CORPORATION 1993
STOCK OPTION PLAN and the SEAGULL ENERGY CORPORATION 1995 OMNIBUS STOCK PLAN
(collectively, the "Option Plans"); and
WHEREAS, certain nonstatutory stock options and incentive stock options
(collectively, "Options") have heretofore been granted to the optionee, a
full-time active employee of the Company (the "Employee"), that are currently
outstanding under the Option Plans, each of such Options being listed on the
schedule attached hereto and evidenced by a Nonstatutory Stock Option Agreement
or an Incentive Stock Option Agreement (collectively, the "Agreements"); and
WHEREAS, the Employee's employment with the Company has been terminated
in connection with the consummation of the merger contemplated by the Agreement
and Plan of Merger by and among Seagull Energy Corporation, GNR Merger
Corporation and Global Natural Resources Inc. dated as of July 22, 1996, and the
Company desires to amend the Agreements in certain respects;
NOW, THEREFORE, the Agreements shall be amended as follows, effective
as of _______________ (Employee's employment termination date):
1. The vesting schedule contained in the Agreements shall be
waived and all Options outstanding under such Agreements shall be exercisable in
full.
2. Notwithstanding any provision in the Agreements to the
contrary, all Options shall continue to be exercisable by the Employee, his
estate or the person who acquires such Options by will or the laws of
descent and distribution, at any time on or before the first anniversary of
Employee's employment termination date.
3. As amended hereby, the Agreements are specifically ratified
and reaffirmed.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this amendment to be duly
executed by one of its officers thereunto duly authorized, and the Employee has
executed this amendment, effective as of ________________ (Employee's employment
termination date).
SEAGULL ENERGY CORPORATION
By _______________________
--------------------------
Employee
FIRST AMENDMENT TO
SEAGULL ENERGY CORPORATION
MANAGEMENT STABILITY PLAN
WHEREAS, Seagull Energy Corporation (the "Company") has heretofore
adopted and currently maintains the Seagull Energy Corporation Management
Stability Plan (the "Plan"); and
WHEREAS, pursuant to Section 7.11 of the Agreement and Plan of Merger
by and among Seagull Energy Corporation, GNR Merger Corporation and Global
Natural Resources Inc. dated as of July 22, 1996 (the "Merger Agreement"), the
Company has agreed to provide benefits under the Plan to employees of Global
Natural Resources Inc. ("Global") that are employed by Global as of Effective
Time (as such term is defined in the Merger Agreement) (the "Effective Time");
and
WHEREAS, the Company desires to amend the Plan to accomplish such
purpose;
NOW, THEREFORE, the Plan is hereby amended, effective as of the
Effective Time:
1. The following sentence shall be added to Section 1.1(c) of the
Plan:
"Further, with respect to a Covered Employee who was employed by Global
Natural Resources Inc. ('Global') as of the Effective Time (as such
term is defined in the Agreement and Plan of Merger by and among
Seagull Energy Corporation, GNR Merger Corporation and Global Natural
Resources Inc. dated as of July 22, 1996 (the 'Merger Agreement')) (the
'Effective Time'), 'Change of Control' shall mean the consummation of
the merger contemplated by the Merger Agreement."
2. Section 1.1(j) of the Plan shall be deleted and the following
shall be substituted therefor:
"'EIP' shall mean the Seagull Energy Corporation Executive Incentive
Plan or any successor thereto. Further, with respect to a Covered
Employee who was employed by Global as of the Effective Time, 'EIP'
shall mean the Global incentive bonus program or, as applicable, the
Seagull Energy Corporation Executive Incentive Plan or any successor
thereto."
3. Section 1.1(k) of the Plan shall be deleted and the following
shall be substituted therefor:
"'Employer' shall mean the Company, Global and each eligible
organization designated as an Employer in accordance with the
provisions of Section 4.4 of the Plan."
<PAGE>
4. The following sentence shall be added to Section 1.1(m) of the
Plan:
"Further, for purposes of this provision, the 'Grade' of a Covered
Employee who was employed by Global as of the Effective Time shall be
determined in accordance with the procedures of the Company."
5. Section 1.1(o) of the Plan shall be deleted.
6. Section 2.1(b) of the Plan shall be deleted and the following
shall be substituted therefor:
"(b) A lump sum cash payment in an amount equal to the
remaining portion of any award to the Covered Employee under any prior
years' EIP. Further, if a Covered Employee's Involuntary Termination
occurs on or after the date an award has been earned under the EIP, but
prior to the date such award is paid, the Covered Employee shall
receive an additional lump sum cash payment in an amount equal to his
Targeted EIP Award."
7. As amended hereby, the Plan is specifically ratified and
reaffirmed.
EXECUTED this 9th day of November, 1996.
SEAGULL ENERGY CORPORATION
By: /s/Jack M. Robertson
Name: Jack M. Robertson
Title: Vice President, Human
Resources
GLOBAL NATURAL RESOURCES INC.
By: /s/ William L. Transier
Name: William L. Transier
Title: Senior Vice President,
Chief Financial Officer and
Assistant Secretary
AMENDMENT TO EMPLOYMENT AGREEMENT
WHEREAS, Seagull Energy Corporation (the "Company") and Barry J. Galt
("Galt") have heretofore entered into an Employment Agreement (the "Agreement"),
effective as of December 30, 1983; and
WHEREAS, Section 3.4 of the Agreement obligates the Company to provide
certain term life insurance coverage to Galt during the term of the Agreement;
and
WHEREAS, the Company and Galt have heretofore entered into an agreement
regarding the provision of insurance coverage for Galt, effective as of January
1, 1987, and in satisfaction of the Company's obligations under Section 3.4 of
the Agreement; and
WHEREAS, the Company and Galt desire to amend such prior agreement
regarding the provision of life insurance coverage for Galt, effective as of
January 1, 1997, to provide Galt with additional flexibility with respect to
such insurance coverage;
NOW, THEREFORE, the parties hereto agree as follows:
1. Effective as of January 1, 1997 and continuing for each year that
the Agreement is in force and effect, on the date and in the manner designated
by Galt, which date shall be within ninety days of the due date specified on
Schedule A attached hereto and made a part hereof, the Company shall tender
annual premiums in the amounts established pursuant to Schedule A by check
payable to the insurance company designated by Galt to be applied by such
company to the insurance policy designated by Galt.
2. Galt agrees that payment of the premiums by the Company as specified
in Item 1 above will constitute full and complete performance by the Company of
its obligations under Section 3.4 of the Agreement.
Executed this 23rd day of January, 1997.
SEAGULL ENERGY CORPORATION
By: /s/ William L. Transier
Name: William L. Transier
Title: Sr. Vice President and CFO
/s/ Barry J. Galt
BARRY J. GALT
<PAGE>
SCHEDULE A
Annual Premium Payments by Seagull Energy Corporation
<TABLE>
<CAPTION>
Due Date Amount Age of Mr. Galt
- --------------------------------------------------------------------------------
<S> <C> <C>
2-9-97 $ 4,770 63
2-9-98 5,490 64
2-9-99 6,355 65
2-9-00 7,225 66
2-9-01 8,100 67
2-9-02 8,990 68
2-9-03 9,885 69
2-9-04 11,000 70
2-9-05 12,520 71
2-9-06 14,520 72
2-9-07 17,055 73
2-9-08 20,235 74
2-9-09 24,060 75
2-9-10 28,510 76
2-9-11 33,570 77
2-9-12 36,730 78
2-9-13 40,080 79
2-9-14 43,565 80
</TABLE>
EXHIBIT 13
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Selected Financial Data ................................................... 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................................. 22
Report of Management to Shareholders ...................................... 32
Independent Auditors' Report .............................................. 33
Consolidated Statements of Operations ..................................... 34
Consolidated Balance Sheets ............................................... 35
Consolidated Statements of Cash Flows ..................................... 36
Consolidated Statements of Shareholders' Equity ........................... 37
Notes to Consolidated Financial Statements ................................ 38
</TABLE>
SELECTED FINANCIAL DATA
(Amounts in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
==========================================================================================================================
Restated Restated Restated Restated
<S> <C> <C> <C> <C> <C>
Revenues ......................................... $ 518,578 $ 408,426 $ 470,486 $ 452,232 $ 296,335
Net income (loss)(3)(4) .......................... 28,961 (1,738) (4,405) 34,095 3,842
Earnings (loss) per share(3)(4) .................. 0.45 (0.03) (0.07) 0.56 0.08
Net cash provided by operating
activities before changes in
operating assets and liabilities .............. 220,543 124,822 182,413 174,697 92,928
Net cash provided by
operating activities .......................... 256,419 118,034 209,114 139,292 78,900
Total assets ..................................... 1,515,063 1,359,125 1,454,050 1,286,391 1,233,828
Long-term portion of debt ........................ 573,455 557,107 622,080 459,787 608,066
Redeemable bearer shares(5) ...................... 16,059 16,591 17,467 18,375 --
Shareholders' equity ............................. 597,730 562,621 557,646 567,943 358,326
Capital expenditures ............................. 213,462 144,101 202,553 137,894 51,524
Acquisitions, net of cash acquired ............... 104,420 -- 193,859 29,470 401,888
Standardized measure of discounted
future net cash flows
before taxes .................................. 2,137,870 1,103,962 865,047 1,022,140 955,960
</TABLE>
(1)Reference is made to the Consolidated Financial Statements of Seagull Energy
Corporation and Subsidiaries and Notes thereto, appearing on pages 33 through
64 of this Annual Report. As discussed in Note 1 to the Consolidated
Financial Statements, all periods have been restated to reflect Seagull's
merger with Global Natural Resources Inc. on October 3, 1996, which was
accounted for as a pooling of interests.
(2)Includes Seagull Mid-South Inc. since December 31, 1992, Seagull Energy
Canada Ltd. since January 4, 1994 and two Egyptian concessions since
September 10, 1996.
(3)1992 includes the cumulative effect of two changes in accounting principles
related to income taxes and postretirement benefits representing an increase
in earnings of approximately $2.3 million, or $0.09 per share.
(4)1995 includes a pre-tax, non-cash charge for the impairment of long-lived
assets of $48.8 million.
(5)See Note 9 to the Consolidated Financial Statements for discussion of
redeemable bearer shares.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
On October 3, 1996, the shareholders of Seagull Energy Corporation ("Seagull"
or the "Company") and Global Natural Resources Inc. ("Global") approved a merger
of a wholly owned subsidiary of Seagull into Global (the "Global Merger").
Pursuant to the Global Merger, each share of Global common stock was converted
into 0.88 shares of Seagull common stock. The Global Merger was accounted for as
a pooling of interests. Accordingly, the financial information for all periods
have been restated to combine the results of Seagull and Global. Certain
adjustments were made to the results of Seagull and Global to conform the
accounting policies and presentation used by Seagull and Global.
Information presented herein includes forward looking statements within the
meaning of Section 27A of the Securities Act of 1993 and Section 21E of the
Securities Exchange Act of 1934. Although Seagull believes that its expectations
are based on reasonable assumptions, it can give no assurance that its goals
will be achieved. Important factors that could cause actual results to differ
materially from those in the forward looking statements include political
developments in foreign countries, federal and state regulatory developments,
the timing and extent of changes in commodity prices, the timing and extent of
success in discovering, developing and producing or acquiring oil and gas
reserves, and conditions of the capital and equity markets during the periods
covered by the forward looking statements.
RESULTS OF OPERATIONS
CONSOLIDATED HIGHLIGHTS
(Amounts in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- ------------
Revenues: Restated Restated
<S> <C> <C> <C>
Oil and gas operations(*) ................................................... $ 420,962 $ 310,656 $ 364,888
Alaska transmission and distribution ........................................ 97,616 97,770 105,598
------------- ------------- ------------
$ 518,578 $ 408,426 $ 470,486
============= ============= ============
Operating profit (loss):
Oil and gas operations(*) ................................................... $ 100,529 $ (33,721) $ 41,374
Alaska transmission and distribution ........................................ 26,026 23,141 21,865
General and administrative expenses ......................................... (21,500) (23,798) (14,603)
------------- ------------- ------------
$ 105,055 $ (34,378) $ 48,636
============= ============= ============
Net income (loss) ............................................................. $ 28,961 $ (1,738) $ (4,405)
Earnings (loss) per share ..................................................... $ 0.45 $ (0.03) $ (0.07)
Weighted average number of common shares outstanding .......................... 64,073 62,674 63,006
Net cash provided by operating activities before changes in operating assets
and liabilities ............................................................. $ 220,543 $ 124,822 $ 182,413
Net cash provided by operating activities ..................................... $ 256,419 $ 118,034 $ 209,114
</TABLE>
(*)The Company reclassified its results of operations for 1995 and 1994 to
combine the former Exploration and Production segment and Pipeline and
Marketing segment into Oil and Gas Operations. Substantially all of the
Company's gas processing and gas gathering assets were sold in September
1995. The assets sold contributed $17.6 million and $26.4 million in revenues
and $6.2 million and $6.7 million in operating profit for 1995 and 1994,
respectively.
22
<PAGE>
Seagull's $31 million and $138 million improvement in net income and cash
flow provided by operating activities, respectively, for 1996 is principally due
to two factors that substantially impacted the Oil and Gas Operations segment --
higher domestic gas prices and increasing levels of international oil
production.
Conversely, the Company's results of operations for 1995 were greatly
influenced by lower domestic gas prices and three unusual items discussed below.
See the "Oil and Gas Operations," section below for a further discussion of that
segment's operating profit.
The Company's results of operations were impacted by the following unusual
items in the last two years:
Merger expenses of $10.0 million ($9.0 million after taxes) were recorded in
the fourth quarter of 1996 representing investment banking fees, legal,
accounting and other expenses related to the Global Merger.
On September 25, 1995, Seagull and three other sellers completed the sale of
their disparate interests in 19 natural gas gathering systems and a gas
processing plant (the "Pipeline Assets"). The Company recorded a pre-tax gain on
the sale of $82 million ($54 million after taxes). The Pipeline Assets
contributed $17.6 million and $26.4 million in revenues and $6.2 million and
$6.7 million in operating profit for 1995 and 1994, respectively. With the sale
of the Pipeline Assets, Seagull's former Exploration and Production segment and
the Pipeline and Marketing segment have been reclassified into Oil and Gas
Operations.
Effective March 31, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." As a result of
the adoption of this standard, the Company recognized a pre-tax, non-cash charge
against earnings during 1995 of $48.8 million ($32 million after taxes) (the
"Long-Lived Asset Impairment").
Seagull recorded one-time pre-tax charges of $8 million in general and
administrative expenses resulting from the Company's workforce reduction and
consolidation implemented during the second quarter of 1995. The savings from
the workforce reduction and consolidation are primarily reflected in lower
operating expenses.
Natural gas is stated herein in billion cubic feet ("Bcf"), million cubic
feet ("MMcf") or thousand cubic feet ("Mcf"). Oil, condensate and natural gas
liquids ("NGL") are stated in thousand barrels ("MBbl") or barrels ("Bbl").
MMcfe and Mcfe represent the equivalent of one million and one thousand cubic
feet of natural gas, respectively. Oil, condensate and NGL are converted to gas
at a ratio of one barrel of liquids per six Mcf of gas, based on relative energy
content. MBOE and BOE represent one thousand barrels of oil equivalent and one
barrel of oil equivalent, respectively, with six Mcf of gas converted to one
barrel of liquid.
23
<PAGE>
OIL AND GAS OPERATIONS
(Amounts in Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues: Restated Restated
Natural gas .................................. $ 297,149 $ 218,039 $ 264,764
Oil and NGL .................................. 90,779 48,725 42,557
Other E&P .................................... (971) 991 156
Pipeline and marketing ....................... 34,005 42,901 57,411
---------- ---------- ----------
Total revenues .............................. 420,962 310,656 364,888
---------- ---------- ----------
Costs of Operations:
E&P direct operating expense ................. 87,255 71,632 75,192
E&P general operating expense ................ 14,419 13,393 15,378
Pipeline and marketing expenses .............. 23,578 30,674 39,949
Exploration charges .......................... 50,227 40,223 43,813
Depreciation, depletion and amortization ..... 144,954 139,613 149,182
Impairment of long-lived assets .............. -- 48,842 --
---------- ---------- ----------
Total operating costs ....................... 320,433 344,377 323,514
---------- ---------- ----------
Operating profit (loss) ........................ $ 100,529 $ (33,721) $ 41,374
========== ========== ==========
</TABLE>
The $110 million increase in revenues for 1996 as compared to 1995 was
primarily the net result of two factors - (i) increases in the Company's average
realized price of natural gas for its domestic E&P activities and (ii) increases
in oil production and oil and gas price internationally. The domestic natural
gas prices increase from $1.62 per Mcf for 1995 to $2.17 per Mcf for 1996
accounted for approximately $63 million of the overall increase in revenues.
International production increased over 1995 as production in Egypt began in
November 1995 and the Company purchased interests in two additional Egyptian
concessions on September 10, 1996 (the "Esso Suez Acquisition"). Also,
production increased steadily during 1996 from Cote d'Ivoire where production
began in April 1995. The increases in production in Cote d'Ivoire and Egypt
contributed approximately $35 million of the overall increase in revenues.
Domestic gas production also increased slightly, providing approximately $6
million of the overall increase in revenues.
Revenues decreased $54 million from 1994 to 1995 primarily as the result of
substantial declines in the domestic and Canadian average natural gas prices and
a 5% decline in domestic natural gas production. The domestic and Canadian
natural gas price per Mcf decline from $1.88 to $1.62 and from $1.55 to $1.02,
respectively, was responsible for approximately $41 million of the decrease in
revenues and the 5% decline in domestic natural gas production was responsible
for an additional $9 million. The decrease in domestic production was primarily
due to voluntary curtailments coupled with lower sustainable deliverability
resulting from natural production declines and a substantially lower level of
development expenditures in late 1994 and all of 1995. Both the lower level of
development expenditures and voluntary curtailments were directly related to the
low natural gas price. The Company has had no voluntary curtailments in the U.S.
since October 1995.
In late 1995, Seagull initiated an active risk management program for a
portion of its own E&P production and third-party activities, utilizing such
derivative financial instruments as futures contracts, options and swaps. The
primary objective of the risk management program is to help ensure more stable
cash flow. The risk management program is also an important part of Seagull's
third-party marketing efforts, allowing the Company to convert a customer's
<PAGE>
24
requested price to a price structure that is consistent with the Company's
overall pricing strategy. Seagull accounts for its commodity derivative
contracts as hedging activities and, accordingly, the effect is included in
revenues when the commodities are produced.
The Company recorded costs related to commodity hedging activities of $9.0
million, $0.5 million and none for 1996, 1995 and 1994, respectively. These
costs had the effect of reducing average gas prices by $0.06 mcfe for 1996 and
$0.004 mcfe for 1995.
In mid 1996, Seagull put price "collars" in place with respect to about a
third of its domestic gas deliverability for the first quarter of 1997 only.
These "collars" assured a minimum realization above $2.00 per Mcf in exchange
for a $2.50 per Mcf ceiling on that component of Seagull's production.
Additionally, the Company has commodity hedges in place for approximately 12
MMcf per day through December 1998 on properties associated with the Monetary
Production Payment (see Note 6 to the Consolidated Financial Statements). These
hedge positions will reduce first quarter 1997 E&P revenues. At December 31,
1996, there was $8.2 million of realized cost on commodity hedging activities
which was deferred and will reduce revenues in the month that the hedged
production occurred (January 1997). On the other hand, because of the drop in
commodity prices after January 1997, the Company expects actual net realizations
of above "collars" for February and March, 1997 to be slightly positive. Also at
December 31, 1996, there are $2.0 million of net unrealized and unrecognized
hedging cost related to the commodity hedges associated with the Monetary
Production Payment based on the difference between the strike price and the
futures price for the respective trading months at year end. Again as a result
of the intervening drop in commodity prices, the net unrealized and unrecognized
hedging cost would be substantially lower if current strike and futures prices
were used. Essentially all other hedging activities were realized prior to
year-end. The Company has no commodity hedges in place for equity production
after March 1997 other than those associated with the Monetary Production
Payment.
EXPLORATION AND PRODUCTION REVENUE BY AREA
(Amounts in Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
Restated Restated
<S> <C> <C> <C>
Gas Revenues:
Domestic ........................ $ 252,806 $ 183,478 $ 223,110
Canada .......................... 26,869 22,591 30,695
Cote d'Ivoire ................... 2,563 328 --
Indonesia ....................... 14,911 11,642 10,959
---------- ---------- ----------
$ 297,149 $ 218,039 $ 264,764
========== ========== ==========
Oil and NGL Revenues:
Domestic ........................ $ 29,706 $ 22,228 $ 24,879
Canada .......................... 6,048 5,186 4,940
Cote d'Ivoire ................... 10,235 4,050 --
Egypt ........................... 28,126 442 --
Russia .......................... 15,626 16,037 11,956
Indonesia ....................... 1,038 782 782
---------- ---------- ----------
$ 90,779 $ 48,725 $ 42,557
========== ========== ==========
</TABLE>
25
<PAGE>
EXPLORATION AND PRODUCTION OPERATING DATA
<TABLE>
<CAPTION>
Net Daily Production Unit Price
1996 1995 1994 1996 1995 1994
--------- --------- --------- --------- --------- ---------
Restated Restated Restated Restated
<S> <C> <C> <C> <C> <C> <C>
Gas Sales(1):
Domestic ........................... 317.6 310.7 325.5 $ 2.17 $ 1.62 $ 1.88
Canada ............................. 57.9 60.5 54.1 1.27 1.02 1.55
Cote d'Ivoire ...................... 3.9 0.6 -- 1.77 1.61 --
Indonesia .......................... 12.1 10.8 12.3 3.36 2.96 2.45
--------- --------- --------- --------- --------- ---------
Total .............................. 391.5 382.6 391.9 $ 2.07 $ 1.56 $ 1.85
========= ========= ========= ========= ========= =========
Oil and NGL Sales(2):
Domestic ........................... 4,264 3,845 4,520 $ 19.03 $ 15.84 $ 15.08
Canada ............................. 985 1,092 1,170 16.77 13.01 11.57
Cote d'Ivoire ...................... 1,395 715 -- 20.04 15.51 --
Egypt .............................. 3,565 67 -- 21.56 17.97 --
Indonesia .......................... 147 125 129 19.58 17.18 16.58
Russia ............................. 3,053 2,909 2,307 13.98 15.11 14.21
--------- --------- --------- --------- --------- ---------
Total .............................. 13,409 8,753 8,126 $ 18.50 $ 15.53 $ 14.35
========= ========= ========= ========= ========= =========
</TABLE>
(1) Volume in MMcf per day; Price in $ per Mcf.
(2) Volume in Bbl per day; Price in $ per Bbl.
The increase in E&P direct operating expenses of $15.6 million from 1995 to
1996 is principally a result of the increased production in the United States
and Egypt. However, direct operating expense per equivalent unit of production
for the Company's E&P activities increased from $0.45 per Mcfe in 1995 to $0.51
per Mcfe in 1996 primarily due to increased domestic transportation expense.
Direct operating costs per equivalent unit of production are expected to
increase slightly during 1997 as the Company's international operations and oil
production (with higher associated direct operating costs) become increasingly
significant to the Company's total E&P operations.
Direct operating expense for the Company's E&P activities declined from 1994
to 1995 primarily due to the decline in domestic production and decreased export
taxes in Russia attributable to a one-year exemption from export tax in the
Company's Russian operations in 1995. Direct operating expenses per equivalent
unit of production declined from $0.47 per Mcfe in 1994 to $0.45 per Mcfe in
1995.
Oil and Gas Operations depreciation, depletion and amortization ("DD&A")
expense increased from $139.6 million in 1995 to $145.0 million in 1996
primarily due to increased production discussed above, partially offset by a
decrease in the average DD&A rate per equivalent unit of production from $0.86
per Mcfe in 1995 to $0.83 per Mcfe in 1996.
DD&A expense for Oil and Gas Operations decreased $6.6 million from 1994 to
1995 principally as a result of the decline in domestic production coupled with
a decrease in the average DD&A rate. Due to the Long-Lived Asset Impairment
discussed previously and a change in the mix of properties being produced, the
Company's average DD&A rate decreased from $0.89 per Mcfe in 1994 to $0.86 per
Mcfe in 1995.
OUTLOOK
At year-end 1996, the Company was producing about 375 MMcf per day of
26
<PAGE>
natural gas and 18,500 Bbl per day of crude oil, condensate and NGL worldwide.
In the United States, Seagull expects to maintain its level of domestic gas
production of about 300 MMcf per day throughout 1997. U.S. liquids production
will increase when initial shipments begin from a recent discovery in the first
half of 1997.
In Canada, Seagull expects 1997 production to compare closely with year-end
1996 levels of between 50 and 55 MMcf per day of gas and 1,000 Bbl per day of
oil, condensate and NGL.
Internationally, production increases are anticipated in Egypt, where the
Company expects oil output for 1997 to average approximately 10,000 Bbl per day.
Elsewhere, Seagull expects production levels to grow more modestly in Cote
d'Ivoire and to be essentially unchanged in Indonesia and Russia.
The future results of the Oil and Gas Operations segment will be affected by
the market prices of oil and natural gas and the Company's degree of exploration
success. The availability of a ready market for oil, natural gas and liquid
products in the future will depend on numerous factors beyond the control of the
Company, including weather, production of other crude oil, natural gas and
liquid products, imports, marketing of competitive fuels, proximity and capacity
of oil and gas pipelines and other transportation facilities, any oversupply or
undersupply of oil, gas and liquid products, the regulatory environment, and
other international, regional and political events, none of which can be
predicted with certainty.
ALASKA TRANSMISSION AND DISTRIBUTION
(Dollars in Thousands Except Per Unit Data)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues ..................................... $ 97,616 $ 97,770 $ 105,598
Cost of gas sold ............................. 42,600 46,328 54,465
---------- ---------- ----------
Gross margin............................... 55,016 51,442 51,133
Operations and maintenance expense ........... 21,045 20,504 21,516
Depreciation, depletion and amortization ..... 7,945 7,797 7,752
---------- ---------- ----------
Operating profit........................... $ 26,026 $ 23,141 $ 21,865
========== ========== ==========
OPERATING DATA:
Degree days(*) ............................... 10,975 9,997 10,291
Volumes (Bcf):
Gas sold ................................... 26.8 26.4 31.3
Gas transported ............................ 21.0 17.9 12.8
Combined ................................... 47.8 44.3 44.1
Margins (per Mcf):
Gas sold ................................... $ 1.70 $ 1.66 $ 1.49
Gas transported ............................ $ 0.46 $ 0.43 $ 0.35
Combined ................................... $ 1.15 $ 1.16 $ 1.16
Year-end customers ........................... 94,100 92,100 90,100
</TABLE>
(*)A measure of weather severity calculated by subtracting the mean temperature
for each day from 65(degree)F. More degree days equate to colder weather.
27
<PAGE>
Operating profit of the Alaska transmission and distribution segment (ENSTAR
Natural Gas Company, a division of the Company, and Alaska Pipeline Company, a
wholly owned subsidiary, (collectively referred to herein as "ENSTAR Alaska") is
primarily a function of the weather in the Anchorage, Alaska area during the
winter heating season. Cold weather equates to higher gas volumes delivered,
resulting in increased profits. This proved to be the case in 1996 as degree
days for the ENSTAR Alaska service area increased 10% to 10,975 compared with
1995, resulting in a 12% increase in operating profit.
Although degree days were down slightly in 1995, operating profit of ENSTAR
Alaska improved from 1994 primarily as a result of lower operations and
maintenance expense due to lower permit fees paid.
In the first quarter of 1995, two large military power plants that previously
purchased gas from ENSTAR Alaska began purchasing gas directly from gas
producers. However, ENSTAR Alaska has been approved by the Alaska Public
Utilities Commission to transport the customers' gas supplies for a fee that is
essentially comparable to the margin (revenues net of the associated cost of gas
sold) it previously earned. Accordingly, overall operating profit for the Alaska
transmission and distribution segment was basically unaffected by this change.
OUTLOOK
ENSTAR Alaska will continue to play a significant role in Seagull's future.
Even though it may not fit precisely into the Company's other E&P-oriented
activities, management expects it to be maintained as a major part of the
Company.
Future operating profit for this segment will be affected by weather,
regulatory action and customer growth in ENSTAR Alaska's service area. The
Company expects customer growth to continue to be relatively modest. During the
1996 summer construction season, approximately 56 miles of new distribution
pipeline were installed to connect some 2,000 new customers. In September 1995,
ENSTAR Alaska entered into a 33-year agreement to lease a 60-mile, 8-inch
diameter pipeline between Anchorage, Alaska and Whittier, Alaska. The new
pipeline is expected to add close to 1,500 new customers over the next few
years.
ENSTAR Alaska purchases all of its natural gas under long-term contracts in
which the price is indexed to changes in the price of crude oil futures
contracts. However, because ENSTAR Alaska's sales prices are adjusted to include
the projected cost of its natural gas, there has been and is expected to be
little or no impact on margins derived from ENSTAR Alaska's gas sales as a
result of fluctuation in oil prices due to worldwide political events and
changing market conditions.
OTHER
General and administrative expenses, excluding the $8 million charge for
workforce reduction and consolidation discussed previously, increased
approximately $5.7 million to $21.5 million in 1996 as a result of an increase
in incentive compensation expenses and the Company's expanding international
operations. Interest expense declined from $53.0 million in 1995 to $44.8
million for 1996 through utilization of the proceeds from the sale of the
Pipeline Assets in late 1995 to repay amounts outstanding under the Company's
existing credit facilities.
28
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL EXPENDITURES
(Amounts in Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
Restated Restated
<S> <C> <C> <C>
Exploration and production:
Leasehold ................................ $ 12,986 $ 18,000 $ 18,573
Exploration .............................. 77,774 46,575 67,135
Development .............................. 108,763 69,260 100,763
---------- ---------- ----------
199,523 133,835 186,471
Pipeline and marketing ...................... 228 441 2,503
---------- ---------- ----------
Oil and gas operations ...................... 199,751 134,276 188,974
Alaska transmission and distribution ........ 9,287 7,611 7,626
Corporate ................................... 4,424 2,214 5,953
---------- ---------- ----------
$ 213,462 $ 144,101 $ 202,553
========== ========== ==========
</TABLE>
E&P CAPITAL EXPENDITURES BY GEOGRAPHIC REGION
(AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
Data for 1996 Actuals Chart
<S> <C>
Domestic ............... $139.7
Canada ................. $ 15.2
Egypt .................. $ 33.0
Cote d'Ivoire .......... $ 6.9
Other .................. $ 4.7
Data for 1997 Plan Chart
Domestic .............. $114.2
Canada ................. $ 15.4
Egypt .................. $ 79.0
Cote d'Ivoire .......... $ 18.1
Other .................. $ 8.3
</TABLE>
E&P is the Company's primary growth area. Historically, that growth has been
achieved primarily through acquisitions of proved oil and gas properties.
However, acquisitions are expected to play a much smaller role in Seagull's
near-term future growth.
In 1997, the Company's capital program is designed to hold domestic reserves
and deliverability to approximately year-end 1996 levels, while greater focus is
placed on Seagull's international drilling efforts.
E&P capital expenditures in 1996 totaled $199.5 million, up substantially
from $133.8 million in 1995. Spending outside the U.S. totaled $59.8 million, of
which $13.2 million was for exploration and $43.5 million for exploitation.
Seagull participated in the drilling of 46 exploratory wells during 1996,
of which 23 were successful. Another 15 wells were in progress at year-end. Of
the successes, 14 were in the U.S., 2 in Egypt, 2 in Cote d'Ivoire and 5 in
Canada. In addition, domestic exploitation activities picked up considerably
after being severely curtailed in 1995 due to the depressed U.S. gas prices.
On September 10, 1996, Seagull consummated the Esso Suez Acquisition for a
net purchase price of approximately $74 million in cash financed through
additional borrowings under Seagull's revolving credit (the "Revolving Credit
Facilities"). The assets purchased in the Esso Suez Acquisition include a 100%
interest in the East Zeit oil producing concession in the offshore Gulf of Suez
and the entire working interest in the South Hurghada concession located onshore
on the coast of the Gulf of Suez approximately 250 miles south of Cairo.
29
<PAGE>
On September 10, 1996, the East Zeit concession area contained approximately
17 million net barrels of proved oil reserves. The 63,000-acre South Hurghada
concession contained several currently drillable exploratory prospects, plus two
existing oil discoveries.
In addition, Seagull's new program of relatively small domestic producing
property acquisitions initiated in 1996 resulted in the addition of 37.3 Bcfe
for a cost of $29.1 million.
Seagull's proved oil and gas reserves at December 31, 1996 totaled 257,957
MBOE compared with 243,152 MBOE at year-end 1995. Through drilling and proved
property acquisitions, the Company replaced 159% of its production during 1996
at a finding and development ("F&D") cost of $6.36 per BOE and 177% of its
production over the three year period 1994 through 1996 at a F&D cost of $5.76
per BOE.
The higher reserve volumes and the improved price environment that existed at
year-end 1996 combined to substantially increase the present value of future net
cash flows from the Company's proved reserves. Specifically, the standardized
measure of discounted future net cash flows before taxes from Seagull's proved
oil and gas reserves, calculated based on Securities and Exchange Commission
criteria, increased to $2.1 billion at December 31, 1996 compared with $1.1
billion at the end of 1995. Year-end 1996 calculations were made using prices of
$3.27 per Mcf for gas and $20.99 per Bbl for oil, condensate and NGL. The
Company's average realized price for the year ended December 31, 1996 were $2.07
per Mcf for gas and $18.50 per Bbl for oil, condensate and NGL. Because the
disclosure requirements are standardized, significant changes can occur in these
estimates based upon oil and gas prices in effect at year-end. The above
estimates should not be viewed as an estimate of fair market value. See Note 15
of Notes to Consolidated Financial Statements beginning on page 38 of this
Annual Report for additional information.
Plans for 1997 call for capital expenditures of approximately $250 million,
including about $235 million in E&P. Seagull anticipates spending approximately
$140 million for development, $10 million for leasehold and $85 million will be
devoted to exploration. Of this total, about $105 million is expected to be
spent outside North America. The 1997 capital program anticipates 35 to 40
exploratory wells in the U.S. and Canada and over 25 exploratory wells outside
of North America.
LIQUIDITY
The growth in the Oil and Gas Operations segment over the past eight years
has been accomplished primarily through acquisitions financed initially by bank
borrowings; however, since August 1990, the Company has utilized $520 million in
net proceeds from three separate Common Stock offerings and the July 1993 sale
of Senior and Senior Subordinated Notes, all in underwritten public offerings,
to reduce borrowings under its existing bank facilities. In addition, Seagull
reduced its borrowings under existing bank facilities in 1995 by $143 million
with the proceeds from the sale of the Pipeline Assets and the Internal Revenue
Code Section 29 Tax Credit-bearing gas properties.
In 1993, the Company entered into the Revolving Credit Facilities with a
group of major U. S. and international banks (the "Banks"). During 1996, the
terms of the Revolving Credit Facilities were amended and currently provide a
maximum commitment of $650 million. Under the terms of the Revolving Credit
Facilities, the commitments thereunder begin to decline in equal quarterly
amounts of $40 million commencing on March 31, 1999, with a final reduction of
$50 million on December 31, 2002. The amount of senior indebtedness available to
the Company under the provisions of the Revolving Credit Facilities is subject
to a borrowing base (the "Borrowing Base"), based upon certain of the Company's
proved oil and gas reserves and the financial performance of ENSTAR Alaska. The
Borrowing Base is generally determined annually but may be redetermined one
additional time each year, at the option of either Seagull or the Banks, and
upon the sale of certain assets included in the Borrowing
30
<PAGE>
Base. With the Esso Suez Acquisition, Seagull requested and received a $50
million increase to the Borrowing Base to $550 million on October 1, 1996. See
Notes 4 and 6 of Notes to Consolidated Financial Statements beginning on page 38
of this Annual Report for additional information relating to acquisitions and
debt.
As of December 31, 1996, borrowings outstanding under the Revolving Credit
Facilities were $237 million, leaving immediately available unused commitments
of approximately $176 million, net of outstanding letters of credit of $20
million, $100 million of borrowings outstanding under the Senior Notes, and $17
million in borrowings outstanding under the Company's money market facilities.
The money market facilities are with two U.S. banks and have a combined
maximum commitment of $70 million. These lines of credit bear interest at rates
made available by the banks at their option and may be canceled at either
Seagull's or the banks' option.
Management believes that the Company's internally generated funds and bank
borrowing capabilities will be sufficient to finance current and forecasted
operations.
ENVIRONMENTAL
To date, compliance with applicable environmental and safety regulations by
the Company has not required any significant capital expenditures or materially
affected its business or earnings. The Company believes it is in substantial
compliance with environmental and safety regulations and foresees no material
expenditures in the future; however, the Company is unable to predict the impact
that compliance with future regulations may have on capital expenditures,
earnings and competitive position.
SELECTED QUARTERLY FINANCIAL DATA
Summarized quarterly financial data (stated in thousands except per share
amounts) is as follows:
<TABLE>
<CAPTION>
Quarter Ended(1)
-----------------------------------------------------------
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
1996:
Revenues ............................. $ 136,840 $ 112,437 $ 110,786 $ 158,515
Operating Profit ..................... $ 37,701 $ 13,826 $ 20,116 $ 33,412
Net Income (Loss) .................... $ 18,312 $ (2,934) $ 7,458 $ 6,125(6)
Earnings (Loss) per Share(2) ......... $ 0.29 $ (0.05) $ 0.12 $ 0.10
1995:
Revenues ............................. $ 112,427 $ 98,595 $ 85,381 $ 112,023
Operating Profit (Loss) .............. $ (47,469)(3) $ (2,114)(4) $ (1,475) $ 16,680
Net Income (Loss) .................... $ (42,766)(3) $ (10,063)(4) $ 43,692(5) $ 7,399
Earnings (Loss) per Share(2) ......... $ (0.69) $ (0.16) $ 0.70 $ 0.12
</TABLE>
(1)As discussed in Note 1 to the Consolidated Financial Statements, all periods
have been restated to reflect the Global Merger on October 3, 1996.
(2)Quarterly earnings (loss) per common share may not total to the full year per
share amount, as the weighted average number of shares outstanding for each
quarter fluctuated as a result of the assumed exercise of stock options.
(3)Includes $48.8 million pre-tax non-cash charge relating to the impairment of
long-lived assets.
(4)Includes one-time pre-tax charges of $8 million for expenses involved in the
workforce reduction and consolidation.
(5)Includes $82 million pre-tax gain on the sale of the Pipeline Assets.
(6)Includes $10 million pre-tax merger expenses relating to the Global Merger.
31
<PAGE>
REPORT OF MANAGEMENT TO SHAREHOLDERS
The management of Seagull Energy Corporation is responsible for the
preparation and integrity of financial statements and related data in this
Annual Report, whether audited or unaudited. The financial statements were
prepared in conformity with generally accepted accounting principles and are not
misstated due to material fraud or error. The financial statements include
certain estimates and judgments which management believes are reasonable under
the circumstances. The other information in the Annual Report is consistent with
that in the financial statements.
Management is responsible for and maintains a system of internal accounting
controls that is sufficient to provide reasonable assurance that assets are
safeguarded against loss or unauthorized use and that financial records are
reliable for preparing financial statements, as well as to prevent and detect
fraudulent financial reporting. The internal control system is supported by
written policies and procedures and the employment of trained, qualified
personnel. The Company has an internal auditing staff which reviews the adequacy
of the internal accounting controls and compliance with them. Management has
considered the recommendations of the internal auditing staff and KPMG Peat
Marwick LLP concerning the Company's system of internal controls and has
responded appropriately to those recommendations.
The accompanying consolidated financial statements of Seagull Energy
Corporation and Subsidiaries as of December 31, 1996 have been audited by KPMG
Peat Marwick LLP, independent certified public accountants. Their audits were
made in accordance with generally accepted auditing standards and included a
review of the system of internal controls to the extent considered necessary to
determine the audit procedures required to support their opinion on the
consolidated financial statements. The Auditors' Report appears on page 33.
The Board of Directors, through its Audit Committee composed exclusively of
outside directors, meets periodically with representatives of management, the
internal auditing staff and the independent auditors to ensure the existence of
effective internal accounting controls and to ensure that financial information
is reported accurately and timely with all appropriate disclosures included. The
independent auditors and the internal auditing staff have full and free access
to, and meet with, the Audit Committee, with and without management present.
/s/ BARRY J. GALT
Barry J. Galt
Chairman and
Chief Executive Officer
/s/ WILLIAM L. TRANSIER
William L. Transier
Senior Vice President and
Chief Financial Officer
/s/ GORDON L. MCCONNELL
Gordon L. McConnell
Vice President and Controller
January 27, 1997
32
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Seagull Energy Corporation:
We have audited the accompanying consolidated balance sheets of Seagull
Energy Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Seagull
Energy Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
As discussed in Note 2 in 1995, the Company changed its method of accounting
for the impairment of long-lived assets and for long-lived assets to be disposed
of to adopt the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of."
/s/ KPMG Peat Marwick LLP
Houston, Texas
January 27, 1997
33
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amount in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
Restated Restated
<S> <C> <C> <C>
Revenues:
Oil and gas operations ................................... $ 420,962 $ 310,656 $ 364,888
Alaska transmission and distribution ..................... 97,616 97,770 105,598
---------- ---------- ----------
518,578 408,426 470,486
Costs of Operations:
Operations and maintenance ............................... 146,297 136,203 152,035
Alaska transmission and distribution cost of gas sold .... 42,600 46,328 54,465
Exploration charges ...................................... 50,227 40,223 43,813
Depreciation, depletion and amortization ................. 152,899 147,410 156,934
Impairment of long-lived assets .......................... -- 48,842 --
General and administrative ............................... 21,500 23,798 14,603
---------- ---------- ----------
413,523 442,804 421,850
---------- ---------- ----------
Operating Profit (Loss) .................................... 105,055 (34,378) 48,636
Other (Income) Expense:
Merger expense ........................................... 9,982 -- --
Interest expense ......................................... 44,842 52,978 51,674
Gain on sales of property, plant and equipment, net ...... (1,088) (83,388) (405)
Interest income and other ................................ (3,537) (5,012) (1,968)
---------- ---------- ----------
50,199 (35,422) 49,301
---------- ---------- ----------
Income (Loss) Before Income Taxes .......................... 54,856 1,044 (665)
Income Tax Expense ......................................... 25,895 2,782 3,740
---------- ---------- ----------
Net Income (Loss) .......................................... $ 28,961 $ (1,738) $ (4,405)
========== ========== ==========
Earnings (Loss) Per Share .................................. $ 0.45 $ (0.03) $ (0.07)
========== ========== ==========
Weighted Average Number of Common
Shares Outstanding ....................................... 64,073 62,674 63,006
========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
34
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Amount in Thousands Except Share and Per Share Data)
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
----------- -----------
Restated
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ....................................................... $ 15,284 $ 21,477
Short-term investments .......................................................... -- 5,004
Accounts receivable, net ........................................................ 193,659 133,190
Inventories ..................................................................... 12,285 5,488
Prepaid expenses and other ...................................................... 6,389 16,272
----------- -----------
Total Current Assets .......................................................... 227,617 181,431
Property, Plant and Equipment:
Oil and gas properties (successful efforts method) .............................. 1,750,784 1,494,773
Utility plant ................................................................... 238,091 229,883
Other ........................................................................... 60,481 58,507
----------- -----------
2,049,356 1,783,163
Accumulated Depreciation, Depletion and Amortization ............................. 804,715 652,985
----------- -----------
1,244,641 1,130,178
Other Assets ..................................................................... 42,805 47,516
----------- -----------
Total Assets ..................................................................... $ 1,515,063 $ 1,359,125
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities:
Accounts and note payable ....................................................... $ 166,775 $ 94,318
Accrued expenses ................................................................ 57,368 50,224
Current maturities of long-term debt ............................................ 7,227 1,650
----------- -----------
Total Current Liabilities ..................................................... 231,370 146,192
Long-Term Debt ................................................................... 573,455 557,107
Other Noncurrent Liabilities ..................................................... 65,428 53,237
Deferred Income Taxes ............................................................ 31,021 23,377
Redeemable Bearer Shares ......................................................... 16,059 16,591
Commitments and Contingencies .................................................... -- --
Shareholders' Equity:
Common Stock, $.10 par value; authorized 100,000,000 shares;
issued 63,073,287 in 1996 and 65,983,199 in 1995 .............................. 6,307 6,598
Additional paid-in capital ...................................................... 483,118 496,377
Retained earnings ............................................................... 115,805 86,844
Foreign currency translation adjustment ......................................... 51 389
Less: note receivable from employee stock ownership plan ....................... (4,284) (4,922)
Less: treasury stock, at cost; 361,314 shares in 1996 and 3,729,823 in 1995 .... (3,267) (22,665)
----------- -----------
Total Shareholders' Equity .................................................... 597,730 562,621
----------- -----------
Total Liabilities and Shareholders' Equity ...................................... $ 1,515,063 $ 1,359,125
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
35
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
Operating Activities: Restated Restated
<S> <C> <C> <C>
Net income (loss) ................................................................ $ 28,961 $ (1,738) $ (4,405)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation, depletion and amortization ...................................... 156,319 151,761 159,950
Impairment of long-lived assets ............................................... -- 48,842 --
Amortization of deferred financing costs ...................................... 2,969 3,429 3,841
Deferred income taxes ......................................................... 8,701 (16,292) (6,291)
Dry hole expense .............................................................. 23,671 22,153 27,166
Gains on sales of property, plant and equipment, net .......................... (1,088) (83,388) (405)
Other ......................................................................... 1,010 55 2,557
----------- ----------- -----------
220,543 124,822 182,413
Changes in operating assets and liabilities, net of acquisitions:
Decrease in short-term investments ......................................... 5,014 28,538 16,210
Decrease (increase) in accounts receivable ................................. (53,531) (21,721) 12,408
Decrease in inventories, prepaid expenses and other ........................ 9,731 1,793 3,046
Increase (decrease) in accounts payable .................................... 53,281 (15,551) 3,093
Increase (decrease) in accrued expenses and other .......................... 21,381 153 (8,056)
----------- ----------- -----------
Net Cash Provided By Operating Activities ................................. 256,419 118,034 209,114
Investing Activities:
Capital expenditures ............................................................. (213,462) (144,101) (202,553)
Acquisitions of oil and gas properties ........................................... (90,867) -- (222,780)
Acquisitions of other assets and liabilities, net of cash acquired ............... (13,553) -- 28,921
Proceeds from sales of property, plant and equipment ............................. 10,557 107,960 7,605
Other ............................................................................ 2,020 (307) (1,775)
----------- ----------- -----------
Net Cash Used In Investing Activities ...................................... (305,305) (36,448) (390,582)
Financing Activities:
Proceeds from debt ............................................................... 407,738 668,815 754,413
Principal payments on debt ....................................................... (368,754) (737,473) (582,827)
Proceeds from sale of common stock ............................................... 4,401 2,241 1,291
Acquisitions of treasury stock ................................................... -- -- (5,289)
Other ............................................................................ (1,051) (3,957) 624
----------- ----------- -----------
Net Cash Provided by (Used In) Financing Activities ........................ 42,334 (70,374) 168,212
Effect of exchange rate changes on cash ............................................ 359 (48) 1,641
----------- ----------- -----------
Increase (Decrease) In Cash And Cash Equivalents .......................... (6,193) 11,164 (11,615)
Cash And Cash Equivalents At Beginning Of Period ................................... 21,477 10,313 21,928
----------- ----------- -----------
Cash And Cash Equivalents At End Of Period ......................................... $ 15,284 $ 21,477 $ 10,313
=========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
36
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in Thousands)
<TABLE>
<CAPTION>
Foreign Note
Additional Currency Receivable Treasury
Common Paid-in Retained Translation from Stock,
Stock Capital Earnings Adjustment ESOP at Cost Total
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1994 - Restated .............. $ 6,559 $ 492,110 $ 92,987 $ -- $ (6,029) $ (17,683) $ 567,944
Net loss for the period .............. -- -- (4,405) -- -- -- (4,405)
Acquisition of treasury stock ........ -- -- -- -- -- (5,289) (5,289)
Exercise of employee
stock options ...................... 18 1,273 -- -- -- -- 1,291
Foreign currency
translation adjustment ............. -- -- -- (2,684) -- -- (2,684)
Repayment of note
receivable by ESOP ................. -- -- -- -- 527 -- 527
Other ................................ -- 195 -- -- -- 70 265
--------- --------- --------- --------- --------- --------- ---------
December 31, 1994 - Restated ............ 6,577 493,578 88,582 (2,684) (5,502) (22,902) 557,649
Net loss for the period .............. -- -- (1,738) -- -- -- (1,738)
Exercise of employee stock options ... 21 2,220 -- -- -- -- 2,241
Treasury stock issued as executive
incentive compensation ............. -- 164 -- -- -- 171 335
Foreign currency
translation adjustment ............. -- -- -- 3,073 -- -- 3,073
Repayment of note
receivable by ESOP ................. -- -- -- -- 580 -- 580
Other ................................ -- 415 -- -- -- 66 481
--------- --------- --------- --------- --------- --------- ---------
December 31, 1995 - Restated ............ 6,598 496,377 86,844 389 (4,922) (22,665) 562,621
Net income for the period ............ -- -- 28,961 -- -- -- 28,961
Retirement of treasury stock
pursuant to the Global Merger ...... (335) (19,021) -- -- -- 19,356 --
Exercise of employee stock options ... 44 4,357 -- -- -- -- 4,401
Foreign currency
translation adjustment ............. -- -- -- (338) -- -- (338)
Repayment of note
receivable by ESOP ................. -- -- -- -- 638 -- 638
Other ................................ -- 1,405 -- -- -- 42 1,447
--------- --------- --------- --------- --------- --------- ---------
December 31, 1996 ....................... $ 6,307 $ 483,118 $ 115,805 $ 51 $ (4,284) $ (3,267) $ 597,730
========= ========= ========= ========= ========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
37
<PAGE>
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INDEX
PAGE
<S> <C> <C>
1. Organization...................................................... 38
2. Summary of Significant Accounting Policies........................ 39
3. Supplemental Disclosures of Cash Flow Information................. 43
4. Acquisition and Disposition of Assets............................. 43
5. Other Noncurrent Assets........................................... 44
6. Debt.............................................................. 45
7. Other Noncurrent Liabilities...................................... 48
8. Fair Value of Financial Instruments............................... 48
9. Redeemable Bearer Shares.......................................... 49
10. Shareholders' Equity.............................................. 50
11. Benefit Plans..................................................... 51
12. Income Taxes...................................................... 55
13. Business Segments................................................. 57
14. Commitments and Contingencies..................................... 58
15. Supplemental Oil and Gas Information (Unaudited).................. 59
</TABLE>
1. ORGANIZATION
Seagull is an international oil and gas company engaged in exploration and
development activities in the United States, Egypt, Cote d'Ivoire, Canada,
Indonesia and the Russian Republic of Tatarstan. It also transports, distributes
and markets natural gas, liquids products and petrochemicals in the U.S. and
Canada.
MERGER WITH GLOBAL NATURAL RESOURCES INC. - On October 3, 1996, the
shareholders of Seagull Energy Corporation (the "Company" or "Seagull") and
Global Natural Resources Inc. ("Global") approved a merger of a wholly owned
subsidiary of Seagull into Global (the "Global Merger"). Pursuant to the Global
Merger, each share of Global common stock was converted into 0.88 shares of
Seagull common stock with approximately 26.3 million shares issued to the
shareholders of Global. The Global Merger was accounted for as a pooling of
interests. Accordingly, the financial statements for periods prior to the Global
Merger have been restated to combine the results of Seagull and Global. Net
income for the year ended December 31, 1996 includes the effect of transaction
costs of the Global Merger of approximately $10 million ($9 million after tax).
The results of operations previously reported by the separate companies and
the combined amounts presented in the accompanying consolidated financial
statements are summarized below. Certain adjustments were made to the results of
Seagull and Global to conform
38
<PAGE>
the accounting policies and presentation used by Seagull and Global. The
increase (decrease) in net income of these adjustments was $(1.4) million, $3.9
million and $0.6 million for the nine months ended September 30, 1996 and the
years ended December 31, 1995 and 1994, respectively. These adjustments were
primarily to reflect the change in the valuation allowance related to the
deferred tax assets associated with book to tax basis differences on domestic
property, plant and equipment generated during the applicable periods. These
deferred tax assets were not utilized by Global, but more likely than not will
be utilized by the combined company.
================================================================================
(Amounts In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended Year Ended December 31,
September 30, 1996 1995 1994
------------------ ---------- ----------
(Unaudited)
<S> <C> <C> <C>
Revenues:
Seagull .............................. $ 281,640 $ 336,273 $ 408,104
Global ............................... 82,525 78,457 62,943
Conforming adjustments ............... (4,102) (6,304) (561)
------------------ ---------- ----------
Combined ............................. $ 360,063 $ 408,426 $ 470,486
================== ========== ==========
Net income (loss):
Seagull .............................. $ 10,572 $ 632 $ 3,246
Global ............................... 13,645 (6,307) (8,253)
Conforming adjustments ............... (1,381) 3,937 602
------------------ ---------- ----------
Combined ............................. $ 22,836 $ (1,738) $ (4,405)
================== ========== ==========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The accompanying consolidated financial statements of Seagull have
been prepared according to generally accepted accounting principles and pursuant
to the rules and regulations of the Securities and Exchange Commission. These
accounting principles require the use of estimates, judgments and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates. Certain reclassifications have
been made in the 1995 and 1994 financial statements to conform to the
presentation used in 1996.
CONSOLIDATION - The accompanying consolidated financial statements include
the accounts of Seagull Energy Corporation and its majority-owned entities. All
significant intercompany transactions have been eliminated.
REGULATION - The Company operates in Alaska through a division of the Company
and a wholly owned subsidiary (collectively referred to herein as "ENSTAR
Alaska"). ENSTAR Alaska is subject to regulation by the Alaska Public Utilities
Commission ("APUC"), which has jurisdiction over, among other things, rates,
accounting procedures and standards of service.
CASH EQUIVALENTS - The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
SHORT-TERM INVESTMENTS - Short-term investments include highly liquid
investments having a maturity at the date of purchase of more than three months.
As of December 31, 1995, short-term investments consisted entirely of U.S.
government securities.
39
<PAGE>
INVENTORIES - Materials and supplies are valued at the lower of average cost
or market value (net realizable value).
OIL AND GAS PROPERTIES - The Company uses the successful efforts method of
accounting for its oil and gas operations whereby acquisition costs and
exploratory drilling costs related to properties with proved reserves and all
development costs including development dry holes are capitalized. The
acquisition costs of unproved leaseholds are capitalized pending the results of
exploration efforts. Unproved leaseholds with significant acquisition costs are
assessed periodically, on a property-by-property basis, and a loss is recognized
to the extent, if any, that the cost of the property has been impaired. Unproved
leaseholds whose acquisition costs are not individually significant are
aggregated, and the portion of such costs estimated to ultimately prove
nonproductive, based on experience, is amortized over an average holding period.
As unproved leaseholds are determined to be productive, the related costs are
transferred to proved leaseholds. Exploratory dry holes and geological and
geophysical charges are expensed as incurred. Capitalized costs are depleted
using the unit-of-production method based upon estimates of proved oil and gas
reserves on a depletable unit basis. Estimated costs (net of salvage value) of
dismantling and abandoning oil and gas production facilities are computed by the
Company's engineers and included when calculating depreciation and depletion
using the unit-of-production method. The total estimated future dismantlement
and abandonment cost being amortized as of December 31, 1996 was approximately
$26.6 million.
The Company performs a review for impairment of proved oil and gas properties
on a depletable unit basis when circumstances suggest the need for such a
review. For each depletable unit determined to be impaired, an impairment loss
equal to the difference between the carrying value and the fair value of the
depletable unit will be recognized. Fair value, on a depletable unit basis, is
estimated to be the present value of expected future net cash flows computed by
applying estimated future oil and gas prices, as determined by management, to
estimated future production of oil and gas reserves over the economic lives of
the reserves. As a result of the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 121, effective March 31, 1995, the Company recognized a
non-cash pre-tax charge against income of $46.1 million related to oil and gas
properties.
Prior to March 31, 1995, the Company determined the impairment of proved oil
and gas properties on a world-wide basis. Using the world-wide basis, if the net
capitalized costs exceeded the estimated future undiscounted after-tax net cash
flows from proved oil and gas reserves using period-end pricing, such excess
costs would be charged to expense.
Interest cost capitalized as property, plant and equipment amounted to
approximately $2.6 million, $1.2 million and $0.7 million in 1996, 1995 and
1994, respectively.
OTHER PROPERTY, PLANT AND EQUIPMENT - Depreciation of the utility plant, gas
gathering pipeline facilities, gas processing plants and other property is
computed principally using the straight-line method over their estimated useful
lives, which vary from 3 to 33 years.
Utility plant facilities are subject to APUC regulation. When utility
properties are disposed of or otherwise retired, the original cost of the
property, plus cost of retirement, less salvage value, is charged to accumulated
depreciation.
The Company groups and evaluates other property, plant and equipment for
impairment based on the ability to identify separate cash flows generated
therefrom. As a result of the adoption of SFAS No. 121, effective March 31,
1995, the Company recognized a pre-tax non-cash charge against income of $2.7
million for impairment of other property, plant and equipment.
Maintenance, repairs and renewals are charged to operations and maintenance
expense except that renewals which extend the life of the property are
capitalized.
TREASURY STOCK - The Company follows the average cost method of accounting
for treasury stock transactions.
40
<PAGE>
REVENUE RECOGNITION - The Company records oil and natural gas revenue
following the entitlement method of accounting for production imbalances, in
which any excess amount received above the Company's share is treated as a
liability. If less than the Company's entitlement is received, the
underproduction is recorded as an asset.
ENSTAR Alaska's operating revenues are based on rates authorized by the APUC
which are applied to customers' consumption of natural gas. ENSTAR Alaska
records unbilled revenue, including amounts to be billed under a purchased gas
adjustment clause, at the end of each accounting period.
DERIVATIVE FINANCIAL INSTRUMENTS - The Company enters into a variety of
commodity derivative contracts for non-trading purposes as a hedging strategy to
manage commodity prices associated with oil and gas sales and to reduce the
impact of price fluctuations. The Company primarily uses futures contracts,
price swaps and options when it determines it is appropriate to hedge its
commodity prices. While derivative financial instruments are intended to reduce
the Company's exposure to declines in the market price of oil and natural gas,
the derivative financial instruments may limit the Company's gain from increases
in the market price of oil and natural gas. Income and costs related to these
hedging activities are recognized in oil and gas revenues when the commodities
are produced. Any realized income and costs that are deferred at the balance
sheet date and any margin accounts for futures contracts are included as net
current assets. For the years ended December 31, 1996, 1995 and 1994, the
Company recorded $9.0 million, $0.5 million and none, respectively, in costs
from commodity hedging activities. At December 31, 1996, there was $8.2 million
of realized costs on commodity hedging activities which were deferred and will
be applied as a reduction in revenues in the month of physical sale of
production. Of this amount, $1.0 million is related to the commodity hedges
required in the sale of the Section 29 properties. In addition, there was $2.5
million of unrealized and unrecognized costs associated with open contracts at
December 31, 1996.
The Company recorded costs related to commodity hedging activities of $9.0
million, $0.5 million and none for 1996, 1995 and 1994, respectively. These
costs had the effect of reducing average gas prices by $0.06 mcfe for 1996 and
$0.004 mcfe for 1995.
In mid 1996, Seagull put price "collars" in place with respect to about a
third of its domestic gas deliverability for the first quarter of 1997 only.
These "collars" assured a minimum realization above $2.00 per Mcf in exchange
for a $2.50 per Mcf ceiling on that component of Seagull's production.
Additionally, the Company has commodity hedges in place for approximately 12
MMcf per day through December 1998 on properties associated with the Monetary
Production Payment (see Note 6). These hedge positions will reduce first quarter
1997 E&P revenues. At December 31, 1996, there was $8.2 million of realized
cost on commodity hedging activities which was deferred and will reduce
revenues in the month that the hedged production occurred (January 1997).
On the other hand, because of the drop in commodity prices after January 1997,
the Company expects actual net realizations of above "collars" for February and
March, 1997 to be slightly positive. Also at December 31, 1996, there are $2.0
million of net unrealized and unrecognized hedging cost related to the
commodity hedges associated with the Monetary Production Payment based on the
difference between the strike price and the futures price for the respective
trading months at year end. Again as a result of the intervening drop in
commodity prices, the net unrealized and unrecognized hedging cost would be
substantially lower if current strike and futures prices were used. Essentially
all other hedging activities were realized prior to year-end. The Company has
no commodity hedges in place for equity production after March 1997 other
than those associated with the Monetary Production Payment.
The Company has entered into interest rate swap agreements to manage the
impact of changes in interest rates. The differential interest to be paid or
received is accrued as interest rates change and is recognized over the life of
the agreements as a component of interest expense.
GENERAL AND ADMINISTRATIVE EXPENSE - General and administrative expenses
represent various overhead costs of corporate departments. All overhead expenses
directly related to the operations of the Company's business segments are
included in operations and maintenance expenses and exploration charges.
INCOME TAXES - The Company uses the liability method of accounting for income
taxes under which deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized as part of the
provision for income taxes in the period that includes the enactment date.
FOREIGN CURRENCY TRANSLATION - The functional currency for the Company's
Canadian operations is the applicable local currency. Translation from Canadian
dollars to U. S. dollars is performed for balance sheet accounts using exchange
rates in effect at the balance sheet date and for revenue and expense accounts
using primarily a weighted average exchange rate during the period. Adjustments
resulting from such translation are included as a separate component of
shareholders' equity. Deferred income taxes have not been provided on
translation adjustments because any unremitted income from Seagull's foreign
operations is considered to be permanently invested.
The U.S. dollar is the functional currency for the Company's operations in
Russia. Monetary assets and liabilities denominated in rubles are translated
into U.S. dollars using the market rate, as set by the Central Bank of the
Russian Federation. Non-monetary assets and liabilities denominated in rubles
are translated at historical rates. Exchange gains
41
<PAGE>
or losses arising from the translation of ruble denominated assets and
liabilities into U.S. dollars are included in net income.
The ruble is not a convertible currency outside the territory of Russia. In
addition, the economy in Russia has experienced hyperinflation, which has
resulted in a significant devaluation of the ruble. If hyperinflation continues,
additional devaluation of the ruble may occur. As of December 31, 1996, the
Company's consolidated financial statements include ruble denominated net
monetary liabilities of approximately 4.6 billion rubles, which have been
translated into approximately $0.8 million.
The U.S. dollar is the functional currency for all other foreign operations,
as predominantly all transactions in those operations are denominated in U.S.
dollars.
STOCK-BASED COMPENSATION - Effective January 1, 1996, the Company adopted
SFAS No. 123, "Accounting for Stock-Based Compensation." This SFAS allows a
Company to adopt a fair value based method of accounting for a stock-based
employee compensation plan or to continue to use the intrinsic value based
method of accounting prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company has chosen to continue
to account for stock-based compensation under the intrinsic value method. Under
this method, the Company records no compensation expense for stock options
granted when the exercise price of options granted is equal to the fair market
value of Seagull's common stock on the day of grant.
EARNINGS PER SHARE - The weighted average number of common shares outstanding
for the computation of earnings per share for the years ended December 31, 1996,
1995 and 1994 gives effect to the assumed exercise of stock options as of the
beginning of the year.
CONCENTRATIONS OF RISK - The future results of the oil and gas operations
segment will be affected by the market prices of oil and natural gas. The
availability of a ready market for natural gas, oil and liquid products in the
future will depend on numerous factors beyond the control of the Company,
including weather, production of other natural gas, crude oil and liquid
products, imports, marketing of competitive fuels, proximity and capacity of oil
and gas pipelines and other transportation facilities, any oversupply or
undersupply of gas, oil and liquid products, the regulatory environment, and
other regional and political events, none of which can be predicted with
certainty.
The Company operates in various phases of the oil and natural gas industries
with sales to resellers such as pipeline companies and local distribution
companies as well as to end-users such as commercial businesses, industrial
concerns and residential consumers. The Company's receivables include amounts
due from purchasers of oil and gas production and amounts due from joint venture
partners for their respective portions of operating expense and exploration and
development costs. The Company believes that no single customer or joint venture
partner exposes the Company to significant credit risk. While certain of these
customers and joint venture partners are affected by periodic downturns in the
economy in general or in their specific segment of the natural gas or oil
industry, the Company believes that its level of credit-related losses due to
such economic fluctuations has been immaterial and will continue to be
immaterial to the Company's results of operations in the long term. Trade
receivables are generally not collateralized; however, the Company analyzes
customers' and joint venture partners' historical credit positions prior to
extending credit.
The Company has a significant portion of its operations in various geographic
areas of the world. The Company's activities in these areas are subject to the
usual risks associated with foreign operations, including political and economic
uncertainties, risks of cancellation or unilateral modification of agreements,
operating restrictions, currency repatriation restrictions, expropriation,
export restrictions, the imposition of new taxes and the increase of existing
taxes, inflation, foreign exchange fluctuations and other risks arising out of
foreign government sovereignty over areas in which the operations are conducted.
The Company has endeavored to protect
42
<PAGE>
itself against political and commercial risks inherent in these operations.
There is no certainty that the steps taken by the Company will provide adequate
protection.
Derivative financial instruments that hedge the price of oil and natural gas
and interest rates are generally executed with major financial or commodities
trading institutions which expose the Company to acceptable levels of market and
credit risks and may at times be concentrated with certain counterparties or
groups of counterparties. Although notional amounts are used to express the
volume of these contracts, the amounts potentially subject to credit risk, in
the event of non-performance by the counterparties, are substantially smaller.
The creditworthiness of counterparties is subject to continuing review and full
performance is anticipated.
3. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Supplemental disclosures of cash flow information (stated in thousands) are as
follows:
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Cash paid during the year for:
Interest, net of amount capitalized ........ $ 44,033 $ 46,804 $ 44,946
Income taxes ............................... $ 12,046 $ 14,074 $ 8,198
</TABLE>
4. ACQUISITION AND DISPOSITION OF ASSETS
On September 10, 1996, Seagull purchased the stock of Esso Suez Inc. ("ESI")
and certain assets of Esso Egypt Limited (the "EEL Assets") for a net purchase
price of approximately $74 million in cash (the "Esso Suez Acquisition")
financed through additional borrowings under Seagull's revolving credit
facilities. The transaction was accounted for as a purchase. ESI holds a 100%
interest in the East Zeit oil producing concession in the offshore Gulf of Suez,
and the EEL Assets consist of the entire working interest in the South Hurghada
concession located onshore on the coast of the Gulf of Suez approximately 250
miles southeast of Cairo. As of September 10, 1996, the ESI concession area
contained approximately 17 million net barrels of proved oil reserves. The
63,000-acre South Hurghada concession contains several currently drillable
exploratory prospects, plus two existing oil discoveries.
===============================================================================
<TABLE>
<CAPTION>
(Unaudited)
Year Ended December 31,
1996 1995
--------- ---------
<S> <C> <C>
Revenues ............................... $ 552,892 $ 466,639
Net income ............................. $ 37,030 $ 11,074
Earnings per share ..................... $ 0.58 $ 0.18
</TABLE>
The table on page 43 (stated in thousands except per share data) presents the
unaudited pro forma results of the combined operations of Seagull, ESI and the
EEL Assets as though the Esso Suez Acquisition had occurred on January 1, 1995.
The unaudited pro forma information does not purport to be indicative of actual
results if the Esso Suez Acquisition had been in effect for the periods
indicated.
43
<PAGE>
On September 25, 1995, the Company and three other sellers completed the sale
of their disparate interests in 19 natural gas gathering systems and a gas
processing plant (the "Pipeline Assets"). From its share of the proceeds,
Seagull realized a one-time, pre-tax gain of approximately $82 million recorded
in the third quarter of 1995. For the years ended December 31, 1995 and 1994,
the Pipeline Assets contributed $17.6 million and $26.4 million, respectively,
to the revenues and $6.2 million and $6.7 million, respectively, to the
operating profit (loss) of the oil and gas operations segment.
In September 1995, the Company sold certain Internal Revenue Code Section 29
Tax Credit-bearing gas properties (the "Section 29 Properties") to an investment
group which includes a Seagull subsidiary and two financial investors. For
accounting purposes, the Company has treated the sale as a non-recourse monetary
production payment reflected in long-term debt on the balance sheet (see Note
6).
5. OTHER NONCURRENT ASSETS
Other noncurrent assets include the following (stated in thousands):
===============================================================================
<TABLE>
<CAPTION>
December 31,
1996 1995
--------- ---------
<S> <C> <C>
Oil and gas imbalances ................. $ 24,673 $ 24,382
Deferred financing costs ............... 10,255 12,979
Other .................................. 7,877 10,155
--------- ---------
$ 42,805 $ 47,516
========= =========
</TABLE>
OIL AND GAS IMBALANCES - As discussed in Note 2, the Company records oil and
gas revenues following the entitlement method of accounting for production
imbalances. The Company records revenue from gas marketing sales net of the cost
of gas and third-party delivery fees, with any resulting transportation
imbalances recorded as a current receivable or payable.
The Company's oil, gas and transportation imbalance assets and liabilities were
as follows:
===============================================================================
<TABLE>
<CAPTION>
December 31,
1996 1995
--------------------- ---------------------
AMOUNT VOLUME Amount Volume
(THOUSANDS) (BCFE) (Thousands) (Bcfe)
------------ ------ ------------ ------
<S> <C> <C> <C> <C>
ASSETS:
Current ......................... $ 17,650 9.8 $ 12,693 8.2
Noncurrent ...................... 24,673 15.9 24,382 16.1
------------ ------ ------------ ------
$ 42,323 25.7 $ 37,075 24.3
============ ====== ============ ======
LIABILITIES:
Current ......................... $ 12,060 6.5 $ 11,219 7.6
Noncurrent ...................... 20,047 13.4 20,439 13.8
------------ ------ ------------ ------
$ 32,107 19.9 $ 31,658 21.4
============ ====== ============ ======
</TABLE>
44
<PAGE>
DEFERRED FINANCING COSTS - Deferred financing costs represent financing costs
incurred in connection with the execution of various facilities entered into or
securities issued by the Company. These costs are capitalized and amortized to
interest expense over the life of the related debt. As discussed in Note 6, the
Company has a $650 million revolving credit line which matures in 2002.
Financing costs initially incurred in 1992 of approximately $16.7 million were
capitalized in connection with this facility and will be amortized over periods
ending December 31, 2002. Approximately $5.0 million in financing costs incurred
in connection with the Company's July 1993 issuance of $250 million in senior
and senior subordinated notes was capitalized and will be amortized over periods
ending August 1, 2005 (see Note 6).
6. DEBT
MONEY MARKET FACILITIES - Seagull has money market facilities with two U.S.
banks with a combined maximum commitment of $70 million. These lines of credit
bear interest at rates made available by the banks at their discretion (7.5% and
6.6% at December 31, 1996 and 1995, respectively) and may be canceled at either
Seagull's or the banks' discretion. At December 31, 1996, the total amounts
outstanding under the money market facilities of $17 million were classified as
a current liability and included in accounts and note payable since it is
Seagull's intent to repay these amounts in 1997. At December 31, 1995, all
amounts outstanding under the money market facilities of approximately $27.5
million were classified as long-term debt since it was Seagull's intent to
refinance these amounts on a long-term basis with proceeds from its revolving
credit facilities.
Long-term debt for 1996 and 1995 (stated in thousands) was as follows:
===============================================================================
<TABLE>
<CAPTION>
December 31,
1996 1995
-------- --------
<S> <C> <C>
Revolving credit ............................... $236,620 $164,396
Senior notes ................................... 100,000 100,000
Senior subordinated notes ...................... 150,000 150,000
Monetary production payment .................... 34,378 43,856
Money market facilities ........................ -- 27,527
International Finance Corporation loan ......... -- 12,200
ENSTAR Alaska:
Unsecured industrial development bonds ....... 10,230 11,140
Other unsecured notes ........................ 50,450 50,750
Other debt ................................... 10 14
-------- --------
581,688 559,883
Less: Current maturities ...................... 7,227 1,650
Unamortized debt discount ............... 1,006 1,126
-------- --------
$573,455 $557,107
======== ========
</TABLE>
45
<PAGE>
REVOLVING CREDIT - During 1996, the terms of the Company's unsecured
revolving credit agreements (the "Revolving Credit Facilities") were amended and
currently provide a maximum commitment of $650 million. Under the terms of the
Revolving Credit Facilities, the commitments thereunder begin to decline on
March 31, 1999 in equal quarterly reductions of approximately $40 million and a
final reduction of $50 million on December 31, 2002. The Revolving Credit
Facilities bear interest, at Seagull's option, at various market-sensitive rates
plus an applicable margin or competitive bid rate. These rates varied from 3.7%
to 6.3% and 6.2% to 6.9% at December 31, 1996 and 1995, respectively.
The Revolving Credit Facilities contain certain covenants and restrictive
provisions among which are limitations on the incurrence of additional debt or
liens, the declaration or payment of dividends and the repurchase or redemption
of capital stock and the maintenance of certain financial ratios. Under the most
restrictive of these provisions, approximately $133 million was available for
payment of cash dividends on Common Stock or to repurchase Common Stock as of
December 31, 1996.
Under provisions included in the Revolving Credit Facilities, the amount of
senior indebtedness available to the Company is subject to a borrowing base (the
"Borrowing Base") based upon certain of the Company's proved oil and gas
reserves and the financial performance of the Alaska transmission and
distribution segment. The Borrowing Base is generally determined annually, but
may be redetermined, at the option of either Seagull or the banks, one
additional time each year, and will be redetermined upon the sale of certain
assets included in the Borrowing Base. With the Esso Suez Acquisition, Seagull
requested and received a $50 million increase to the Borrowing Base to $550
million on October 1, 1996. If the Borrowing Base is redetermined in such a
manner that the amount outstanding under the Revolving Credit Facilities
(together with any other permitted senior debt facility) exceeds the new
Borrowing Base, then the Company must repay the Revolving Credit Facilities or
such other indebtedness in an amount necessary to cure the deficiency. If such
deficiency has not been cured within 30 days, such deficiency must be cured in
three equal quarterly installments.
During 1995, Global executed a $35 million credit agreement (the "Global
Credit Agreement") with a bank. At December 31, 1995, under this agreement,
there were no loans outstanding and approximately $18 million in letters of
credit had been issued. These letters of credit are primarily associated with
the Redeemable Bearer Shares (see Note 9). During 1995, Global also executed a
$17.5 million financing agreement with the International Finance Corporation, a
subsidiary of the World Bank, (the "IFC Loan"). As of December 31, 1995, the
weighted average interest rate was 8.4% for the IFC Loan. Subsequent to the
Merger, the IFC Loan was repaid with proceeds from the Revolving Credit
Facilities and both the Global Credit Agreement and the IFC Loan were canceled.
The letters of credit associated with the Redeemable Bearer Shares were reissued
under the Revolving Credit Facilities.
As of December 31, 1996, borrowings outstanding under the Revolving Credit
Facilities were approximately $237 million, leaving immediately available unused
commitments of approximately $176 million, net of outstanding letters of credit
of $20 million, $100 million of borrowings outstanding under the Senior Notes
(defined below), and $17 million in borrowings outstanding under the money
market facilities.
SENIOR AND SENIOR SUBORDINATED NOTES - In July 1993, Seagull sold $100
million of senior notes (the "Senior Notes") and $150 million of senior
subordinated notes (the "Senior Subordinated Notes") (collectively the "Notes")
in an underwritten public offering. The Senior Notes bear interest at 7 7/8% per
annum, are not redeemable prior to maturity or subject to any sinking fund and
mature on August 1, 2003. The Senior Subordinated Notes bear interest at 8 5/8%
per annum, are not
46
<PAGE>
subject to any sinking fund and mature on August 1, 2005. On or after August 1,
2000, the Senior Subordinated Notes are redeemable at the option of the Company,
in whole or in part, at redemption prices declining from 102.59% in 2000 to
100.00% in 2003 and thereafter (expressed as a percentage of principal amount),
plus accrued interest to the redemption date. The Notes were issued at par and
interest is paid semiannually.
The Notes represent unsecured obligations of the Company. The Senior Notes
rank pari passu with senior indebtedness of the Company while the Senior
Subordinated Notes are subordinate in right of payment to all existing and
future senior indebtedness of the Company. The Notes contain conditions and
restrictive provisions including, among other things, restrictions on additional
indebtedness by the Company and by its subsidiaries, the right of each note
holder to have the notes repurchased by the Company at 101% of the principal
amount upon a change in control, as well as restrictions on the incurrence of
secured debt and entering into sale and leaseback transactions.
MONETARY PRODUCTION PAYMENT - On September 1, 1995, the Company sold the
Section 29 Properties for $46.3 million in net proceeds. The transaction was
recorded as a monetary production payment for accounting purposes. The investors
receive the operating cash flow from the properties, less funds required for
working capital purposes, and are expected to recoup their investment plus their
required after-tax rate of return by 2002. Seagull's pre-tax effective interest
rate is currently estimated to be approximately 4%.
ENSTAR ALASKA - All long-term debt of ENSTAR Alaska is issued by a wholly
owned subsidiary of Seagull in the form of senior unsecured notes. These
unsecured notes bear interest at various fixed rates ranging from 7.75% to 12.8%
with principal repayments due 1997 through 2009. These senior unsecured notes of
the subsidiary provide for restrictions on dividends, additional borrowings and
purchases, redemptions or retirements of shares of capital stock, other than in
stock of the subsidiary. Under the most restrictive provisions of these
financing arrangements, ENSTAR Alaska had approximately $16.1 million available
for the making of restricted investments, restricted stock payments and
restricted subordinated debt payments as of December 31, 1996.
INTEREST RATE SWAP AGREEMENTS - The Company enters into interest rate swap
agreements to manage the impact of changes in interest rates. At December 31,
1996, the Company had outstanding interest rate swaps with a notional amount of
$100 million whereby the Company pays a floating interest rate and receives a
fixed interest rate ranging from 5.43% to 5.635%. These interest rate swaps will
expire on January 31, 1997 and are not expected to have a material impact on the
Company's results of operations or cash flow for 1997.
While notional amounts are used to express the volume of the interest rate
swap transactions discussed above, the amount potentially subject to credit
risk, in the event of nonperformance by Seagull's counterparties, is
significantly smaller. For the years ended December31, 1996, 1995 and 1994,
interest expense included approximately $1.7 million, $0.6 million and $2.3
million, respectively, relating to these agreements.
ANNUAL MATURITIES - At December 31, 1996, the Company's aggregate annual
maturities of long-term debt are $7.2 million, $7.1 million, $7.1 million, $27.8
million and $34.2 million for the years 1997, 1998, 1999, 2000 and 2001,
respectively.
47
<PAGE>
7. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities (stated in thousands) include the following:
===============================================================================
<TABLE>
<CAPTION>
December 31,
1996 1995
--------- ---------
<S> <C> <C>
Oil and gas imbalances (see Note 5) .............. $ 20,047 $ 20,439
Refundable customer advances for construction .... 11,567 11,037
Other ............................................ 33,814 21,761
--------- ---------
$ 65,428 $ 53,237
========= =========
</TABLE>
Refundable customer advances for construction represent customer deposits
received by ENSTAR Alaska for construction of main extensions refundable either
wholly or in part over a period not to exceed 10 years.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments (stated in
thousands) are summarized as follows:
===============================================================================
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1996 1995
---------------------- -----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents .................... $ 15,284 $ 15,284 $ 21,477 $ 21,477
Short-term investments ....................... -- -- 5,004 5,004
Liabilities:
Refundable customer advances and deposits .... (14,075) (11,405) (14,866) (11,986)
Long-term debt ............................... (580,682) (589,815) (558,757) (558,197)
Redeemable bearer shares ....................... (16,059) NA (16,591) NA
Derivative transactions:
Interest rate swap agreements:
In a receivable position .................. -- -- -- 440
In a payable position ..................... -- (107) -- (1,604)
Commodity hedging instruments:
In a receivable position .................. (42) 247 -- 981
In a payable position ..................... (291) (10,798) (105) (3,688)
</TABLE>
CASH AND CASH EQUIVALENTS - The carrying amount approximates fair value
because of the short maturity of these instruments.
SHORT-TERM INVESTMENTS - The carrying amount approximates fair value which is
estimated based upon quoted market prices.
REFUNDABLE CUSTOMER ADVANCES AND DEPOSITS - The fair value is based on
discounted cash flow analyses utilizing a discount rate of 8.25% and 8.75% at
December 31, 1996 and 1995, respectively, with monthly payments ratably over the
estimated period of deposit or advance refunding.
LONG-TERM DEBT - The fair value of the Senior Notes, Senior Subordinated
Notes and ENSTAR Alaska debt is estimated based on quoted market prices for the
same or similar issues. The fair value of the monetary production payment is
estimated using discounted cash flow analyses utilizing a discount rate of
48
<PAGE>
approximately 3.8% at December 31, 1996 and 1995. The carrying amount of all
other debt approximates fair value because these instruments bear interest at
rates tied to current market rates.
REDEEMABLE BEARER SHARES - The fair value is not determinable because
reductions in the outstanding balance are on demand only to the extent necessary
to redeem bearer shares presented for exchange until July 2008 with any
remaining balance reverting to the Company. The Company is not able to determine
when the bearer shares will be presented and how many will not be redeemed.
INTEREST RATE SWAP AGREEMENTS - The fair values are obtained from the
financial institutions that are counterparties to the transactions. These values
represent the estimated amount the Company would pay or receive to terminate the
agreements, taking into consideration current interest rates and the current
creditworthiness of the counterparties. Seagull's interest rate swap agreements
are off balance sheet transactions and, accordingly, no respective carrying
amounts for these transactions are included in the accompanying consolidated
balance sheets as of December 31, 1996 and 1995.
COMMODITY RELATED TRANSACTIONS -- The fair value of the Company's commodity
hedging instruments is the estimated amount the Company would receive or pay to
settle the applicable commodity hedging instrument at the reporting date, taking
into account the difference between New York Mercantile Exchange ("NYMEX")
prices or index prices at year-end and the contract price of the commodity
hedging instrument.
The estimated fair value amounts have been determined by the Company using
available market information and valuation methodologies described above.
Considerable judgment is required in interpreting market data to develop the
estimates of fair value. The use of different market assumptions or valuation
methodologies may have a material effect on the estimated fair value amounts.
9. REDEEMABLE BEARER SHARES
The Company through its merger with Global became the successor issuer to
Global Natural Resources PLC, a United Kingdom company ("U.K. Company"). On July
26, 1983 pursuant to the terms of a Scheme of Arrangement (the "Arrangement")
under Section 206 of the English Companies Act, the domicile of the parent
company was moved to the United States from the United Kingdom.
Under the terms of the Arrangement, 24,270,876 registered common shares of
Global were registered in the name of Hambros Trust ("Trust Shares"). The Trust
Shares were held for the owners of bearer share warrants issued by the U.K.
Company. Holders of bearer shares were entitled to receive at their election
either cash or Global shares on a share-for-share basis until July 1993. After
July 1993, holders of bearer shares are entitled to receive only cash. The
Arrangement provided that Trust Shares not claimed by July 26, 1988 could be
sold by the Trust and the proceeds from such sale together with earned interest
be used to satisfy future claims by the holders of share warrants to bearer.
In August 1993, Global received $19.2 million, the remaining cash held by the
Trust, in the form of an interest-free loan. The loan is repayable on demand
only to the extent necessary to redeem bearer share warrants presented for
exchange until July 2008. Each bearer share warrant presented during this period
will be redeemed for $6.66. As of December 31, 1996 and 1995, there were
2,463,008 and 2,575,947 outstanding bearer share warrants, respectively. The
loan is secured by a letter of credit which is issued under the Revolving Credit
Facilities. During 1996 and 1995 there were no drawings under the letter of
credit. In July 2008, the obligation of the Company to holders of bearer share
warrants will cease, the
49
<PAGE>
interest-free loan will terminate, and any remaining cash will revert to the
Company and will be accounted for as an increase in additional paid-in capital.
10. SHAREHOLDERS' EQUITY
The following table reflects the activity in shares of the Company's Common
Stock and Treasury Stock during the three years ended December 31, 1996.
===============================================================================
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Common Stock Issued
Shares at beginning of year ....................................... 65,983,199 65,767,743 65,586,112
Exercise of employee stock options ................................ 449,256 215,104 181,631
Executive compensation ............................................ 3,000 -- --
Retirement of treasury stock pursuant to the Global Merger ........ (3,361,185) -- --
Other ............................................................. (983) 352 --
----------- ----------- -----------
Shares at end of year ............................................. 63,073,287 65,983,199 65,767,743
=========== =========== ===========
Treasury Stock
Shares at beginning of year ....................................... 3,729,823 3,759,425 3,130,782
Acquisition of treasury stock ..................................... -- -- 641,134
Issuance of treasury stock to 401(k) plan ......................... (7,324) (11,602) (12,491)
Executive incentive compensation .................................. -- (18,000) --
Retirement of treasury stock pursuant to the Global Merger ........ (3,361,185) -- --
----------- ----------- -----------
Shares at end of year ............................................. 361,314 3,729,823 3,759,425
=========== =========== ===========
</TABLE>
TREASURY STOCK - Pursuant to the terms of the Global Merger, 3,819,525 shares
of Global Common Stock (equivalent to 3,361,185 shares of Seagull Common Stock
on an as-converted basis) were retired.
PREFERRED STOCK - The Company is authorized to issue 5,000,000 shares of
preferred stock, par value $1.00 per share, in one or more series. There were no
shares issued or outstanding as of December 31, 1996 and 1995.
PREFERRED SHARE PURCHASE RIGHTS - In 1989, Seagull adopted a Share Purchase
Rights Plan to protect the Company's shareholders from coercive or unfair
takeover tactics. Under the Plan, each outstanding share and each share of
Common Stock subsequently issued has attached to it one Right, exercisable at
$32.75, subject to certain adjustments. Generally, in the event a person or
group acquires 20% or more of the outstanding Common Stock other than pursuant
to a cash tender offer for all shares of such Common Stock (provided that the
tender offer increases the acquiring person's or group's ownership to at least
85% of the outstanding Common Stock), or in the event the Company is acquired in
a merger or other business combination or 50% or more of the Company's
consolidated assets or earning power is sold, each Right entitles the holder to
purchase shares of Common Stock of the Company or of the acquiring company,
having a value of twice the exercise price. The Rights, under certain
circumstances, are redeemable at the option of Seagull's Board of Directors at a
price of $0.01 per Right, within 10 days (subject to extension) following the
day on which the acquiring person or group exceeds the 20% threshold. The Rights
expire on March 22, 1999.
50
<PAGE>
11. BENEFIT PLANS
STOCK OPTION PLANS - The Company currently has various stock option plans.
The stock options become exercisable over a three to six year period and all
options expire 10 years after the date of grant. The majority of Seagull's
options may be granted at the fair market value of Seagull's Common Stock on
the New York Stock Exchange on the date of grant. The remaining stock options
may have an exercise price not less than 50% of the fair market value of
Seagull's Common Stock on the date of grant. All outstanding options, other than
44,000 granted by Global in 1993, were issued at the fair market value of
Seagull's Common Stock. Accordingly as discussed in Note 2, no compensation
expense relating to these options is recognized in the Company's results of
operations. At December 31, 1996, approximately 1.5 million shares of Common
stock were available for grant.
Information relating to stock options is summarized as follows:
===============================================================================
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------ ------------------------------ ------------------------------
EXERCISE PRICE Exercise Price Exercise Price
SHARES PER SHARE Shares Per Share Shares Per Share
----------- --------------- ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance outstanding -
Beginning of year.............. 4,501,920 $ 5.89 - 26.38 4,065,084 $ 5.89 - 26.38 3,627,600 $ 5.89 - 26.38
Granted....................... 844,000 $ 10.69 - 24.50 766,640 $ 8.81 - 18.88 665,900 $ 8.17 - 25.50
Exercised..................... (449,256) $ 6.31 - 14.88 (215,104) $ 5.89 - 17.38 (183,164) $ 5.89 - 14.88
Canceled...................... (149,872) (114,700) (45,252)
----------- --------------- ------------ --------------- ------------ ---------------
Balance outstanding -
End of year.................... 4,746,792 $ 5.89 - 26.38 4,501,920 $ 5.89 - 26.38 4,065,084 $ 5.89 - 26.38
=========== =============== ============ =============== ============ ===============
Options exercisable -
End of year.................... 2,417,492 2,265,809 2,009,062
=========== ============ ============
</TABLE>
The weighted average fair value of stock options granted during 1996, 1995
and 1994 was $10.77, $8.36 and $12.95 per share, respectively. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
options-pricing model. The model assumed expected volatility of 43%, 41% and
38%, weighted average risk-free interest rates of 6.5%, 6.1% and 7.0%, for
grants in 1996, 1995 and 1994, respectively, and an expected life of three years
after the vesting term. As Seagull has not declared dividends since it became a
public entity, no dividend yield was used. Actual value realized, if any, is
dependent on the future performance of Seagull Common Stock and overall stock
market conditions. There is no assurance the value realized by an optionee will
be at or near the value estimated by the Black-Scholes model.
51
<PAGE>
Information relating to stock options outstanding at December 31, 1996 is
summarized as follows:
===============================================================================
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------- -------------------------------------
Number Weighted Average Weighted Number Exercisable Weighted
Range of Outstanding at Remaining Average at December 31, Average
Exercise Prices December 31, 1996 Contractual Life Exercise Price 1996 Exercise Price
-------------- ------------------ ----------------- ------------ ------------------ -------------
<S> <C> <C> <C> <C> <C>
$ 5.89 -- $ 8.44 966,540 3 years $ 7.13 934,068 $ 7.12
$ 8.45 -- $ 12.00 1,071,988 6 years $ 10.34 893,540 $ 10.23
$ 12.01 -- $ 19.00 992,264 7 years $ 16.05 370,884 $ 14.87
$ 19.01 -- $ 26.00 1,214,000 9 years $ 24.32 26,200 $ 25.27
$ 26.01 -- $ 26.38 502,000 6 years $ 26.38 192,800 $ 26.38
---------- ------- --------- --------- ---------
$ 5.89 -- $ 26.38 4,746,792 6 years $ 16.15 2,417,492 $ 11.19
========== ======= ========= ========= =========
</TABLE>
As discussed above, no compensation expense has been recorded in 1996, 1995
or 1994 for the Company's stock options. Had compensation cost for the Company's
stock option plans been determined based on the fair value at the grant dates
for awards made after December 31, 1994 under those plans, the Company's net
income (loss) (stated in thousands) and earnings (loss) per share would have
been reduced to the pro forma amounts indicated below:
===============================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
---------- ----------
<S> <C> <C> <C>
Net income (loss) As reported................................... $ 28,961 $ (1,738)
Pro forma..................................... $ 26,429 $ (2,443)
Earnings (loss) per share As reported................................... $ 0.45 $ (0.03)
Pro forma..................................... $ 0.41 $ (0.04)
</TABLE>
Under the provisions of SFAS No. 123, the pro forma disclosures above include
only the effects of stock options granted by Seagull subsequent to December 31,
1994. During this initial phase-in period, the pro forma disclosures as required
by SFAS No. 123 are not representative of the effects on reported net income for
future years as options vest over several years and additional awards are
generally made each year.
PROFIT SHARING PLANS - ENSTAR Alaska has trusteed profit sharing plans for
salaried employees and union employees. Annual contributions for each plan are
determined by the Company's Board of Directors pursuant to formulae which
contain minimum contribution requirements. Profit sharing expense was
approximately $0.4 million for 1996 and $0.3 million for both 1995 and 1994, and
is included in operations and maintenance expenses.
THRIFT PLANS - The Company has various thrift plans which are qualified
employee savings plans in accordance with the provisions of Section 401(k) of
the Internal Revenue Code of 1986, as amended, or the provisions of the Income
Tax Act of Canada, as applicable. Company contributions to these plans
(collectively, the "Thrift Plans") were approximately $1.8 million for each of
the years 1996, 1995 and 1994. The Thrift Plans' costs are included in
operations and maintenance expenses and general and administrative expenses.
One of the Thrift Plans, the Employees 401(k) Savings Plan ("ESP"), was a
defined contribution plan which covered substantially all of Global's U.S.
employees. Employees' contributions were matched by the Company with treasury
shares of common stock. The Company recorded expense of approximately $0.1
million in each of the years 1996, 1995 and 1994 relating to its contributions
of 7,324, 11,602, and 12,491 shares, respectively, of Seagull Common Stock to
the ESP. Subsequent to December 31, 1996, contributions to
52
<PAGE>
the ESP will be suspended and those employees eligible to contribute to the ESP
prior to the Merger will be eligible to contribute to the Seagull Thrift Plan.
DEFINED BENEFIT PLANS - The Company has an unfunded retirement plan which
provides for supplemental benefits to certain officers and key employees. As of
December 31, 1996, only one person was designated to participate in such plan.
Total expenses of the plan were approximately $0.2 million for both 1996 and
1995 and $0.3 million for 1994. The retirement plan's costs are included in
general and administrative expenses.
ENSTAR Alaska has two defined benefit retirement plans which cover salaried
employees and operating employees. Determination of benefits for the salaried
employees is based upon a combination of years of service and final monthly
compensation. Benefits for operating employees are based solely on years of
service. ENSTAR Alaska's policy is to fund the minimum contributions required by
applicable regulations. The net pension costs are included in operations and
maintenance expenses.
Global sponsored a defined benefit pension plan which covered substantially
all of Global's U.S. employees. The plan provides benefits based on the
employee's years of service and compensation during the years immediately
preceding retirement. Global made annual contributions to the plan to comply
with the minimum funding provisions of the Employee Retirement Income Security
Act. The plan investments consist primarily of common equities and fixed income
securities. The Company has terminated this defined benefit pension plan and
intends to pay participants the present value of their accrued benefits.
Settlement of this plan is not expected to have a material effect on Seagull's
financial position or results of operations.
The following table (stated in thousands) details the components of pension
income and expense, the funded status of the Company's plans, amounts recognized
in the Company's consolidated balance sheets and major assumptions used to
determine these projected benefit obligations. Certain assumptions are based on
factors, such as interest rates and long-term rates of return on investments,
which are subject to change due to forces beyond the Company's control. Changes
in the various assumptions utilized could have a significant effect on the
amounts reported.
53
<PAGE>
===============================================================================
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation ....................................................... $ (16,242) $ (14,678)
========= =========
Accumulated benefit obligation .................................................. $ (16,278) $ (15,053)
========= =========
Projected benefit obligation for services rendered to date ........................ $ (17,740) $ (18,043)
Plan assets at fair value, primarily listed stocks and corporate and U. S. bonds .. 15,520 13,376
--------- ---------
Plan assets at fair value less than projected benefit obligation .................. (2,220) (4,667)
Unrecognized prior service cost ................................................... 91 274
Unrecognized net loss ............................................................. 753 2,843
Unrecognized net obligation arising out of the initial application of
SFAS No. 87, amortized over 15 years to 18 years ................................ 394 533
Additional minimum liability ...................................................... -- (1,321)
--------- ---------
Accrued pension cost .............................................................. $ (982) $ (2,338)
========= =========
Net pension cost includes the following components:
Service cost - benefits earned during the period ................................ $ 1,025 $ 812
Interest cost on projected benefit obligation ................................... 1,212 1,054
Actual return on plan assets .................................................... (2,605) (3,094)
Net amortization and deferral ................................................... 1,835 2,464
--------- ---------
Net periodic pension cost ......................................................... $ 1,467 $ 1,236
========= =========
Assumptions:
Discount rate ................................................................... 7% 7%
Rate of increase in future compensation ......................................... 2% 4%
Expected long-term rate of return on plan assets ................................ 8% 8%
</TABLE>
EMPLOYEE STOCK OWNERSHIP PLAN - On November 15, 1989, the Company formed the
Seagull Employee Stock Ownership Plan (the "ESOP") for the benefit of the
non-Alaskan employees of the Company. The ESOP borrowed from the Company $7.7
million at an interest rate of 10 percent per annum to be repaid in twelve equal
annual installments of principal and interest. The ESOP used the borrowed funds
and the 1989 contributions from the Company to purchase 948,150 shares of Common
Stock at $8.438 per share from Seagull's treasury. The purchase price was based
upon the closing price of the Common Stock on the New York Stock Exchange on the
date the ESOP was formed.
The promissory note has been and will be funded entirely by contributions
from Seagull. Company contributions of approximately $0.6 million in both 1996
and 1995 and $0.5 million in 1994 are included in operations and maintenance
expenses and general and administrative expenses.
POSTRETIREMENT MEDICAL PLAN - ENSTAR Alaska has a postretirement medical plan
which covers all of its salaried employees. Determination of benefits is based
upon the combined age of the retiree and years of service at retirement. The
Company accrues for such benefits during the years the plan participants render
service. Expenses related to the postretirement medical plan of $0.3 in 1996 and
$0.2 million in both 1995 and 1994 are included in operations and maintenance
expenses.
54
<PAGE>
12. INCOME TAXES
The income (loss) before income taxes and the components of income tax
expense (stated in thousands) for each of the years ended December 31, 1996,
1995 and 1994 were as follows:
===============================================================================
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Income (loss) before income taxes:
Domestic ............................................... $ 38,200 $ 6,841 $ 2,886
Foreign ................................................ 16,656 (5,797) (3,551)
--------- --------- ---------
$ 54,856 $ 1,044 $ (665)
========= ========= =========
Current income tax expense:
Federal ................................................ $ (643) $ 6,236 $ 1,675
Foreign ................................................ 17,737 9,376 7,031
State .................................................. 100 3,462 1,325
--------- --------- ---------
Total current ......................................... 17,194 19,074 10,031
--------- --------- ---------
Deferred income tax expense (benefit):
Federal ................................................ 7,605 (13,570) (7,257)
Foreign ................................................ 815 (1,935) 1,256
State .................................................. 281 (787) (290)
--------- --------- ---------
Total deferred ........................................ 8,701 (16,292) (6,291)
--------- --------- ---------
Income tax expense ....................................... 25,895 2,782 3,740
Additional paid-in capital for compensation expense for
tax purposes in excess of amounts recognized for
financial reporting purposes ........................... (1,244) (374) (160)
--------- --------- ---------
$ 24,651 $ 2,408 $ 3,580
========= ========= =========
</TABLE>
The provision for income taxes for each of the years ended December 31, 1996,
1995 and 1994 was different than the amount computed using the federal statutory
rate (35%) for the following reasons (stated in thousands):
===============================================================================
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Amount computed using the statutory rate ................................ $ 19,200 $ 365 $ (233)
Increase (Reduction) in taxes resulting from:
Utilization of Internal Revenue Code
Section 29 (Tight Sands) credits ..................................... (171) (3,096) (5,534)
State income taxes, net of federal income tax benefits ................ 248 1,739 673
Taxation of foreign operations, net of federal income tax benefits .... 13,613 8,494 7,272
Decrease in deferred tax asset valuation allowance .................... (8,430) (6,194) (982)
Adjustments to beginning-of-the-year tax bases
per the 1994 tax returns and effects of IRS exam ..................... -- (1,385) --
Other ................................................................. 1,435 2,859 2,544
--------- --------- ---------
Income tax expense ...................................................... $ 25,895 $ 2,782 $ 3,740
========= ========= =========
</TABLE>
55
<PAGE>
The net decrease in the valuation allowance for the year ended December 31,
1996 of approximately $8.4 million included $6.2 million related to the
utilization in 1996 of net operating losses. The remaining change for 1996 and
the changes for 1995 and 1994 are related to management's belief that, due to
events occurring in the year of change, it is more likely than not that such
deferred tax assets, for which a valuation allowance had previously been
established, will be realized.
The significant components of deferred income tax expense (benefit)
attributable to income from continuing operations for the years ended December
31, 1996, 1995 and 1994 (stated in thousands) were as follows:
===============================================================================
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax expense (benefit) (exclusive of the effects
of other components listed below) ........................ $ 17,131 $ (10,098) $ (5,309)
Decrease in deferred tax asset valuation allowance ......... (8,430) (6,194) (982)
--------- --------- ---------
$ 8,701 $ (16,292) $ (6,291)
========= ========= =========
</TABLE>
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax liabilities and deferred tax assets as of December
31, 1996, 1995 and 1994 (stated in thousands) were as follows:
===============================================================================
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax liabilities:
Property, plant and equipment, due to
differences in depreciation, depletion and amortization ....... $ 66,242 $ 50,783 $ 60,723
Other .......................................................... 583 197 1,077
--------- --------- ---------
Deferred tax liabilities ......................................... 66,825 50,980 61,800
--------- --------- ---------
Deferred tax assets:
Minimum tax credit carryforwards ............................... (15,972) (18,950) (15,301)
Investment tax credit carryforwards ............................ (1,851) (1,682) (3,466)
Net operating loss carryforwards ............................... (1,727) (7,129) (10,267)
Foreign tax credit carryforwards ............................... -- -- (1,545)
Deferred compensation/retirement related
items accrued for financial reporting purposes ................ (5,464) (4,349) (3,965)
Contingent consideration related to acquisitions/dispositions .. (5,018) (651) (1,052)
Notes receivable ............................................... (6,209) (5,333) (5,248)
Other .......................................................... (3,636) (3,178) (1,774)
--------- --------- ---------
Deferred tax assets .............................................. (39,877) (41,272) (42,618)
Less - valuation allowance ....................................... -- 8,430 14,624
--------- --------- ---------
Net deferred tax assets .......................................... (39,877) (32,842) (27,994)
Less - reclassification to current deferred tax assets ........... 4,073 5,239 4,118
--------- --------- ---------
Non-current deferred tax assets .................................. (35,804) (27,603) (23,876)
--------- --------- ---------
Net non-current deferred tax liabilities ......................... $ 31,021 $ 23,377 $ 37,924
========= ========= =========
</TABLE>
For federal income tax purposes, as of December 31, 1996, the Company has
unused investment tax credits of approximately $1.9 million which will expire in
the years 1999 and 2000, unused operating loss carryforwards of approximately
$4.9 million which will expire in the years 1997 through 1999 and unused minimum
tax credits of approximately $16.0 million which are available over an
indefinite period.
56
<PAGE>
13. BUSINESS SEGMENTS
Information on the Company's operations by business segment (stated in
thousands) is summarized as follows for the years ended December 31:
===============================================================================
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Oil and gas operations ......................... $ 420,962 $ 310,656 $ 364,888
Alaska transmission and distribution ........... 97,616 97,770 105,598
----------- ----------- -----------
$ 518,578 $ 408,426 $ 470,486
=========== =========== ===========
OPERATING PROFIT (LOSS):
Oil and gas operations(1) ...................... $ 100,529 $ (33,721) $ 41,374
Alaska transmission and distribution ........... 26,026 23,141 21,865
General and administrative expense ............. (21,500) (23,798) (14,603)
----------- ----------- -----------
$ 105,055 $ (34,378) $ 48,636
=========== =========== ===========
DEPRECIATION, DEPLETION AND AMORTIZATION:
Oil and gas operations(1) ...................... $ 144,954 $ 188,455 $ 149,182
Alaska transmission and distribution ........... 7,945 7,797 7,752
Corporate ...................................... 3,420 4,351 3,016
----------- ----------- -----------
$ 156,319 $ 200,603 $ 159,950
=========== =========== ===========
IDENTIFIABLE ASSETS:
Oil and gas operations ......................... $ 1,267,481 $ 1,118,216 $ 1,188,341
Alaska transmission and distribution ........... 189,867 189,081 190,087
Corporate ...................................... 57,715 51,828 75,622
----------- ----------- -----------
$ 1,515,063 $ 1,359,125 $ 1,454,050
=========== =========== ===========
CAPITAL EXPENDITURES:
Exploration and production:
Leasehold ..................................... $ 12,986 $ 18,000 $ 18,573
Exploration ................................... 77,774 46,575 67,135
Development ................................... 108,763 69,260 100,763
----------- ----------- -----------
199,523 133,835 186,471
Pipeline and marketing ......................... 228 441 2,503
----------- ----------- -----------
Oil and gas operations ......................... 199,751 134,276 188,974
Alaska transmission and distribution ........... 9,287 7,611 7,626
Corporate ...................................... 4,424 2,214 5,953
----------- ----------- -----------
$ 213,462 $ 144,101 $ 202,553
=========== =========== ===========
ACQUISITIONS, NET OF CASH ACQUIRED:
Acquisitions of oil and gas properties ........... $ 90,867 $ -- $ 222,780
Acquisitions of other assets and liabilities ..... 13,553 -- (28,921)
----------- ----------- -----------
$ 104,420 $ -- $ 193,859
=========== =========== ===========
</TABLE>
(1) Includes $48.8 million relating to the impairment of long-lived assets for
the year ended December 31, 1995.
<PAGE>
Identifiable assets by geographic area is stated in thousands and summarized as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
United States ..................... $1,138,619 $1,074,787 $1,185,890
Canada ............................ 200,352 211,040 224,656
Cote d'Ivoire ..................... 28,854 33,167 10,949
Egypt ............................. 119,680 11,003 2,772
Indonesia ......................... 3,487 4,237 4,535
Russia ............................ 21,152 21,120 19,228
Other(2) .......................... 2,919 3,771 6,020
---------- ---------- ----------
$1,515,063 $1,359,125 $1,454,050
========== ========== ==========
</TABLE>
(2)Other includes Malaysia, the United Kingdom and Vietnam.
57
<PAGE>
14. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS - The Company leases certain office space and equipment
under operating lease arrangements which contain renewal options and escalation
clauses. Future minimum rental payments under these leases range between $2.1
million and $2.9 million in each of the years 1997-2001, and total $10.4 million
for all subsequent years. Total rental expense under operating leases for each
of the years 1996, 1995 and 1994 was approximately $3.2 million.
LITIGATION - The Company is a party to ongoing litigation in the normal
course of business or other litigation with respect to which the Company is
indemnified pursuant to various purchase agreements or other contractual
arrangements. Management regularly analyzes current information and, as
necessary, provides accruals for probable liabilities on the eventual
disposition of these matters. While the outcome of lawsuits or other proceedings
against the Company cannot be predicted with certainty, management believes that
any adverse effect on the Company's financial condition, results of operations
or cash flows will not be material.
58
<PAGE>
15. SUPPLEMENTAL OIL AND GAS INFORMATION (Unaudited)
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES (AMOUNTS IN
THOUSANDS)
===============================================================================
<TABLE>
<CAPTION>
United Cote
States Canada d'Ivoire Egypt Indonesia Russia Other Total
---------- ---------- -------- ---------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
At December 31, 1996:
Proved ........................ $1,312,448 $ 239,323 $ 32,648 $ 98,407 $ 3,962 $ 17,056 $ -- $1,703,844
Unproved ...................... 33,959 2,525 664 5,584 -- -- 4,208 46,940
---------- ---------- -------- ---------- -------- ---------- -------- ----------
1,346,407 241,848 33,312 103,991 3,962 17,056 4,208 1,750,784
Accumulated depreciation,
depletion and amortization ... 620,602 49,561 6,245 7,442 2,911 4,979 1,441 693,181
---------- ---------- -------- ---------- -------- ---------- -------- ----------
$ 725,805 $ 192,287 $ 27,067 $ 96,549 $ 1,051 $ 12,077 $ 2,767 $1,057,603
========== ========== ======== ========== ======== ========== ======== ==========
At December 31, 1995:
Proved ........................ $1,168,219 $ 234,437 $ 27,146 $ 9,331 $ 3,962 $ 13,103 $ 134 $1,456,332
Unproved ...................... 30,278 2,722 118 897 -- -- 4,426 38,441
---------- ---------- -------- ---------- -------- ---------- -------- ----------
1,198,497 237,159 27,264 10,228 3,962 13,103 4,560 1,494,773
Accumulated depreciation,
depletion and amortization ... 511,174 34,015 2,100 134 2,779 2,635 815 553,652
---------- ---------- -------- ---------- -------- ---------- -------- ----------
$ 687,323 $ 203,144 $ 25,164 $ 10,094 $ 1,183 $ 10,468 $ 3,745 $ 941,121
========== ========== ======== ========== ======== ========== ======== ==========
</TABLE>
COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT
ACTIVITIES (AMOUNTS IN THOUSANDS)
===============================================================================
<TABLE>
<CAPTION>
United Cote
States Canada d'Ivoire Egypt Indonesia Russia Other Total
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1996:
Acquisition costs:
Proved ........................ $ 29,102 $ 1,000 $ -- $ 56,051 $ -- $ -- $ -- $ 86,153
Unproved ...................... 10,371 862 782 5,584 -- -- 101 17,700
Exploration costs ............... 64,066 3,332 2,823 6,934 -- -- 619 77,774
Development costs ............... 65,309 10,992 3,255 25,176 -- 4,031 -- 108,763
--------- --------- --------- --------- --------- --------- --------- ---------
$ 168,848 $ 16,186 $ 6,860 $ 93,745 $ -- $ 4,031 $ 720 $ 290,390
========= ========= ========= ========= ========= ========= ========= =========
Year Ended December 31, 1995:
Acquisition costs:
Proved ........................ $ 3,193 $ 553 $ -- $ -- $ -- $ -- $ -- $ 3,746
Unproved ...................... 13,036 873 126 13 -- -- 206 14,254
Exploration costs ............... 38,762 764 (29) 3,412 -- 312 3,354 46,575
Development costs ............... 39,669 2,507 18,359 4,792 -- 3,933 -- 69,260
--------- --------- --------- --------- --------- --------- --------- ---------
$ 94,660 $ 4,697 $ 18,456 $ 8,217 $ -- $ 4,245 $ 3,560 $ 133,835
========= ========= ========= ========= ========= ========= ========= =========
Year Ended December 31, 1994:
Acquisition costs:
Proved ........................ $ 7,934 $ 218,871 $ -- $ -- $ -- $ -- $ -- $ 226,805
Unproved ...................... 8,021 3,216 -- 885 -- -- 2,426 14,548
Exploration costs ............... 54,604 801 3,032 2,022 -- 496 6,180 67,135
Development costs ............... 73,782 18,830 2,624 -- -- 5,527 -- 100,763
--------- --------- --------- --------- --------- --------- --------- ---------
$ 144,341 $ 241,718 $ 5,656 $ 2,907 $ -- $ 6,023 $ 8,606 $ 409,251
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
59
<PAGE>
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES (AMOUNTS IN
THOUSANDS)
===============================================================================
<TABLE>
<CAPTION>
United Cote
States Canada d'Ivoire Egypt
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996:
Revenues ............................. $ 280,540 $ 33,911 $ 12,798 $ 28,126
Direct operating expense(1) .......... 61,206 11,849 2,454 3,851
General operating expense(1).......... 6,610 2,169 215 1,945
Exploration charges .................. 35,629 4,295 5,401 2,725
DD&A(2) .............................. 110,691 16,985 4,151 7,416
Income tax expense(3) ................ 23,047 1,375 2,158 5,579
---------- ---------- ---------- ----------
Results of activities ................ $ 43,357 $ (2,762) $ (1,581) $ 6,610
========== ========== ========== ==========
Year Ended December 31, 1995:
Revenues ............................. $ 205,596 $ 28,837 $ 4,377 $ 442
Direct operating expense(1) .......... 53,298 11,078 1,010 56
General operating expense(1).......... 8,486 1,856 390 --
Exploration charges .................. 26,156 2,866 471 2,086
DD&A(2) .............................. 113,430 18,046 2,106 136
Impairment of oil and gas properties . 46,122 -- -- --
Income tax expense (benefit)(3) ...... (20,776) (2,233) 832 --
---------- ---------- ---------- ----------
Results of activities ................ $ (21,120) $ (2,776) $ (432) $ (1,836)
========== ========== ========== ==========
Year Ended December 31, 1994:
Revenues ............................. $ 246,491 $ 37,068 $ -- $ --
Direct operating expense(1) .......... 55,918 11,440 -- --
General operating expense(1).......... 11,356 1,574 -- --
Exploration charges .................. 34,926 2,308 -- --
DD&A(2) .............................. 124,179 16,558 -- --
Income tax expense (benefit)(3) ...... (2,405) 2,300 -- --
---------- ---------- ---------- ----------
Results of activities ................ $ 22,517 $ 2,888 $ -- $ --
========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Indonesia Russia Other Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996:
Revenues ............................. $ 15,892 $ 15,633 $ 57 $ 386,957
Direct operating expense(1) .......... -- 7,895 -- 87,255
General operating expense(1).......... -- 3,467 13 14,419
Exploration charges .................. -- (133) 2,310 50,227
DD&A(2) .............................. 131 2,830 877 143,081
Income tax expense(3) ................ 8,899 541 -- 41,599
---------- ---------- ---------- ----------
Results of activities ................ $ 6,862 $ 1,033 $ (3,143) $ 50,376
========== ========== ========== ==========
Year Ended December 31, 1995:
Revenues ............................. $ 12,418 $ 16,078 $ 7 $ 267,755
Direct operating expense(1) .......... -- 6,190 -- 71,632
General operating expense(1).......... -- 2,682 (21) 13,393
Exploration charges .................. -- 367 8,277 40,223
DD&A(2) .............................. 131 2,111 536 136,496
Impairment of oil and gas properties . -- -- -- 46,122
Income tax expense (benefit)(3) ...... 6,953 1,066 -- (14,158)
---------- ---------- ---------- ----------
Results of activities ................ $ 5,334 $ 3,662 $ (8,785) $ (25,953)
========== ========== ========== ==========
Year Ended December 31, 1994:
Revenues ............................. $ 11,738 $ 12,170 $ 10 $ 307,477
Direct operating expense(1) .......... -- 7,834 -- 75,192
General operating expense(1).......... -- 2,335 113 15,378
Exploration charges .................. -- 498 6,081 43,813
DD&A(2) .............................. 131 1,555 630 143,053
Income tax expense (benefit)(3) ...... 6,577 55 -- 6,527
---------- ---------- ---------- ----------
Results of activities ................ $ 5,030 $ (107) $ (6,814) $ 23,514
========== ========== ========== ==========
</TABLE>
(1)Direct operating expense represents costs incurred to operate and maintain
wells and related equipment and facilities. These costs include, among other
things, repairs and maintenance, labor, materials, supplies, property taxes,
insurance, severance taxes and transportation costs. General operating
expense represents all overhead expenses directly related to oil and gas
producing activities.
(2)"DD&A" represents depreciation, depletion and amortization.
(3)Income tax expense (benefit) is calculated by applying the applicable tax
rate to operating profit for that country and, in the U.S., also providing
the benefit of any Internal Revenue Code Section 29 Tax Credits.
60
<PAGE>
RESERVE QUANTITY INFORMATION - THOUSAND EQUIVALENT BARRELS OF OIL (MBOE)
===============================================================================
<TABLE>
<CAPTION>
United Cote
States Canada d'Ivoire Egypt Indonesia Russia Total
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Proved reserves:
January 1, 1996 ................... 153,794 45,816 6,521 8,151 13,300 15,570 243,152
Revisions of previous estimates ... 4,021 (2,713) (900) 386 (518) 651 927
Extensions and discoveries ........ 12,769 5,261 263 1,798 -- 1,234 21,325
Purchases of reserves in place .... 6,217 288 -- 16,935 -- -- 23,440
Sales of reserves in place ........ (20) (2,075) -- -- -- -- (2,095)
Production ........................ (20,934) (3,895) (752) (1,305) (789) (1,117) (28,792)
--------- --------- --------- --------- --------- --------- ---------
December 31, 1996(1) .............. 155,847 42,682 5,132 25,965 11,993 16,338 257,957
========= ========= ========= ========= ========= ========= =========
January 1, 1995 ................... 158,848 48,714 5,282 3,520 14,397 13,157 243,918
Revisions of previous estimates ... 3,515 363 118 4,656 (396) 1,497 9,753
Extensions and discoveries ........ 11,242 1,054 1,416 -- -- 1,978 15,690
Purchases of reserves in place .... 1,254 323 -- -- -- -- 1,577
Sales of reserves in place ........ (748) (563) -- -- -- -- (1,311)
Production ........................ (20,317) (4,075) (295) (25) (701) (1,062) (26,475)
--------- --------- --------- --------- --------- --------- ---------
December 31, 1995(1) .............. 153,794 45,816 6,521 8,151 13,300 15,570 243,152
========= ========= ========= ========= ========= ========= =========
January 1, 1994 ................... 179,437 -- -- -- 14,289 7,297 201,023
Revisions of previous estimates ... (10,225) 760 -- -- 901 2,109 (6,455)
Extensions and discoveries ........ 11,198 5,580 5,282 3,520 -- 4,593 30,173
Purchases of reserves in place .... 1,623 46,554 -- -- -- -- 48,177
Sales of reserves in place ........ (1,734) (460) -- -- -- -- (2,194)
Production ........................ (21,451) (3,720) -- -- (793) (842) (26,806)
--------- --------- --------- --------- --------- --------- ---------
December 31, 1994 ................. 158,848 48,714 5,282 3,520 14,397 13,157 243,918
========= ========= ========= ========= ========= ========= =========
Proved developed reserves:
December 31, 1996 ................. 127,871 37,150 3,092 14,502 9,528 10,806 202,949
December 31, 1995 ................. 122,918 40,787 3,623 265 10,652 9,176 187,421
December 31, 1994 ................. 125,520 44,094 -- -- 11,707 8,866 190,187
</TABLE>
(1)At December 31, 1996 and 1995, includes approximately 14,072 MBOE and 14,733
MBOE, respectively, of oil equivalents dedicated to the monetary production
payment (see Note 4).
The reserve volumes presented are estimates only and should not be construed
as being exact quantities. These reserves may or may not be recovered and may
increase or decrease as a result of future operations of the Company and changes
in economic conditions.
61
<PAGE>
RESERVE QUANTITY INFORMATION - OIL (MBBL)
===============================================================================
<TABLE>
<CAPTION>
United Cote
States Canada d'Ivoire Egypt Indonesia Russia Total
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Proved reserves:
January 1, 1996 ................... 20,163 3,667 3,010 7,918 1,153 15,570 51,481
Revisions of previous estimates ... (800) (47) (1,038) 384 23 651 (827)
Extensions and discoveries ........ 1,656 916 64 1,792 -- 1,234 5,662
Purchases of reserves in place .... 429 21 -- 16,935 -- -- 17,385
Sales of reserves in place ........ (2) (471) -- -- -- -- (473)
Production ........................ (1,561) (361) (511) (1,305) (51) (1,117) (4,906)
--------- --------- --------- --------- --------- --------- ---------
December 31, 1996(1) .............. 19,885 3,725 1,525 25,724 1,125 16,338 68,322
========= ========= ========= ========= ========= ========= =========
January 1, 1995 ................... 15,481 4,051 2,210 3,520 1,066 13,157 39,485
Revisions of previous estimates ... 4,000 (164) 72 4,423 132 1,497 9,960
Extensions and discoveries ........ 1,382 258 989 -- -- 1,978 4,607
Purchases of reserves in place .... 781 74 -- -- -- -- 855
Sales of reserves in place ........ (78) (153) -- -- -- -- (231)
Production ........................ (1,403) (399) (261) (25) (45) (1,062) (3,195)
--------- --------- --------- --------- --------- --------- ---------
December 31, 1995(1) .............. 20,163 3,667 3,010 7,918 1,153 15,570 51,481
========= ========= ========= ========= ========= ========= =========
January 1, 1994 ................... 16,249 -- -- -- 1,005 7,297 24,551
Revisions of previous estimates ... (210) 685 -- -- 108 2,109 2,692
Extensions and discoveries ........ 1,123 878 2,210 3,520 -- 4,593 12,324
Purchases of reserves in place .... 82 2,923 -- -- -- -- 3,005
Sales of reserves in place ........ (113) (8) -- -- -- -- (121)
Production ........................ (1,650) (427) -- -- (47) (842) (2,966)
--------- --------- --------- --------- --------- --------- ---------
December 31, 1994 ................. 15,481 4,051 2,210 3,520 1,066 13,157 39,485
========= ========= ========= ========= ========= ========= =========
Proved developed reserves:
December 31, 1996 ................. 12,855 2,913 1,035 14,336 936 10,806 42,881
December 31, 1995 ................. 11,205 3,196 1,720 265 1,022 9,176 26,584
December 31, 1994 ................. 8,967 3,587 -- -- 870 8,866 22,290
</TABLE>
(1) At December 31, 1996 and 1995, includes approximately 2,248 Mbbl and 2,281
Mbbl, respectively, of oil dedicated to the monetary production payment (see
Note 4).
62
<PAGE>
RESERVE QUANTITY INFORMATION - GAS (MMCF)
===============================================================================
<TABLE>
<CAPTION>
United Cote
States Canada d'Ivoire Egypt Indonesia Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Proved reserves:
January 1, 1996 ................... 801,797 252,892 21,066 1,399 72,892 1,150,046
Revisions of previous estimates ... 28,925 (15,994) 828 13 (3,246) 10,526
Extensions and discoveries ........ 66,678 26,071 1,195 35 -- 93,979
Purchases of reserves in place .... 34,729 1,603 -- -- -- 36,332
Sales of reserves in place ........ (110) (9,625) -- -- -- (9,735)
Production ........................ (116,238) (21,203) (1,445) -- (4,429) (143,315)
---------- ---------- ---------- ---------- ---------- ----------
December 31, 1996(1) .............. 815,781 233,744 21,644 1,447 65,217 1,137,833
========== ========== ========== ========== ========== ==========
January 1, 1995 ................... 860,209 267,980 18,432 -- 79,990 1,226,611
Revisions of previous estimates ... (2,908) 3,159 278 1,399 (3,165) (1,237)
Extensions and discoveries ........ 59,157 4,773 -- -- -- 63,930
Purchases of reserves in place .... 2,840 1,494 2,559 -- -- 6,893
Sales of reserves in place ........ (4,019) (2,457) -- -- -- (6,476)
Production ........................ (113,482) (22,057) (203) -- (3,933) (139,675)
---------- ---------- ---------- ---------- ---------- ----------
December 31, 1995(1) .............. 801,797 252,892 21,066 1,399 72,892 1,150,046
========== ========== ========== ========== ========== ==========
January 1, 1994 ................... 979,128 -- -- -- 79,706 1,058,834
Revisions of previous estimates ... (60,087) 449 -- -- 4,757 (54,881)
Extensions and discoveries ........ 60,451 28,212 18,432 -- -- 107,095
Purchases of reserves in place .... 9,247 261,785 -- -- -- 271,032
Sales of reserves in place ........ (9,726) (2,711) -- -- -- (12,437)
Production ........................ (118,804) (19,755) -- -- (4,473) (143,032)
---------- ---------- ---------- ---------- ---------- ----------
December 31, 1994 ................. 860,209 267,980 18,432 -- 79,990 1,226,611
========== ========== ========== ========== ========== ==========
Proved developed reserves:
December 31, 1996 ................. 690,095 205,422 12,344 993 51,554 960,408
December 31, 1995 ................. 670,277 225,544 11,415 -- 57,777 965,013
December 31, 1994 ................. 699,317 243,042 -- -- 65,021 1,007,380
</TABLE>
(1)At December 31, 1996 and 1995, includes approximately 70,914 MMcf and 74,713
MMcf, respectively, of gas dedicated to the monetary production payment (see
Note 4).
The Company's standardized measure of discounted future net cash flows as of
December 31, 1996 and 1995 and changes therein for each of the years 1996, 1995
and 1994 are provided based on the present value of future net revenues from
proved oil and gas reserves estimated by independent petroleum engineers in
accordance with guidelines established by the Securities and Exchange
Commission. These estimates were computed by applying appropriate year-end
prices for oil and gas to estimated future production of proved oil and gas
reserves over the economic lives of the reserves and assuming continuation of
existing economic conditions. Year-end 1996 calculations were made using prices
of $3.27 per Mcf and $20.99 per Bbl for gas and oil, respectively. The Company's
average realized prices for the year ended December 31, 1996 were $2.07 per Mcf
and $18.50 per Bbl for gas and oil, respectively. Because the disclosure
requirements are standardized, significant changes can occur in these estimates
based upon oil and gas prices in effect at year-end. The following estimates
should not be viewed as an estimate of fair market value. Income taxes are
computed by applying the statutory income tax rate in the jurisdiction to the
net cash inflows relating to proved oil and gas reserves less the tax bases of
the properties involved and giving effect to appropriate net operating loss
carryforwards, tax credits and allowances relating to such properties.
63
<PAGE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (AMOUNTS IN THOUSANDS)
===============================================================================
<TABLE>
<CAPTION>
United Cote
States Canada d'Ivoire Egypt
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
December 31, 1996:
Future cash inflows ......................... $ 3,489,097 $ 481,159 $ 80,526 $ 604,613
Future development costs .................... (169,240) (20,487) (15,529) (115,639)
Future production costs ..................... (712,881) (129,313) (17,700) (122,697)
----------- ----------- ----------- -----------
Future net cash flows before income taxes ... 2,606,976 331,359 47,297 366,277
10% annual discount ......................... (1,086,947) (153,161) (11,121) (114,772)
----------- ----------- ----------- -----------
Discounted future net cash flows
before income taxes ....................... 1,520,029 178,198 36,176 251,505
Discounted income taxes ..................... (383,032) (63,079) (5,072) (75,306)
----------- ----------- ----------- -----------
Standardized measure of discounted future
net cash flows ........................... $ 1,136,997 $ 115,119 $ 31,104 $ 176,199
=========== =========== =========== ===========
December 31, 1995:
Future cash inflows ......................... $ 1,985,934 $ 345,380 $ 103,820 $ 144,528
Future development costs .................... (180,175) (20,297) (16,971) (43,459)
Future production costs ..................... (515,802) (113,917) (18,993) (34,972)
----------- ----------- ----------- -----------
Future net cash flows before income taxes ... 1,289,957 211,166 67,856 66,097
10% annual discount ......................... (522,907) (98,399) (18,973) (21,867)
----------- ----------- ----------- -----------
Discounted future net cash flows
before income taxes ....................... 767,050 112,767 48,883 44,230
Discounted income taxes ..................... (123,479) (33,286) (11,851) (19,181)
----------- ----------- ----------- -----------
Standardized measure of discounted future
net cash flows ........................... $ 643,571 $ 79,481 $ 37,032 $ 25,049
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Indonesia Russia Total
----------- ----------- -----------
<S> <C> <C> <C>
December 31, 1996:
Future cash inflows ......................... $ 229,497 $ 266,304 $ 5,151,196
Future development costs .................... -- (30,896) (351,791)
Future production costs ..................... (41,640) (121,137) (1,145,368)
----------- ----------- -----------
Future net cash flows before income taxes ... 187,857 114,271 3,654,037
10% annual discount ......................... (95,995) (54,171) (1,516,167)
----------- ----------- -----------
Discounted future net cash flows
before income taxes ....................... 91,862 60,100 2,137,870
Discounted income taxes ..................... (48,623) (18,236) (593,348)
----------- ----------- -----------
Standardized measure of discounted future
net cash flows ........................... $ 43,239 $ 41,864 $ 1,544,522
=========== =========== ===========
December 31, 1995:
Future cash inflows ......................... $ 179,534 $ 261,880 $ 3,021,076
Future development costs .................... -- (29,422) (290,324)
Future production costs ..................... (36,305) (118,768) (838,757)
----------- ----------- -----------
Future net cash flows before income taxes ... 143,229 113,690 1,891,995
10% annual discount ......................... (71,042) (54,846) (788,034)
----------- ----------- -----------
Discounted future net cash flows
before income taxes ....................... 72,187 58,844 1,103,961
Discounted income taxes ..................... (35,479) (19,334) (242,610)
----------- ----------- -----------
Standardized measure of discounted future
net cash flows ........................... $ 36,708 $ 39,510 $ 861,351
=========== =========== ===========
</TABLE>
PRINCIPAL SOURCES OF CHANGE IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE
NET CASH FLOWS (AMOUNTS IN THOUSANDS)
===============================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Beginning of year ................................................ $ 861,351 $ 728,303 $ 836,850
Revisions of previous quantity estimates less related costs ... 3,825 54,287 (36,088)
Extensions and discoveries less related costs ................. 209,860 163,131 99,909
Purchases of reserves in place ................................ 219,510 11,967 197,301
Sales of reserves in place .................................... (6,593) (5,238) (12,047)
Net changes in prices and production costs .................... 785,928 166,325 (366,431)
Change in development costs during the period ................. 108,763 69,260 100,763
Sales of oil and gas produced, net of lifting costs ........... (299,702) (196,123) (232,285)
Accretion of discount ......................................... 110,396 86,151 103,740
Net change in income taxes .................................... (350,738) (105,655) 66,378
Changes in production, timing and other ....................... (98,078) (111,057) (29,787)
----------- ----------- -----------
683,171 133,048 (108,547)
----------- ----------- -----------
End of year ...................................................... $ 1,544,522 $ 861,351 $ 728,303
=========== =========== ===========
</TABLE>
64
EXHIBIT 21
SUBSIDIARIES
The Company was incorporated in Texas in 1973. The following is a
listing of significant subsidiaries of the Company as of March 18, 1997:
<TABLE>
<CAPTION>
% Voting
Securities
Jurisdiction of or Beneficial
Incorporation Interest Owned
Name of Subsidiary or Organization by the Company
- ------------------------------------------------ --------------------- ----------------
<S> <C> <C>
Alaska Pipeline Company Alaska 100%
Global Natural Resources Inc. New Jersey 100%
Global Natural Resources Corporation of Nevada Nevada 100%
Seagull East Zeit Petroleum Ltd. Cayman Islands 100%
Seagull Energy Canada Holding Company Wyoming 100%
Seagull Energy Canada Ltd. Alberta, Canada 100%
Seagull Energy E&P Inc. Delaware 100%
Seagull Pipeline & Marketing Company Delaware 100%
Seagull Marketing Services, Inc. Texas 100%
Seagull Midcon Inc. Delaware 100%
Seagull Mid-South Inc. Delaware 100%
</TABLE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Seagull Energy Corporation:
We consent to the incorporation by reference in the following
Registration Statements of Seagull Energy Corporation of our report dated
January 27, 1997, relating to the consolidated balance sheets of Seagull Energy
Corporation and Subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1996, which report
appears or is incorporated by reference in the December 31, 1996 Annual Report
on Form 10-K of Seagull Energy Corporation. Such report on the consolidated
financial statements refers to a change in the Company's method of accounting
for the impairment of long-lived assets and for long-lived assets to be disposed
of.
a. Form S-8, Seagull Thrift Plan (2-72014).
b. Form S-8, Seagull Energy Corporation 1981 Non-Qualified and
Incentive Stock Option Plan (2-80834).
c. Form S-8, ENSTAR Natural Gas Company Thrift Plan (33-14463).
d. Forms S-8 and S-3, Seagull Energy Corporation 1983 Stock
Option Plan (2-93087).
e. Forms S-8 and S-3, Seagull Energy Corporation 1986 Stock
Option Plan (33-22475).
f. Form S-8, Seagull Energy Corporation 1990 Stock Option Plan
(33-43483).
g. Form S-8, Seagull Energy Corporation 1993 Stock Option Plan
(33-50643).
h. Form S-8, Seagull Energy Corporation 1993 Nonemployee
Directors' Stock Option Plan
(33-50645).
i. Form S-3, $350,000,000 Debt Securities of Seagull Energy
Corporation (33-65118).
j. Form S-3, ENSTAR Alaska Group of Common Stock of Seagull
Energy Corporation (33-53729).
k. Form S-8, Seagull Energy Corporation 1995 Omnibus Stock Plan
(33-64041).
l. Form S-3, $300,000,000 Debt Securities, Preferred Stock,
Depositary Shares, Common Stock or Securities Warrants of
Seagull Energy Corporation (33-64051).
m. Form S-8, Global Natural Resources InC. 1989 Key Employees
Stock Option Plan and 1992 Stock Option Plan (333-13393).
Houston, Texas
March 27, 1997
EXHIBIT 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the use of our name in the Annual Report on Form
10-K of Seagull Energy Corporation and Subsidiaries (the "Company") for the year
ended December 31, 1996, and the incorporation by reference thereof into the
Company's registration statements on Form S-8 (Nos. 2-72014, 2-80834, 33-14463,
33-43483, 33-50643, 33-50645, 33-64041 and 333-13393), Forms S-8 and S-3 (Nos.
2-93087 and 33-22475) and Form S-3 (Nos. 33-53729, 33-65118 and 33-64051).
/s/ RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
March 24, 1997
EXHIBIT 23.3
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the use of our name under the heading "Exploration
and Production" of Item 1 in the Annual Report on Form 10-K (the Form 10-K) for
the year ended December 31, 1996, of Seagull Energy Corporation and Subsidiaries
and the incorporation by reference of the Form 10-K into the Company's
registration statements on Form S-8 (Nos. 2-72014, 2-80834, 33-14463, 33-43483,
33-50643, 33-50645, 33-64041 and 333-13393), Forms S-8 and S-3 (Nos. 2-93087 and
33-22475) and Form S-3 (Nos. 33-53729, 33-65118 and 33-64051).
/s/ DeGOLYER AND MacNAUGHTON
DeGOLYER AND MacNAUGHTON
Dallas, Texas
March 24, 1997
EXHIBIT 23.4
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the use of our name in the Annual Report on Form
10-K of Seagull Energy Corporation and Subsidiaries (the "Company") for the year
ended December 31, 1996, and the incorporation by reference thereof into the
Company's registration statements on Form S-8 (Nos. 2-72014, 2-80834, 33-14463,
33-43483, 33-50643, 33-50645, 33-64041 and 333-13393), Forms S-8 and S-3 (Nos.
2-93087 and 33-22475) and Form S-3 (Nos. 33-53729, 33-65118 and 33-64051).
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ FREDERICK D. SEWELL
Frederick D. Sewell
President
Houston, Texas
March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Dec-31-1996
<CASH> 15,284
<SECURITIES> 0
<RECEIVABLES> 193,659
<ALLOWANCES> 0
<INVENTORY> 12,285
<CURRENT-ASSETS> 227,617
<PP&E> 2,049,356
<DEPRECIATION> 804,715
<TOTAL-ASSETS> 1,515,063
<CURRENT-LIABILITIES> 231,370
<BONDS> 573,455
0
0
<COMMON> 6,307
<OTHER-SE> 591,423
<TOTAL-LIABILITY-AND-EQUITY> 1,515,063
<SALES> 518,578
<TOTAL-REVENUES> 518,578
<CGS> 42,600
<TOTAL-COSTS> 370,923
<OTHER-EXPENSES> 5,357
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,842
<INCOME-PRETAX> 54,856
<INCOME-TAX> 25,895
<INCOME-CONTINUING> 28,961
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,961
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
</TABLE>
