<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K/A-1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) January 31, 1996
--------------------
ARCH PETROLEUM INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-9976 83-0248900
- ---------------------------------- -------------------- ----------------------
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification No.)
777 Taylor Street, Suite II, Fort Worth, Texas 76102
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 332-9209
-----------------
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
-------------------------------------------------------------------
(a) Audited financial statements of Trax Petroleums Limited for the years
ended November 30, 1994, 1993 and 1992.
(b) Unaudited balance sheets of Trax Petroleums Limited at August 31, 1995
and unaudited statements of operations of Trax Petroleums Limited for
the nine months ended August 31, 1995 and 1994.
(c) Pro forma financial information of Arch Petroleum Inc.
Unaudited Pro Forma Balance Sheet as of September 30, 1995
Unaudited Pro Forma Statement of Operations for the year ended
December 31, 1994, and the nine months ended September 30, 1995
(d) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
10.8 (a) Cash Offer Circular by Arch Petroleum Inc. to purchase all of the
Common Shares of Trax Petroleums Limited
10.8 (b) Notice of Guaranteed Delivery
10.8 (c) Letter of Acceptance and Transmittal
10.9 Third Restated Revolving Credit Loan Agreement dated February 20,
1996, among Arch Petroleum Inc. and Bank One, Texas, N.A., as
Agent, and other Banks
10.10 Credit Agreement, dated as of February 20, 1996, among Trax
Petroleums Limited and Bank of Montreal, as Agent, and other
Financial Institutions
</TABLE>
2
<PAGE>
ARCH PETROLEUM INC.
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited pro forma condensed consolidated balance sheet
combines the accounts of Arch Petroleum Inc. ("Arch" or "Registrant") and Trax
Petroleums Limited ("Trax"), assuming the acquisition had occurred as of
September 30, 1995. The unaudited pro forma consolidated statements of
operations for the nine months ended September 30, 1995, and for the year ended
December 31, 1994, combine the historical information of the Registrant and
Trax, together with the related pro forma adjustments which are based on
estimates and assumptions explained in further detail in the accompanying notes.
The statements of operations for the nine months ended September 30, 1995, and
for the year ended December 31, 1994, reflect the consolidated operations of
Arch and Trax as if the acquisition was consummated as of the beginning of
fiscal 1994.
The unaudited pro forma consolidated financial statements are provided for
comparative purposes only and should be read in conjunction with the historical
audited consolidated financial statements of the Registrant and the historical
audited financial statements of Trax and the related notes thereto included
herewith. The pro forma information presented is not necessarily indicative of
the combined financial results and the combined financial position as they may
be in future periods or as they might have been for the period or as of the date
indicated had the acquisition been consummated at the beginning of such period
or as of such date. No assumptions have been made to reflect results of
exploratory drilling on prospects owned by Trax.
3
<PAGE>
ARCH PETROLEUM INC.
PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
September 30, 1995
------------------------------------------------------------------------
Historical (Note 1)
-------------------------------
Pro Forma
Adjustments
Arch Trax (Note 3) Pro Forma
-------------- ------------- ----------------------- --------------
<S> <C> <C> <C> <C>
Assets:
Current assets $ 10,471,000 $ 1,129,000 $ 11,600,000
Oil and gas properties and
natural gas pipelines, net 65,678,000 6,506,000 1,940,000 74,124,000
Other assets, net 2,773,000 - 2,773,000
-------------- ------------- --------------
Total assets $ 78,922,000 $ 7,635,000 $ 88,497,000
============== ============= ==============
Liabilities:
Current liabilities $ 11,270,000 $ 551,000 577,000 $ 12,398,000
Deferred revenue 17,222,000 - 17,222,000
Long-term debt, less
current maturities 15,398,000 456,000 7,876,000 23,730,000
Convertible subordinated notes 5,000,000 - 5,000,000
Deferred federal income taxes 1,709,000 - 1,709,000
Other liabilities 332,000 115,000 447,000
-------------- ------------- --------------
Total liabilities 50,931,000 1,122,000 60,506,000
Preferred Stock 20,000,000 - 20,000,000
Shareholders' Equity:
Common Stock 171,000 13,214,000 (13,214,000) 171,000
Additional paid-in capital 4,779,000 - 4,779,000
Retained earnings (deficit) 3,041,000 (6,701,000) 6,701,000 3,041,000
-------------- -------------- --------------
Total Shareholders' equity 7,991,000 6,513,000 7,991,000
-------------- -------------- --------------
Total liabilities and
shareholders' equity $ 78,922,000 $ 7,635,000 $ 88,497,000
============== ============= ==============
</TABLE>
The accompanying notes are an integral part of this unaudited condensed
consolidated pro form balance sheet.
4
<PAGE>
ARCH PETROLEUM INC.
PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1995
------------------------------------------------------------------------
Historical (Note 1)
-----------------------------------
Pro Forma
Adjustments
Arch Trax (Note 3) Pro Forma
---------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales $ 12,344,000 $ 1,496,000 $ 13,840,000
Pipeline sales 36,537,000 - 36,537,000
Alberta royalty tax credit - 213,000 213,000
Drilling and production
overhead fees 156,000 69,000 225,000
Interest and other 563,000 47,000 610,000
---------------- ---------------- ----------------
49,600,000 1,825,000 51,425,000
COSTS AND EXPENSES:
Leases operations 5,483,000 405,000 5,888,000
Natural gas purchases and
pipeline operations 34,829,000 - 34,829,000
Exploration 830,000 1,321,000 2,151,000
Depletion, depreciation and
amortization 3,940,000 1,107,000 $ 126,000 5,173,000
General and administrative 3,103,000 614,000 3,717,000
Interest 1,356,000 16,000 530,000 1,902,000
Minority interest in loss
of consolidated subsidiaries 317,000 - 317,000
---------------- ---------------- ----------------- ----------------
49,858,000 3,463,000 656,000 53,977,000
---------------- ---------------- ----------------- ----------------
Loss before income taxes
and dividends (258,000) (1,180,000) (656,000) (2,552,000)
Deferred federal income tax benefit (88,000) - (88,000)
---------------- ---------------- ----------------- ----------------
Net loss (170,000) (1,638,000) (656,000) (2,464,000)
Dividends on preferred stock 1,200,000 - 1,200,00
---------------- ---------------- ----------------- ----------------
Net loss available to shareholders $ (1,370,000) $ (1,638,000) $ (656,000) $ (3,664,000)
================ ================ ================= ================
Net loss available per common share $ (0.08) $ (0.21)
================ ================
Weighted average common and
common equivalent shares
outstanding 17,198,000 17,198,000
================ ================
</TABLE>
The accompanying notes are an integral part of this unaudited condensed
consolidated pro forma statement of operations.
5
<PAGE>
ARCH PETROLEUM INC.
PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, 1994
-----------------------------------------------------------------------
Historical (Note 1)
-----------------------------------
Pro Forma
Adjustments
Arch Trax (Note 3) Pro Forma
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales $ 8,730,000 $ 2,024,000 $ 10,754,000
Pipeline sales 73,525,000 - 73,525,000
Alberta royalty tax credit - 209,000 209,000
Drilling and production
overhead fees 203,000 75,000 278,000
Interest and other 238,000 227,000 465,000
---------------- ---------------- ----------------
82,696,000 2,535,000 85,231,000
COSTS AND EXPENSES:
Leases operations 3,527,000 516,000 4,043,000
Natural gas purchases and
pipeline operations 72,665,000 - 72,665,000
Exploration 1,641,000 2,237,000 3,878,000
Depletion, depreciation and
amortization 2,907,000 891,000 $ 164,000 3,962,000
General and administrative 3,617,000 724,000 4,341,000
Interest 1,634,000 18,000 611,000 2,263,000
Minority interest in loss
of consolidated subsidiaries (524,000) - (524,000)
---------------- ---------------- ----------------- ----------------
85,467,000 4,386,000 775,000 90,628,000
---------------- ---------------- ----------------- ----------------
Loss before income taxes
and dividends (2,771,000) (1,851,000) (775,000) (5,397,000)
Deferred federal income tax benefit (941,000) - (941,000)
---------------- ---------------- ----------------- ----------------
Net loss (1,830,000) (1,851,000) (775,000) (4,456,000)
Dividends on preferred stock 311,000 - 311,000
---------------- ---------------- ----------------- ----------------
Net loss available to shareholders $ (2,141,000) $ (1,851,000) $ (775,000) $ (4,767,000)
================ ================ ================= ================
Net loss available per common share $ (0.12) $ (0.28)
================ ================
Weighted average common and
common equivalent shares
outstanding 17,244,000 17,244,000
================ ================
</TABLE>
The accompanying notes are an integral part of this unaudited condensed
consolidated pro forma statement of operations.
6
<PAGE>
ARCH PETROLEUM INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma financial information is presented to
reflect Arch's acquisition of Trax as reported in Arch's initial 8-K filing on
February 13, 1996. The unaudited consolidated balance sheet combines Arch's
balance sheet at September 30, 1995, with Trax's balance sheet at August
31,1995, and is presented as if the acquisition occurred on September 30, 1995.
The unaudited consolidated statement of operations as of September 30, 1995,
combines Arch's statement of operations for the nine months ended September 30,
1995, with Trax's statement of operations for the nine months ended August 31,
1995. The unaudited consolidated statement of operations as of December 31,
1994, combines Arch's statement of operations for the year ended December 31,
1994, with Trax's statement of operations for the year ended November 30, 1994.
Both unaudited consolidated statements of operations are presented as if the
acquisition occurred as of the beginning of fiscal 1994.
Generally accepted accounting principles and practices in Canada are
similar to those of the United States ("U.S."). The financial information of
Trax presented herein would not be materially different if accounted for under
U.S. generally accepted accounting principles. The functional currency for Trax
is the local currency (Canadian dollar). The Trax balance sheet accounts have
been translated into U.S. dollars at the rate of exchange in effect at September
30, 1995. The Trax income and expense accounts are translated into U.S. dollars
at the average rates of exchange in effect during the periods presented.
2. METHOD OF ACCOUNTING FOR THE ACQUISITION
The net assets acquired have been accounted for at their estimated "fair
values" as required by the purchase method of accounting for business
combinations. The purchase price has been allocated to individual assets
acquired based on Arch's estimates of such assets' relative fair value.
Trax's tax basis combined with its net operating loss carryforwards exceed
its book basis. However, any tax benefit would be fully reserved since Trax has
historically been in a loss position.
3. PRO FORMA ADJUSTMENTS
The accompanying unaudited consolidated pro forma balance sheet and
statements of operations reflect the following pro forma adjustments:
(a) Arch borrowed approximately $7.9 million on its bank credit line to
fund the
7
<PAGE>
acquisition: approximately $7.4 million to purchase 100% of Trax's
common stock and approximately $0.5 million to pay related
professional expenses. Additional unpaid costs incurred in the
acquisition are recorded as current liabilities.
(b) The $1.9 million addition to oil and gas properties represents the
estimated excess of the acquisition price over the net book value of
the assets acquired and has been allocated based upon the estimated
fair value of said properties.
(c) Additional interest expense was computed for each of the periods
reflecting approximately $7.9 million additional borrowings to finance
the acquisition. Interest expense was accrued at rates in effect on
Arch's line of credit during each period presented. A one percent
increase or decrease in interest rates would have increased or
decreased interest expense by $59,000 and $79,000 for the nine months
ended September 30, 1995, and the year ended December 31, 1994,
respectively.
(d) Depreciation, depletion and amortization expense has been computed
using the units of production method. The additional expense reflects
the stepped-up basis of Trax's oil and gas properties.
(e) No tax benefit associated with Trax's loss or the pro forma
adjustments related thereto has been recognized since it is more
likely than not that such benefits will not be realized based upon
Trax's historical loss position. The realization and recognition of
tax benefits associated with Trax is dependent upon the future
profitability of Trax.
4. EARNINGS PER SHARE
Earnings per share is based on the number of Arch's common shares and
common equivalent shares outstanding during the nine months ended September 30,
1995 and the year ended December 31, 1994.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARCH PETROLEUM INC.
--------------------------------------
(Registrant)
/s/ Fred Cantu
---------------------------------------
By: Fred Cantu, Treasurer and
Chief Financial Officer
Date: March 26, 1996
--------------
9
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the balance sheets of Trax Petroleums Limited as at November 30,
1994 and 1993 and the statements of loss and deficit and changes in financial
position for the years then ended. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at November 30, 1994 and 1993
and the results of its operations and the changes in its financial position for
the years then ended in accordance with generally accepted accounting
principles.
Chartered Accountants
Calgary, Canada
February 10, 1995
10
<PAGE>
TRAX PETROLEUMS LIMITED
Balance Sheets
November 30, 1994 and 1993
<TABLE>
<CAPTION>
====================================================================================
1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and term deposits................................. $ 3,351,396 $ 3,698,321
Cash held in trust..................................... -- 7,500,000
Accounts and royalty tax credit receivable (note 5).... 637,041 668,281
Note receivable........................................ 275,000 --
Prepaid expenses and cash calls........................ 121,213 2,324
----------------------------------------------------------------------------------
4,384,650 11,868,926
Capital assets (note 2).................................. 7,668,860 4,647,356
- ------------------------------------------------------------------------------------
$12,053,510 $16,516,282
====================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities (note 5)...... $ 766,980 $ 2,071,076
Accrued Special Warrant issue costs.................... -- 650,000
Current portion of long-term debt (note 3)............. 180,000 180,000
----------------------------------------------------------------------------------
946,980 2,901,076
Long-term debt (note 3).................................. 35,000 215,000
Provision for future removal and site restoration costs.. 113,000 50,000
Shareholders' equity:
Share capital (note 4)................................. 17,695,972 10,719,916
Special Warrants....................................... -- 6,850,000
Deficit................................................ (6,737,442) (4,219,710)
----------------------------------------------------------------------------------
10,958,530 13,350,206
- ------------------------------------------------------------------------------------
$12,053,510 $16,516,282
====================================================================================
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
TRAX PETROLEUMS LIMITED
Statements of Loss and Deficit
Years ended November 30, 1994 and 1993
<TABLE>
<CAPTION>
====================================================================================
1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Oil and gas sales (net of royalties)................... $2,754,161 $1,380,820
Alberta royalty tax credit............................. 284,764 130,881
Property operating fees................................ 102,144 29,502
Interest and other income.............................. 308,790 103,514
----------------------------------------------------------------------------------
3,449,859 1,644,717
Costs and expenses:
General and administrative............................. 984,452 697,466
Lease operating........................................ 702,294 251,334
Depletion and depreciation............................. 1,212,496 786,000
Dry hole and surrendered lease costs................... 2,770,544 476,409
Geological and geophysical costs....................... 273,560 47,815
Interest (note 3)...................................... 24,245 28,116
----------------------------------------------------------------------------------
5,967,591 2,287,140
- ------------------------------------------------------------------------------------
Net loss................................................. 2,517,732 642,423
Deficit, beginning of year............................... 4,219,710 3,577,287
- ------------------------------------------------------------------------------------
Deficit, end of year..................................... $6,737,442 $4,219,710
====================================================================================
Loss per share $0.20 $0.09
====================================================================================
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
TRAX PETROLEUMS LIMITED
Statements of Changes in Financial Position
Years ended November 30, 1994 and 1993
<TABLE>
<CAPTION>
====================================================================================
1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by (used in):
Operating Activities:
Net loss................................................ $(2,517,732) $ (642,423)
Items not requiring cash:
Depletion and depreciation............................. 1,212,496 786,000
Dry hole and surrendered lease costs................... 2,770,544 476,409
Geological and geophysical costs....................... 273,560 47,815
- ------------------------------------------------------------------------------------
1,738,868 667,801
Changes in non-cash working capital (note 7)............ (1,666,745) 1,219,581
- ------------------------------------------------------------------------------------
72,123 1,887,382
Financing Activities:
Share and warrant issue costs........................... (523,944) (732,535)
Repayment of long-term debt............................. (180,000) (145,000)
Shares issued for cash.................................. -- 6,210,732
Special Warrants issued for cash........................ -- 7,500,000
- ------------------------------------------------------------------------------------
(703,944) 12,833,197
Investing Activities:
Expenditures on capital assets.......................... (7,280,104) (3,592,131)
Proceeds on sale of capital assets...................... 65,000 61,660
- ------------------------------------------------------------------------------------
(7,215,104) (3,530,471)
- ------------------------------------------------------------------------------------
Increase (decrease) in cash and term deposits............ (7,846,925) 11,190,108
Cash and term deposits, beginning of year................ 11,198,321 8,213
- ------------------------------------------------------------------------------------
Cash and term deposits, end of year...................... $ 3,351,396 $11,198,321
====================================================================================
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
TRAX PETROLEUMS LIMITED
Notes to Financial Statements
Years ended November 30, 1994 and 1993
===============================================================================
1. SIGNIFICANT ACCOUNTING POLICIES:
On June 30, 1993, Trax Petroleums Limited (the "Company") was continued
under the Business Corporations Act (Alberta).
These financial statements have been prepared in accordance with Canadian
generally accepted accounting principles which conform in all material
respects, except for disclosure requirements, with United States generally
accepted accounting principles.
(a) Petroleum and natural gas properties:
The Company follows the successful efforts method of accounting for its
oil and gas activities. Under this method, lease acquisition costs and
the costs of drilling and equipping successful exploratory and
development wells are capitalized. Lease rentals, project geological and
geophysical costs, costs of drilling unsuccessful wells and costs of
leases surrendered are expensed. The carrying values attributable to
non-producing leases which subsequently become productive are
transferred to producing properties and, together with drilling and
equipping costs, are depleted on the unit-of-production method based on
proved reserves in the field as estimated by independent engineering
consultants. An assessment of non-producing and producing interests is
made annually and a provision for impairment is recorded if deemed
appropriate. Gains or losses on dispositions of oil and gas properties
are included in income.
Estimated future removal and site restoration costs, net of salvage
values, are provided for using the unit-of-production method based upon
estimated proved reserves. These costs are estimated by an independent
engineer based on current regulations, costs, technology and industry
standards. The annual charge is included in the provision for depletion
and depreciation and the related accumulated provision is shown as a
non-current liability. Removal and site restoration expenditures are
charged to the accumulated provision account as incurred.
Substantially all of the Company's exploration and development
activities are conducted jointly with others and the accounts reflect
only the Company's proportionate interest in such activities.
(b) Depreciation:
Depreciation of office furniture, equipment and computer software is
provided using the declining balance method at rates of 20%, 30% and
50%, respectively. Leasehold improvements are amortized using the
straight-line method over the term of the lease.
(c) Per share information:
Loss per share is calculated using the weighted average number of shares
outstanding during the year. Fully diluted per share information is not
disclosed when the effect is anti-dilutive.
14
<PAGE>
TRAX PETROLEUMS LIMITED
Notes to Financial Statements, Page 2
Years ended November 30, 1994 and 1993
===============================================================================
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(d) Flow-through share financing:
The Company finances a portion of its exploration and development
programs with flow-through share issues. The Company accounts for the
renouncement of tax benefits associated with these expenditures by
reducing share capital and capital assets.
2. CAPITAL ASSETS:
<TABLE>
<CAPTION>
==============================================================================================
Accumulated
depletion
and Net book
1994 Cost depreciation value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Oil and gas properties........................... $11,441,985 $3,824,783 $7,617,202
Furniture, fixtures and leaseholds............... 101,365 49,707 51,658
- ----------------------------------------------------------------------------------------------
$11,543,350 $3,874,490 $7,668,860
==============================================================================================
<CAPTION>
==============================================================================================
Accumulated
depletion
and Net book
1993 Cost depreciation value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Oil and gas properties........................... $ 7,318,463 $2,696,487 $4,621,976
Furniture, fixtures and leaseholds............... 53,887 28,507 25,380
- ----------------------------------------------------------------------------------------------
$ 7,372,350 $2,724,994 $4,647,356
==============================================================================================
</TABLE>
3. LONG-TERM DEBT:
<TABLE>
<CAPTION>
==============================================================================================
1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Bank demand loan bearing interest at the bank's
prime rate plus 1 1/2%, secured by a fixed and
floating charge over the assets of the Company.
Monthly payments are $15,000 plus interest....... $ 215,000 $ 395,000
Less: current portion........................... 180,000 180,000
- ----------------------------------------------------------------------------------------------
$ 35,000 $ 215,000
==============================================================================================
</TABLE>
In addition, the Company has an unused line of credit available of $500,000.
Borrowings under this facility, which would bear interest at the bank's
prime rate plus 1%, are secured by the Company's term deposits.
15
<PAGE>
TRAX PETROLEUMS LIMITED
Notes to Financial Statements, Page 3
Years ended November 30, 1994 and 1993
===============================================================================
4. SHARE CAPITAL:
Authorized:
Unlimited number of common shares without nominal or par value.
Issued:
<TABLE>
<CAPTION>
==============================================================================================
Number of Assigned
Shares Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, November 30, 1992........................................ 4,830,755 $ 5,553,469
Issued under flow-through share offering.......................... 62,500 25,000
Issued on exercise of Flow-Through Warrants....................... 1,666,667 700,000
Issued on exercise of Special Warrants............................ 3,662,000 4,943,700
Issued on exercise of director and employee stock options......... 214,000 112,000
Issued on exercise of Broker Warrants............................. 316,200 430,032
Tax effect of flow-through share renouncements.................... -- (311,750)
Share and warrant issue costs..................................... -- (732,535)
- ----------------------------------------------------------------------------------------------
Balance, November 30, 1993........................................ 10,752,122 10,719,916
Issued on exercise of Special Warrants............................ 2,500,000 7,500,000
Share and warrant issue costs..................................... -- (523,944)
- ----------------------------------------------------------------------------------------------
Balance, November 30, 1994........................................ 13,252,122 $17,695,972
==============================================================================================
</TABLE>
Common shares reserved:
(i) 20,000 common shares are reserved with respect to an agreement dated
April 30, 1984 whereby the Company is to issue 10,000 common shares to
a third party upon completion of each phase of a three phase work
program to be carried out on its mineral properties.
(ii) 30,000 common shares are reserved with respect to an agreement dated
December 19, 1984 whereby the Company is to issue these shares to third
parties upon a particular area in the Evi field of Alberta attaining
commercial production. At November 30, 1994 such commercial production
has not been attained.
16
<PAGE>
TRAX PETROLEUMS LIMITED
Notes to Financial Statements, Page 4
Years ended November 30, 1994 and 1993
===============================================================================
4. SHARE CAPITAL (CONTINUED):
(iii) The Company has the following common shares reserved for directors
and employee stock options:
<TABLE>
<CAPTION>
==============================================================================================
Exercise Expiry
Number of shares Price Date
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
70,000................................... $ 0.40 March 31, 1995
285,000.................................. $ 1.50 May 10, 1998
100,000.................................. $ 1.80 December 4, 1998
==============================================================================================
</TABLE>
(iv) The Company has the following common shares reserved for issuance upon
the exercise of Broker Warrants:
<TABLE>
<CAPTION>
==============================================================================================
Exercise Expiry
Number of shares Price Date
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
250,000.................................. $ 3.01 February 15, 1995
50,000................................... $ 1.36 July 16, 1995
==============================================================================================
</TABLE>
The Company has a Shareholder Rights Plan which allows the Company, in the
event of a non-permitted bid, to issue shares to all existing shareholders,
with the exception of the non-permitted bidder, at a discount to the market
price. A permitted bid is one that is for all the shares of the Company by a
holder of less than 10% of the shares and must remain open for at least 90
days.
5. RELATED PARTY TRANSACTIONS:
Certain directors or their corporations participate in oil and gas
activities with the Company on the same terms and conditions as other
industry partners. Accounts receivable includes $4,811 (1993 - $338) due
from a company controlled by a director, officer and shareholder. Accounts
payable includes $13,982 (1993 - nil) owing from a company controlled by a
director, officer and shareholder.
During 1994 the Company acquired geological and geophysical data for
$200,000 cash from a company controlled by a director, officer and
shareholder.
17
<PAGE>
TRAX PETROLEUMS LIMITED
Notes to Financial Statements, Page 5
Years ended November 30, 1994 and 1993
===============================================================================
6. INCOME TAXES:
The income tax provision differs from the amount computed by applying the
expected income tax rate to the loss before income taxes. The reasons for
the difference are as follows:
<TABLE>
<CAPTION>
==============================================================================================
1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Expected income tax recovery at 44.34%...................... $(1,116,362) $(284,850)
Effect on taxes of:
Non-deductible crown charges, net of
Alberta Royalty Tax Credit................................. 84,486 31,431
Resource allowance......................................... (171,681) (52,641)
Non-deductible depletion and depreciation.................. 203,772 84,821
Unrecognized benefit of losses............................. 997,112 219,022
Other...................................................... 2,673 2,217
- ----------------------------------------------------------------------------------------------
$ -- $ --
==============================================================================================
</TABLE>
The Company has available approximately $23,000 of income tax losses which
may be carried forward and applied against future taxable income expiring in
1996. No benefit in respect of this loss has been recognized in these
financial statements.
The Company has oil and gas interests with a net book value of $2,694,000,
the cost of which are not deductible for income tax purposes.
The Company's tax basis combined with its net operating loss carryforward
exceeds its book basis.
7. CHANGES IN NON-CASH OPERATING WORKING CAPITAL:
The following table sets forth the changes in the components of operating
working capital
<TABLE>
<CAPTION>
==============================================================================================
1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Accounts and royalty tax credit receivable.................. $ 31,240 $ (400,820)
Note receivable............................................. (275,000) --
Prepaid expenses and cash calls............................. (118,889) 47,832
Accounts payable and accrued liabilities.................... (1,304,096) 1,572,569
- ----------------------------------------------------------------------------------------------
$(1,666,745) $1,219,581
==============================================================================================
</TABLE>
18
<PAGE>
TRAX PETROLEUMS LIMITED
FINANCIAL STATEMENTS
NOVEMBER 30, 1992 AND 1991
19
<PAGE>
RAMSAY, DALTON & CO.
CHARTERED ACCOUNTANTS
Suite 1100, 800 - 6th Avenue S.W.
Calgary, Alberta T2P 3G3
Telephone (403) 265-9464
Fax (403) 263-6523
AUDITORS' REPORT
To the Shareholders of
Trax Petroleums Limited
We have audited the balance sheets of Trax Petroleums Limited as at
November 30, 1992 and 1991 and the statements of loss and deficit and changes in
financial position for the years then ended. These financial statements are the
responsibility of the corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance 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.
In our opinion, these financial statements present fairly in all material
respects, the financial position of the corporation as at November 30, 1992 and
1991 and the results of its operations and the changes in its financial position
for the years then ended in accordance with generally accepted accounting
principles.
/s/ RAMSAY, DALTON & CO.
Calgary, Alberta
February 12, 1993 Chartered Accountants
20
<PAGE>
TRAX PETROLEUMS LIMITED
BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, November 30,
1992 1991
------------ ------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and term deposits $ 8,213 $ 505,842
Accounts and royalty tax credit
receivable - Note 5 267,461 976,483
Prepaid expenses and cash calls 50,156 2,729
----------- -----------
325,830 1,485,054
PROPERTY AND EQUIPMENT - Note 2 2,706,859 2,659,097
----------- -----------
$ 3,032,689 $ 4,144,151
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 498,507 $ 1,583,691
----------- -----------
NOTE PAYABLE - Note 3 540,000 -
----------- -----------
SITE RESTORATION COSTS 18,000 -
----------- -----------
SHAREHOLDERS' EQUITY
Share capital - Note 4 5,553,469 5,553,469
Deficit (3,577,287) (2,993,009)
----------- -----------
1,976,182 2,560,460
----------- -----------
$ 3,032,689 $ 4,144,151
=========== ===========
</TABLE>
APPROVED BY THE DIRECTORS
- -----------------------------------
Director
- -----------------------------------
Director
See accompanying notes
21
<PAGE>
TRAX PETROLEUMS LIMITED
STATEMENTS OF LOSS AND DEFICIT
<TABLE>
<CAPTION>
Year ended Year ended
November 30, November 30,
1992 1991
------------ ------------
<S> <C> <C>
REVENUES
Oil and gas sales $ 671,846 $ 498,530
Alberta royalty tax credit 81,000 55,000
Property operating fees 31,814 111,955
Other income 6,329 52,253
---------- ----------
790,989 717,738
---------- ----------
COSTS AND EXPENSES
Depletion and depreciation 643,000 684,339
Office and administration - Note 5 447,849 393,367
Lease operating costs 209,227 143,584
Dry hole costs 43,635 77,235
Geophysical costs 31,556 30,129
---------- ----------
1,375,267 1,328,654
---------- ----------
LOSS FOR YEAR 584,278 610,916
DEFICIT, beginning of year 2,993,009 2,382,093
---------- ----------
DEFICIT, end of year $3,577,287 $2,993,009
========== ==========
LOSS PER SHARE $0.12 $0.12
========== ==========
</TABLE>
See accompanying notes
22
<PAGE>
TRAX PETROLEUMS LIMITED
STATEMENTS OF CHANGES IN FINANCIAL POSITION
<TABLE>
<CAPTION>
Year ended Year ended
November 30, November 30,
1992 1991
------------ ------------
<S> <C> <C>
CASH USED BY OPERATIONS
Loss for the year $ (584,278) $ (610,916)
Items not requiring cash:
Depletion and depreciation 643,000 684,339
Dry hole costs 43,635 77,235
Geophysical costs 31,556 30,129
----------- ----------
Cash flow from operations 133,913 180,787
Capital provided (used) by non-cash
working capital (423,589) (623,699)
----------- ----------
(289,676) (442,912)
----------- ----------
FINANCING ACTIVITIES
Increase in note payable 540,000 -
Issue of share capital - 16,000
----------- ----------
540,000 16,000
----------- ----------
CASH AVAILABLE FOR INVESTING 571,574 (426,912)
----------- ----------
INVESTING ACTIVITY
Proceeds on sale of property and equipment 321,250 -
Acquisition of property and equipment (1,069,203) (405,828)
Exploration funds released from trust - 80,763
----------- ----------
(747,953) (325,065)
----------- ----------
Decrease in cash and term deposits (497,629) (751,977)
CASH AND TERM DEPOSITS, beginning of year 505,842 1,257,819
----------- ----------
CASH AND TERM DEPOSITS, end of year $ 8,213 $ 505,842
=========== ==========
</TABLE>
See accompanying notes
23
<PAGE>
TRAX PETROLEUMS LIMITED
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1992 AND 1991
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Trax Petroleums Limited (Trax) is incorporated under the laws of the
province of British Columbia and is a 42% (1991 - 43%) owned subsidiary of D.W.
Axford and Associates Ltd. (Axford).
Petroleum and Natural Gas Properties
The successful efforts method of accounting is used for oil and gas
operations. Under this method, lease acquisition costs are capitalized and
lease carrying costs are expensed. The capitalized costs of significant
undeveloped leases are reviewed annually, and a charge is made to earnings for
impairment of value when necessary.
Costs of leases which become productive, together with associated
exploration and development and equipment costs are depleted on the unit-of-
production method based on estimated proven reserves of oil and gas as prepared
by independent consultants. Producing properties are regarded as impaired if
projected future revenue less direct operating costs and estimated costs of
eventual abandonment is less than the capitalized cost of the property and a
write down is recorded if necessary. When undeveloped leases are surrendered,
any remaining costs are charged against earnings. Future obligations for site
restoration costs, including dismantling and abandoning properties, are accrued
using the unit of production method. The annual provision is expensed as
depletion and accumulated as a long liability which is reduced as actual
expenditures are made.
Geological and geophysical costs are expensed as incurred, and the costs
associated with unsuccessful drilling are written off when the wells are
abandoned.
Joint Ventures
Substantially all of Trax's exploration and development activities
related to oil and gas are conducted jointly with others. The accounts reflect
only Trax's proportionate interest in such activities.
Depreciation
Depreciation of office furniture and equipment is provided using the
declining balance method at rates of 20% and 30%. Leasehold improvements are
amortized using the straight line method over the term of the lease.
24
<PAGE>
TRAX PETROLEUMS LIMITED
NOTES CONTINUED
NOVEMBER 30, 1992 AND 1991
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Loss Per Share
Loss per share is calculated using the weighted average number of shares
outstanding during the year.
Income Tax
The tax allocation method of accounting for income taxes is followed by
Trax, whereby deferred taxes are provided to the extent that the taxes otherwise
payable are reduced or increased by claiming certain items for tax purposes at
different times than the related items are claimed in the statements of loss.
Flow-through share financing
Trax finances a portion of its exploration and development programs with
flow-through share issues. Under this financing arrangement, shares are issued
at a fixed price and the proceeds are used to fund exploration work within a
defined time period. Exploration funds in trust under these arrangements are
recorded as a long-term asset which is then reduced as the funds are spent.
NOTE 2 - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1992 1991
---------- ----------
<S> <C> <C>
Petroleum and natural gas properties $4,360,749 $3,736,696
Oilfield production equipment 289,293 241,340
Office furniture and equipment 22,698 22,498
Leasehold improvements 5,113 4,557
---------- ----------
4,677,853 4,005,091
Less accumulated depreciation and depletion 1,970,994 1,345,994
---------- ----------
$2,706,859 $2,659,097
========== ==========
</TABLE>
NOTE 3 - NOTE PAYABLE
The note relates to the purchase of oil and gas properties. The note was
replaced with a term loan from a Canadian Chartered Bank, interest at prime plus
1.5%, repayable $15,000 monthly. These financial statements reflect the
repayment terms as refinanced.
25
<PAGE>
TRAX PETROLEUMS LIMITED
NOTES CONTINUED
NOVEMBER 30, 1992 AND 1991
NOTE 4 - SHARE CAPITAL
Authorized:
20,000,000 common shares without nominal or par value
<TABLE>
<CAPTION>
Issued: Number $
--------- ----------
<S> <C> <C>
November 30, 1990 4,790,755 5,537,469
Exercise of directors and employees
stock options 40,000 16,000
--------- ----------
November 30, 1991 and 1992 4,830,755 $5,553,469
========= ==========
</TABLE>
Common shares have been reserved:
i) 20,000 common shares with respect to an agreement dated April 30,
1984 whereby Trax is to issue 10,000 common shares to a third party
upon completion of each phase of a three phase work program to be
carried out on its mineral properties.
ii) 30,000 common shares with respect to an agreement dated December 19,
1984 whereby Trax is to issue these shares to third parties upon a
particular area in the Evi field of Alberta attaining commercial
production. At November 30, 1992 such commercial production has not
been attained.
iii) 110,000 common shares for directors and employee stock options
exercisable at $0.40 per share expiring May 13, 1993.
iv) 10,000 common shares for an employee exercisable at $0.40 per share
expiring December 6, 1993.
NOTE 5 - RELATED PARTY TRANSACTIONS
Certain directors or their corporations participate in oil and gas
activities with Trax on the same terms and conditions as other industry
partners. Accounts receivable includes $6,497 (1991 - $130,668) due from
Axford.
During 1992 Trax acquired property, plant and equipment from Axford for
$37,000 cash and liabilities of $126,545 of Trax were assumed by Axford.
During 1992 Trax paid approximately $140,000 (1991 - $123,000) in salaries
to employees and directors who are also directors of Axford.
26
<PAGE>
TRAX PETROLEUMS LIMITED
NOTES CONTINUED
NOVEMBER 30, 1992 AND 1991
NOTE 6 - INCOME TAXES
The following reconciles the difference between income tax recorded and
the expected tax expense obtained by applying the expected tax rate to income
before income taxes.
<TABLE>
<CAPTION>
1992 1991
---------- ----------
<S> <C> <C>
Expected tax expense (recovery) at 43% $(251,200) $(262,700)
Effect on taxes of:
Non deductible crown charges, net 19,900 27,800
Resource allowance (15,200) (6,900)
Unrecognized tax loss benefits 244,400 240,800
Other 2,100 1,000
--------- ---------
Actual tax expense $ - $ -
========= =========
</TABLE>
Trax has available approximately $190,000 of income tax losses which may
be carried forward and applied against future taxable income expiring; 1994 -
$81,000; 1995 - $86,000; 1996 - $23,000. No benefit in respect of these losses
has been recognized in these financial statements.
Trax has oil and gas interests with a net book value of $430,000 (1991 -
$884,000), the cost of which are not deductible for income tax purposes.
NOTE 7 - COMMITMENT
Trax has a non-cancellable lease for office space expiring February 1995.
Annual minimum rent payable is $12,756 plus a proportionate share of property
taxes and operating costs. Trax has equipment leases with a cancellation fee of
$9,000.
NOTE 8 - SUBSEQUENT EVENTS
During December 1992 Trax issued 62,500 shares for $25,000 on a flow-
through basis. As at the date of these financial statements, all required
expenditures had been made.
NOTE 9 - CHANGES IN NON-CASH OPERATING WORKING CAPITAL
The following table sets forth the changes in the components of operating
working capital.
<TABLE>
<CAPTION>
1992 1991
------------ ----------
<S> <C> <C>
Accounts and royalty tax credit
receivable $ 709,022 $(577,673)
Prepaid expenses and cash calls (47,427) (1,139)
Accounts payable (1,085,184) (44,887)
----------- ---------
</TABLE>
$ (423,589) $(623,699)
=========== ==========
NOTE 10 - RECONCILIATION TO UNITED STATES ACCOUNTING PRINCIPLES
The financial statements have been prepared in accordance with Canadian
generally accepted accounting principles which conform in all material respects
with United States generally accepted accounting principles.
27
<PAGE>
TRAX PETROLEUMS LIMITED
Balance Sheet as at August 31, 1995
(unaudited)
<TABLE>
<S> <C>
Assets
Current Assets:
Cash and term deposits $ 115,382
Accounts and ARTC receivable 1,072,331
Note receivable 275,000
Prepaid expenses and cash calls 52,961
-----------
1,515,674
Capital assets 8,738,418
-----------
$10,254,092
===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 659,846
Current portion of long-term debt 80,000
-----------
739,846
Long-term debt 612,911
Provision for future removal and
site restoration costs 155,000
Shareholders' equity:
Share capital 17,745,972
Deficit (8,999,637)
-----------
8,746,335
-----------
$10,254,092
===========
</TABLE>
See accompanying note to the financial statements.
28
<PAGE>
TRAX PETROLEUMS LIMITED
Statements of Operations and Deficit
Nine months ended August 31,
(unaudited)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Revenues:
Oil and gas sales (net of royalties) $ 2,067,417 $ 2,129,772
Alberta royalty tax credit 294,493 200,000
Property operating fees 95,646 80,168
Interest and other income 64,972 265,502
----------- -----------
2,522,528 2,675,442
----------- -----------
Costs and expenses:
General and administrative 849,163 741,395
Lease operating 560,143 519,030
Depletion and depreciation 1,529,321 1,200,000
Dry hole and surrendered lease costs 1,774,775 2,334,924
Geological and geophysical 49,580 233,112
Interest 21,741 19,900
----------- -----------
4,784,723 5,048,361
----------- -----------
Net loss (2,262,195) (2,372,919)
Deficit at beginning of period (6,737,442) (4,219,710)
----------- -----------
Deficit at end of period $(8,999,637) $(6,592,629)
=========== ===========
Loss per share $ (0.17) $ (0.19)
=========== ===========
</TABLE>
See accompanying note to the financial statements.
29
<PAGE>
TRAX PETROLEUMS LIMITED
Statements of Changes in Financial Position
Nine Months ended August 31,
(unaudited)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Cash provided by (used in):
Operating activities:
Net loss $(2,262,195) $(2,372,919)
Items not requiring cash:
Depletion and depreciation 1,529,321 1,200,000
Dry holes and surrendered lease costs 1,774,775 2,334,924
Geological and geophysical costs 49,580 233,112
----------- -----------
Funds generated from operations 1,091,481 1,395,117
Changes in non-cash working capital (474,172) (2,496,552)
----------- -----------
617,309 (1,101,435)
Financing activities:
Issue of shares 50,000 -
Share and warrant issue costs - (521,265)
Borrowing (repayment) of long-term debt 477,911 (135,000)
----------- -----------
527,911 (656,265)
Investing activities:
Expenditures on capital assets (4,381,234) (6,061,988)
Proceeds from sale of capital assets - 65,000
----------- -----------
(4,381,234) (5,996,988)
----------- -----------
Decrease in cash (3,236,014) (7,754,688)
Cash, beginning of period 3,351,396 11,198,321
----------- -----------
Cash, end of period $ 115,382 $ 3,443,633
=========== ===========
</TABLE>
See accompanying note to the financial statements.
30
<PAGE>
TRAX PETROLEUMS LIMITED
CONDENSED NOTE TO FINANCIAL STATEMENTS
(Unaudited)
In the opinion of Trax Petroleums Limited (the "Company"), the accompanying
financial statements, which have not been audited by independent public
accountants, contain all adjustments necessary, consisting of normal recurring
accruals, to present fairly the Company's financial position, the results of its
operations and its cash flows for the periods reported. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. It is suggested that these financial statements be read in conjunction
with the Company's audited financial statements and footnotes thereto for the
year ended November 30, 1994, included elsewhere herein. The results of
operations for the nine months ended August 31, 1995 and 1994 are not
necessarily indicative of the results to be expected for a full year.
The financial statements have been prepared in accordance with Canadian
generally accepted accounting principles which conform in all material respects,
except for disclosure requirements, with United States generally accepted
accounting principles.
The financial statements are stated in Canadian dollars.
31
<PAGE>
EXHIBIT 10.8(a)
This document is important and requires your immediate attention. If you are in
doubt as to how to deal with it, you should consult your financial, legal or
other professional advisor.
________________________________________________________________________________
CASH OFFER
by
NORTHERN ARCH RESOURCES LTD.,
A WHOLLY-OWNED SUBSIDIARY OF
ARCH PETROLEUM INC.
to purchase all of the Common Shares
(including the associated rights under the
Shareholder Rights Plan Agreement)
of
TRAX PETROLEUMS LIMITED
on the basis of
$0.71
(Canadian funds)
for each Common Share of Trax Petroleums Limited
______________________________________________________________
THE OFFER IS OPEN FOR ACCEPTANCE UNTIL 4:30 P.M. (LOCAL TIME AT THE PLACE OF
DEPOSIT) ON JANUARY 31, 1996 UNLESS EXTENDED OR WITHDRAWN IF THE CONDITIONS SET
FORTH IN SECTION 4 OF THE OFFER ARE NOT SATISFIED. The Offer is conditional
upon, among other things, at least 662/3% (calculated on a diluted basis) of the
common shares ("Common Shares") of Trax Petroleums Limited (the "Company" or
"Trax") being tendered under the Offer and there being no material adverse
change in the business, operations or assets of the Company prior to the expiry
of the Offer. The conditions of the Offer are fully described under Section 4 of
the Offer, "Conditions of the Offer".
THE BOARD OF DIRECTORS OF TRAX HAS UNANIMOUSLY
RECOMMENDED THAT SHAREHOLDERS ACCEPT THE OFFER.
Holders of Common Shares who intend to accept the Offer must complete and sign
the form of Letter of Acceptance and Transmittal (printed on YELLOW paper), or a
manually signed facsimile thereof, which accompanies the Offer and forward it
together with the certificate(s) representing such shares and all other
documents called for to Montreal Trust Company of Canada, all in accordance with
the Instructions in the Letter of Acceptance and Transmittal. A holder of Common
Shares who desires to deposit such shares and whose certificates for such Common
Shares are not readily available may deposit such certificates by following the
procedures for guaranteed delivery set forth under Section 3 of the Offer,
"Manner and Time of Acceptance".
Persons whose Common Shares are registered in the name of a nominee should
contact their broker, investment dealer, bank, trust company or other nominee
for assistance in depositing the Common Shares.
Additional copies of this document may be obtained from Montreal Trust Company
of Canada.
THE DEALER MANAGER FOR THE OFFER IS:
PETERS & CO. LIMITED
(Cover continued on following page) JANUARY 9, 1996
________________________________________________________________________________
<PAGE>
________________________________________________________________________________
NOTICE TO SHAREHOLDERS WHO ARE U.S. PERSONS
This Offer is made for the securities of a foreign issuer and while the Offer is
subject to disclosure requirements of Canada, investors should be aware that
these requirements are different from those of the United States.
The enforcement by investors of civil liabilities under the United States
federal securities laws may be affected adversely by the fact that Northern Arch
Resources Ltd. (the "Offeror" or "Northern Arch") is incorporated under the laws
of Alberta, Canada, that some or all of its officers and directors may be
residents of Canada, that the Dealer Manager and the expert named in the Offer
or Circular may be residents of Canada, and that all or a substantial portion of
the assets of Northern Arch and of said persons may be located outside the
United States.
Investors should be aware that Northern Arch or its affiliates, directly or
indirectly, may bid for or make purchases of the Company's securities subject to
the Offer or of the Company's related securities during the period of the Offer,
as permitted by applicable Canadian laws or provincial laws or regulations.
Shareholders who are resident in or citizens of the United States should be
aware that acceptance of the Offer may have tax consequences under United States
federal, state and local laws which are not described herein. Such Shareholders
are urged to consult with their tax advisors.
All references herein to "dollars" and "$" are to the currency of Canada,
unless otherwise indicated.
This document does not constitute an offer or a solicitation to any person in
any jurisdiction in which such offer or solicitation is unlawful. The Offer is
not being made to, nor will deposits be accepted from or on behalf of, holders
of Common Shares in any jurisdiction in which the making or acceptance thereof
would not be in compliance with the laws of such jurisdiction. However,
Northern Arch may, in its sole discretion, take such action as it may deem
necessary to extend the Offer to holders of Common Shares in such jurisdiction.
________________________________________________________________________________
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GLOSSARY ............................................................................... 4
SUMMARY................................................................................. 6
OFFER................................................................................... 10
The Offer.......................................................................... 10
Definitions........................................................................ 10
Manner and Time of Acceptance...................................................... 10
Conditions of the Offer............................................................ 12
Payment for Deposited Common Shares................................................ 13
Extension and Variation of the Offer............................................... 14
Rights to Withdraw................................................................. 15
Mail Service Interruption.......................................................... 16
Notice and Delivery................................................................ 16
Market Purchases and Sale of Shares................................................ 16
Acquisition of Common Shares Not Deposited and Appraisal Rights.................... 17
Return of Securities............................................................... 18
Dividends and Distributions........................................................ 19
Other Terms of the Offer........................................................... 19
CIRCULAR .............................................................................. 21
The Offeror....................................................................... 21
Terms and Conditions of the Offer................................................. 21
Competing Offer by Pacalta Resources Ltd.......................................... 21
The Company....................................................................... 21
Capitalization of the Company..................................................... 22
Existing Business Relationship Between the Offeror and the Company................ 22
Purpose of the Offer and Plans for the Company.................................... 22
Canadian Federal Income Tax Considerations - Shareholders Resident in Canada...... 24
Canadian Federal Income Tax Considerations - Shareholders Not Resident in Canada.. 26
Ownership of Common Shares........................................................ 26
Trading in Common Shares.......................................................... 26
Stock Exchange Listing, Price Range and Volumes................................... 27
Arrangements Between the Offeror and the Directors and Officers of the Company.... 27
Arrangements Between the Offeror and Shareholders of the Company.................. 28
Source of Funds................................................................... 28
Expenses of the Offer............................................................. 28
Dividend Policy................................................................... 29
Material Changes in the Affairs of the Company.................................... 29
Acceptance of the Offer........................................................... 29
Dealer Manager.................................................................... 29
Depositary........................................................................ 29
Legal Matters..................................................................... 30
Statutory Rights.................................................................. 30
CONSENT OF SOLICITORS.................................................................. 30
APPROVAL AND CERTIFICATE............................................................... 31
</TABLE>
APPENDIX A - PART 16 OF THE BUSINESS CORPORATIONS ACT (ALBERTA)
TAKE-OVER BID - COMPULSORY PURCHASE RIGHT
3
<PAGE>
GLOSSARY
In the Offer, the Circular, the Letter of Acceptance and Transmittal
and the Notice of Guaranteed Delivery, the following terms shall have the
following meanings:
"ABCA" means the Business Corporations Act (Alberta) and the regulations
thereto, as the same may be amended from time to time;
"Acquisition Agreement" means the agreement between Arch and the Company made as
of December 29, 1995 pursuant to which Northern Arch is making the Offer;
"Agreement to Tender" means the agreement between Arch and the Tendering
Shareholders dated as of December 29, 1995;
"Arch" means Arch Petroleum Inc., a Delaware corporation;
"Business Day" means any day, other than a Saturday, Sunday or Canadian federal
or Alberta provincial holiday, on which banks are open for business in the City
of Calgary, Alberta;
"Circular" means the circular that accompanies and forms part of the Offer and
which is attached hereto;
"Common Shares" means the common shares of the Company and, except where the
context otherwise requires, the associated Rights;
"Company" or "Trax" mean Trax Petroleums Limited;
"Competing Offer" means an offer to purchase 50% or more of the outstanding
Common Shares of the Company with an offering price per share greater than that
offered under the Offer, including any variations to the Offer, which offer is
subject to a positive recommendation by the board of directors of Trax;
"Dealer Manager" means Peters & Co. Limited;
"Depositary" means Montreal Trust Company of Canada;
"diluted basis" means, with respect to the outstanding Common Shares at any
time, such number of outstanding Common Shares calculated assuming that all
outstanding options to purchase Common Shares (other than the Rights) are
exercised;
"First Directors' Circular" means the directors' circular of the board of
directors of Trax dated December 8, 1995 in response to the unsolicited offer by
Pacalta to purchase the Common Shares;
"Eligible Institution" means a Canadian chartered bank, a trust company in
Canada, a commercial bank or trust company having an office or correspondent in
the United States, or a member firm of The Toronto Stock Exchange, The Alberta
Stock Exchange, The Montreal Exchange, the Vancouver Stock Exchange, a national
securities exchange in the United States or the National Association of
Securities Dealers, Inc.;
"Expiry Date" means January 31, 1996, unless the Offer is extended (pursuant to
Section 6 of the Offer), in which event the Expiry Date shall mean the latest
date on which the Offer as so extended expires;
"Expiry Time" means 4:30 p.m. (local time at the place of deposit) on the Expiry
Date, unless the Offer is extended (pursuant to Section 6 of the Offer), in
which event the Expiry Time shall mean the latest time on which the Offer as so
extended expires;
"Foreign Country" means a country other than Canada;
4
<PAGE>
"Income Tax Act" means the Income Tax Act (Canada);
"Letter of Acceptance and Transmittal" means the letter of acceptance and
transmittal prepared by the Offeror for use in connection with the Offer in the
form enclosed herewith (printed on yellow paper);
"Notice of Guaranteed Delivery" means the notice of guaranteed delivery prepared
by the Offeror for use in connection with the Offer in the form enclosed
herewith (printed on pink paper);
"Offer" means the cash offer to purchase made hereby to Shareholders;
"Offeror" and "Northern Arch" mean Northern Arch Resources Ltd.;
"Offer Period" means the period commencing on January 9, 1996 and ending at the
Expiry Time;
"Pacalta" means Pacalta Resources Ltd. and, if applicable, its wholly-owned
subsidiary of 660066 Alberta Ltd.;
"Pacalta Offer" means the unsolicited offer by Pacalta to purchase all of the
Common Shares at a price of $0.55 per share;
"Rights" means the rights issued pursuant to the Shareholder Rights Plan;
"Second Directors' Circular" means the notice of change to directors' circular
of the board of directors of Trax dated December 29, 1995, recommending that the
holders of Common Shares not tender to the Pacalta Offer;
"Shareholder" or "Shareholders" means, respectively, one or more holders of
Common Shares;
"Shareholder Rights Plan" means the Shareholder Rights Plan Agreement of Trax
dated as of March 31, 1994;
"Subsequent Acquisition Transaction" has the meaning ascribed thereto under
Section 11 of the Offer, "Acquisition of Common Shares Not Deposited and
Appraisal Rights";
"subsidiary" has the meaning ascribed thereto in the Securities Act (Alberta);
and
"Tendering Shareholders" means, collectively, D.W. Axford & Associates, Ltd.,
Donald W. Axford and D. Jon Axford.
In this Offer, the Circular and the Letter of Acceptance and
Transmittal, references to "dollars" and "$" are to the currency of Canada,
unless otherwise indicated, and words importing the singular number only shall
include the plural and vice versa and words importing the masculine gender shall
include the feminine gender and vice versa.
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SUMMARY
The following is intended as a summary only and reference is made to
the more detailed provisions and information contained in the attached Offer and
the Circular.
THE OFFER
The Offer is made by Northern Arch for all of the issued and
outstanding Common Shares (including the associated Rights) at a price of $0.71
per share, payable in cash. The Offeror understands that Trax currently has
issued and outstanding approximately 13,352,122 Common Shares, options to
acquire 840,000 Common Shares and no other outstanding securities.
NORTHERN ARCH
Northern Arch, a wholly-owned subsidiary of Arch, was organized for
the sole purpose of making an acquisition in Canada on behalf of Arch. Prior to
making the Offer, Northern Arch has carried on no business.
Arch is a publicly-held independent oil and gas company headquartered
in Fort Worth, Texas. Arch currently operates primarily in the Permian Basin in
Texas and New Mexico. Additionally, Arch has gas transmission and marketing
operations in south and north central Texas. In the year ended December 1,
1994, Arch's revenues were $83 million (U.S.).
Arch's common shares trade on the NASDAQ National Market under the
symbol "ARCH".
COMPETING OFFER BY PACALTA RESOURCES LTD.
Pursuant to an offer to purchase and circular dated December 1, 1995,
Pacalta, through its wholly-owned subsidiary, 660066 Alberta Ltd., offered to
purchase all of the Common Shares of Trax at a price of $0.55 per Common Share.
In the First Directors' Circular, the board of directors agreed with
the initial view of its Independent Committee that the Pacalta Offer undervalued
Trax. The board of directors of Trax recommended to Shareholders that they not
tender their Common Shares to the Pacalta Offer until a further communication is
received from the board of directors of Trax. In the Second Directors' Circular
the board of directors of Trax recommended that the Shareholders not tender to
the Pacalta Offer.
PURPOSE OF THE OFFER
The purpose of the Offer is to enable Northern Arch to acquire all of
the Common Shares. See Section 7 of the Circular, "Purpose of the Offer and
Plans for the Company".
ACQUISITION OF COMMON SHARES NOT DEPOSITED
If the Offeror does not acquire all the issued and outstanding Common
Shares, Northern Arch intends to pursue some other means of acquiring such
shares, such as invoking the statutory rights contained in Part 16 of the ABCA.
See Section 11 of the Offer, "Acquisition of Common Shares Not Deposited and
Appraisal Rights".
If the Offer is successful, the Offeror will seek to have its nominees
elected to the board of directors of Trax such that at least a majority of the
directors will be its nominees. Upon the Offeror acquiring at least 662/3% of
the issued and outstanding Common Shares pursuant to the Offer, Trax has agreed
to cooperate with the Offeror to provide an orderly transition of control.
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TIMING
The Offer is open for acceptance until 4:30 p.m. (local time at the
place of deposit) on January 31, 1996 unless extended by the Offeror. See
Section 3 of the Offer, "Manner and Time of Acceptance".
MANNER OF ACCEPTANCE
Shareholders wishing to accept the Offer must properly complete and
duly execute the accompanying Letter of Acceptance and Transmittal (printed on
YELLOW paper) or a facsimile thereof and deposit it (together with certificates
representing their Common Shares and all other documents required by the Letter
of Acceptance and Transmittal) at or prior to the Expiry Time, at one of the
offices of the Depositary specified in the Letter of Acceptance and Transmittal.
SHAREHOLDERS WHOSE COMMON SHARES ARE REGISTERED IN THE NAME OF A BROKER, DEALER,
BANK, TRUST COMPANY OR OTHER NOMINEE MUST CONTACT THEIR NOMINEE TO DEPOSIT THEIR
COMMON SHARES.
If a Shareholder is unable to deposit certificates representing his
Common Shares in a timely manner, he may accept the Offer by following the
Procedure for Guaranteed Delivery set forth in Section 3 of the Offer, "Manner
and Time of Acceptance".
TRADING PRICES
On December 28, 1995, the last day of trading for Common Shares prior
to the public announcement of the Offer, the closing price on The Toronto Stock
Exchange for the Common Shares was $0.65. On January 5, 1996, the closing price
on The Toronto Stock Exchange for the Common Shares was $0.69. On November 16,
1995, the last day of trading for Common Shares prior to the public announcement
of the Pacalta Offer, the closing price on The Toronto Stock Exchange for the
Common Shares was $0.50.
PROCEDURE FOR GUARANTEED DELIVERY
Shareholders are advised that use of the mail to transmit certificates
representing their Common Shares and the Letter of Acceptance and Transmittal is
at each holder's risk. The Offeror recommends that such documents be delivered
by hand to the Depositary and a receipt therefor obtained, or that registered
mail be used.
If a Shareholder wishes to deposit Common Shares pursuant to the Offer
and the certificates representing such Common Shares are not immediately
available or such holder cannot deliver the certificates and all other required
documents to the Depositary at or prior to the Expiry Time, such Common Shares
may nevertheless be deposited pursuant to the Offer. Reference is made to the
Procedure for Guaranteed Delivery in Section 3 of the Offer.
ALL SIGNATURES ON THE LETTER OF ACCEPTANCE AND TRANSMITTAL, ON
CERTIFICATES REPRESENTING COMMON SHARES AND, IF NECESSARY, ON THE NOTICE OF
GUARANTEED DELIVERY, MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION, UNLESS
OTHERWISE PROVIDED.
For detailed information as to the manner in which Shareholders may
validly accept the Offer, see Section 3 of the Offer, "Manner and Time of
Acceptance" and the Letter of Acceptance and Transmittal.
CONDITIONS
The Offeror reserves the right to withdraw the Offer or to elect not
to take up or accept for payment or pay for any Common Shares properly deposited
hereunder unless all of the following conditions are satisfied prior to the
Expiry Time:
(a) all requisite regulatory approvals shall have been obtained on terms
satisfactory to the Offeror in its sole judgment;
(b) not less than 662/3% of the Common Shares (calculated on a diluted
basis) having been deposited in valid acceptance of the Offer and
having not been withdrawn prior the Expiry Date;
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(c) the terms and provisions of the Shareholder Rights Plan shall have
been waived and continue to be waived with respect to the Offer and
any Subsequent Acquisition Transaction contemplated by the Offer;
(d) (1) no act, action, suit or proceeding shall have been threatened or
taken before or by any domestic or foreign court or tribunal or
governmental agency or other regulatory authority or administrative
agency or commission by any elected or appointed public official or
private person (including, without limitation, any individual,
corporation, firm, group or other entity) in Canada or elsewhere,
whether or not having the force of law; and (2) no law, regulation or
policy shall have been proposed, promulgated or applied:
(i) which has effect, or may have effect, to cease trade, enjoin,
prohibit or impose material limitations or conditions on the
purchase by or the sale to the Offeror of the Common Shares, the
right of the Offeror to own or exercise full rights of ownership
of the Common Shares; or
(ii) which, if the Offer were consummated would materially and
adversely affect the Company;
(e) the Offeror shall have determined in its sole judgment, acting
reasonably, that the Company has not taken any action which might make
it inadvisable for the Offeror to proceed with the Offer and/or with
the taking up and paying for Common Shares under the Offer, including,
without limiting the generality of the foregoing, any agreement or
understanding relating to the sale, disposition of or other dealing
with any of the assets of the Company;
(f) the Tendering Shareholders shall not be in default, in any material
respect, of any of their obligations under the Agreement to Tender,
the representations and warranties made by the Tendering Shareholders
in the Agreement to Tender shall be true and correct in all material
respects as of the first date of the take up and payment for Common
Shares under the Offer and the Agreement to Tender shall not have been
otherwise terminated;
(g) there shall not have occurred (or, if there shall have previously
occurred, there shall not have been disclosed, generally or to the
Offeror in writing, prior to the commencement of the Offer) any change
(or any condition, event or development involving a prospective
change) in the business, operations, assets, capitalization, financial
condition, prospects, licenses, permits, rights, privileges or
liabilities whether contractual or otherwise, of the Company which, in
the sole judgment of the Offeror, acting reasonably, is materially
adverse;
(h) there shall have not developed, occurred or came into effect or
existence any event, action, state, condition, or other financial
occurrence of national or international consequence or any action, law
or regulation, inquiry or other occurrence of any nature whatsoever
which, in the opinion of the Offeror, acting reasonably, seriously
adversely affects or involves or may seriously adversely affect or
involve the business of the Company; and
(i) all stock options of the Company shall have been exercised or
cancelled or shall otherwise have ceased to exist or to represent a
liability or obligation of the Company.
The foregoing conditions are for the exclusive benefit of the Offeror
and may be waived by it in whole or in part at its sole option at any time and
from time to time, before the Expiry Time, without prejudice to any other rights
which the Offeror may have.
See Section 4 of the Offer, "Conditions of the Offer", for further
particulars of the conditions attached to the Offer.
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AGREEMENT TO TENDER
Pursuant to the Agreement to Tender, the Tendering Shareholders have
agreed to tender all of their Common Shares (including Common Shares issuable on
exercise of outstanding stock options) consisting of 2,413,147 Common Shares
and 500,000 Common Shares issuable on the exercise of stock options,
representing approximately 20% of the outstanding Common Shares, within five
Business Days of the Offer and not to withdraw such shares unless the said
agreement is earlier terminated or a Competing Offer is outstanding 24 hours
prior to the Expiry Time and the Offeror has not increased the consideration
payable under the Offer to at least equal that under the Competing Offer. See
Section 14 of the Circular, "Arrangements Between the Offeror and Shareholders
of the Company".
PAYMENT FOR DEPOSITED COMMON SHARES
Upon fulfilment or waiver of the conditions of the Offer, the Offeror
may take up and pay for Common Shares properly deposited under the Offer and not
withdrawn commencing on January 31, 1996, or forthwith after the expiration of
any withdrawal period if the Offer is changed or varied so as to give rise to
withdrawal rights. The Offeror will pay for any Common Shares taken up promptly,
but in any event not later than three days after taking up such Common Shares.
Any Common Shares deposited pursuant to the Offer after the first date on which
Common Shares have been taken up by the Offeror will be taken up and paid for
promptly, but in any event within ten days of such deposit. See Section 5 of
the Offer, "Payment for Deposited Common Shares".
RIGHTS TO WITHDRAW
All deposits of Common Shares pursuant to the Offer are irrevocable
except as provided in Section 7 of the Offer, "Rights to Withdraw".
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The sale of the Common Shares pursuant to the Offer will be a
disposition for Canadian tax purposes and may give rise to tax consequences to
Shareholders. See Section 8 of the Circular, "Canadian Federal Income Tax
Considerations - Shareholders Resident in Canada".
A non-resident Shareholder will only be subject to tax under the
Income Tax Act on any realized capital gains if the Common Shares are a taxable
Canadian property as defined in the Income Tax Act and the Shareholder is not
entitled to relief pursuant to the provisions of any applicable income tax
treaty. See Section 9 of the Circular, "Canadian Federal Income Tax
Considerations - Shareholders Not Resident in Canada".
DEALER MANAGER
Peters & Co. Limited has been appointed to form a soliciting dealer
group comprised of members of the Investment Dealers Association of Canada and
members of Canadian stock exchanges to solicit acceptances of the Offer. The
Offeror will pay any member of the soliciting dealer group whose name appears in
the appropriate space in the Letter of Acceptance and Transmittal accompanying a
deposit of Common Shares a solicitation fee of $0.01 for each such Common Share
taken up and paid for, subject to a minimum fee of $75 and a maximum fee of
$1,500 in respect of any single beneficial owner.
MATERIAL CHANGES IN THE AFFAIRS OF THE COMPANY
The Offer is being made on the condition, among others, that the terms
of the Shareholder Rights Plan shall have been waived and continue to be waived
with respect to the Offer and any Subsequent Acquisition Transaction
contemplated by the Offer. Under the terms of the Shareholder Rights Plan, if
the Offeror were to take up and pay for Common Shares without the application of
the plan to the Offer being waived, the Offeror could suffer significant
dilution as a result of the operation of the Shareholder Rights Plan. On
January 4, 1996, the Offeror received notice that the board of directors of the
Company had waived the application of the Shareholder Rights Plan to the Offer
and any Subsequent Acquisition Transaction contemplated by the Offer.
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OFFER
January 9, 1996
TO: THE HOLDERS OF COMMON SHARES
1. THE OFFER
The Offeror hereby offers to purchase, on and subject to the terms and
conditions hereinafter specified, all of the issued and outstanding Common
Shares (and the associated Rights), including Common Shares which may become
outstanding on the exercise of outstanding stock options, at a price of $0.71
for each Common Share.
The Offer is made only for Common Shares and is not made for any other
options to purchase Common Shares. Any holder of such securities who wishes to
accept the Offer should exercise the options in order to obtain certificates
representing Common Shares and deposit them pursuant to the Offer.
THE ACCOMPANYING CIRCULAR, LETTER OF ACCEPTANCE AND TRANSMITTAL AND
THE NOTICE OF GUARANTEED DELIVERY ARE INCORPORATED INTO AND FORM PART OF THE
OFFER AND CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE
MAKING A DECISION WITH RESPECT TO THE OFFER.
The Offer is subject to certain conditions as detailed in Section 4 of
this Offer. If such conditions are met, the Offeror will take up and pay for
the Common Shares duly deposited and not withdrawn under the Offer in accordance
with the terms hereof. All of the terms and conditions of the Offer may be
waived or modified (subject to applicable law) by the Offeror without prejudice
to any other right which the Offeror may have by notice in writing delivered to
the Depositary at its principal office in Calgary, Alberta.
2. DEFINITIONS
Certain terms used in this Offer, the Circular, the Letter of
Acceptance and Transmittal and the Notice of Guaranteed Delivery are defined in
the Glossary.
3. MANNER AND TIME OF ACCEPTANCE
To accept the Offer, certificates representing Common Shares, together
with a properly completed and duly executed Letter of Acceptance and Transmittal
(printed on YELLOW paper) or facsimile thereof and all other documents required
by the Letter of Acceptance and Transmittal, must be received at or prior to the
Expiry Time by the Depositary at one of its offices listed in the Letter of
Acceptance and Transmittal. Since the application of the Shareholder Rights Plan
has been waived by the board of directors of the Company in relation to the
Offer, a tender of Common Shares will also constitute a tender of the associated
Rights.
ALL SIGNATURES ON THE LETTER OF ACCEPTANCE AND TRANSMITTAL, ON
CERTIFICATES REPRESENTING COMMON SHARES AND, IF NECESSARY, ON THE NOTICE OF
GUARANTEED DELIVERY, MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION, UNLESS
OTHERWISE PROVIDED.
In lieu of depositing certificates representing Common Shares with the
Depositary, such certificates may be deposited in compliance with the Procedure
for Guaranteed Delivery set forth below at or prior to the Expiry Time.
If a Letter of Acceptance and Transmittal is signed by a person other
than the registered holder of the Common Shares deposited therewith, the
certificate must be endorsed or accompanied by appropriate security transfer or
stock powers of attorney duly and properly completed by the registered holder.
THE SIGNATURE ON SUCH CERTIFICATES, TRANSFERS OR POWERS MUST BE GUARANTEED BY AN
ELIGIBLE INSTITUTION.
The deposit of Common Shares pursuant to any of the procedures
described above will constitute a binding agreement between the depositing
Shareholder and the Offeror upon the terms and subject to the conditions of the
Offer.
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Procedure for Guaranteed Delivery
If a Shareholder wishes to deposit Common Shares pursuant to the Offer
and the certificates representing such Common Shares are not immediately
available or such holder cannot deliver the certificates and all other required
documents to the Depositary at or prior to the Expiry Time, such Common Shares
may nevertheless be deposited pursuant to the Offer provided that all of the
following conditions are met:
(a) such deposit is made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed Delivery
(printed on PINK paper), in the form enclosed with this document or
facsimile thereof, is received by the Depositary at or prior to the
Expiry Time at one of its offices listed in the Letter of Acceptance
and Transmittal; and
(c) the certificates representing deposited Common Shares, in proper form
for transfer, together with a properly completed and duly executed
Letter of Acceptance and Transmittal or facsimile thereof covering
such Common Shares and any other documents required by such Letter of
Acceptance and Transmittal, are received at the same office of the
Depositary, prior to 4:30 p.m. local time on the third trading day on
The Toronto Stock Exchange after the Expiry Date.
The Notice of Guaranteed Delivery must be delivered by hand or
transmitted by facsimile transmission or mail to the Depositary AND MUST INCLUDE
A SIGNATURE GUARANTEED BY AN ELIGIBLE INSTITUTION IN THE FORM SET FORTH IN THE
NOTICE OF GUARANTEED DELIVERY.
General
In all cases, payment for Common Shares deposited and accepted for
payment pursuant to the Offer will be made only after timely receipt by the
Depositary of certificates representing the Common Shares and a properly
completed and duly executed Letter of Acceptance and Transmittal or facsimile
thereof covering such shares.
THE METHOD OF DELIVERY OF COMMON SHARE CERTIFICATES, THE LETTER OF
ACCEPTANCE AND TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND
RISK OF THE DEPOSITING SHAREHOLDER. THE OFFEROR RECOMMENDS THAT SUCH DOCUMENTS
BE DELIVERED BY HAND TO THE DEPOSITARY AND A RECEIPT BE OBTAINED; HOWEVER, IF
SUCH DOCUMENTS ARE MAILED, THE OFFEROR RECOMMENDS THAT REGISTERED MAIL, RETURN
RECEIPT OR ACKNOWLEDGEMENT OF RECEIPT REQUESTED, BE USED AND THAT PROPER
INSURANCE BE OBTAINED.
Holders of Common Shares registered in the name of a broker,
investment dealer, bank, trust company or other nominee should contact the
nominee for assistance in depositing Common Shares.
The execution of a Letter of Acceptance and Transmittal by a
Shareholder irrevocably appoints the Offeror as the true and lawful agent,
attorney and attorney-in-fact of such holder with respect to the Common Shares
deposited therewith and purchased by the Offeror (the "Purchased Securities"),
and with respect to any stock dividends, securities, rights, warrants or other
interest or distribution (collectively, as used in this paragraph, "Other
Securities"), issued, transferred or distributed on or in respect of the
Purchased Securities on or after the date of the Offer, effective from the date
that the Offeror purchases the Purchased Securities (the "Effective Date"), with
full power of substitution, in the name and on behalf of such Shareholder, to
register or record, transfer and enter the transfer of Purchased Securities and
any Other Securities on the books of the Company and to exercise any and all of
the rights of such Shareholder in respect of the Purchased Securities and any
Other Securities including, without limitation, the right to execute and deliver
any and all instruments of proxy, authorizations or consents in respect of any
or all of the Purchased Securities and Other Securities, revoke any such
instruments, authorizations or consents given on or prior to or after the
Effective Date and designate in any such instruments of proxy any person or
persons as the proxy or the proxy nominee or nominees of the holder thereof, all
as set forth in the Letter of Acceptance and Transmittal. Further, a
Shareholder who executes the Letter of Acceptance and Transmittal, unless
otherwise agreed to by the Offeror, agrees, among other things, from and after
the Effective Date: (i) not to vote any of the Purchased Securities or Other
Securities at any meeting (whether annual, special or otherwise) of holders of
Purchased Securities or Other Securities; (ii) not to exercise any other rights
or privileges attached to any Purchased Securities or Other Securities; and
(iii) to execute and deliver to the Offeror any and all instruments of proxy,
authorizations or consents in respect of any or all of the Purchased
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Securities or Other Securities and to designate in any such instruments of proxy
the person or persons specified by the Offeror as the proxy or proxy nominee or
nominees of the holder thereof. At the Effective Date, all prior proxies given
by the holder of such Purchased Securities with respect thereto and to such
Other Securities shall be revoked and no subsequent proxies may be given by such
holder with respect thereto. A Shareholder who executes a Letter of Acceptance
and Transmittal covenants to execute, upon request, any additional documents
necessary or desirable to complete the sale, assignment and transfer of the
Purchased Securities and any Other Securities to the Offeror and acknowledges
that all authority therein conferred or agreed to be conferred shall survive the
death or incapacity, bankruptcy or insolvency of the Shareholder and all
obligations of the Shareholder therein shall be binding upon the heirs, personal
representatives, successors and assigns of the Shareholder.
The deposit of Common Shares pursuant to the procedures herein will
constitute a binding agreement between the depositing Shareholder and the
Offeror upon the terms and subject to the conditions of the Offer including the
depositing Shareholder's representation and warranty that: (i) such person has
full power and authority to deposit, sell, assign and transfer the Common Shares
and any Other Securities being deposited; (ii) such Shareholder owns the Common
Shares within the meaning of the applicable securities laws; (iii) the deposit
of such Common Shares and any Other Securities complies with applicable
securities laws; and (iv) when such Common Shares and any Other Securities are
taken up and paid for by the Offeror, the Offeror will acquire good title
thereto free and clear of all liens, restrictions, charges, encumbrances, claims
and equities.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Common Shares deposited pursuant to the Offer will be
determined by the Offeror in its sole discretion and depositing Shareholders
agree that such determination shall be final and binding. The Offeror reserves
the absolute right to reject any and all deposits which it determines not to be
in a proper form or which, in the opinion of its counsel, may be unlawful to
accept under the laws of any applicable jurisdiction. The Offeror reserves the
right to waive any defect or irregularity in the deposit of any Common Shares.
The Offeror's interpretation of the terms and conditions of the Offer will be
final and binding.
THERE SHALL BE NO OBLIGATION ON THE OFFEROR, THE DEALER MANAGER OR THE
DEPOSITARY TO GIVE NOTICE OF ANY DEFECTS OR IRREGULARITIES IN ANY DEPOSIT AND NO
LIABILITY SHALL BE INCURRED BY ANY OF THEM FOR FAILURE TO GIVE ANY SUCH NOTICE.
4. CONDITIONS OF THE OFFER
The Offeror shall have the right to withdraw the Offer with respect to
the Common Shares or to elect not to take up and pay for any Common Shares
deposited hereunder unless all of the following conditions are satisfied prior
to the Expiry Time:
(a) all requisite regulatory approvals shall have been obtained on terms
satisfactory to the Offeror in its sole judgment;
(b) not less than 662/3% of the Common Shares (calculated on a diluted
basis) having been deposited in valid acceptance of the Offer and
having not been withdrawn prior the Expiry Date;
(c) the terms and provisions of the Shareholder Rights Plan shall have
been waived and continue to be waived with respect to the Offer and
any Subsequent Acquisition Transaction contemplated by the Offer;
(d) (1) no act, action, suit or proceeding shall have been threatened or
taken before or by any domestic or foreign court or tribunal or
governmental agency or other regulatory authority or administrative
agency or commission by any elected or appointed public official or
private person (including, without limitation, any individual,
corporation, firm, group or other entity) in Canada or elsewhere,
whether or not having the force of law; and (2) no law, regulation or
policy shall have been proposed, promulgated or applied:
(i) which has effect, or may have effect, to cease trade, enjoin,
prohibit or impose material limitations or conditions on the
purchase by or the sale to the Offeror of the Common
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Shares, the right of the Offeror to own or exercise full rights
of ownership of the Common Shares; or
(ii) which, if the Offer were consummated would materially and
adversely affect the Company;
(e) the Offeror shall have determined in its sole judgment, acting
reasonably, that the Company has not taken any action which might make
it inadvisable for the Offeror to proceed with the Offer and/or with
the taking up and paying for Common Shares under the Offer, including,
without limiting the generality of the foregoing, any agreement or
understanding relating to the sale, disposition of or other dealing
with any of the assets of the Company;
(f) the Tendering Shareholders shall not be in default, in any material
respect, of any of their obligations under the Agreement to Tender,
the representations and warranties made by the Tendering Shareholders
in the Agreement to Tender shall be true and correct in all material
respects as of the first date of the take up and payment for Common
Shares under the Offer and the Agreement to Tender shall not have been
otherwise terminated;
(g) there shall have not have occurred (or, if there shall have previously
occurred, there shall not have been disclosed, generally or to the
Offeror in writing, prior to the commencement of the Offer) any change
(or any condition, event or development involving a prospective
change) in the business, operations, assets, capitalization, financial
condition, prospects, licenses, permits, rights, privileges or
liabilities whether contractual or otherwise, of the Company which, in
the sole judgment of the Offeror, acting reasonably, is materially
adverse;
(h) there shall not have developed, occurred or came into effect or
existence any event, action, state, condition, or other financial
occurrence of national or international consequence or any action, law
or regulation, inquiry or other occurrence of any nature whatsoever
which, in the opinion of the Offeror, acting reasonably, seriously
adversely affects or involves or may seriously adversely affect or
involve the business of the Company; and
(i) all stock options of the Company shall have been exercised or
cancelled or shall otherwise have ceased to exist or to represent a
liability or obligation of the Company.
The conditions described above are for the exclusive benefit of the
Offeror and may be asserted by the Offeror regardless of the circumstances or
may be waived by the Offeror in its sole discretion, at any time and from time
to time before the Expiry Time without prejudice to any other rights which the
Offeror may have under the Offer. Any determination by the Offeror concerning
the events described in this Section 4 will be final and binding upon all
parties.
Any waiver of a condition or the withdrawal of the Offer shall be
effective upon oral or written notice by the Offeror to that effect to the
Depositary at its principal office in Calgary. The Offeror shall, forthwith
after giving any such notice, make a public announcement of such waiver or
withdrawal and cause the Depositary as soon as practicable thereafter to notify
Shareholders in the manner set forth in Section 9 of this Offer and shall
provide a copy of the aforementioned notice to the Dealer Manager and The
Toronto Stock Exchange. If the Offer is withdrawn, the Offeror shall not be
obligated to take up and pay for any Common Shares deposited under the Offer and
the Depositary will return promptly all certificates for deposited Common Shares
and Letters of Acceptance and Transmittal to the persons by whom they were
deposited.
5. PAYMENT FOR DEPOSITED COMMON SHARES
Upon fulfilment or waiver of the conditions of the Offer, the Offeror
may take up and pay for Common Shares properly deposited under the Offer and not
withdrawn commencing on January 31, 1996 or forthwith after the expiration of
any withdrawal period if the Offer is changed or varied so as to give rise to
withdrawal rights. If the conditions have been fulfilled or waived at the Expiry
Time, the Offeror will take up the Common Shares validly deposited under the
Offer promptly and, in any event, not later than ten days from the Expiry Date.
The Offeror will pay for Common Shares taken up promptly and, in any event, not
later than three days after taking up such Common
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Shares. Any Common Shares deposited pursuant to the Offer after the first date
on which Common Shares have been taken up by the Offeror will be taken up and
paid for within ten days of such deposit. If the conditions described in
Section 4 of this Offer have been fulfilled or waived, the Offeror may not
extend the Offer unless all Common Shares then validly deposited and not
withdrawn are taken up and paid for.
The Offeror will pay for Common Shares purchased by it pursuant to the
Offer by providing the Depositary with sufficient funds for transmittal to
Shareholders whose Common Shares are purchased. The Depositary will issue or
cause to be issued and will forward by first class mail a cheque drawn upon a
Canadian chartered bank or trust company payable to such depositing Shareholder
or such other person as he may direct in the Letter of Acceptance and
Transmittal, representing the amount payable in cash to which such Shareholder
is entitled pursuant to the Offer. If no address is specified therein, a cheque
issued in respect of registered Common Shares will be forwarded to the address
of the Shareholder as shown on the register maintained by the Company. The
Depositary will act as the agent of persons who have deposited Common Shares in
acceptance of the Offer for the purposes of receiving payment from the Offeror
and transmitting payment to such persons.
Settlement with Shareholders with respect to each Common Share
deposited by each such Shareholder and accepted by the Offeror pursuant to the
Offer will be effected by the Depositary forwarding to each Shareholder the
amount of $0.71 per Common Share. See Section 9 of the Circular, "Canadian
Federal Income Tax Considerations -Shareholders Not Resident in Canada" with
respect to payments to those Shareholders who are non-residents of Canada.
If any deposited Common Shares are not accepted for payment pursuant
to the terms and conditions of the Offer for any reason, or if certificates are
submitted for more Common Shares than are deposited, certificates for
unpurchased Common Shares will be returned, without expense, to the depositing
Shareholder promptly following the Expiry Date or the Offeror's withdrawal and
early termination of the Offer.
If the Offeror is delayed in its purchase of or payment for Common
Shares or is unable to purchase or pay for such Common Shares for any reason
then, without prejudice to the Offeror's rights hereunder, deposited Common
Shares may be retained by the Depositary on behalf of the Offeror and may not be
withdrawn except to the extent that tendering Shareholders are entitled to
withdrawal rights as set forth in Section 7 of this Offer or pursuant to any
applicable law. The reservation by the Offeror of the rights to delay the
purchase of or payment for Common Shares is limited by the securities laws of
certain Canadian provinces.
Under no circumstances will interest accrue or be paid by the Offeror
or the Depositary to persons depositing Common Shares on the purchase price of
the Common Shares regardless of any delay in such payment.
Cheques which are mailed in accordance with this Section shall be
deemed to have been delivered at the time of delivery to the post office. In
the event of an interruption of mail services, cheques will be made available in
accordance with Section 8 of this Offer.
6. EXTENSION AND VARIATION OF THE OFFER
Unless extended, the Offer is open for acceptance at the places of
deposit set forth in the Letter of Acceptance and Transmittal until 4:30 p.m.
(local time at the place of deposit) on January 31, 1996.
Subject to the terms of the Acquisition Agreement, the Offeror may,
from time to time during the Offer Period (or otherwise as permitted by law)
vary certain terms of the Offer. Any such variation of the Offer or extension
of the Expiry Time may be made by the Offeror giving notice to the Depositary at
its principal office in Calgary. Upon the delivery of such notice, the Expiry
Time and Expiry Date shall be deemed to be extended to the time and date
specified in such notice or the Offer shall be deemed to be varied in the manner
described therein, as the case may be. The Offeror will, as soon as practicable
after giving any such notice, and in any event no later than 9:00 a.m. (Eastern
time) on the first Business Day following the previously scheduled Expiry Date,
make a public announcement of the extension or variation. In addition, the
Offeror will provide a copy of such notice to the Dealer Manager and The Toronto
Stock Exchange and will cause the Depositary to mail a copy of any such notice
to Shareholders as required by applicable laws.
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Any notice of extension or variation will be deemed to have been given
and to be effective on the day on which it is delivered or otherwise
communicated to the Depositary at its principal office in Calgary.
The Offeror shall not be entitled to extend the period of time during
which the Offer is open where all the terms and conditions of the Offer have
been complied with or waived by the Offeror, unless the Offeror first takes up
and pays for all the Common Shares deposited under the Offer and not withdrawn.
If there is a variation in the terms of the Offer (other than a
variation consisting solely of a waiver of a condition) or a change in the
information contained in the Offer and Circular which is within the control of
the Offeror and which would reasonably be expected to affect a Shareholder's
decision to accept or reject the Offer, the period during which Common Shares
may be deposited pursuant to the Offer shall not expire before ten days after
the notice of variation has been delivered, unless otherwise permitted by
applicable law. An extension of the Expiry Time and Expiry Date shall not
constitute a waiver by the Offeror of any of its rights under Section 4 of this
Offer. If the price being offered for the Common Shares is increased by the
Offeror, the increased price will be paid to all Shareholders whose Common
Shares are taken up pursuant to the Offer, whether or not such shares were taken
up by the Offeror before the variation.
7. RIGHTS TO WITHDRAW
All deposits of Common Shares pursuant to the Offer are irrevocable
provided that any Common Shares deposited in acceptance of the Offer may be
withdrawn by or on behalf of the depositing Shareholder:
(a) at any time before 11:00 a.m. (Calgary time) on January 31, 1996; and
(b) at any time after February 23, 1996, provided that the Common Shares
have not been taken up and paid for prior to the receipt by the
Depositary of a notice of withdrawal in respect of such Common Shares.
In addition, if a notice of change in respect of the information
contained in this Offer and the Circular or in respect of any notice of change
or variation is delivered to the Shareholders whose Common Shares were not taken
up at the date of the occurrence of the change or there is a variation of the
terms of the Offer (other than by an increase in the consideration offered for
the Common Shares with any extension of the time for deposit being for a period
not greater than ten days after the notice of variation is delivered or a
variation consisting solely of the waiver of a condition of the Offer), any
deposited Common Shares not then taken up and paid for may be withdrawn by or on
behalf of the depositing Shareholder at their place of deposit at any time up to
and including the tenth day after the day on which the notice of change or
variation is mailed, delivered or otherwise communicated, subject to abridgement
of that period pursuant to such order or orders as may be granted by Canadian
courts or securities regulatory authorities.
Pursuant to the terms of the Agreement to Tender, the Tendering
Shareholders have agreed to tender their Common Shares to the Offer and not to
withdraw any of their Common Shares tendered unless the Agreement to Tender has
been duly terminated prior to the time of the Offeror taking up and paying for
such shares or a Competing Offer is outstanding 24 hours prior to the Expiry
Time and the Offeror has not increased the consideration payable under the Offer
to at least equal that under the Competing Offer. See Section 14 of the
Circular, "Arrangements Between the Offeror and Shareholders of the Company".
Withdrawal of deposited Common Shares must be effected by notice of
withdrawal which must be made by or on behalf of the Shareholder by whom or on
whose behalf such Common Shares were deposited and must be received by the
Depositary at the office at which such Common Shares were deposited. Any such
notice of withdrawal must (a) be made by a method, including telegraphic
communications, that provides the Depositary with a written or printed copy, (b)
be signed by or on behalf of the person who signed the Letter of Acceptance and
Transmittal accompanying the Common Shares which are being withdrawn, (c)
specify such person's name, the number of Common Shares to be withdrawn, the
name of the registered holder and the certificate number shown on each
certificate representing the Common Shares to be withdrawn and (d) be actually
received by the Depositary within the time specified above. For the purpose of
obtaining physical possession of the deposited share certificates so withdrawn,
the signature on the notice of withdrawal must be guaranteed by an Eligible
Institution.
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NONE OF THE OFFEROR, THE DEPOSITARY, THE DEALER MANAGER, OR ANY OTHER
PERSON WILL BE UNDER ANY DUTY TO GIVE NOTIFICATION OF ANY DEFECT OR IRREGULARITY
IN ANY NOTICE OF WITHDRAWAL NOR SHALL THEY INCUR ANY LIABILITY FOR FAILURE TO
GIVE SUCH NOTIFICATION.
In addition to the foregoing rights of withdrawal, Shareholders in
certain provinces of Canada are entitled to statutory rights of rescission in
certain circumstances. See Section 23 in the Circular, "Statutory Rights".
All questions as to the validity (including the time of receipt) and
form of notices of withdrawal shall be determined by the Offeror in its sole
discretion and such determination shall be final and binding. See Section 3 of
this Offer.
8. MAIL SERVICE INTERRUPTION
Notwithstanding the provisions of the Offer or the Letter of
Acceptance and Transmittal, cheques in payment for the Common Shares purchased
pursuant to the Offer and certificates for any Common Shares or other relevant
documents to be returned will not be mailed if the Offeror determines that
delivery by mail may be delayed, until such time as the Offeror has determined
that delivery by mail will no longer be delayed. Persons entitled to cheques,
share certificates or documents which are not mailed for the foregoing reason
may take delivery thereof at the offices of the Depositary at which the Common
Shares in respect of which the cheque is being issued were deposited, upon
application to the Depositary. Notwithstanding Section 5 of this Offer,
cheques, share certificates or documents not mailed for the foregoing reason
will be conclusively deemed to have been delivered on the first day upon which
they are available for delivery to the depositing Shareholders at the
appropriate office of the Depositary. Notice of any determination regarding
mail service delay or interruption made by the Offeror shall be given in
accordance with the last sentence of the first paragraph of Section 9 of this
Offer.
9. NOTICE AND DELIVERY
Without limiting any other lawful means of giving notice, any notice
which the Offeror or the Depositary may give or cause to be given under the
Offer will be deemed to have been properly given to Shareholders if (a) it is
mailed by first class mail postage prepaid to the registered holders of such
Common Shares at their respective addresses appearing in the registers for such
Common Shares maintained by the Company and will be deemed to have been received
on the first Business Day following mailing, or (b) it is given in such other
manner as may be permitted by applicable law. These provisions apply
notwithstanding any accidental omission to give notice to any one or more
Shareholders and notwithstanding any interruption of mail service following
mailing. In the event of any interruption of mail service following mailing,
the Offeror intends to make reasonable efforts to disseminate the notice by
other means such as publication. In the event that post offices in Canada are
not open for the deposit of mail, any notice which the Offeror or the Depositary
may give or cause to be given under this Offer, except as otherwise provided,
will be deemed to have been properly given and to have been received by the
Shareholders, as the case may be, if: (i) it is given to The Toronto Stock
Exchange for dissemination through its facilities; (ii) it is published once in
the nationally circulated edition of The Globe and Mail; or (iii) it is given to
the ISDN Wire Service.
Wherever the Offer calls for documents to be delivered to the
Depositary, such documents will not be considered delivered unless and until
they have been physically received at one of the addresses noted for the
Depositary as set forth in the Letter of Acceptance and Transmittal.
10. MARKET PURCHASES AND SALE OF SHARES
During the Offer Period, subject to applicable law, the Offeror may
purchase up to that number of Common Shares that is equal to 5% of the Common
Shares outstanding on the date of the Offer. Any such purchases will be made
through the facilities of The Toronto Stock Exchange commencing on or after
January 12, 1996.
Although the Offeror has no present intention to sell Common Shares
acquired under the Offer, it reserves the right to make or enter into any
arrangement, commitment or understanding at or prior to the Expiry Time to sell
Common Shares taken up under the Offer after the Expiry Time.
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11. ACQUISITION OF COMMON SHARES NOT DEPOSITED AND APPRAISAL RIGHTS
The purpose of the Offer is for the Offeror to acquire all outstanding
Common Shares, including Common Shares which may become outstanding on the
exercise of stock options during the Offer Period. Upon completion of the
Offer, if available, the Offeror intends to utilize any statutory rights of
purchase pursuant to Part 16 of the ABCA.
If at least 90% of the outstanding Common Shares not owned by or on
behalf of the Offeror are validly tendered pursuant to the Offer (such shares
being referred to herein as "Accepted Securities"), the Offeror may be entitled,
but is not obligated, to acquire the remaining Common Shares (the "Remaining
Securities") pursuant to Part 16 of the ABCA. In such event the Offeror will
send by registered mail to each holder of Remaining Securities (a "Dissenting
Offeree"), on or before the earlier of 60 days after the Expiry Date or 180 days
after the date hereof, notice (the "Offeror's Notice") of its intention to
acquire the Remaining Securities on the terms of the Offer and pursuant to the
provisions of Part 16 of the ABCA. Within 20 days after receipt of the
Offeror's Notice, each Dissenting Offeree must send the certificates
representing Remaining Securities held by such Dissenting Offeree, and may elect
either: (i) to transfer such holder's Remaining Securities to the Offeror on
the terms on which the Offeror acquired the Accepted Securities; or (ii) to
demand payment of the fair value thereof by notifying the Offeror and applying
to the Court of Queen's Bench of Alberta to fix the fair value of the holder's
Remaining Securities, within 60 days after the date of sending of the Offeror's
Notice. A holder of Remaining Securities who fails to notify the Offeror and
fails to apply to a court to fix the fair value within the prescribed time will
be deemed to have elected to transfer the holder's Remaining Securities to the
Offeror on the terms set forth in the Offer. It is the Offeror's current
intention to exercise the foregoing compulsory purchase right in the event it
acquires 90% or more of the Common Shares under the Offer. If the Offeror does
not exercise such right, Shareholders who do not tender under the Offer may
remain minority Shareholders in the Company.
In the event any Shareholder demands payment of the fair value of the
Common Shares, the Offeror has no present intention of applying to a court to
fix the fair value of the holder's Remaining Shares.
The foregoing is a summary only of the right of acquisition available
to the Offeror and the right of appraisal available to Shareholders. The
summary is not intended to be complete and is qualified in its entirety by the
provisions of Part 16 of the ABCA which are attached as Appendix A to the
Circular. THESE PROVISIONS ARE COMPLEX AND MAY REQUIRE STRICT ADHERENCE TO
NOTICE AND TIMING PROVISIONS, FAILING WHICH SUCH RIGHTS MAY BE LOST OR ALTERED.
SHAREHOLDERS WHO WISH TO BE BETTER INFORMED ABOUT THESE PROVISIONS SHOULD
CONSULT THEIR LEGAL ADVISORS.
If the Offer is successful, but the Offeror acquires less than 90% of
the outstanding Common Shares, then the Offeror intends to propose an
amalgamation, statutory arrangement or other transaction involving the Offeror
or a wholly-owned subsidiary of the Offeror in order to acquire all of the
Common Shares not deposited under the Offer (the "Subsequent Acquisition
Transaction").
The Subsequent Acquisition Transaction will be a "going private
transaction" within the meaning of the Ontario Securities Commission Policy
Statement No. 9.1 ("Policy 9.1") or Policy Q-27 ("Policy Q-27") of the
Commission des valeurs mobilieres du Quebec with respect to the holders of a
class of participating securities, such as the Common Shares, if it causes the
interest of a holder of such class of securities (the "affected securities") to
be terminated without consent of the holder and without the substitution
therefor of an interest of equivalent value in a participating security which is
a security of the Company, the Offeror, an affiliate of the Offeror or a
successor body corporate. If the method of acquiring the Common Shares is not a
"going private transaction", the transaction could be a "related party
transaction" for purposes of Policy 9.1.
Policy 9.1 and Policy Q-27 would also require that, in addition to any
other required security holder approval, in order to complete the Subsequent
Acquisition Transaction, the approval of a simple or two-thirds majority
(depending on the nature of the transaction) of the votes cast by minority
Shareholders of the affected securities be obtained. In relation to any
subsequent going private transaction or related party transaction, the minority
Shareholders will, unless discretionary relief is granted by applicable
securities commissions, be all Shareholders, other than the Offeror, certain
"related parties" of the Offeror and the Company, any person acting jointly or
in concert with the foregoing, any affiliate of the foregoing and the Tendering
Shareholders. For these purposes, the minority will include directors and
senior officers of the Company who would be considered to be independent from
the Offeror for the
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purpose of qualifying to serve as a member of an independent committee appointed
to consider the transaction. Policy 9.1 and Policy Q-27 also provide that those
of the minority who accept the Offer may be included in the calculation of the
minority approval of the going private transaction or related party transaction
if the consideration per security in the going private transaction or related
party transaction is at least equal in value to the consideration paid pursuant
to the Offer. The Offeror presently intends that the consideration offered
under any Subsequent Acquisition Transaction proposed by it would be at least
equal in value to the consideration offered under the Offer. The Offeror
intends that the Common Shares acquired by it pursuant to the Offer will be
counted as part of any minority approval in connection with any such
transaction. Under Policy 9.1 and Policy Q-27 if, following the Offer, the
Offeror and its affiliates are the registered holders of 90% or more of the
Common Shares at the time the going private transaction or related party
transaction is initiated, the requirement of minority approval would not apply
to the transaction if a statutory dissent and appraisal remedy is available to
the minority holders or if a substantially equivalent enforceable right is made
available to the minority Shareholders.
In the event that the Offeror proposes a going private transaction or
other Subsequent Acquisition Transaction, the Offeror intends to seek relevant
orders, waivers or rulings under the ABCA, Policy 9.1, Policy Q-27, the
Regulation under the Securities Act (Ontario) and pursuant to any other similar
policy or regulation in any other jurisdiction, exempting the Offeror and the
Company, as appropriate, from any requirement to prepare a valuation in
connection with such transaction.
Pursuant to the ABCA, if the Subsequent Acquisition Transaction is an
amalgamation it would require the approval of at least two-thirds of the votes
cast by holders of the outstanding Common Shares at a meeting duly called and
held for the purpose of approving the amalgamation agreement. The Offeror would
cause Common Shares acquired under the Offer to be voted in favour of such a
transaction.
Depending upon the nature and terms of any Subsequent Acquisition
Transaction, Shareholders may have the right to vote in respect of the
transaction, and in certain circumstances (including in the case of an
amalgamation under the ABCA), the right to dissent in respect of the transaction
and demand payment of the fair value of their Common Shares. The exercise of
such right, providing that the statutory procedures are complied with by the
holder, could lead to a judicial determination of the fair value required to be
paid to such dissenting holder for his Common Shares. The fair value so
determined could be more or less than the amount paid per Common Share pursuant
to the Subsequent Acquisition Transaction or the Offer.
Certain judicial decisions may be considered relevant to any going
private transaction or related party transaction that may be proposed or
effected subsequent to the expiry of the Offer. Prior to the adoption of Policy
9.1 and Policy Q-27, Canadian courts, in a few instances, granted preliminary
injunctions to prohibit transactions involving going private transactions. The
current trend in both Canadian legislation, such as the enactment of section 190
of the Business Corporations Act (Ontario), and in the American jurisprudence is
toward permitting going private transactions to proceed subject to compliance
with procedures designed to ensure substantive fairness to the minority
Shareholders.
Shareholders should consult their legal advisors for a determination
of their legal rights with respect to a related party or going private
transaction. Reference is also made to Section 8, "Canadian Federal Income Tax
Considerations - Shareholders Resident in Canada" and Section 9, "Canadian
Federal Income Tax Considerations -Shareholders Not Resident in Canada" in the
Circular.
12. RETURN OF SECURITIES
Any deposited Common Shares not taken up and paid for by the Offeror
for any reason, or if certificates are submitted for more Common Shares than are
deposited, certificates for Common Shares not deposited, will be returned at the
Offeror's expense by either sending new certificates representing securities not
purchased or returning the deposited certificates (and other relevant
documents). The certificates (and other relevant documents) will be forwarded
by first class insured mail in the name of and to the address specified, in such
name and to such address as shown on the registers maintained by the Company as
soon as practicable following the Expiry Date or withdrawal or termination of
the Offer.
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13. DIVIDENDS AND DISTRIBUTIONS
If, on or after January 9, 1996, the Company should split, combine or
otherwise change any of the Common Shares or its capitalization, or shall
disclose that it has taken or intends to take any such action, the Offeror may,
in its sole discretion, make such adjustments as it considers appropriate to the
purchase price and other terms of the Offer (including, without limitation, the
type of securities offered to be purchased and the amounts payable therefor) to
reflect such split, combination or other change.
Common Shares acquired pursuant to the Offer shall be transferred by
the Shareholder and acquired by the Offeror free and clear of all liens,
restrictions, charges, encumbrances, claims and equities and together with all
rights and benefits arising therefrom including the right to any and all
dividends, distributions, payments, securities, rights, assets or other
interests which may be declared, paid, issued, distributed, made or transferred
on or in respect of the Common Shares on or after January 9, 1996. If the
Company should declare or pay any cash dividend, stock dividend or make any
other distribution on or issue any rights with respect to any of the Common
Shares which is or are payable or distributable to the Shareholders of record on
a record date which is prior to the date of transfer into the name of the
Offeror or its nominees or transferees on the registers maintained by the
Company of such Common Shares following acceptance thereof for purchase pursuant
to the Offer, then the whole of any such dividend, distribution or right will be
received and held by the depositing Shareholder for the account of the Offeror
and shall be promptly remitted and transferred by the depositing Shareholder to
the Depositary for the account of the Offeror, accompanied by appropriate
documentation of transfer. Pending such remittance, the Offeror will be
entitled to all rights and privileges as the owner of any such dividend,
distribution or right, and may withhold the entire consideration payable by the
Offeror pursuant to the Offer or deduct from the consideration payable by the
Offeror pursuant to the Offer the amount or value thereof, as determined by the
Offeror in its sole discretion.
14. OTHER TERMS OF THE OFFER
The Offeror reserves the right to transfer to one or more affiliated
companies the right to purchase all or any portion of the Common Shares
deposited pursuant to the Offer but any such transfer will not relieve the
Offeror of its obligations under the Offer and will in no way prejudice the
rights of the persons depositing Common Shares to receive payment for Common
Shares validly deposited and accepted for payment pursuant to the Offer.
NO BROKER, DEALER OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION ON BEHALF OF THE OFFEROR OTHER THAN AS
CONTAINED IN THE OFFER, AND, IF ANY SUCH INFORMATION OR REPRESENTATION IS GIVEN
OR MADE, IT MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NO BROKER,
DEALER OR OTHER PERSON SHALL BE DEEMED TO BE THE AGENT OF THE OFFEROR, THE
DEPOSITARY OR THE DEALER MANAGER FOR THE PURPOSES OF THE OFFER. IN ANY
JURISDICTION IN WHICH THIS OFFER IS REQUIRED TO BE MADE BY A LICENSED BROKER OR
DEALER, THIS OFFER SHALL BE MADE ON BEHALF OF THE OFFEROR BY BROKERS OR DEALERS
LICENSED UNDER THE LAWS OF SUCH JURISDICTION.
The Offer and accompanying Circular and other documents referred to
above constitute the take-over bid circular required under applicable Canadian
provincial securities legislation with respect to the Offer.
The Offeror shall, in its sole discretion, be entitled to make a final
and binding determination on all questions relating to the interpretation of the
Offer, the Circular, the Letter of Acceptance and Transmittal and the Notice of
Guaranteed Delivery, the validity of any acceptance of the Offer, and the
validity of any withdrawals of Common Shares.
The Offer is not being made to (nor will deposits be accepted from or
on behalf of) Shareholders residing in any jurisdiction in which the making of
the Offer or the acceptance thereof would not be in compliance with the laws of
such jurisdiction. The Offeror may, in its sole discretion, take such action as
it may deem necessary to make an offer in any such jurisdiction and extend such
offer to Shareholders in any such jurisdiction.
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The Offer and all contracts resulting from the acceptance of the Offer
shall be governed by and construed in accordance with the laws of the Province
of Alberta and the laws of Canada applicable therein.
DATED at Calgary, Alberta, January 9, 1996.
NORTHERN ARCH RESOURCES LTD.
By: (signed) LARRY KALAS
President and Chief Executive Officer
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CIRCULAR
This Circular accompanies the Offer to purchase all of the issued and
outstanding Common Shares. The terms, conditions and provisions of the
accompanying Offer, the Letter of Acceptance and Transmittal and the Notice of
Guaranteed Delivery are incorporated into and form part of the Circular. Terms
that are defined in the Offer shall where used in this Circular have the
meanings so defined.
EXCEPT AS SPECIFICALLY DISCLOSED HEREIN, THE INFORMATION CONCERNING
THE COMPANY CONTAINED IN THE CIRCULAR HAS BEEN SUPPLIED BY THE COMPANY OR HAS
BEEN TAKEN FROM OR BASED UPON PUBLICLY AVAILABLE DOCUMENTS AND RECORDS ON FILE
WITH CANADIAN SECURITIES ADMINISTRATORS AND OTHER PUBLIC SOURCES. ALTHOUGH THE
OFFEROR HAS NO KNOWLEDGE THAT WOULD INDICATE THAT ANY STATEMENTS CONTAINED
HEREIN TAKEN FROM OR BASED ON SUCH DOCUMENTS AND RECORDS ARE UNTRUE OR
INCOMPLETE, THE OFFEROR DOES NOT ASSUME ANY RESPONSIBILITY FOR THE ACCURACY OR
COMPLETENESS OF THE INFORMATION CONTAINED IN SUCH DOCUMENTS AND RECORDS, OR FOR
ANY FAILURE BY THE COMPANY TO DISCLOSE PUBLICLY EVENTS OR FACTS THAT MAY HAVE
OCCURRED OR MAY AFFECT THE SIGNIFICANCE OR ACCURACY OF ANY SUCH INFORMATION BUT
WHICH ARE UNKNOWN TO THE OFFEROR.
1. THE OFFEROR
Northern Arch, a wholly-owned subsidiary of Arch, was organized
pursuant to the ABCA for the sole purpose of making an acquisition in Canada on
behalf of Arch. Prior to making the Offer, Northern Arch has carried on no
business.
Arch is a publicly-held independent oil and gas company headquartered
in Fort Worth, Texas. Arch currently operates primarily in the Permian Basin in
Texas and New Mexico. Additionally, Arch has gas transmission and marketing
operations in south and north central Texas. For the year ended December 1,
1994, Arch's revenues were $83 million (U.S.).
Arch's common shares trade on the NASDAQ National Market under the
symbol "ARCH".
2. TERMS AND CONDITIONS OF THE OFFER
Reference is made to the Offer for particulars of the terms and
conditions of the Offer, including the manner and time of acceptance, the
conditions of the Offer and provisions for payment for Common Shares taken up
thereunder.
3. COMPETING OFFER BY PACALTA RESOURCES LTD.
Pursuant to an offer to purchase and circular dated December 1, 1995,
Pacalta, through its wholly-owned subsidiary, 660066 Alberta Ltd., offered to
purchase all of the Common Shares of Trax at a price of $0.55 per Common Share.
In the First Directors' Circular, the board of directors agreed with
the initial view of its Independent Committee that the Pacalta Offer undervalued
Trax. The board of directors of Trax recommended to Shareholders that they not
tender their Common Shares to the Pacalta Offer until a further communication is
received from the board of directors of Trax. In the Second Directors' Circular
the board of directors of Trax recommended that the Shareholders not tender to
the Pacalta Offer.
4. THE COMPANY
The Company was continued under the laws of Alberta by Certificate of
Continuance dated June 30, 1993. Its head and registered offices are located at
2120, 530-6th Avenue S.W., Calgary, Alberta, T2P 3S8.
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5. CAPITALIZATION OF THE COMPANY
The authorized capital of the Company consists of an unlimited number
of Common Shares. According to the First Directors' Circular, at December 8,
1995, 13,352,122 Common Shares were issued and outstanding. The Company also
has outstanding options on an aggregate of 840,000 Common Shares at exercise
prices ranging from $0.60 to $0.80 per Common Share.
6. EXISTING BUSINESS RELATIONSHIP BETWEEN THE OFFEROR AND THE COMPANY
Except for those resulting from the ordinary course of the oil and gas
industry, and as set forth below, there are no existing business relationships
between the Offeror, its associates or affiliates and the Company.
7. PURPOSE OF THE OFFER AND PLANS FOR THE COMPANY
Background to the Offer
Representatives of Arch have been evaluating various potential oil and
gas acquisitions, both as asset and corporate acquisitions, in Canada since
April, 1995. After the Pacalta Offer was announced, Arch contacted the Company
for the purpose of evaluating the Company and its assets to determine whether or
not Arch was interested in making a bid to compete with the Pacalta Offer.
Arch negotiated and entered into a confidentiality agreement with the
Company on December 19, 1995 and gained access to a data room established by the
Company to examine non-public information in order to determine whether or not
it was interested in making an offer for the Common Shares and, if so, on what
terms and conditions.
Negotiations between Arch and the Company and their financial and
legal advisors commenced December 27, 1995, resulting in each of the Acquisition
Agreement and the Agreement to Tender being signed in the evening of Friday,
December 29, 1995.
On January 4, 1996, the Offeror received notice that the board of
directors of the Company had waived the terms and provisions of the Shareholder
Rights Plan with respect to the Offer and any Subsequent Acquisition Transaction
contemplated by the Offer.
This Offer is being made by the Offeror pursuant to its obligations
under the Acquisition Agreement and the Agreement to Tender. Pursuant to the
terms of the Acquisition Agreement the Company agreed, subject to fiduciary law,
among other things, that:
(a) the board of directors of the Company had approved the entering into
of the Acquisition Agreement;
(b) the board of directors of the Company will waive the provisions of the
Shareholder Rights Plan with respect to the Offer and any Subsequent
Acquisition Transaction, provided the Offer complies with the
Acquisition Agreement;
(c) the Company would not solicit or cause or facilitate anyone else to
solicit any offer or expression of interest to acquire any of its
assets outside the ordinary course of business or any of its
securities, whether directly or indirectly;
(d) the Company would not provide information concerning its securities,
assets or business to anyone for or in furtherance of anything
mentioned in item (c) above;
(e) the Company would not pursue any other material corporate acquisition
or disposition, amalgamation, merger, arrangement or purchase or sale
of assets or make any other material change to the business, capital
or affairs of the Company;
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<PAGE>
(f) the Company would not conduct any activity out of the ordinary course
of business for the Company as conducted prior to December 29, 1995 or
otherwise detrimental to the Offer; and
(g) upon the Offeror taking up and paying for not less than 662/3% of the
Common Shares, the Company would cooperate with the Offeror in
providing an orderly transition of control.
The Acquisition Agreement contained as a condition precedent that the
Company obtain a waiver from D. Jon Axford, the Vice President of the Company,
to the effect that the Offer will not constitute a "change of control" under his
employment contract with the Company. Mr. Axford delivered such a waiver on
December 29, 1995. There are no agreements between the Offeror or Arch and Mr.
Axford in regard to continued employment if the Offer is successful.
Break-up Fee
The Acquisition Agreement provides that in the event that:
(a) any person should offer to acquire any Common Shares, on or after
December 29, 1995 and prior to the Expiry Time, at a price per share
in excess of $0.71;
(b) the board of directors of the Company does not recommend or withdraws
its recommendation to Shareholders to accept the Offer or recommends
acceptance of another offer by a person other than the Offeror with
respect to some or all of the outstanding Common Shares;
(c) there shall be any breach or non-performance by the Company of a
material provision of the Acquisition Agreement; or
(d) the Company enters into an agreement with respect to any acquisition
or purchase of more than 15% of the Common Shares, any liquidation,
dissolution, recapitalization, merger, amalgamation or other similar
transaction or business combination or the sale of assets material to
Trax, then
Trax will pay to Arch within two business days following the date of the
termination of the Offer, as full reimbursement of the Offeror for any and all
expenses paid or required to be paid by Arch in connection with the Acquisition
Agreement and the Offer and in recognition of the role the Offer may have played
in securing a higher offer for the holders of Common Shares, the sum of
$400,000.
Purpose of the Offer
The purpose of the Offer is to enable the Offeror to acquire all
outstanding Common Shares, including Common Shares which may become outstanding
on the exercise of stock options during the Offer Period. If at least 90% of
the outstanding Common Shares not owned by or on behalf of the Offeror or its
affiliates or associates are validly tendered pursuant to the Offer, the Offeror
intends to elect to invoke the statutory rights of acquisition contained in Part
16 of the ABCA, the provisions of which are attached as Appendix A to this
Circular.
If the Offer is successful but the Offeror acquires less than 90% of
the outstanding Common Shares, the Offeror intends to pursue a Subsequent
Acquisition Transaction to acquire the Common Shares not tendered to the Offer
on such terms and conditions as the Offeror, at the time, believes to be fair
and equitable to the Company and its Shareholders. The timing and details of
any such transaction will necessarily depend upon a variety of factors,
including the number of Common Shares acquired pursuant to the Offer. See
Section 11 of the Offer, "Acquisition of Common Shares Not Deposited and
Appraisal Rights".
Plans for the Company
If the Offer is successful, it is expected that certain changes will
be effected with respect to the composition of the board of directors of the
Company to allow nominees of the Offeror to become members of such board. Upon
the acquisition of the Common Shares, the Offeror intends to integrate the
business carried on by the Offeror and the Company, and may consider certain
asset dispositions, if appropriate. If permitted by applicable law,
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<PAGE>
subsequent to the completion of the Offer or the Subsequent Acquisition
Transaction, if necessary, the Offeror intends to delist the Common Shares from
The Toronto Stock Exchange and cause the Company to cease to be a reporting
issuer under the securities laws of each applicable province.
8. CANADIAN FEDERAL INCOME TAX CONSIDERATIONS - SHAREHOLDERS RESIDENT
IN CANADA
In the opinion of Code Hunter Wittmann, counsel to the Offeror, the
following is a summary of the principal Canadian federal income tax
considerations generally applicable to Shareholders who dispose of Common Shares
pursuant to the Offer or pursuant to a Subsequent Acquisition Transaction
involving an amalgamation and who, for purposes of the Income Tax Act: (i) are
resident in Canada; (ii) hold their Common Shares as capital property; and (iii)
deal at arm's length with the Offeror and the Company. Common Shares will
generally constitute capital property to a Shareholder unless the Shareholder
either holds such Common Shares in the course of carrying on a business, or has
acquired such Common Shares in a transaction or transactions considered to be an
adventure in the nature of trade. It is assumed for purposes of this opinion
that the Rights have no material cost or value and that the amount of
consideration allocable to Rights disposed of will not exceed a nominal amount.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE,
NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR
SHAREHOLDER. ACCORDINGLY, SHAREHOLDERS SHOULD CONSULT THEIR INDEPENDENT TAX
ADVISORS FOR ADVICE WITH RESPECT TO THE INCOME TAX CONSEQUENCES TO THEM OF
DISPOSING OF THEIR COMMON SHARES HAVING REGARD TO THEIR OWN PARTICULAR
CIRCUMSTANCES.
This summary and the Summary on page 6 hereof are based upon the
current provisions of the Income Tax Act, the regulations thereunder in force on
the date hereof (the "Regulations"), all proposed amendments to the Income Tax
Act and Regulations publicly announced by the Minister of Finance prior to
December 22, 1995 and counsel's understanding of the current administrative
practices of Revenue Canada. No assurance can be given that the Income Tax Act
or the Regulations will be amended as proposed. This summary does not otherwise
take into account or anticipate changes in the law, whether by way of judicial,
governmental or legislative decision or action, nor does it take into account
provincial, territorial or foreign tax legislation or considerations.
A Shareholder who accepts the Offer will be considered to have made a
disposition, for purposes of the Income Tax Act, of Common Shares at the time
the Offeror takes up and pays for such shares pursuant to the Offer and will
realize a capital gain (or capital loss) to the extent that the proceeds
received for such Common Shares, net of any reasonable costs of disposition,
exceed (or are less than) the adjusted cost base to him of such Common Shares.
The determination of the adjusted cost base of the Common Shares of the
Shareholder will be affected by various rules in the Income Tax Act including
any elections made by individuals and certain trusts in respect of the
elimination of the "$100,000 capital gains exemption" on February 22, 1994.
Shareholders should consult with their own advisors in respect of such matters.
Three-quarters of a capital gain (a "taxable capital gain") is
included in computing income and three-quarters of a capital loss (an "allowable
capital loss") is deductible from taxable capital gains. To the extent that a
Shareholder has insufficient taxable capital gains in the current taxation year
against which to apply an allowable capital loss, the deficiency constitutes a
net capital loss for the current taxation year which may generally be carried
back to any of the three preceding taxation years or carried forward to any
future taxation year, subject to the detailed rules in the Income Tax Act in
that regard. In the case of a Shareholder which is a corporation, the amount of
any capital loss otherwise determined resulting from the disposition of Common
Shares will be reduced by the amount of dividends previously received or deemed
to have been received by the corporation to the extent and under the
circumstances provided for in the Income Tax Act. Similar rules apply where the
corporation is a member of a partnership or a beneficiary of a trust which owns
Common Shares and, in the case of individuals, with respect to certain tax free
dividends on Common Shares (subject to transitional provisions for estates).
Capital gains realized by an individual may be subject to an
alternative minimum tax. Shareholders should consult their own tax advisors
with respect to the alternative minimum tax provisions.
As described in Section 11 of the Offer, "Acquisition of Common Shares
Not Deposited and Appraisal Rights", the Offeror may, in certain circumstances,
acquire Common Shares not deposited under the Offer pursuant to statutory rights
of purchase under Part 16 of the ABCA. A Shareholder whose Common Shares are
acquired pursuant
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<PAGE>
to such statutory rights of purchase will generally realize a capital gain (or
capital loss) calculated in the manner, and subject to the treatment, described
above.
As discussed in Section 11 of the Offer, "Acquisition of Common Shares
Not Deposited and Appraisal Rights", the Offeror intends to pursue a Subsequent
Acquisition Transaction, which may be a going private transaction, if all Common
Shares are not deposited pursuant to the Offer or if sufficient Common Shares
are not deposited pursuant to the Offer in order for the Offeror to pursue a
compulsory acquisition of the remaining Common Shares. In this regard, the
Offeror may acquire all of the Common Shares not deposited pursuant to the Offer
by way of the amalgamation of the Offeror or an affiliate of the Offeror with
the Company followed by an immediate redemption for cash of the shares of the
amalgamated corporation ("Amalco") held by persons other than the Offeror or an
affiliate of the Offeror. A Shareholder will not realize a capital gain or a
capital loss on the amalgamation if the Shareholder receives no other
consideration for the Shareholder's Common Shares other than shares of Amalco,
or shares of a taxable Canadian corporation that controls Amalco immediately
after the amalgamation (the "New Shares"). A Shareholder will be deemed to have
acquired the New Shares at an aggregate cost equal to the total of the adjusted
cost bases of the Common Shares disposed of on the amalgamation.
Upon the redemption of the New Shares for cash, the Shareholder will
be deemed to have received a dividend equal to the amount, if any, by which the
amount paid on the redemption exceeds the paid-up capital (within the meaning of
the Income Tax Act) of the New Shares immediately before such time. In the case
of a Shareholder who is an individual, any such dividend will be included in
computing the Shareholder's income and will be subject to the gross-up and
dividend tax credit rules normally applicable to dividends from taxable Canadian
corporations (other than as may be modified for certain trusts with non-resident
beneficiaries). Such a deemed dividend received by a corporate Shareholder will
be included in computing the corporation's income and will generally be
deductible in computing the corporation's taxable income, subject to various
exceptions and special circumstances set out in the Income Tax Act. Private
corporations and certain other corporations may be liable to pay a 25%
refundable tax under Part IV of the Income Tax Act in respect of such dividend.
Draft legislation to amend the Income Tax Act (the "Draft
Legislation") was released by the Minister of Finance on July 19, 1995 and
December 12, 1995 to implement proposals tabled in the February 27, 1995 Federal
Budget. The Draft Legislation increases the rate of Part IV tax to 331/3% for
dividends received after June, 1995 and also imposes an additional tax of 62/3%
on the lesser of investment income (other than exempt income and tax deductible
dividends) and taxable income (other than income in respect of which the small
business deduction has been claimed) of Canadian controlled private corporations
for taxation years ending after June, 1995, with the tax being prorated for
taxation years that begin before July 1995. Such new 62/3% tax is to be added to
the corporation's refundable dividend tax on hand account. Investment income
will include interest, taxable capital gains and other property income but does
not include tax deductible dividends or income from an investment business with
more than five full time employees. While the redemption of the New Shares may
result in a tax deductible dividend which is not subject to the new 62/3% tax;
it may in certain circumstances result in proceeds of disposition which, if it
results in a capital gain, is subject to the new 62/3% tax. As the rules in the
Income Tax Act relating to taxation of dividends received by various types of
corporations are complex, corporate Shareholders are encouraged to consult with
their own tax advisors in this regard.
The difference between the redemption price and the amount of the
deemed dividend will be treated as proceeds of disposition of the New Shares for
purposes of computing any capital gain or capital loss on disposition; the
income tax consequences of capital gains and capital losses are discussed above.
As discussed in Section 11 of the Offer, "Acquisition of Common Shares
Not Deposited and Appraisal Rights", depending upon the nature and terms of any
Subsequent Acquisition Transaction, Shareholders may have the right to dissent
in respect of the transaction and demand payment of the fair value of their
Common Shares. The tax treatment of such payments is unclear. Such treatment
may include a deemed dividend, a capital gain or loss, or both a deemed dividend
and a capital gain or loss.
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<PAGE>
9. CANADIAN FEDERAL INCOME TAX CONSIDERATIONS - SHAREHOLDERS NOT
RESIDENT IN CANADA
In the opinion of Code Hunter Wittmann, counsel to the Offeror, the
following summary of Canadian federal income tax considerations is only
applicable to those Shareholders who, for purposes of the Income Tax Act, have
not been resident in Canada at any time while they held Common Shares, deal at
arm's length with the Offeror and the Company, hold their Common Shares as
capital property and do not use or hold, and are not deemed to use or hold,
their Common Shares in, or in the course of carrying on a business in Canada
(referred to as "Non-Resident Shareholder"). It is assumed for purposes of this
opinion that the Rights have no material cost or value and that the amount of
consideration allocable to Rights disposed of will not exceed a nominal amount.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO BE,
NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY PARTICULAR NON-
RESIDENT SHAREHOLDER. ACCORDINGLY, NON-RESIDENT SHAREHOLDERS SHOULD CONSULT
THEIR OWN INDEPENDENT TAX ADVISORS FOR ADVICE WITH RESPECT TO THE INCOME TAX
CONSEQUENCES TO THEM OF DISPOSING OF THEIR COMMON SHARES PURSUANT TO THE OFFER
HAVING REGARD TO THEIR OWN PARTICULAR CIRCUMSTANCES.
A Non-Resident Shareholder who accepts the Offer will be considered to
have made a disposition, for the purposes of the Income Tax Act, of Common
Shares at the time the Offeror takes up and pays for such shares pursuant to the
Offer. The Non-Resident Shareholder will not be subject to tax under the Income
Tax Act in respect of capital gains realized on the disposition of Common Shares
pursuant to the Offer or pursuant to the Offeror's statutory rights of purchase
described in Section 11 of the Offer, "Acquisition of Common Shares Not
Deposited and Appraisal Rights", unless the Common Shares are "taxable Canadian
property" (as defined in the Income Tax Act), and the Non-Resident Shareholder
is not entitled to relief under an applicable tax treaty. Since the Company is
a public corporation for the purposes of the Income Tax Act, the Common Shares
will, generally speaking, be taxable Canadian property of a Non-Resident
Shareholder if, at any time during the five year period immediately preceding
the disposition of the Common Shares, not less than 25% of the issued shares of
any class of the share capital of the Company was owned by the Non-Resident
Shareholder, by persons with whom the Non-Resident Shareholder did not deal at
arm's length or by any combination thereof (and any interest in shares or
options in respect of Common Shares will be considered to be the equivalent of
ownership of such shares for purposes of the definition of taxable Canadian
property). Further, Common Shares may also be taxable Canadian property if
acquired pursuant to certain tax deferred exchanges generally involving property
which constituted taxable Canadian property or if the Non-Resident Shareholder
has elected to have the Common Shares treated as taxable Canadian property on
ceasing to be resident in Canada.
An acquisition of Common Shares by the Offeror or a Subsequent
Acquisition Transaction by way of an amalgamation may result, in whole or in
part, in a capital gain, capital loss or deemed dividend as described above in
Section 8 of this Circular. If such a transaction or the exercise of any rights
of dissent thereunder results in a deemed dividend as discussed above in Section
8 of this Circular, such dividend will be subject to non-resident withholding
tax at the rate of 25% or such lower rate as may be provided under the terms of
an applicable tax treaty. Further, any taxable capital gain realized by the
holder on such a transaction may be subject to Canadian income tax, unless the
Non-Resident Shareholder is entitled to relief under an applicable tax treaty.
10. OWNERSHIP OF COMMON SHARES
Neither the Offeror nor any director or senior officer of the Offeror
beneficially owns, directly or indirectly, controls or exercises direction over,
or has the right to acquire, any securities of the Company, other than pursuant
to the Agreement to Tender. To the knowledge of the Offeror, after reasonable
inquiry, no Common Shares of the Company are owned by, or are under the control
or direction of, any associate of any director or senior officer of the Offeror,
by any person or company holding more than 10% of any class of equity securities
of the Offeror or by any person or company acting jointly or in concert with the
Offeror.
11. TRADING IN COMMON SHARES
To the knowledge of the Offeror, after reasonable inquiry, no Common
Shares have been traded during the six-month period preceding the date of the
Offer by the Offeror or any person holding more than 10% of any class of
securities of the Offeror, the directors or senior officers of the Offeror, any
associate or affiliate of any of the foregoing or by any person or company
acting jointly or in concert with the Offeror.
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<PAGE>
12. STOCK EXCHANGE LISTING, PRICE RANGE AND VOLUMES
The Common Shares are listed on The Toronto Stock Exchange. The
market price range and the volume of trading of the Common Shares on The Toronto
Stock Exchange during the periods indicated preceding the date of the Offer by
the Offeror as reported in stock exchange publications and other sources
believed reliable have been as follows:
<TABLE>
<CAPTION>
High Low Volume
--------- --------- ------------
<S> <C> <C> <C>
1994
November $1.00 $0.65 102,960
December 0.85 0.67 1,210,200
1995
January 0.73 0.44 190,135
February 0.73 0.61 122,857
March 0.87 0.61 153,763
April 0.89 0.73 161,200
May 1.08 0.75 598,955
June 1.00 0.70 630,613
July 0.75 0.67 1,005,000
August 0.68 0.51 215,200
September 0.64 0.55 115,400
October 0.70 0.45 147,800
November 0.60 0.45 420,050
December 0.66 0.55 480,140
1996
January 1-5 0.71 0.68 285,800
</TABLE>
On December 28, 1995, the last day of trading for Common Shares prior
to the public announcement of the Offer, the closing price on The Toronto Stock
Exchange for the Common Shares was $0.65. On January 5, 1996, the closing
price on The Toronto Stock Exchange for the Common Shares was $0.69. On November
16, 1995, the last day of trading for Common Shares prior to the public
announcement of the Pacalta Offer, the closing price on The Toronto Stock
Exchange for the Common Shares was $0.50.
13. ARRANGEMENTS BETWEEN THE OFFEROR AND THE DIRECTORS AND OFFICERS OF THE
COMPANY
There are no arrangements or agreements made or proposed to be made
between the Offeror and any of the directors or officers of the Company and no
payments or other benefits are proposed to be made or given by way of
compensation in respect of loss of office or in respect of such directors or
officers remaining in or retiring from office if the Offer is successful.
The Company does have agreements in place for compensation for loss of
office if there is a "change of control" to Trax. If the Offer is successful,
it would constitute a "change of control" for the purpose of the agreements.
According to the First Directors' Circular, Trax has entered into an employment
agreement with its President, Donald W. Axford. In the event of cessation of
employment for any reason other than just cause, the agreement provides for the
payment to the President of $300,000.
According to the First Directors' Circular, Trax also entered into an
employment agreement with D. Jon Axford, Su-hin Chee and Les G. Morris, the Vice
President, Chief Financial Officer and Manager, Drilling and
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<PAGE>
Production of Trax, respectively. Mr. Axford's contract includes provision for
two years' salary and benefits and six months' out-placement services in the
event of termination of employment without cause, due to a merger, a significant
change in responsibilities, the acquisition of all or substantially all of the
assets of Trax by a third party or because of a change of control of Trax.
Messrs. Chee's and Morris' agreements contain similar provisions with the
exception that their entitlement to salary and benefits is limited to one year.
Aggregate payments under the termination provisions of these three agreements is
estimated at $475,180.
Mr. D. Jon Axford has agreed with Trax to waive his right to a payment
under his employment agreement which may otherwise arise as a result of the
proposed acquisition by the Offeror. See Section 7 of the Circular, "Purpose of
the Offer and Plans for the Company".
14. ARRANGEMENTS BETWEEN THE OFFEROR AND SHAREHOLDERS OF THE COMPANY
Except with respect to the Agreement to Tender as described below,
there are no contracts, arrangements or understandings, formal or informal,
between the Offeror, or to the knowledge of the Offeror, after reasonable
inquiry, by any associate of a director or senior officer of the Offeror, by any
person holding more than 10% of any class of equity securities of the Offeror or
by any person acting jointly or in concert with the Offeror, and any Shareholder
or any other person with respect to any Common Shares in relation to the Offer.
On December 29, 1995, Arch entered into the Agreement to Tender with
the Tendering Shareholders. The Agreement to Tender provides that Arch, or a
wholly-owned subsidiary thereof, would make an offer to purchase all of the
Common Shares at a price of at least $0.71 per Common Share, subject to the
satisfaction of certain conditions. Pursuant to the Agreement to Tender, the
Tendering Shareholders have agreed to tender all of their Common Shares
(including Common Shares issuable on exercise of outstanding stock options)
consisting of 2,413,147 Common Shares and 500,000 Common Shares issuable on the
exercise of stock options, representing approximately 20% of the outstanding
Common Shares, within five Business Days of the Offer. The Tendering
Shareholders have agreed not to withdraw such shares unless the Agreement to
Tender is earlier terminated or a Competing Offer is outstanding 24 hours prior
to the Expiry Time and the Offeror has not increased the consideration payable
under the Offer to at least equal that under the Competing Offer.
In the event that the Common Shares held by any of the Tendering
Shareholders are tendered to a Competing Offer and taken up and paid for, are
sold by any of the Tendering Shareholders within 90 days of being withdrawn from
the Offer or not being tendered thereto, or if sold by Arch within 90 days'
after being taken up and paid for, as the case may be, then, in any of the
foregoing events, the amount paid for such shares in excess of $0.71 per share
will be divided as to 50% for the Tendering Shareholders (proportionate to the
number of Common Shares tendered), and 50% for the Offeror.
15. SOURCE OF FUNDS
If the Offer is successful and the Offeror acquires all of the Common
Shares (on a diluted basis) pursuant to the Offer, the total amount of funds
required to purchase such shares and to pay related fees and expenses will be
approximately $10.4 million. Arch has committed to capitalize the Offeror with
the required funds through the purchase of shares or the making of a
shareholder's loan. Such share purchases or loans by Arch will be made from
available credit facilities. Arch has a credit facility in the amount of
U.S.$50 million, the borrowing base of which, at December 31, 1994, was U.S.$26
million, with its principal banker. The borrowing base is reviewed semi-
annually and bears interest at the bank's Base Rate. Arch presently has
sufficient funds available under this facility to fund the Offer and related
expenses.
16. EXPENSES OF THE OFFER
The expenses relating to the Offer, including depository,
solicitation, printing, and legal expenses, are estimated at $365,000 and will
be paid by the Offeror.
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<PAGE>
17. DIVIDEND POLICY
As far as the Offeror is aware, the Company has not paid dividends on
its Common Shares.
18. MATERIAL CHANGES IN THE AFFAIRS OF THE COMPANY
The Offer is being made on the condition, among others, that the terms
of the Shareholder Rights Plan shall have been waived and continue to be waived
with respect to the Offer and any Subsequent Acquisition Transaction
contemplated by the Offer. Under the terms of the Shareholder Rights Plan, if
the Offeror were to take up and pay for Common Shares without the application of
the plan to the Offer being waived, the Offeror could suffer significant
dilution as a result of the operation of the Shareholder Rights Plan. On
January 4, 1996, the Offeror received notice that the board of directors of the
Company had waived the application of the Shareholder Rights Plan to the Offer
and any Subsequent Acquisition Transaction contemplated by the Offer.
Except as set forth above and the Pacalta Offer (see Section 3 of the
Circular, "Competing Offer by Pacalta Resources Ltd."), the Offeror has no
information, as of the date hereof, which indicates that any material change has
occurred in the affairs, financial position or prospects of the Company since
August 31, 1995, the date of the Company's last published financial statements.
The Offeror has no knowledge of any other matter that has not previously been
generally disclosed but which would reasonably be expected to affect a decision
of a Shareholder to accept or reject the Offer.
19. ACCEPTANCE OF THE OFFER
Except as set forth in Section 7 of the Offer and Section 14 of the
Circular, the Offeror has no knowledge regarding whether any Shareholder will
accept or reject the Offer.
20. DEALER MANAGER
The Offeror has retained Peters & Co. Limited to act as financial
advisor to Arch and the offeror in connection with the Offer and has retained
Peters & Co. Limited to act as Dealer Manager. The Offeror has agreed to pay to
the Dealer Manager fees of $50,000 for forming and managing a soliciting dealer
group (comprised of members of the Investment Dealers Association of Canada and
members of the stock exchanges in Canada) to solicit acceptances of the Offer.
The Dealer Manager will also be reimbursed by the Offeror for out-of-pocket
expenses, including fees of legal counsel, and will be indemnified against
certain liabilities, including liabilities under securities laws, and expenses
in connection therewith.
The Offeror will pay any member of the soliciting dealer group whose
name appears in the appropriate space in the Letter of Acceptance and
Transmittal accompanying a deposit of Common Shares a solicitation fee of $0.01
for each such Common Share taken up and paid for, subject to a minimum fee of
$75 and a maximum fee of $1,500 in respect of any single beneficial owner. In
the absence of a specification of a soliciting dealer in the Letter of
Acceptance and Transmittal the fee will be paid to the Dealer Manager.
The Offeror will not pay any fee in respect of Common Shares tendered
to the Offer by the Tendering Shareholders. No fee or commission will be
payable by any Shareholder who accepts the Offer by transmitting such
Shareholder's Common Shares directly to the Depositary or who makes use of the
facilities of a soliciting dealer.
21. DEPOSITARY
The Offeror has retained Montreal Trust to act as a depositary for the
receipt of certificates in respect of Common Shares and related Letters of
Acceptance and Transmittal deposited under the Offer and for the payment for
Common Shares purchased by the Offeror pursuant to the Offer. The Depositary
will receive compensation from the Offeror for its services in connection with
the Offer, will be reimbursed for certain out-of-pocket expenses and will be
indemnified against certain liabilities, including liabilities under securities
laws, and expenses in connection therewith.
29
<PAGE>
22. LEGAL MATTERS
The legal opinions referred to under "Canadian Federal Income Tax
Considerations - Shareholders Resident in Canada" and "Canadian Federal Income
Tax Considerations - Shareholders Not Resident in Canada" have been provided by
Code Hunter Wittmann. As of January 5, 1996, partners and associates of Code
Hunter Wittmann beneficially owned (directly or indirectly) none of the
outstanding common shares of the Offeror, less than 1% of the common shares of
Arch and less than 1% of the Common Shares.
23. STATUTORY RIGHTS
Securities legislation in certain of the provinces and territories of
Canada provides Shareholders with, in addition to any other rights they may have
at law, rights of rescission or to damages, or both, if there is a
misrepresentation in a circular or notice that is required to be delivered to
such Shareholders. However, such rights must be exercised within prescribed
time limits. Shareholders should refer to the applicable provision of the
securities legislation of their province or territory for particulars of those
rights or consult with a lawyer.
CONSENT OF SOLICITORS
TO: The Directors of Northern Arch Resources Ltd.
We hereby consent to the reference to our opinions contained under the
"Canadian Federal Income Tax Considerations - Shareholders Resident in Canada"
and "Canadian Federal Income Tax Considerations - Shareholders Not Resident in
Canada" in the Circular accompanying the Offer dated January 9, 1996 made by the
Offeror to the Shareholders of the Company.
We have read the Circular and have no reason to believe that there are
any misrepresentations in it that are derived from our opinions or within our
knowledge as a result of services performed by us in connection with our
opinions.
January 9, 1996 (signed) CODE HUNTER WITTMANN
Calgary, Alberta Barristers and Solicitors
30
<PAGE>
APPROVAL AND CERTIFICATE
January 9, 1996
The contents of the Offer and this Circular have been approved and the
sending, communication or delivery thereof to the holders of the Common Shares
has been authorized by the board of directors of Northern Arch Resources Ltd.
The foregoing contains no untrue statement of material fact and does not omit to
state a material fact that is required to be stated or that is necessary to make
a statement not misleading in the light of the circumstances in which it was
made. In addition, the foregoing does not contain any misrepresentation likely
to affect the value or the market price of the securities which are the subject
of the Offer.
(signed) LARRY KALAS (signed) FRED CANTU
President and Chief Executive Officer Chief Financial Officer
On behalf of the Board of Directors of Northern Arch Resources Ltd.
(signed) JOHNNY VINSON (signed) GARY R. BUGEAUD
Director Director
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<PAGE>
APPENDIX A
PART 16 OF THE BUSINESS CORPORATIONS ACT (ALBERTA)
TAKE-OVER BID - COMPULSORY PURCHASE
187 In this Part,
(a) "dissenting offeree" means an offeree who does not accept a take-over
bid and a person who acquires from an offeree a share for which a take-
over bid is made;
(b) "offer" includes an invitation to make an offer;
(c) "offeree" means a person to whom a take-over bid is made;
(d) "offeree corporation" means a corporation whose shares are the object
of a take-over bid;
(e) "offeror" means a person, other than an agent, who makes a take-over
bid, and includes 2 or more persons who, directly or indirectly,
(i) make take-over bids jointly or in concert, or
(ii) intend to exercise jointly or in concert voting rights
attached to shares for which a take-over bid is made;
(f) "share" means a share with or without voting rights and includes
(i) a security currently convertible into such a share, and
(ii) currently exercisable options and rights to acquire such a
share or such a convertible security;
(g) "take-over bid" means an offer made by an offeror to shareholders to
acquire all of the shares of any class of shares of an offeree
corporation not already owned by the offeror, and includes every take-
over bid by a corporation to repurchase all of the shares of any class
of its shares which leaves outstanding voting shares of the
corporation.
188 (1) A take-over bid is deemed to be dated as of the date on which it is
sent.
(2) If within the time limited in a take-over bid for its acceptance or
within 120 days after the date of a take-over bid, whichever period is the
shorter, the bid is accepted by the holders of not less than 90% of the shares
of any class of shares to which the take-over bid relates, other than shares of
that class held at the date of the take-over bid by or on behalf of the offeror
or an affiliate or associate of the offeror, the offeror is entitled, on the
bid being so accepted and on complying with this Part, to acquire the shares of
that class held by the dissenting offerees.
(3) The rights of an offeror and offeree under this Part are subject to any
unanimous shareholder agreement.
189 (1) An offeror may acquire shares held by a dissenting offeree by sending
by registered mail within 60 days after the date of termination of the take-over
bid and in any event within 180 days after the date of the take-over bid, an
offeror's notice to each dissenting offeree stating that
(a) the offerees holding more than 90% of the shares to which the bid
relates have accepted the take-over bid,
(b) the offeror is bound to take up and pay for or has taken up and paid
for the shares of the offerees who accepted the take-over bid,
(c) a dissenting offeree is required to elect
(i) to transfer his shares to the offeror on the terms on which
the offeror acquired the shares of the offerees who accepted
the take-over bid, or
(ii) to demand payment of the fair value of his shares
(A) by notifying the offeror, and
(B) by applying to the Court to fix the fair value of the
shares of the dissenting offeree,
within 60 days after the date of the sending of the
offeror's notice,
(d) a dissenting offeree who does not notify the offeror and apply to the
Court in accordance with clause (c)(ii) is deemed to have elected to
transfer his shares to the offeror on the same terms that the offeror
acquired the shares from the offerees who accepted the take-over bid,
and
i
<PAGE>
(e) a dissenting offeree shall send the share certificates of the class of
shares to which the take-over bid relates to the offeree corporation
within 20 days after he receives the offeror's notice.
(2) Concurrently with sending the offeror's notice under subsection (1),
the offeror shall send or deliver to the offeree corporation a notice of adverse
claim in accordance with section 73 with respect to each share held by a
dissenting offeree.
190 (1) A dissenting offeree to whom an offeror's notice is sent under section
189(1) shall, within 20 days after he receives that notice, send his share
certificates of the class of shares to which the take-over bid relates to the
offeree corporation.
(2) Within 20 days after the offeror sends an offeror's notice under
section 189(1), the offeror shall pay or transfer to the offeree corporation
the amount of money or other consideration that the offeror would have had to
pay or transfer to a dissenting offeree if the dissenting offeree had elected to
accept the take-over bid under section 189(1)(c)(i).
191 (1) The offeree corporation is deemed to hold in trust for the dissenting
offerees the money or other consideration it receives under section 190(2), and
the offeree corporation shall deposit the money in a separate account in a bank
or other body corporate any of whose deposits are insured by the Canada Deposit
Insurance Corporation or guaranteed by the Quebec Deposit Insurance Board, and
shall place the other consideration in the custody of a bank or such other body
corporate.
(2) Within 30 days after the offeror sends an offeror's notice under
section 189(1), the offeree corporation shall, if the offeror has paid or
transferred to the offeree corporation the money or other consideration referred
to in section 190(2),
(a) issue to the offeror a share certificate in respect of the shares that
were held by dissenting offerees,
(b) give to each dissenting offeree who elects to accept the take-over bid
terms under section 189(1)(c)(i) and who sends or delivers his share
certificates as required under section 190(1), the money or other
consideration to which he is entitled, disregarding fractional shares,
which may be paid for in money, and
(c) send to each dissenting shareholder who has not sent his share
certificates as required under section 190(1) a notice stating that
(i) his shares have been cancelled,
(ii) the offeree corporation or some designated person holds
in trust for him the money or other consideration to
which he is entitled as payment for or in exchange for
his shares, and
(iii) the offeree corporation will, subject to sections 192
to 198, send that money or other consideration to him
forthwith after receiving his shares.
192 If a dissenting offeree has elected to demand payment of the fair
value of his shares under section 189(1)(c), the offeror may, within 20 days
after it has paid the money or transferred the other consideration under section
190(2), apply to the Court to fix the fair value of the shares of that
dissenting offeree.
193 A dissenting offeree is not required to give security for costs in an
application made under this Part.
194 If more than one application is made under section 189 and 192, the
offeror or a dissenting offeree may apply to have the applications heard
together.
195 On an application under this Part, the Court shall fix a fair value
for the shares of each dissenting offeree who is a party to the application.
196 The Court may in its discretion appoint one or more appraisers to
assist the Court to fix a fair value for the shares of a dissenting offeree.
ii
<PAGE>
197 The final order of the Court shall be made against the offeror in
favour of each dissenting offeree who has elected to demand payment of the fair
value of his shares for the fair value of his shares as fixed by the Court.
198 In connection with proceedings under this Part, the Court may make any
order it thinks fit and, without limiting the generality of the foregoing, it
may do any or all of the following:
(a) fix the amount of money or other consideration that is required to be
held in trust under section 191(1);
(b) order that money or other consideration be held in trust by a person
other than the offeree corporation;
(c) allow a reasonable rate of interest on the amount payable to each
dissenting offeree from the date he sends or delivers his share
certificates under section 190(1) until the date of payment;
(d) order that any money payable to a shareholder who cannot be found be
paid to the Provincial Treasurer and section 220(3) applies in respect
of money so paid.
199 (1) If the take-over bid is an offer by a corporation to repurchase its
own shares section 189(2) does not apply, and section 190(2) does not apply, but
the corporation shall comply with section 191(1) within 20 days after it sends
an offeror's notice under section 189(1).
(2) If
(a) the take-over bid is an offer by a corporation to repurchase its own
shares, and
(b) the corporation is prohibited by section 32
(i) from depositing or placing the consideration for the shares
pursuant to section 191(1), or
(ii) paying the amount for the shares fixed by the Court pursuant
to section 195 the corporation
(c) shall re-issue to the dissenting offeree the shares for which the
corporation is not allowed to pay, and
(d) is entitled to use for its own benefit any money or consideration
deposited or placed under section 191(1), and
the dissenting offeree is reinstated to his full rights, as a shareholder.
******
iii
<PAGE>
OFFICE OF THE DEPOSITARY, MONTREAL TRUST COMPANY OF CANADA:
<TABLE>
BY MAIL, BY HAND AND BY FACSIMILE TRANSMISSION: ATTENTION: STOCK TRANSFER DEPARTMENT
<S> <C> <C>
8th Floor, 151 Front Street West 6th Floor, 530 - 8th Avenue S.W. 2nd Floor, 510 Burrard Street
Toronto, Ontario Calgary, Alberta Vancouver, British Columbia
M5J 2N1 T2P 3S8 V6C 3B9
Telephone: (416) 981-9596 Telephone: (403) 267-6555 Telephone: (604) 661-0222
Facsimile: (416) 981-9600 Facsimile: (403) 266-1490 Facsimile: (604) 661-9480
</TABLE>
OFFICE OF THE DEALER MANAGER:
Peters & Co. Limited
2500, 350 - 7th Avenue S.W.
Calgary, Alberta
T2P 4N1
Telephone: (403) 261-4850
Facsimile: (403) 266-4116
<PAGE>
EXHIBIT 10.8(b)
THIS IS NOT A LETTER OF ACCEPTANCE AND TRANSMITTAL
NOTICE OF GUARANTEED DELIVERY
FOR
DEPOSIT OF COMMON SHARES (INCLUDING THE
ASSOCIATED RIGHTS UNDER THE SHAREHOLDER
RIGHTS PLAN AGREEMENT)
OF
TRAX PETROLEUMS LIMITED
This Notice of Guaranteed Delivery, or manually signed facsimile
thereof, must be used by a Shareholder to accept the Offer if:
(i) certificate(s) representing Common Shares and the associated
Rights under the Shareholder Rights Plan Agreement of Trax
Petroleums Limited (collectively, the "Common Shares") to be
deposited are not immediately available; or
(ii) the Shareholder cannot deliver the certificate(s) and all
other required documents to the Depositary at one of the
offices listed below at or prior to the Expiry Time.
The terms, conditions and definitions used in the accompanying
Offer and Circular are incorporated into and form an integral part of this
Notice of Guaranteed Delivery.
In order to utilize the procedures contemplated by this Notice of
Guaranteed Delivery, the following conditions must be met:
(i) the deposit must be made by or through a Canadian chartered
bank, a trust company in Canada, a commercial bank or trust
company having an office or correspondent in the United
States or a member firm of The Toronto Stock Exchange, The
Alberta Stock Exchange, The Montreal Exchange, the
Vancouver Stock Exchange, a national securities exchange in
the United States or the National Association of Securities
Dealers, Inc. (each an "Eligible Institution");
(ii) a properly completed and duly executed copy of this Notice
of Guaranteed Delivery or a facsimile hereof must be
received by the Depositary at or prior to the Expiry Date
at one of the offices listed below; and
(iii) the certificates representing deposited Common Shares in
proper form for transfer, together with a properly
completed and duly executed Letter of Acceptance and
Transmittal or facsimile thereof covering such Common
Shares and any other documents required by the Letter of
Acceptance and Transmittal, must be received at the same
office of the Depositary prior to 4:30 p.m. local time on
the third trading day on The Toronto Stock Exchange after
the Expiry Date.
<PAGE>
2
This Notice of Guaranteed Delivery may be delivered by hand, mail
or facsimile transmission to the Depositary and must include a guarantee by an
Eligible Institution in the form set out herein.
THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. If a
signature on the Letter of Acceptance and Transmittal is required to be
guaranteed by an Eligible Institution under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the Letter
of Acceptance and Transmittal.
________________________________________________________________________________
TO: Northern Arch Resources Ltd., a wholly-owned subsidiary of Arch
Petroleum Inc.
AND TO: Montreal Trust Company of Canada
The undersigned Shareholder hereby tenders the Common Shares
described below upon the terms and subject to the conditions set forth in the
Offer, the Circular and the Letter of Acceptance and Transmittal, receipt of
which is hereby acknowledged, pursuant to the guaranteed delivery procedures set
forth in Section 3 of the Offer and Instruction 5 to the Letter of Acceptance
and Transmittal.
Signature(s) _________________________ Address ___________________________
______________________________________ ___________________________________
(Postal or Zip Code)
Name(s)_______________________________ Area Code and Tel. No. ____________
(Please Print)
______________________________________ ___________________________________
Dated _____________________________1996
________________________________________________________________________________
________________________________________________________________________________
Number of Common Shares Deposited: _____________________________________________
________________________________________________________________________________
_________________________________________________
Certificates to be delivered:
_________________________
_________________________
Certificate Nos.
_________________________
_________________________
(if available)
_________________________________________________
<PAGE>
3
GUARANTEE OF DELIVERY
The undersigned Eligible Institution hereby guarantees to the
Depositary to deliver to the Depositary at the office listed below to which this
Notice of Guaranteed Delivery is delivered the certificates representing the
Common Shares tendered hereby, in proper form for transfer, together with a
properly completed and duly executed Letter of Acceptance and Transmittal or
facsimile thereof covering such Common Shares with any required signatures
guaranteed and any other required documents, prior to 4:30 p.m. local time on
the day which is the third trading day on The Toronto Stock Exchange after the
Expiry Date.
________________________________________________________________________________
Name of Firm ___________________________ _________________________________
Authorized Signature
Address ________________________________
Name ____________________________
Please Print
________________________________________
Postal or Zip Code______________________ Title ___________________________
Area Code and Tel. No.__________________ Dated ____________________ , 1996
________________________________________________________________________________
<PAGE>
OFFICE OF THE DEPOSITARY, MONTREAL TRUST COMPANY OF CANADA
FOR DELIVERY BY HAND , MAIL, OR FACSIMILE TRANSMISSION: ATTENTION: STOCK
TRANSFER DEPARTMENT
<TABLE>
<S> <C> <C>
8th Floor, 151 Front Street W. 6th Floor, 530 - 8th Avenue S.W. 2nd Floor, 510 Burrard Street
Toronto, Ontario Calgary, Alberta Vancouver, British Columbia
M5J 2N1 T2P 3S8 V6C 3B9
Telephone: (416) 981-9596 Telephone: (403) 267-6555 Telephone: (604) 661-0222
Fax: (416) 981-9600 Fax: (403) 266-1490 Facsimile: (604) 661-9480
</TABLE>
OFFICE OF THE DEALER MANAGER:
Peters & Co. Limited
2500, 350 - 7th Avenue S.W.
Calgary, Alberta
T2P 4N1
Telephone: (403) 261-4850
Fax: (403) 266-4116
For Information Call:
Montreal Trust Company of Canada
Shareholder Services
(403) 267-6555
<PAGE>
EXHIBIT 10.8(c)
NORTHERN ARCH RESOURCES LTD.,
A WHOLLY-OWNED SUBSIDIARY OF
ARCH PETROLEUM INC.
LETTER OF ACCEPTANCE AND TRANSMITTAL
FOR COMMON SHARES (INCLUDING THE
ASSOCIATED RIGHTS UNDER THE SHAREHOLDER
RIGHTS PLAN AGREEMENT) OF TRAX PETROLEUMS LIMITED
________________________________________________________________________________
THE OFFER WILL BE OPEN FOR ACCEPTANCE UNTIL 4:30 P.M. LOCAL TIME AT THE PLACE
OF DEPOSIT, ON JANUARY 31, 1996 UNLESS THE OFFER IS EXTENDED OR WITHDRAWN
________________________________________________________________________________
The Depositary, the Dealer Manager,
(see below for addresses and telephone numbers)
your broker or other financial advisor will assist you in completing
this Letter of Acceptance and Transmittal
PLEASE REVIEW THE INSTRUCTIONS ON PAGE 5 BEFORE COMPLETING THIS LETTER OF
ACCEPTANCE AND TRANSMITTAL.
This Letter of Acceptance and Transmittal, or a manually signed
facsimile hereof, is to be completed only by Shareholders if certificates for
Common Shares including the associated Rights are to be deposited herewith.
(Unless the context otherwise requires, "Common Shares" means the Common Shares
and the associated Rights.) Shareholders whose certificates are not immediately
available or who cannot deliver their certificates and all other required
documents to the Depositary at or prior to the Expiry Time may, in respect of
Common Shares, deposit their Common Shares according to the Procedure for
Guaranteed Delivery set forth in Section 3 of the Offer. See Instruction 5 of
this Letter of Acceptance and Transmittal. The terms, conditions and definitions
used in the accompanying Offer and Circular are incorporated into and form part
of this Letter of Acceptance and Transmittal.
TO: NORTHERN ARCH RESOURCES LTD., A WHOLLY-OWNED SUBSIDIARY OF ARCH
PETROLEUM INC.
AND TO: MONTREAL TRUST COMPANY OF CANADA, AS DEPOSITARY
The undersigned Shareholder:
1. acknowledges receipt of the Offer and Circular dated January 9, 1996;
2. subject only to the rights of withdrawal set out in the Offer and, if
applicable, to the terms and conditions of the Agreement to Tender,
irrevocably accepts the Offer, on and subject to its terms and conditions,
and deposits, sells, assigns and transfers to the Offeror all right, title
and interest in and to the Common Shares described below (the "Purchased
Shares") and in and to any and all dividends, stock dividends, securities,
rights, warrants or other interest or distribution (collectively, "Other
Securities") accrued, declared, paid, issued, distributed, made or
transferred on or in respect of the Purchased Shares on and after January
9, 1996, effective the date the Offeror purchases the Purchased Shares (the
"Effective Date");
<PAGE>
DESCRIPTION OF COMMON SHARES DEPOSITED
(if insufficient space, attach a list in the form below)
<TABLE>
<CAPTION>
________________________________________________________________________________
Name(s) and Address(es) of Number of
Certificate Numbers(s) Registered Holder(s) Common Shares Deposited*
________________________________________________________________________________
<S> <C> <C>
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
TOTAL
____________________________
</TABLE>
*See Instruction 7
3. represents and warrants that (a) the undersigned has good title to the
Purchased Shares free and clear of all liens, restrictions, charges,
encumbrances, claims and equities, (b) the undersigned has full power and
authority to sell, assign and transfer without restriction the Purchased
Shares and Other Securities to the Offeror and (c) the Offeror will acquire
good and unencumbered title thereto free and clear of all liens,
restrictions, charges, encumbrances, claims and equities;
4. covenants that he will execute, upon request, any additional documents
necessary or desirable to complete the sale, assignment and transfer of the
Purchased Shares and Other Securities to the Offeror;
5. in the case of Shareholders who are residents of Canada, directs the
Depositary (a) to issue or cause to be issued a cheque in the full amount
of the purchase price to which the undersigned is entitled for his
Purchased Shares under the Offer in the name indicated below and to send
such cheque to the address, or hold the same for pickup, as indicated below
and (b) return any certificates for Common Shares not purchased to the
address indicated below (and if no name, address or delivery instructions
are indicated, to the undersigned at the address of the undersigned as it
appears on the applicable security register of Trax);
6. in the case of Shareholders who are residents or citizens of the United
States or residents of any other Foreign Country, directs the Depositary
(a) to issue or cause to be issued a cheque or cheques, as provided for
herein and in the Offer, in the full amount of the purchase price to which
the undersigned is entitled for his Purchased Shares under the Offer, less
any applicable withholding taxes as advised by the Offeror in the name
indicated below and to send such cheque to the address, or hold for pickup,
as indicated below and (b) return any certificates for Common Shares not
purchased to the address indicated below (and if no name, address or
delivery instructions are indicated, to the undersigned at the address of
the undersigned as it appears on the applicable security register of Trax);
7. unless otherwise agreed to in writing with the Offeror or an affiliate of
the Offeror, agrees, from and after the Effective Date, (a) not to vote any
of the Purchased Shares or Other Securities at any meeting (whether annual,
special or otherwise) of holders of Purchased Shares or Other Securities,
(b) not to exercise any other rights or privileges attached to any
Purchased Shares or Other Securities, and (c) to execute and deliver to the
Offeror any and all instruments or proxy, authorizations or consents in
respect of any or all of the Purchased Shares or Other Securities and
designate in any such instruments of proxy the person or persons specified
by the Offeror as the proxy or the proxy nominee or nominees of the
undersigned;
8. waives any right to receive notice of purchase of the Purchased Shares;
2
<PAGE>
9. irrevocably appoints the Offeror as his true and lawful agent, attorney and
attorney-in-fact with respect to the Purchased Shares and the Other
Securities, issued, transferred or distributed on or in respect of the
Purchased Shares on or after the date of the Offer, effective from the
Effective Date, with full power of substitution, in the name and on behalf
of the undersigned, to register or record, transfer and enter the transfer
of the Purchased Shares and any Other Securities on the books of Trax and
to exercise any and all of the rights of the undersigned in respect of the
Purchased Shares and Other Securities including, without limitation, to
execute and deliver any and all instruments of proxy, authorizations or
consents in respect of all or any of the Purchased Shares and Other
Securities, revoke any such instrument, authorization or consent given
prior to or after the Effective Date and designate in any such instruments
of proxy any person or persons as the proxy or proxy nominee or nominees of
the undersigned;
10. acknowledges that of the purchase price per Common Share and associated
Right, the Offeror has allocated the entire cash consideration to the
Common Share and nil value to the associated Right. The undersigned agrees
to accept such determinations for all purposes, including for the purpose
of completing the undersigned's income tax return under the Income Tax Act
(Canada);
11. revokes any and all other authority, whether as agent, attorney-in-fact,
proxy or otherwise, previously conferred or agreed to be conferred by the
undersigned at any time with respect to the Purchased Shares or Other
Securities and agrees no subsequent authority, whether as agent, attorney-
in-fact, proxy or otherwise will be granted with respect to the Purchased
Shares or Other Securities by or on behalf of the undersigned, unless the
Purchased Shares are not taken up and paid for under the Offer;
12. acknowledges that all authority herein conferred or agreed to be conferred
shall survive the death or incapacity, bankruptcy or insolvency of the
undersigned and all obligations of the undersigned herein shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned; and
13. by virtue of the execution of this Letter of Acceptance and Transmittal,
shall be deemed to have agreed with the Offeror and the Depositary that any
contract contemplated by the Offer and this Letter of Acceptance and
Transmittal as well as all documents relating thereto be drawn up in the
English language only.
En signant la presente lettre d'acceptation et d'envoi, le soussigne sera
repute avoir covenue avec Northern Arch et le depositarie que tous les
contrats decoulant de l'Offre et de la presente lettre d'acceptation et
d'envoi et tous les documents y afferents, soient rediges exclusivement en
anglais.
________________________________________________________________________________
[_] CHECK HERE IF CERTIFICATES FOR DEPOSITED COMMON SHARES ARE BEING DELIVERED
PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY
AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s):_______________________________________________
Date of Execution of Notice of Guaranteed Delivery:____________________________
Name of Eligible Institution that Guaranteed Delivery:_________________________
________________________________________________________________________________
________________________________________________________________________________
PLEASE INSERT THE NAME OF THE INVESTMENT
DEALER OR BROKER SOLICITING ACCEPTANCE
NAME OF FIRM:__________________________________________________________________
NAME OF INDIVIDUAL:____________________________________________________________
ADDRESS OF FIRM:_______________________________________________________________
________________________________________________________________________________
3
<PAGE>
_________________________________________ ____________________________________
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 2, 4 and 8) (See Instructions 2, 4 and 8)
To be completed ONLY if the cheque in To be completed ONLY if the cheques
payment for Common Shares or the for payment of Common Shares or the
certificate for Common Shares not certificate for Common Shares not
purchased are to be issued in purchased, are to be sent to
the name of someone other than the someone other than the undersigned
undersigned. or to the undersigned at an
address other than that appearing
under "Description of Common Shares
Issue the cheque in payment for Deposited" or are to be held by the
Common Shares and the certificate for Depositary for pick up by the
Common Shares not purchased in the name undersigned or by any person
of: designated by the undersigned in
writing.
NAME:___________________________________ Mail the cheque or certificate for
(Please Print) Common Shares not deposited or
purchased to:
ADDRESS:________________________________
NAME:______________________________
(Please Print)
________________________________________
(Include Postal Code)
ADDRESS:___________________________
___________________________________
(Include Postal Code)
_________________________________________
Hold the cheque and certificate for
Common Shares not purchased for
pickup at the following office of
the Depositary:
___________________________________
(Specify Office)
____________________________________
________________________________________________________________________________
SIGNATURE GUARANTEED BY:(SEE SIGN HERE
INSTRUCTION 2)
DATED:_________, 1996.
________________________________________ ____________________________________
(Authorized Signature) (Signature of Shareholder or
Authorized Representative -
See Instructions)
________________________________________ ____________________________________
(Name of Eligible Institution) (Name of Shareholder - Please
Print)
Social Insurance No.:_______________
________________________________________________________________________________
________________________________________________________________________________
DO NOT WRITE IN THIS BOX
Date Received:_________________________ Certificates Examined by:___________
No. of Common Shares Received:_________ Certificate(s) No.__________________
Amount of Cheque Mailed:_______________ Cheque No.:_________________________
Date Mailed:___________________________ Checked by:_________________________
________________________________________________________________________________
4
<PAGE>
INSTRUCTIONS
1. DELIVERY OF LETTER OF ACCEPTANCE AND TRANSMITTAL AND CERTIFICATES. To
accept the Offer certificate(s) representing such Common Shares, together
with a properly completed and duly executed Letter of Acceptance and
Transmittal or facsimile thereof and all other documents required by this
Letter of Acceptance and Transmittal, must be received by the Depositary at
one of the offices listed below at or prior to the Expiry Time.
The method of delivery of certificates, this Letter of Acceptance and
Transmittal and all other required documents is at the option and risk of
the depositing Shareholder. The Offeror recommends that such documents be
delivered by hand to the Depositary and a receipt obtained or, if mailed,
that registered mail, return receipt or acknowledgement of receipt
requested, be used and proper insurance be obtained.
No alternative, conditional or contingent deposits will be accepted and no
fractional Common Shares will be purchased.
2. GUARANTEE OF SIGNATURES. No signature guarantee is required on this Letter
of Acceptance and Transmittal if such Common Shares are deposited for the
account of a Canadian chartered bank, a trust company in Canada, a
commercial bank or trust company having an office or correspondent in the
United States of America or a member firm of The Toronto Stock Exchange,
The Alberta Stock Exchange, The Montreal Exchange, the Vancouver Stock
Exchange, a national securities exchange in the United States or the
National Association of Securities Dealers, Inc. (each an "Eligible
Institution").
IN ALL OTHER CASES, ALL SIGNATURES ON THIS LETTER OF ACCEPTANCE AND
TRANSMITTAL AND ON CERTIFICATES REPRESENTING COMMON SHARES MUST BE
GUARANTEED BY AN ELIGIBLE INSTITUTION.
3. SIGNATURES ON LETTER OF ACCEPTANCE AND TRANSMITTAL, POWERS AND
ENDORSEMENTS. If this Letter of Acceptance and Transmittal is signed by the
registered holder(s) of the Common Shares deposited herewith, the
signature(s) must correspond with the name(s) as written on the face of the
certificate(s) without alteration, enlargement or any change whatsoever and
the certificate(s) must be endorsed with the signatures thereon guaranteed
by an Eligible Institution.
If this Letter of Acceptance and Transmittal is signed by a person other
than the registered holder(s) of the Common Shares deposited herewith, the
certificates must be endorsed or accompanied by appropriate security
transfer or stock powers, in either case signed exactly as the name(s) of
the registered holder(s) appear on the certificates. Signatures on such
certificates or powers must be guaranteed by an Eligible Institution.
If the Common Shares deposited herewith are held of record by two or more
joint owners, all such owners must sign this Letter of Acceptance and
Transmittal.
If any deposited Common Shares are registered in different names on similar
certificates, it will be necessary to complete, sign and submit as many
separate Letters of Acceptance and Transmittal as there are different
registrations of certificates.
If this Letter of Acceptance and Transmittal or any certificates or powers
are signed by a trustee, executor, administrator, guardian, attorney-in-
fact, agent, officer of a corporation or any other person acting in a
fiduciary or representative capacity, such person should so indicate when
signing and proper evidence satisfactory to the Offeror of their authority
so to act must be submitted.
4. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If cheques are to be issued in
payment of the Purchased Shares or certificates for Common Shares not
deposited or not purchased, are to be:
i. issued in the name of a person other than the person signing
this Letter of Acceptance and Transmittal;
5
<PAGE>
ii. sent to someone other than the person signing this Letter of
Acceptance and Transmittal or to the person signing this
Letter of Acceptance and Transmittal at an address other
than that appearing under "Description of Common Shares
Deposited" above; or
iii. held by the Depositary for pickup by the undersigned or any
person designated by the undersigned in writing;
the boxes entitled "Special Payment Instructions" and "Special Delivery
Instructions", as applicable, should be completed.
5. PROCEDURE FOR GUARANTEED DELIVERY. If a person wishes to deposit Common
Shares pursuant to the Offer and (i) the certificates representing such
Common Shares are not immediately available or (ii) such person cannot
deliver the certificates and all other required documents to the Depositary
at or prior to the Expiry Time, such Common Shares may nevertheless be
deposited provided that all of the following conditions are met:
i. such a deposit is made by or through an Eligible
Institution;
ii. a properly completed and duly executed Notice of Guaranteed
Delivery, in the form enclosed herewith or a facsimile
thereof, is received by the Depositary at or prior to the
Expiry Time at one of the offices listed below; and
iii. the certificates representing deposited Common Shares, in
proper form for transfer, together with a properly completed
and duly executed Letter of Acceptance and Transmittal or
facsimile thereof covering such Common Shares and any other
documents required by such Letter of Acceptance and
Transmittal, are received at the same office of the
Depositary prior to 4:30 p.m. local time on the day which is
the third trading day on The Toronto Stock Exchange after
the Expiry Date.
The Notice of Guaranteed Delivery may be delivered by hand, mail or
facsimile transmission to the Depositary and must include a guarantee by an
Eligible Institution in the form set forth in such Notice.
6. INADEQUATE SPACE. If the space provided herein is inadequate, the required
information should be set out on a separate signed list attached hereto.
7. PARTIAL DEPOSITS. If fewer than all the Common Shares evidenced by any
certificates submitted are to be deposited, fill in the number or amount of
Common Shares that are to be deposited in the box entitled "Description of
Common Shares Deposited". In such case, new certificate(s) for Common
Shares not deposited will be issued and sent to the persons signing this
Letter of Acceptance and Transmittal, unless otherwise provided in the
boxes entitled "Special Payment Instructions" or "Special Delivery
Instructions", as soon as practicable after the expiration or termination
of the Offer. All Common Shares evidenced by certificates submitted to the
Depositary will be deemed to have been deposited unless otherwise
indicated.
8. STOCK TRANSFER TAXES. The Offeror will pay any stock transfer taxes with
respect to the transfer and sale of Common Shares to it or its order by the
registered holder pursuant to the Offer. If, however, payment of the
purchase price is to be made to, or if the certificates for Common Shares
not deposited or purchased are to be registered in the name of, any person
other than the registered holder, or if certificates for Common Shares are
registered in the name of any person other than the person(s) signing this
Letter of Acceptance and Transmittal, the amount of any stock transfer
taxes (whether imposed on the registered holder or such other person)
payable on account of the transfer to such person will be payable by the
seller (which may include a deduction from the purchase price) unless
satisfactory evidence of the payment of such taxes or an exemption
therefrom is submitted.
9. REQUEST FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance may be directed to the Depositary or the Dealer Manager.
Additional copies of the Offer and the Circular, this Letter of Acceptance
and Transmittal and the Notice of Guaranteed Delivery may be obtained on
request and without charge from the Depositary or from the Dealer Manager.
Such persons may be contacted at the offices set forth on the last page of
this Letter of Acceptance and Transmittal. Shareholders may also contact
their local broker, dealer, commercial bank, Canadian chartered bank or
trust company for assistance.
6
<PAGE>
OFFICE OF THE DEPOSITARY, MONTREAL TRUST COMPANY OF CANADA:
FOR DELIVERY BY HAND, MAIL, OR FACSIMILE TRANSMISSION: ATTENTION: STOCK
TRANSFER DEPARTMENT
<TABLE>
<CAPTION>
<S> <C> <C>
8th Floor, 151 Front Street W. 6th Floor, 530 - 8th Avenue S.W. 2nd Floor, 510 Burrard Street
Toronto, Ontario Calgary, Alberta Vancouver, British Columbia
M5J 2N1 T2P 3S8 V6C 3B9
Telephone: (416) 981-9596 Telephone: (403) 267-6555 Telephone: (604) 661-0222
Fax: (416) 981-9600 Fax: (403) 266-1490 Facsimile: (604) 661-9480
</TABLE>
OFFICE OF THE DEALER MANAGER:
Peters & Co. Limited
2500, 350 - 7th Avenue S.W.
Calgary, Alberta
T2P 4N1
Telephone: (403) 261-4850
Fax: (403) 266-4116
For Information Call:
Montreal Trust Company of Canada
Shareholder Services
(403) 267-6555
7
<PAGE>
EXHIBIT 10.9
THIRD RESTATED
REVOLVING CREDIT LOAN AGREEMENT
dated February 20, 1996
among
ARCH PETROLEUM INC.,
a Delaware corporation
and
BANK ONE, TEXAS, N.A.,
as Agent
and the BANKS Parties Hereto
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE 1. DEFINITIONS
1.1. Defined Terms....................................................1
-------------
1.2. Other Definitional Provisions...................................12
-----------------------------
ARTICLE 2. THE REVOLVING LOAN
2.1. Revolving Loan..................................................13
--------------
2.2. Use of Advance Proceeds.........................................16
-----------------------
2.3. Notes Evidencing Loan...........................................17
---------------------
2.4. Fees............................................................17
----
2.5. Annual Review of Loan...........................................18
---------------------
2.6. Amendment and Restatement of Prior Loan Agreement...............19
-------------------------------------------------
ARTICLE 3. NOTE PAYMENTS
3.1. Interest on the Notes...........................................19
---------------------
3.2. Principal Payments..............................................20
------------------
3.3. Prepayments.....................................................20
-----------
3.4. Payment of Interest on the Notes................................20
--------------------------------
3.5. Calculation of Interest Rates...................................21
-----------------------------
3.6. Manner and Application of Payments..............................21
----------------------------------
ARTICLE 4. BORROWING BASE DETERMINATIONS
4.1. Components for Determination of Borrowing Base..................22
----------------------------------------------
4.2. Mandatory Redeterminations of Domestic Borrowing Base...........23
-----------------------------------------------------
4.3. Borrowing Base Deficiency.......................................24
-------------------------
4.4. Reduction to Commitment.........................................24
-----------------------
<PAGE>
<TABLE>
<S> <C> <C> <C>
4.5. Special Provisions for Discretionary Increase to the
----------------------------------------------------
Maximum Commitment..............................................25
------------------
ARTICLE 5. SECURITY
5.1. Liens on Oil and Gas Properties.................................26
-------------------------------
5.2. Arch (Onyx) Guaranty............................................26
--------------------
5.3. Arch (Canadian) Guaranty........................................27
------------------------
5.4. Onyx Subsidiaries Properties....................................27
----------------------------
ARTICLE 6. CONDITIONS PRECEDENT
6.1. Conditions Precedent to Loan and Initial Advance................27
------------------------------------------------
6.2. Conditions Precedent to All Advances............................28
------------------------------------
ARTICLE 7. REPRESENTATIONS AND WARRANTIES..................................28
ARTICLE 8. BORROWER'S COVENANTS
8.1. Affirmative Covenants...........................................32
---------------------
8.2. Negative Covenants..............................................36
------------------
ARTICLE 9. EVENTS OF DEFAULT
9.1. Event of Default................................................39
----------------
9.2. Materiality.....................................................41
-----------
9.3. Notice of Event of Default......................................41
--------------------------
9.4. Remedies Upon Event of Default..................................42
------------------------------
9.5. Performance by Banks............................................42
--------------------
ARTICLE 10. YIELD PROTECTION; SPECIAL PROVISIONS FOR EURODOLLARLOANS
10.1. Capital Adequacy................................................42
----------------
10.2. Special Provisions for Eurodollar Loans.........................43
---------------------------------------
</TABLE>
-3-
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 11. THE AGENT AND THE BANKS.
11.1. Appointment and Authorization..................................45
-----------------------------
11.2. Note Holders...................................................45
------------
11.3. Consultation with Counsel......................................46
-------------------------
11.4. Documents......................................................46
---------
11.5. Resignation or Removal of Agent................................46
-------------------------------
11.6. Responsibility of Agent........................................46
-----------------------
11.7. Independent Investigation......................................48
-------------------------
11.8. Indemnification................................................48
---------------
11.9. Benefit of Article 11..........................................48
---------------------
11.10. Pro Rata Treatment.............................................48
------------------
11.11. Interests of Banks.............................................48
------------------
11.12. Investments....................................................49
-----------
ARTICLE 12. MISCELLANEOUS
12.1. Waiver.........................................................49
------
12.2. Payment of Expenses............................................49
-------------------
12.3. Notices........................................................50
-------
12.4. Governing Law..................................................50
-------------
12.5. Invalid Provisions.............................................50
------------------
12.6. Interest Rate..................................................51
-------------
12.7. Amendments.....................................................51
----------
12.8. Parties Bound..................................................51
-------------
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C> <C>
12.9. Headings.......................................................51
--------
12.10. Participations and Sales; Assignments..........................51
-------------------------------------
12.11. Multiple Counterparts..........................................51
---------------------
12.12. Consent to Jurisdiction; Service of Process....................52
-------------------------------------------
12.13. Reasonableness.................................................52
--------------
12.14. Confidentiality................................................52
---------------
12.15. Article 15.10(b)...............................................52
----------------
12.16. Indemnification................................................52
---------------
12.17. Survival.......................................................54
--------
</TABLE>
EXHIBITS
- --------
Exhibit "A" - Request for Borrowing
Exhibit "B" - Form of Revolving Promissory Note
Exhibit "C" - Borrowing Base Allocation Certificate
Exhibit "D" - Form of Legal Opinion of Code Hunter & Wittman
Exhibit "E" - Form of Legal Opinion of Murphy Mahon Keffler & Farrier, L.L.P.
Exhibit "F" - Form of Compliance Certificate
THIRD
-----
RESTATED REVOLVING CREDIT LOAN AGREEMENT
----------------------------------------
THIS THIRD REVOLVING CREDIT LOAN AGREEMENT is entered into as of the
_____ day of February, 1996, by and between ARCH PETROLEUM INC., a Delaware
corporation ("Arch"), ARCH PRODUCTION COMPANY, a Delaware corporation ("APC")
(Arch and APC are herein collectively called "Borrower"), each Bank which from
time to time became parties hereto, and BANK ONE, TEXAS, N.A., a national
banking association, as Agent for Banks to the extent
-5-
<PAGE>
and in the manner provided in Article 11 below (herein called "Agent"), and
----------
amends and restates in its entirety the Prior Loan Agreement (as defined
herein).
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Borrower and Agent have entered into the Prior Loan Agreement (as
defined herein); and
WHEREAS, Borrower desires to restructure the credit available under the
Prior Loan Agreement and to amend and restate the Prior Loan Agreement in its
entirety by entering into this Loan Agreement; and
WHEREAS, Borrower and Banks are willing to restructure the credit available
under the Prior Loan Agreement and to amend and restate the Prior Loan Agreement
in its entirety upon the terms and subject to the conditions set forth in this
Loan Agreement.
NOW, THEREFORE, in consideration of their mutual promises herein contained
and other good and valuable consideration, the parties agree as follows:
ARTICLE 1.
DEFINITIONS
1.1. Defined Terms. For the purposes of this Loan Agreement, unless
-------------
the context otherwise requires, the following terms shall have the respective
meanings assigned to them in this Article or in the sections and subsections
referred to below.
"Additional Properties" shall have the meaning assigned to it in Section
-------
4.5(b) hereof.
- ------
"Adjusted InterBank Rate" shall, with respect to each Interest Period,
mean on any day thereof the quotient of (a) the InterBank Offered Rate with
respect to such Interest Period, divided by (b) the remainder of 1.00 minus the
---------- -----
Eurodollar Reserve Requirement in effect on such day.
"Affiliate" shall mean any partner of Borrower and any Person which,
directly or indirectly, controls or is controlled by (or is under common control
with) Borrower.
"Agent" shall have the meaning assigned to it in the preamble hereof.
"Allocated Borrowing Base" shall have the meaning assigned to it in
Section 4.1(c) hereof.
- --------------
"Arch Canada" shall mean Northern Arch Resources, Ltd., a Canadian
federation corporation and a wholly-owned Subsidiary of Arch.
"Arch (Canadian) Guaranty" shall mean that certain [Guaranty] dated the
date hereof
-6-
<PAGE>
executed by Arch in favor of the Canadian Lenders, pursuant to which
Arch has guaranteed the indebtedness, obligations, and liabilities of Arch
Canada to the Canadian Lenders arising under the Canadian Facility.
"Arch (Onyx) Guaranty" shall mean that certain Unconditional Guaranty
of Payment dated March 30, 1994 executed by Arch in favor of the Bank of
Scotland, pursuant to which Arch has guaranteed the indebtedness, obligations
and liabilities of the Onyx Subsidiaries to Bank of Scotland arising under the
Onyx Loan Agreement.
"Bank" or "Banks" shall mean the Banks identified on the signature
pages hereof, and each assignee of a Bank which becomes a Bank pursuant to
Section 12.10 and their respective successors.
- -------------
"Base Rate" shall mean the base commercial rate of interest as
established from time to time by Agent (which may not be the lowest, best or
most favorable rate of interest which Agent One may charge on loans to its
customers). Each change in the rate of interest charged under the Base Rate
shall become effective, without notice to Borrower, on the effective date of
each change in the Base Rate.
"Borrower" shall have the meaning assigned to it in the preamble hereof.
"Borrowing" shall mean the meaning assigned to it in Section 2.01.
------------
"Borrowing Base" shall have the meaning assigned to it in Article 4 hereof.
---------
"Borrowing Base Deficiency" shall have the meaning assigned to it in
Section 4.3 hereof.
- -----------
"Borrowing Base Percentage" shall mean, for the purpose of determining
the interest rate payable on a Eurodollar Advance under Section 3.1(a)(ii)
------------------
hereof, the aggregate of the unpaid principal balance of the Loan and the
outstanding obligations of the loans and banker's acceptances made under the
Canadian Facility then outstanding as a percentage of the Consolidated Borrowing
Base then in effect.
"Borrowing Base Allocation Certificate" shall have the meaning assigned to
it in Section 4.1(c) hereof.
--------------
"Business Day" shall mean a day upon which business is transacted by
national bank in Fort Worth, Texas, except Saturday or Sunday.
"Canadian Agent" shall mean the Bank of Montreal in its capacity as
agent for the Canadian Lenders to the extent and in the manner provided in the
Credit Agreement evidencing the Canadian Facility.
"Canadian Commitment" means the commitment of the Canadian Lenders to
make revolving credit loans and obligations under banker's acceptance to Arch
Canada pursuant to the Canadian
-7-
<PAGE>
Facility in an aggregate principal amount at any one time outstanding not to
exceed $________________, as of the Closing Date.
"Canadian Facility" means that certain Credit Agreement, dated the date
hereof, by and between Arch Canada and the Canadian Lenders and any and all
notes, mortgages, deeds of trust, security agreements, pledge agreements,
financing statements, guaranties and other agreements, documents and instruments
ever delivered pursuant to or in connection therewith, and all future renewals,
extensions, or restatements of, or amendments, modifications or supplements to,
all or any part of the foregoing.
"Canadian Lenders" shall mean Bank of Montreal for itself and as agent for
the other banks or financial institutions who are parties to the Credit
Agreement evidencing the Canadian Facility.
"Closing Date" shall mean the date of this Loan Agreement as set forth in
the preamble hereof.
"Collateral Documents" shall have the meaning assigned to it in Section
-------
5.1(c) hereof.
- ------
"Commitment" shall have the meaning assigned to it in Section 2.1(a)
--------------
hereof.
"Consequential Loss" shall, with respect to Borrower's payment of all or
any portion of the then-outstanding principal amount of a Bank's Eurodollar
Advance on a day other than the last day of the Interest Period related thereto,
mean any loss, cost or expense incurred by such Bank as a result of the timing
of such payment or in redepositing such principal amount, including the sum of
(i) the interest which, but for such payment, such Bank would have earned in
respect of such principal amount so paid, for the remainder of the Interest
Period applicable to such sum, reduced, if such Bank is able to redeposit such
principal amount so paid for the balance of such Interest Period, by the
interest earned by such Bank as a result of so redepositing such principal
amount plus (ii) any expense or penalty incurred by such Bank on redepositing
----
such principal amount.
"Consolidated Borrowing Base" shall have the meaning assigned to it in
Section 4.1(b) hereof.
- --------------
"Conversion Date" shall have the meaning assigned to it in Section
-------
2.1(c)(iii).
- -----------
"Default Rate" shall have the meaning assigned to it in Section 3.1(a)(iii)
-------------------
hereof.
"Determination Date" shall mean each November 1 and May 1 during the term
of the Loan.
"Dollars" and the sign "$" shall mean lawful currency of the United States
of America.
"Environmental Laws" shall mean (a) the following federal laws as they
may be cited, referenced and amended from time to time: the Clean Air Act, the
Clean Water Act, the Safe Drinking Water Act, the Water Pollution Control Act,
the Environmental Pesticides Act, the
-8-
<PAGE>
Comprehensive Environmental Response, Compensation and Liability Act, the
Endangered Species Act, the Resource Conservation and Recovery Act, the
Occupational Safety and Health Act, the Resource Conservation and Recovery Act,
the Occupational Safety and Health Act, the Hazardous Materials Transportation
Act, the Superfund Amendments and Reauthorization Act, and the Toxic Substances
Control Act; (b) any and all equivalent environmental statutes of any state in
which Mortgaged Properties are situated, as they may be cited, referenced and
amended from time to time; (c) any so-called federal, state or local "Superfund"
or "Superlien" statute, (d) any rules or regulations promulgated under or
adopted pursuant to the above federal and state laws; and (e) any other
equivalent federal, state or local statute or any requirement, rule, regulation,
code, ordinance or order adopted pursuant thereto, including, without
limitation, those relating to the generation, transportation, treatment,
storage, recycling, disposal, handling or release of hazardous substances.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, together with all regulations issued pursuant thereto.
"Event of Default" shall have the meaning assigned to it in Article 9
---------
hereof.
"Eurodollar Advance" shall mean any principal amount under a Note with
respect to which the interest rate is calculated by reference to the Adjusted
Interbank Rate for a particular Interest Period.
"Eurodollar Borrowing" shall mean any Borrowing composed of Eurodollar
Advances.
"Eurodollar Business Day" shall mean a Business Day on which dealings
in Dollars are carried out in the London interbank market.
"Eurodollar Reserve Percentage" shall mean, for any day, that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Eurodollar Advances is determined or any category of extensions of credit or
other assets which includes loans by a non-United States office of any Bank to
United States residents).
"Existing Letter of Credit" shall have the meaning assigned to it in
Section 2.1(d).
- --------------
"Floating Base Advance" shall mean any principal amount under a Note with
respect to which the interest rate is calculated by reference to the Floating
Base Rate.
"Floating Base Borrowing" shall mean any Borrowing composed of Floating
Base Advances.
"Floating Base Rate" shall mean, for any day, a rate per annum equal to the
Base Rate for such day.
-9-
<PAGE>
"Generally Accepted Accounting Principles" shall mean those generally
accepted accounting principles and practices which are recognized as such by the
American Institute of Certified Public Accountants acting through its Accounting
Principles Board or by the Financial Accounting Standards Board or through other
appropriate boards or committees thereof and which are consistently applied for
all periods after the date hereof so as to properly reflect the financial
condition, and the results of operations and changes in financial position, of
Borrower.
"Governmental Authority" shall mean any nation, country, commonwealth,
territory, government, state, county, parish, municipality or other political
subdivision and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
"Highest Lawful Rate" shall mean, as of any date, the highest non-
usurious rate of interest then applicable to the Notes and the Loan; Banks
hereby notify Borrower that, and discloses to Borrower that, for purposes of
TEX. REV. CIV. STAT. ANN. Art, 5069-1.04, as it may from time to time be
amended, the "applicable rate ceiling" shall be the indicated rate ceiling
referred to in Art. 5069-1.04(a)(1), from time to time in effect, as limited by
Art. 5069-1.04(b); provided however, that to the extent permitted by applicable
law, Banks reserve the right to change the "applicable rate ceiling" from time
to time by further notice and disclosure to Borrower; and, provided further,
that the highest non-usurious rate of interest permitted by applicable law for
purposes hereof shall not be limited to the applicable rate ceiling under Art.
5069-1.04 if federal laws or other state laws now or hereafter in effect and
applicable to the Notes (and the interest contracted for, charged and collected
thereunder) shall permit a higher rate of interest.
"Indebtedness" with respect to any Person shall mean as of any date, all
liabilities and contingent liabilities which would be reflected on a balance
sheet and related notes thereto of such Person prepared as of such date in
accordance with Generally Accepted Accounting Principles, including without
limitation: (i) all obligations for money borrowed; (ii) all obligations under
conditional sale or other title retention agreements and all obligations issued
or assumed as full or partial payment for property, whether or not any such
obligations represent obligations for borrowed money; (iii) all indebtedness
secured by any lien existing on property owned or acquired by such Person
subject to any such lien, whether or not the obligations secured thereby shall
have been assumed; (iv) the proportionate share of such Person in all
obligations, direct or indirect, to any joint venturer, partnership or other
entity of which such Person is a member; (v) all obligations under guaranties,
note purchase agreements and other documents having similar effect; (vi) all
obligations for accounts payable or trade credit; (vii) indebtedness of any
joint venture, partnership or other Person for which Borrower or any other
Person is directly or indirectly liable; and (viii) all obligations under
capital leases, operating leases or any other leases only to the extent such
leases would be treated as indebtedness in accordance with Generally Accepted
Accounting Principles.
"Interbank Offered Rate" shall mean, with respect to each Interest Period,
the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the
respective rates per annum at which deposits in dollars are offered to each of
the Reference Banks in the London interbank market at approximately 11:00 A.M.
(London time) two Business Days before the first day of such Interest
-10-
<PAGE>
Period in an amount approximately equal to the principal amount of the
Eurodollar Advance of such Reference Banks to which such Interest Period is to
apply and for a period of time comparable to such Interest Period.
"Interest Period" shall mean, with respect to a Eurodollar Advance, a
period commencing:
(i) on the borrowing date of such Eurodollar Advance made pursuant
to Section 2.1(c) of this Loan Agreement; or
--------------
(ii) on the Conversion Date pertaining to such Eurodollar Advance if
such Eurodollar Advance is made pursuant to a conversion as described in Section
-------
2.1(c)(iii) hereof; or
- -----------
(iii) on the date of borrowing specified in the Request for Borrowing
in the case of a rollover to a successive Interest Period,
and ending one, two, three or six months thereafter as Borrower shall elect in
accordance with Section 2.1(c)(iii) of this Loan Agreement; provided, that:
-------------------
(A) any Interest Period which would otherwise end on a day which is
not a Business Day (or in the case of a Eurodollar Advance, a Eurodollar
Business Day) shall be extended to the next succeeding Business Day or
Eurodollar Business Day (as the case may be) unless, in the case of a Eurodollar
------
Advance, such Eurodollar Business Day falls in another calendar month in which
case such Interest Period shall end on the next preceding Eurodollar Business
Day;
(B) in the case of a Eurodollar Advance, any Interest Period which
begins on the last Eurodollar Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month or at the
end of such Interest Period) shall, subject to clause (A) above, end on the last
Eurodollar Business Day of a calendar month; or
(C) if the Interest Period for any Eurodollar Advance would
otherwise end after the Maturity Date, such Interest Period shall end on the
Maturity Date.
"Letter of Credit" shall mean any letter of credit issued by any Bank to
Borrower pursuant to Section 2.1(d) hereof.
--------------
"Lien" shall mean any lien, mortgage, security interest, tax lien, pledge
or encumbrance, or conditional sale or title retention arrangement, or any other
interest in property securing the repayment of Indebtedness, whether arising by
agreement or under any statute or law, or otherwise,
"Loan" shall mean the Revolving Credit Loans.
"Loan Agreement" shall mean this Third Restated Revolving Credit Loan
Agreement, together with all amendments and modifications hereof and supplements
and attachments hereto.
-11-
<PAGE>
"Loan Documents" shall mean this Loan Agreement, the Notes (including any
renewals, extensions, modifications and refundings thereof) and the Collateral
Documents (and any amendments or supplements thereto or modifications of any of
the foregoing) and any agreements or documents executed or delivered pursuant to
the terms of this Loan Agreement, the Notes or of the other Loan Documents.
"Maturity Date" shall mean May 1, 1997.
"Maximum Commitment" shall mean the sum of (i) the Canadian Commitment,
plus (ii) the Commitment.
- ----
"Mortgaged Properties" shall have the meaning assigned to it in Section
-------
5.1(a) hereof.
- ------
"Net Income" shall have the meaning assigned to it in Section 8.2(n)
--------------
hereof, as calculated in the manner shown on Borrower's statement of operations.
"Net Worth" means the total shareholder equity of Borrower and its
Subsidiaries as shown on the consolidated balance sheet of Borrower and its
Subsidiaries, including its exchangeable convertible preferred stock.
"New Collateral Properties" has the meaning assigned to it in Section 4.3.
-----------
"Notes" shall mean the Revolving Promissory Notes executed by Borrower and
delivered to Banks pursuant to the terms of this Loan Agreement, together with
any renewals, extensions or modifications thereof. "Note" shall mean any of the
Notes.
"Obligation" shall mean all present and future Indebtedness, obligations
and liabilities of Borrower to Banks, or any of them, and all renewals and
extensions thereof, or any part thereof, and all interest accruing thereon, and
attorneys' fees incurred in the enforcement or collection thereof, regardless of
whether such Indebtedness, obligations and liabilities are direct, indirect,
fixed, contingent, matured or unmatured.
"Onyx Loan Agreement" shall mean that certain Term Loan Agreement dated
March 30, 1994 among the Onyx Subsidiaries and Bank of Scotland.
"Onyx Subsidiaries" shall mean, collectively, Onyx Pipeline Company, L.C.,
a Texas limited liability company, Onyx Gathering Company, L.C., a Texas limited
liability company, and Onyx Gas Marketing Company, a Texas limited liability
company.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, and any
successor to all or any of the Pension Benefit Guaranty Corporation's functions
under ERISA.
"Permitted Liens" shall mean, as of any date: (i) liens granted to Banks to
secure the Obligation; (ii) pledges or deposits made to secure payment of
worker's compensation (or to
-12-
<PAGE>
participate in any fund in connection with worker's compensation), unemployment
insurance, pensions or social security programs; (iii) contractual liens for the
benefit of operators; (iv) liens imposed by mandatory provisions of law such as
for materialmens, mechanic's, warehousemen's and other like liens arising in the
ordinary course of business, only to the extent such liens are subordinate to
all liens and security interests of Banks; (v) liens for taxes, assessments and
governmental charges or levies imposed upon a Person or upon such Person's
income or profits or property, if the same are not yet due and payable or if the
same are being contested in good faith and as to which adequate reserves have
been provided; (vi) good faith deposits in connection with tenders, leases, real
estate bids or contracts (other than contracts involving the borrowing of
money), pledges or deposits to secure public or statutory obligations, deposits
to secure (or in lieu of) surety, stay, appeal or customs bonds and deposits to
secure the payment of taxes, assessments, customs duties or other similar
charges; (vii) encumbrances consisting of zoning restrictions, easements, or
other restrictions on the use of real property, provided that such do not impair
the use of real property for the uses intended, and none of which is violated in
any material respect by existing or proposed structures or land use; (viii) the
terms and provisions of the leases, assignments, unit agreements and other
agreements listed, identified or referred to in the Collateral Documents; (ix)
the terms and provisions of the assignments and other title transfer documents
under which Borrower acquired the Mortgaged Properties including any right
retained by a predecessor in title of Borrower to purchase hydrocarbons produced
therefrom; (x) that certain Conveyance of Production Payment dated December 1,
1992 from Arch to Cactus Funding Corporation, covering certain Properties of
Arch located in Winkler County, Texas; (xi) any Liens created under that certain
Purchase and Sale Agreement dated November 24, 1992 between Arch and Enron
Reserve Acquisition Corp.; (xii) the Liens granted to Bank of Scotland to secure
the Arch (Onyx) Guaranty; (xiii) the Liens granted to the Agent, Canadian Agent
or the Canadian Lenders to secure the Arch (Canadian) Guaranty, and (xiv) any
other liens or encumbrances to which Banks agree in writing that their Lien
shall be subject.
"Percentage" shall mean the following:
(A) The initial Percentage of each Bank as of the Closing Date
(based upon the Borrowing Base Allocation Certificate delivered by Borrower to
Agent at the Closing Date) is as follows:
Bank Percentage
---- ----------
Bank of Montreal ___________%
Bank of Scotland ___________%
Bank One, Texas, N.A. ____________%
(B) Upon each designation by Borrower of the Allocated Borrowing
Base according to Section 4.1(c) hereof, the Percentage of each
--------------
Bank, effective as of the effective date of the designated
Allocated Borrowing Base, shall be
-13-
<PAGE>
determined as follows:
(i) Bank of Montreal.
----------------
(a) If the Allocated Borrowing Base is less than $30,000,000, the
Percentage of Bank of Montreal shall be (i) ($10,000,000 minus
-----
the amount by which the Borrowing Base exceeds the Allocated
Borrowing Base) divided by (ii) the Allocated Borrowing Base;
----------
or
(b) If the Allocated Borrowing Base is greater than $30,000,000,
the Percentage of Bank of Montreal shall be: (i) ($10,000,000
plus the amount by which the Allocated Borrowing Base exceeds
----
the Borrowing Base) divided by (ii) the Allocated Borrowing
----------
Base.
(ii) Bank of Scotland. The Percentage of Bank of Scotland shall be 20%
----------------
times (100% minus the Percentage of Bank of Montreal).
- ----- -----
(iii) Bank One, Texas, N.A. The Percentage of Bank One, Texas, N.A.
---------------------
shall be 80% times (100% minus the Percentage of Bank of Montreal).
----- -----
The Percentage of each Bank as determined according to subpart (B) above shall
remain in effect until the Allocated Borrowing Base is subsequently designated
by Borrower according to Section 2.1(c), whereupon the Percentage of each Bank
--------------
shall be redetermined according to subpart (B) above.
"Plan" shall mean an employee benefit plan or other plan maintained by
Borrower for employees of Borrower and covered by Title IV of ERISA, or subject
to the minimum funding standards under Section 412 of the Internal Revenue Code
of 1954, as amended.
"Pledged Shares" shall have the meaning assigned to it in Section 5.1(c).
--------------
"Prior Loan Agreement" shall mean that certain Second Restated Revolving
Credit Loan Agreement dated March 31, 1994 by and between Borrower and Agent,
which restates a prior Restated Revolving Credit Loan Agreement between Arch and
Agent dated May 1, 1991, as amended by (i) that certain First Amendment to
Second Restated Revolving Credit Loan Agreement dated August 24, 1994 between
Borrower and Agent, (ii) that certain Second Amendment to Second Restated
Revolving Credit Loan Agreement and to Revolving Promissory Note dated December
30, 1994 between Borrower and Agent, (iii) that certain Second Amendment to
Second Restated Revolving Credit Loan Agreement dated May 1, 1995 between
Borrower and Agent; and (iv) that certain Third Amendment to Second Restated
Revolving Credit Loan Agreement dated September 27, 1995, between Borrower and
Agent.
"Person" shall mean an individual, corporation, partnership, trust or
unincorporated organization, or a government or any agency, or political
subdivision thereof.
-14-
<PAGE>
"Property" means any interest in any kind of property or asset.
"Proved Developed Producing Reserves" shall have the meaning assigned to
that term by the Society of Petroleum Engineers, as it may be amended from time
to time, but generally shall mean the subcategory of "Proved Developed Reserves"
(as defined by the Society of Petroleum Engineers) which are recoverable by
natural reservoir energies from the completion intervals currently open and
producing to market. Additional oil and gas expected to be obtained through the
application of fluid injection or other improved recovery techniques for
supplementing the natural forces and mechanisms of primary recovery will be
included as "Proved Developed Producing Reserves" only after testing by a pilot
project or after the operation of an installed program has confirmed through
production response through existing completions producing to market that
increased recovery will be achieved. Proved Developed Producing Reserves shall
not include any Proved Developed Non-Producing Reserves.
"Proved Developed Non-Producing Reserves" shall have the meaning assigned
to that term by the Society of Petroleum Engineers, as it may be amended from
time to time, but generally shall mean the subcategory of "Proved Developed
Reserves" (as defined by the Society of Petroleum Engineers) which will become
"Proved Developed Producing Reserves" upon minor capital expenditures being made
with respect to existing wells which will cause formerly non-producing
completions or intervals to become open and producing to market.
"Proved Undeveloped Reserves" shall have the meaning assigned to that term
by the Society of Petroleum Engineers, as it may be amended from time to time,
but generally shall mean those reserves that are expected to be recovered from
new wells on undrilled acreage, or from existing wells where a relatively major
expenditure is required for recompletion. Proved Undeveloped Reserves on
undrilled acreage shall be limited to those drilling units offsetting productive
units that are reasonably certain of production when drilled. Proved
Undeveloped Reserves for other undrilled units can be claimed only where it can
be demonstrated with certainty that there is continuity of production from the
existing productive formation. Under no circumstances should estimates for
Proved Undeveloped reserves be attributable to any acreage for which an
application of fluid injection or other improved recovery technique is
contemplated, unless such techniques have been proved effective by actual tests
in the area and in the same reservoir.
"Reference Banks" shall mean Bank One, Texas, N.A. and Bank of Montreal,
and with respect to a Eurodollar Borrowing, Reference Banks shall refer to the
principal London office, if any, of any Reference Bank.
"Reportable Event" shall have the meaning assigned to that term in Title IV
of ERISA.
"Revolving Credit Loans" shall have the meaning assigned to it in Section
-------
2.1(a) hereof.
- ------
"Revolving Period" shall have the meaning assigned to it in Section 2.1(a)
--------------
"Request for Borrowing" shall have the meaning assigned to it in Section
-------
2.1(c)(i).
- ---------
-15-
<PAGE>
"Rollover Notice" shall have the meaning assigned to it in Section
-------
2.1(c)(iii) hereof.
- -----------
"Subsidiary" shall mean Arch Canada, the Onyx Subsidiaries and any other
corporation or limited liability company fifty percent (50%) or more of the
voting shares or membership interests of which is owned, directly or indirectly,
by Borrower.
1.2. Other Definitional Provisions.
-----------------------------
(a) All terms defined in this Loan Agreement shall have the above-defined
meanings when used in any Loan Document, certificate, report or other document
made or delivered pursuant to this Loan Agreement, unless the context therein
shall otherwise require.
(b) Defined terms used in the singular shall import the plural and vice
----
versa.
- -----
(c) The words "hereof," "herein," "hereunder " and similar terms when used
in this Loan Agreement shall refer to this Loan Agreement as a whole and not to
any particular provision of this Loan Agreement.
-16-
<PAGE>
ARTICLE 2.
THE REVOLVING LOAN
2.1. Revolving Loan.
--------------
(a) Revolving Loan Commitment. Subject to the terms and conditions of
-------------------------
this Loan Agreement, each Bank severally agrees to extend to Borrower, from the
date hereof through May 1, 1997 (the "Revolving Period"), a revolving line of
credit which shall not exceed at any one time outstanding the Commitment (herein
so called); provided, however, that the Banks agreement to extend a revolving
line of credit hereunder may be increased to an amount not to exceed the
Allocated Borrowing Base according to Sections 2.1(b) and 4.1(c) hereof. The
--------------------------
initial Commitment hereunder shall be the sum of $30,000,000. Within the limits
of this Section 2.1(a), during the Revolving Period, Borrower may borrow up to
--------------
the Commitment (or the Allocated Borrowing Base if Section 2.1(b) is in effect),
--------------
prepay pursuant to Section 3.3(a) hereof and reborrow up to the Commitment (or
--------------
the Allocated Borrowing Base if Section 2.1(b) is in effect) under this Section
-------------- -------
2.1(a). Each Borrowing pursuant to this Section 2.1(a) shall be funded ratably
- ------ --------------
by Banks in proportion to their respective Percentages. Each advance made by a
Bank hereunder is herein called an "Advance"; all Advances made by a Bank
hereunder are herein collectively called a "Revolving Credit Loan"; the
aggregate unpaid principal balance of all Advances made by Banks hereunder are
herein collectively called the "Revolving Credit Loans"; and the combined
Advances made by Banks on any given day are herein collectively called a
"Borrowing". During the term of the Loan, the Commitment at any time
outstanding shall never exceed the Allocated Borrowing Base then in effect, but
in no event shall the Allocated Borrowing Base exceed the Maximum Commitment.
The initial Commitment shall be subject to reduction or increase from time to
time to an amount equal to the applicable Allocated Borrowing Base as the
Borrowing Base may be redetermined from time to time as set forth in Section 4.4
-----------
hereof or as the Adjusted Borrowing Base may be designated from time to time by
Borrower as set forth in Section 4.1(c) hereof and the Commitment is reallocated
--------------
according to Section 2.1(b). During the term of the Loan, the Maximum
--------------
Commitment may be increased to an amount which Banks shall approve in writing
following a request from Borrower for such increase according to Section 4.5
-----------
hereof, but the Maximum Commitment shall never exceed the sum of $50,000,000
plus the Canadian Commitment.
(b) Reallocation of Commitment. So long as no Event of Default has
--------------------------
occurred and is continuing, Borrower may reallocate all or any portion of the
Canadian Commitment to the Commitment, or reallocate all or any portion of the
Commitment to the Canadian Commitment, by executing and delivering to Agent a
Borrowing Base Allocation Certificate, whereupon Banks shall be bound by and
entitled to the benefits of this Agreement with respect to the full amount of
the Commitment after giving effect to such reallocation. Each reallocation
pursuant to this Section 2.1(b) shall be made contemporaneously with Borrower's
--------------
designation of the Allocated Borrowing Base according to Section 4.1(c) hereof;
--------------
provided, however, that (i) any reallocation of the Canadian Commitment and the
- -------- -------
Commitment shall not increase the Commitment above the Maximum Commitment or the
Allocated Borrowing Base, and (ii) the sum of the Canadian Commitment plus the
Commitment shall at all times equal the Maximum Commitment and shall never
exceed the
-17-
<PAGE>
Consolidated Borrowing Base. The amount derived by allocating any portion of
the Canadian Commitment to the Commitment or any portion of the Commitment to
the Canadian Commitment shall be deemed the Commitment then in effect under this
Loan Agreement.
(c) Manner of Borrowing.
-------------------
(i) Request for Borrowing. Each request by Borrower to Agent for
---------------------
an Advance or Borrowing under Section 2.1 hereof (a "Request for Borrowing")
-----------
shall specify the aggregate amount of such requested Advance or Borrowing, the
requested date of such Advance or Borrowing, and, when the Request for Borrowing
specifies a Eurodollar Borrowing, the Interest Period which shall be applicable
thereto; provided, however, that the total number of Eurodollar Borrowings with
Interest Periods ending on different dates which may be outstanding at any time
shall never exceed six (6). Borrower shall furnish to Agent the Request for
Borrowing at least three (3) Eurodollar Business Days prior to the requested
Eurodollar Borrowing date (which must be a Eurodollar Business Day). A Floating
Base Borrowing may be made the same date on which a Request for Borrowing is
received by Agent. Any such Request for Borrowing shall be in the form attached
hereto as Exhibit "A". Each Advance or Borrowing shall be in an aggregate
minimum principal amount of $500,000 or any integral multiple of $100,000. Any
Request for Borrowing received by Agent after 12:00 noon (Fort Worth, Texas
time) on any Business Day shall be deemed to have been received on the next
succeeding Business Day. After receiving a Request for Borrowing in the manner
provided herein, Agent shall promptly notify each Bank by telephone (confirmed
immediately by telex, telecopy or cable), telecopy, telex or cable of the amount
of the Advance or Borrowing and such Bank's pro rata share of such Advance or
Borrowing, the date on which the Advance or Borrowing is to be made, the
interest option selected and, if applicable, the Interest Period selected.
(ii) Funding. Each Bank shall, before 1:00 P.M. (Fort Worth, Texas
-------
time) on the date of such Advance or Borrowing specified in the notice received
from Agent pursuant to Section 2.1(c)(i) above, deposit such Bank's ratable
-----------------
portion of such Advance or Borrowing in immediately available funds to an
account maintained by Agent as designated by Agent. Upon fulfillment of all
applicable conditions set forth herein and after receipt by the Agent of such
funds, Agent shall pay or deliver such proceeds to or upon the order of Borrower
at the principal office of Agent in immediately available funds. The failure of
any Bank to make any Advance required to be made by it hereunder shall not
relieve any other Bank of its obligation to make its Advance hereunder. If any
Bank shall fail to provide its ratable portion of such funds and if all
conditions to such Borrowing shall have apparently been satisfied, Agent will
make available such funds as shall have been received by it from the other
Banks, in accordance with this Section 2.1(c)(ii). Neither Agent nor any Bank
------------------
shall be responsible for the performance by any other Bank of its obligations
hereunder. In the event of any failure by a Bank to make an Advance required
hereunder, the other Banks may (but shall not be required to) purchase (on a pro
rata basis, according to their respective Percentages) such Bank's Note. Upon
the failure of a Bank to make an Advance required to be made by it hereunder,
Agent may, in its sole discretion, attempt to obtain one or more banks,
acceptable to Banks, to replace such Bank, but neither Agent nor any other Bank
shall have any liability or obligation whatsoever as a result of the failure to
obtain a replacement for such Bank.
-18-
<PAGE>
Unless Agent shall have received notice from a Bank prior to the date
of any Advance or Borrowing that such Bank will not make available to Agent such
Bank's ratable portion of such Advance or Borrowing, Agent may assume that such
Bank has made such portion available to Agent on the date of such Borrowing in
accordance with Section 2.1(c)(ii) and Agent may, in reliance upon such
------------------
assumption, make available to or on behalf of Borrower on such date a
corresponding amount. If and to the extent such Bank shall not have so made such
ratable portion available to Agent, such Bank and Borrower severally agree to
repay to Agent forthwith on demand such corresponding amount, for each day from
the date such amount is made available to or on behalf of Borrower until the
date such amount is repaid to Agent, at the rate per annum equal to the rate
applicable to the Advance or Borrowing in question. If such Bank shall repay to
Agent such corresponding amount, such amount so repaid shall constitute such
Bank's Advance as part of such Borrowing for purposes of this Loan Agreement.
(iii) Selection of Interest Option. Upon making a Request for
----------------------------
Borrowing under Section 2.1(c)(i) hereof, Borrower shall advise Agent as to
-----------------
whether the Advance or Borrowing shall be (i) a Eurodollar Borrowing, in which
case Borrower shall specify the applicable Interest Period therefor, or (ii) a
Floating Base Borrowing. At least two (2) Business Days or Eurodollar Business
Days, as the case may be, prior to the termination of each Interest Period with
respect to a Eurodollar Borrowing (whether such termination occurs before or
after the Maturity Date) Borrower shall give Agent written notice (the "Rollover
Notice") of the interest option which shall be applicable to such Borrowing upon
the expiration of such Interest Period. If Borrower shall specify that such
Borrowing shall be a Eurodollar Borrowing, such Rollover Notice shall also
specify the length of the succeeding Interest Period selected by Borrower with
respect to such Advance. Each Rollover Notice shall be irrevocable and
effective upon notification thereof to Agent. If the required Rollover Notice
shall not have been timely received by Agent prior to the expiration of the
then-relevant Interest Period, then Borrower shall be deemed to have elected to
have such Borrowing be a Floating Base Borrowing. With respect to any Floating
Base Borrowing, Borrower shall have the right, on any Business Day or Eurodollar
Business Day as the case may be (a "Conversion Date") to convert such Floating
Base Borrowing to a Eurodollar Borrowing, by giving Agent a Rollover Notice of
such selection at least two (2) Business Days or Eurodollar Business Days, as
the case may be, prior to such Conversion Date.
Notwithstanding anything to the contrary contained herein, Borrower
shall have no right to request a Eurodollar Borrowing if the interest rate
applicable thereto under Section 3.1(a)(ii) hereof would exceed the Highest
------------------
Lawful Rate in effect on the first day of the Interest Period applicable to such
Eurodollar Borrowing.
(d) Letters of Credit. On the terms and conditions hereinafter set
-----------------
forth, Agent or any other issuing Bank shall from time to time during the period
beginning on the Closing Date and ending on the Maturity Date upon request of
Borrower issue standby and/or commercial letters of credit for the account of
Borrower (the "Letters of Credit") in such face amounts as Borrower may request.
As of the Closing Date, the Agent has one (1) Letter of Credit in the face
amount of $_________________ issued and outstanding for the account of Borrower
(the "Existing Letter of Credit"). The Existing Letter of Credit shall continue
in existence and shall be deemed by the
-19-
<PAGE>
Borrower, Banks and Agent to be issued under the provisions of this Section
2.1(d) for all purposes and shall be a "Letter of Credit" as such term is
defined herein. The face amount of all Letters of Credit issued and outstanding
hereunder shall be considered as Advances under Section 2.1(a) hereof and all
--------------
payments made by Agent (or by another issuing Bank) on such Letters of Credit
shall be considered as Advances under the Notes. Each Letter of Credit issued
for the account of Borrower hereunder shall (i) be in favor of such
beneficiaries as specifically requested by Borrower, (ii) have an expiration
date not exceeding the Maturity Date, and (iii) contain such other terms and
provisions as may be required by Agent or the issuing Bank. Each Bank (other
than the issuing Bank) agrees that, upon issuance of any Letter of Credit
hereunder, it shall automatically acquire a participation in the issuing Bank's
liability under such Letter of Credit in an amount equal to such Bank's
Percentage of such liability, and each Bank (other than the issuing Bank)
thereby shall absolutely, unconditionally and irrevocably assumes, as primary
obligor and not as surety, and shall be unconditionally obligated to the issuing
Bank to pay and discharge when due, its Percentage of the issuing Bank's
liability under such Letter of Credit. Borrower hereby unconditionally agrees to
pay and reimburse the Agent for account of the issuing Bank for the amount of
each demand for payment under any Letter of Credit that is in substantial
compliance with the provisions of any such Letter of Credit at or prior to the
date on which payment is to be made by the issuing Bank to the beneficiary
thereunder, without presentment, demand, protest or other formalities of any
kind. Upon receipt from any beneficiary of any Letter of Credit of any demand
for payment under such Letter of Credit, the issuing Bank shall promptly notify
Borrower (through the Agent) of the demand and the date upon which such payment
is to be made by the issuing Bank to such beneficiary in respect of such demand.
Forthwith upon receipt of such notice from the issuing Bank, Borrower shall
advise the Agent whether it intends to borrow hereunder to finance its
obligations to reimburse the issuing Bank, and if so, submit a Request for
Borrowing as provided in Section 2.1(c)(i) hereof.
-----------------
(e) Procedure for Obtaining Letters of Credit. The amount and date of
-----------------------------------------
issuance, renewal, extension or reissuance of a Letter of Credit pursuant to the
Banks' commitment above in Section 2.1(d) shall be designated by Borrower's
--------------
written request delivered to Agent at least three (3) Business Days prior to the
date of such issuance, renewal, extension or reissuance. Concurrently with or
promptly following the delivery of the request for a Letter of Credit, Borrower
shall execute and deliver to the Agent (or other issuing Bank) an application
and agreement with respect to the Letters of Credit, said application and
agreement to be in the form used by the Agent (or other issuing Bank). The
Agent (or other issuing Bank) shall not be obligated to issue, renew, extend or
reissue such Letters of Credit if the amount thereof when added to the principal
amount of the Loan then outstanding would exceed the Allocated Borrowing Base
then in effect.
2.2. Use of Advance Proceeds.
-----------------------
(a) Initial Advance. An initial Advance shall be made to Borrower on
---------------
the date hereof to refinance all outstanding indebtedness due under the Prior
Loan Agreement.
(b) Subsequent Advances. The proceeds of any subsequent Advance may
-------------------
be used by Borrower to acquire additional oil and gas properties and/or to fund
expenditures to drill or recomplete oil and/or gas wells on Borrower's oil and
gas properties and for other general corporate
-20-
<PAGE>
purposes. If the proceeds of any subsequent Advance are used to acquire
additional oil and gas properties, Borrower shall execute and deliver to Agent,
Collateral Documents which grant to Banks a valid, enforceable, and first
priority Lien (subject to Permitted Liens) in the properties as provided in
Section 5.1. Those properties will thereafter be deemed included as Mortgaged
- -----------
Properties. Loan proceeds may be used by Borrower to acquire its own shares of
Common Stock for its treasury, provided that the aggregate of the Loan proceeds
utilized to acquire such shares and Borrower's earnings, cash or other
consideration paid by Borrower for its shares does not exceed $1,000,000 in the
aggregate during any consecutive twelve month period. Loan proceeds may be used
by Borrower to fund any Letters of Credit issued pursuant to Section 2.1(d)
--------------
hereof by any Bank for the benefit of Borrower, in which case the face amount of
the Letter of Credit so issued shall be deemed an Advance hereunder. The amount
of credit available under the Commitment shall be reduced by the face amount of
such Letter of Credit.
2.3. Notes Evidencing Loan. The Loan and each Advance thereunder
---------------------
shall be evidenced by a Revolving Promissory Note executed by Borrower and
payable to the order of each Bank (herein collectively called, together with any
renewals, refundings, extensions and modifications thereof, the "Notes" and each
of them a "Note") which Notes shall (i) be dated the date hereof, (ii) be in the
amount of such Bank's initial Percentage of $50,000,000, (iii) be payable to the
order of such Bank at the office of Agent, (iv) bear interest in accordance with
Section 3.1 hereof, and (v) be in the form of Exhibit "B" attached hereto with
- -----------
blanks appropriately completed in conformity herewith. The Notes shall renew
and extend in their entirety the outstanding indebtedness evidenced by the Prior
Loan Agreement. Notwithstanding the principal amount of any Note as stated in
the face thereof, the amount of principal actually owing on such Note at any
given time shall be the aggregate of all Advances theretofore made by such Bank
to Borrower hereunder (plus the face amount of all outstanding letters of credit
issued by such Bank for the benefit of Borrower), less all payments of principal
thereon theretofore actually received hereunder by such Bank, provided that the
aggregate amount of principal at any one time outstanding under the Notes shall
never exceed the Commitment then in effect. Each Bank is authorized, but is not
required, to endorse on the schedule attached to its Note appropriate notations
evidencing the date and amount of each Advance as well as the amount of each
payment made by Borrower thereunder.
2.4. Fees.
----
(a) Commitment Fee. In addition to the payments provided for in
--------------
Sections 3.3 and 3.4 hereof, Borrower shall pay to Agent, for the account of all
- ------------ ---
Banks, on the first day of each July, October, January, and April hereafter,
commencing April 1, 1996, a commitment fee at the rate of one-half of one
percent (0.50%) per annum on the average daily amount of the Commitment which
was unused during the three month period ending on each such date. Borrower and
Banks acknowledge and agree that the commitment fees payable hereunder are bona
fide commitment fees and are intended as reasonable compensation to Banks for
committing to make funds available to Borrower as described herein and for no
other purpose.
(b) Consolidated Borrowing Base Increase Fee. Upon each increase to
----------------------------------------
the Consolidated Borrowing Base made pursuant to Section 4.5 herein, Borrower
-----------
shall pay to Agent, for the account
-21-
<PAGE>
of all Banks, a fee equal to 3/8 of 1% (0.375%) of the increase to the
Consolidated Borrowing Base (as redetermined pursuant to Section 4.5 herein)
-----------
over the Consolidated Borrowing Base that is then in effect, such fee to be
proportionately reduced by the amount of the Consolidated Borrowing Base that is
allocated to the Allocated Borrowing Base designated by Borrower upon each
increase to the Consolidated Borrowing Base.
(c) Consolidated Borrowing Base Redetermination Fee. Pursuant to
-----------------------------------------------
Section 4.5 hereof, should Borrower request a discretionary redetermination of
- -----------
the then existing Consolidated Borrowing Base, Borrower shall pay to Agent, for
the account of all Banks, a fee of $5,000 as reasonable compensation to Banks
for conducting such redetermination of the Consolidated Borrowing Base.
(d) Amendment Fee. For each amendment to this Loan Agreement that is
-------------
requested by Borrower which amends, modifies or changes a material or
significant term or provision of this Loan Agreement, Borrower shall pay to
Agent, for the account of all Banks, an amendment fee equal to $5,000. On the
date hereof, Borrower shall pay to Agent, for the account of all Banks, an
amendment fee in the amount of $__________________ for the amendment of the
Prior Loan Agreement as amended and restated by this Loan Agreement.
(e) Letter of Credit Fee. For each letter of credit which is issued
--------------------
to Borrower, Borrower shall pay the Bank issuing such letter of credit a fee of
$250 plus one percent (1%) of the face amount of the letter of credit.
(f) Agency Fee. Borrower shall pay to Agent such fees and other
----------
amounts as Borrower shall be required to pay to Agent from time to time pursuant
to any separate agreement between Borrower and Agent setting forth the
compensation to be paid to Agent in consideration for acting as Agent hereunder.
Such fees and other amounts shall be retained by Agent for its own account, and
no Bank (other than Agent) shall have any interest therein.
2.5. Annual Review of Loan. Prior to December 31, 1996, Banks and
---------------------
Borrower shall review the Loan and Borrower's performance hereunder, and Banks
and Borrower may, at that time, mutually agree to extend the Revolving Period
until May 1, 1998. Thereafter, Banks and Borrower shall review the Loan and
Borrower's performance hereunder prior to April 1 of each succeeding year and,
at the time of each such review, Banks and Borrower may mutually agree to extend
the Revolving Period for one additional year, provided that no Event of Default,
or event which with notice or lapse of time or both could become an Event of
Default, has occurred and is continuing. If, at the time of any of the above-
described reviews of the Loan, Banks and Borrower do not mutually agree to
extend the Revolving Period of the Loan then the Revolving Period shall not be
extended and the unpaid balance of the Notes shall be due and payable in full at
the termination of the Revolving Period. If Banks and Borrower mutually agree
to extend the Revolving Period, then the Maturity Date shall likewise be
extended until the termination of the extended Revolving Period. Banks shall
have no obligation whatsoever to extend the Revolving Period.
2.6 Amendment and Restatement of Prior Loan Agreement. This Loan
-------------------------------------------------
Agreement
-22-
<PAGE>
amends, restates and supersedes in its entirety the Prior Loan Agreement.
Further, the Indebtedness and Obligation of Borrower to Agent as evidenced by
the Prior Loan Agreement and any notes executed thereunder, are hereby renewed
and extended by the Indebtedness and Obligation of Borrower under this Loan
Agreement, the Notes and the other Loan Documents.
ARTICLE 3.
NOTE PAYMENTS
3.1. Interest on the Notes.
---------------------
(a) Interest Rate.
-------------
(i) Floating Base Advances. The unpaid principal balance of each
----------------------
Floating Base Advances made under the Notes shall bear interest from the date of
advance until paid at a rate per annum which shall from day to day be equal to
the lesser of (A) the Highest Lawful Rate, or (B) the Base Rate.
(ii) Eurodollar Advances. The unpaid principal balance of each
--------------------
Eurodollar Advance made under the Notes shall bear interest from the date of
advance until paid at a rate per annum which shall from day to day be equal to
the lesser of (A) the Adjusted InterBank Rate for the Interest Period in effect
plus (i) one and three-fourths percent (1-3/4%) if the Borrowing Base Percentage
- ----
is less than or equal to 25%, (2) two percent (2%) if the Borrowing Base
Percentage is more than 25% but less than or equal to 50%, (3) two and one-
fourth percent (2-1/4%) if the Borrowing Base Percentage is more than 50% but
less than or equal to 75%, or (4) two and one-half percent (2-1/2%) if the
Borrowing Base Percentage is greater than 75% or (B) the Highest Lawful Rate.
Provided, however, if the Borrowing Base Percentage shall change from the ranges
set forth in sub-clauses (1), (2), (3) and (4) above during the Interest Period
in effect, then the rate of interest shall be the rate of interest set forth for
the applicable range beginning with the day that there is a change in such range
of the Borrowing Base Percentage, with subsequent changes in the rate of
interest to occur if there are subsequent changes in the ranges of the Borrowing
Base Percentage as set forth above, effective as of the date of such change in
range.
(iii) Default Rate. Provided, however, if any principal of, or
-------------
interest on, the Notes is not paid when due, then (in lieu of the interest rate
provided above) such past due principal and interest shall bear interest at a
rate per annum equal to the lesser of (a) the Base Rate plus five percent (5%),
or (b) the Highest Lawful Rate ("the Default Rate").
(b) Limitation on Rate, If at any time and from time to time the rate
------------------
of interest calculated pursuant to Section 3.1(a)(i) or (ii) hereof would cause
-------------------------
the interest payable on the Notes to be limited to the Highest Lawful Rate as
provided in Section 3.1(a)(i) or (ii) hereof, then any subsequent reduction in
-------------------------
the rate specified in Section 3.1(a)(i) or (ii) hereof shall not reduce the rate
-------------------------
of interest payable on the Notes below the Highest Lawful Rate until the total
amount of interest accrued on the Notes from and after the date hereof equals
the amount of interest which would have accrued
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<PAGE>
thereon if the rate specified in Section 3.1(a)(i) or (ii) hereof had at all
-------------------------
times been in effect.
3.2. Principal Payments. The unpaid principal amount of the Notes,
------------------
and all accrued but unpaid interest thereon, shall be due and payable on the
Maturity Date.
3.3 Prepayments.
-----------
(a) Optional Prepayments. Borrower may, without premium or penalty,
--------------------
prepay the principal of the Notes then outstanding, in whole or in part, at any
time or from time to time; provided, however, that if Borrower prepays any part
of the Notes that is represented by a Eurodollar Borrowing prior to the end of
the Interest Period applicable to such Eurodollar Lending, Borrower shall also
pay all Consequential Losses resulting therefrom; provided, further however,
that each prepayment of less than the full outstanding principal balance of the
Notes shall be in an amount equal to $100,000 or integral multiples of $100,000
or such lesser amount as Banks agree.
(b) Mandatory Prepayments. Unless Borrower executes and delivers
---------------------
Collateral Documents covering New Collateral Properties as more particularly set
forth in Section 4.3 hereof, Borrower shall make a mandatory prepayment of
-----------
principal of the Notes in an amount equal to any Borrowing Base Deficiency
within thirty (30) days following the Agent's notice thereof.
3.4. Payment of Interest on the Notes. Interest on the unpaid principal
--------------------------------
amount of each Floating Base Advance under the Notes shall be payable monthly as
it accrues on the first Business Day of each monthly period hereafter commencing
March 1, 1996, and at the Maturity Date. Interest on the unpaid principal amount
of each Eurodollar Advance under the Notes shall be payable on the last day of
each Interest Period applicable to such Advance or, if such Interest Period is
longer than three months, at intervals of three months after the first day
thereof. At least three (3) Business Days prior to the due date of any interest
payment due hereunder Agent will provide Borrower with written notice setting
forth the amount of interest due on such due date, which amount shall be
conclusively presumed to be the actual interest due on such date. If Banks or
Borrower subsequently determine that the interest amount set forth in Agent's
notice is miscalculated, resulting in an underpayment or overpayment of interest
due, such party shall provide the other party with written notice of such
miscalculation and the amount of underpayment or overpayment resulting
therefrom. If such miscalculation results in an underpayment of interest,
Borrower shall pay Banks such underpayment of interest within five (5) Business
Days following its receipt of such notice of such underpayment. If such
miscalculation results in an overpayment of interest due, then Banks shall
either refund such overpayment within five (5) Business Days following its
receipt of such notice of overpayment or Banks shall credit such overpayment
against the next ensuing interest payment due to Banks.
3.5. Calculation of Interest Rates. Interest on the unpaid principal
-----------------------------
of the Notes shall be calculated on the basis of a 360-day year.
3.6. Manner and Application of Payments. All payments of principal
----------------------------------
of, and interest on, the Notes to Banks shall be made by Borrower to Agent, for
the account of all Banks, before 2:00
-24-
<PAGE>
p.m. (Fort Worth time), in Federal or other immediately available funds at
Agent's principal banking office in Fort Worth. Whenever any payment to be made
under this Agreement or the Notes shall be stated to be due and payable on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
the payment of interest and the commitment fee, as the case may be; provided,
however, in the case of a Eurodollar Advance, if the result of such extension
would be to extend such payment to another calendar month, such payment shall be
made on the immediately preceding Business Day. To the extent that no Event of
Default exists when any payment is made, all payments made on the Notes shall be
credited, to the extent of the amount thereof, in the following manner: (i)
first to fees, costs and expenses which Borrower agrees to pay under the Loan
Documents for which Borrower has received an invoice no later than five (5) days
prior to such payment; (ii) second, against the amount of interest accrued and
unpaid on the Notes as of the date of such payment; (iii) third, against all
principal (if any) due and owing on the Notes as of the date of such payment;
(iv) fourth, as a prepayment of any outstanding Floating Base Advances made on
the Notes; (v) fifth, as a prepayment of any outstanding Eurodollar Advances
made under the Notes and (vi) sixth, as a prepayment of any remaining
Obligation. Subject to the foregoing, payments and prepayments of principal of
the Notes shall be applied to such outstanding Floating Base Borrowings and
Eurodollar Borrowings under such Notes as Borrower shall select; provided,
however, that Borrower shall select Floating Base Borrowings and Eurodollar
Borrowings to be repaid in a manner designated to minimize the Consequential
Loss, if any, resulting from such payments; and provided further that, if
Borrower shall fail to select the Floating Base Borrowings and Eurodollar
Borrowings to which such payments are to be applied, or if an Event of Default
has occurred and is continuing at the time of such payment, then Agent shall be
entitled to apply the payment to such Floating Base Borrowings and Eurodollar
Borrowings in the manner it shall deem appropriate or as otherwise provided in
any intercreditor agreement between Banks and the Canadian Lenders.
ARTICLE 4.
BORROWING BASE DETERMINATIONS
4.1. Components for Determination of Borrowing Base.
-----------------------------------------------
(a) The Borrowing Base. The term "Borrowing Base" shall mean the
------------------
designated loan value established by Agent at its sole discretion and assigned
to the Mortgaged Properties, as redetermined from time to time pursuant to the
terms hereof, and shall be based upon pertinent economic variables selected by
Agent at its sole discretion which evaluate the discounted present value of
future net income accruing to the Mortgaged Properties. In determining the
Borrowing Base, Agent shall use such combination of Proved Developed Producing
Reserves, Proved Developed Non-Producing Reserves, and/or Proved Undeveloped
Reserves attributable to the Mortgaged Properties as it deems proper at their
sole discretion. The initial Borrowing Base is $30,000,000.
(b) Consolidated Borrowing Base. The term "Consolidated Borrowing
---------------------------
Base" shall mean the designated loan value jointly agreed to by Banks and the
Canadian Lenders after taking into
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<PAGE>
account the aggregate sum of (i) the Borrowing Base as redetermined by Agent
---
from time to time pursuant to the terms of Section 4.1(a) hereof plus (ii) the
-------------- ----
designated loan value established by the Canadian Agent and assigned to the
assets of Arch Canada pursuant to the Credit Agreement evidencing the Canadian
Facility, as redetermined from time to time pursuant to such Credit Agreement.
The initial Consolidated Borrowing Base is $__________________.
(c) Allocated Borrowing Base. Not more than once each calendar
------------------------
quarter, Borrower, at its sole discretion, shall designate (pursuant to a
"Borrowing Base Allocation Certificate" in the form attached hereto as Exhibit
"C") to Agent that portion of the Consolidated Borrowing Base that will be
allocated to the Commitment (that portion of the Consolidated Borrowing Base
allocated to the Commitment from time to time is herein called the "Allocated
Borrowing Base"), provided however, that the Allocated Borrowing Base shall
never be less than the Commitment then in effect. The effective date of each
Allocated Borrowing Base shall be the date that Agent receives Borrower's
Borrowing Base Allocation Certificate designating the Allocated Borrowing Base.
Upon Borrower's designation of the Allocated Borrowing Base, the Commitment
shall be contemporaneously reallocated and adjusted to the amount of such
Allocated Borrowing Base as provided in Section 2.1(b). Notwithstanding the
--------------
foregoing quarterly limitation on Borrower's designation of the Allocated
Borrowing Base, Borrower shall designate the Allocated Borrowing Base upon each
redetermination of the Borrowing Base according to Section 4.2 or 4.3 hereof or
------------------
if Borrower sells or disposes any Mortgaged Properties for net consideration of
$___________ or more; provided, further, Borrower may designate the Allocated
Borrowing Base at any time and from time to time during the existence of a
Borrowing Base Deficiency.
4.2. Mandatory Redeterminations of Borrowing Base.
--------------------------------------------
(a) Semi-Annual Redetermination of Borrowing Base. Borrower's
---------------------------------------------
Borrowing Base shall be redetermined as of each Determination Date during the
term of the Loan. As of each Determination Date, Agent shall determine at its
sole discretion the Borrowing Base based upon the information contained in the
most recent annual reserve report required to be delivered to Agent pursuant to
Section 8.1(d) hereof and/or such economic variables and production information
- --------------
that Agent has available to it at such time. Agent shall provide Borrower with
notice of the redetermined Borrowing Base and resulting Consolidated Borrowing
Base that has been agreed to by the Banks and the Canadian Lender within thirty
(30) days following the applicable Determination Date. Within (___) days after
Borrower's receipt of the notice of the redetermined Borrowing Base and
Consolidated Borrowing Base, Borrower shall designate the Allocated Borrowing
Base.
(b) Revised Field Rules. There shall be a mandatory redetermination
-------------------
of the Borrowing Base at any time if the Railroad Commission of the State of
Texas should impose any modifications, revisions, alterations or amendments to
its existing field rules for the Keystone Ellenburger Field, Winkler County,
Texas and, as a result, there is a material change in the allowable for, or
rates of production from, Borrower's Mortgaged Properties located in the
Keystone Ellenburger Field, Winkler County, Texas. Upon such event, Agent shall
determine at its sole discretion the Borrowing Base based upon the information
contained in the most recent annual reserve report required to be delivered to
Agent pursuant to Section 8.1(d) or such other economic variables and production
--------------
-26-
<PAGE>
information that Agent has available at such time, taking into account any
actual or anticipated changes in the allowable or rates of production respecting
the Mortgaged Properties located in the Keystone Ellenburger Field, Winkler
County, Texas. Agent shall provide Borrower with notice of the redetermined
Borrowing Base and the resulting Consolidated Borrowing Base that has been
agreed to by the Banks and the Canadian Lender within 30 days following such
mandatory redetermination. Within (___) days after Borrower's receipt of the
notice of the redetermined Borrowing Base and Consolidated Borrowing Base,
Borrower shall designate the Allocated Borrowing Base.
4.3. Borrowing Base Deficiency. If, as of any Determination Date, or
-------------------------
following a mandatory redetermination of the Borrowing Base as provided in
Section 4.2(b), the Allocated Borrowing Base (as designated by Borrower) is less
than the unpaid principal amount of the Notes as of the date of such Borrowing
Base redetermination (the amount by which the unpaid principal balance of the
Notes exceeds the designated Allocated Borrowing Base is herein called a
"Borrowing Base Deficiency"), then Agent shall provide Borrower with written
notice of such Borrowing Base Deficiency, which notice shall set forth the
amount of the Borrowing Base Deficiency. Within thirty (30) days following
Borrower's receipt of such notice, Borrower shall remedy the Borrowing Base
Deficiency by either (i) designating an Allocated Borrowing Base that exceeds
the unpaid principal balance of the Notes, (ii) paying to Banks as a mandatory
prepayment of principal under Section 3.3(b) hereof an amount equal to the
--------------
Borrowing Base Deficiency, (iii) executing and delivering to Agent such
Collateral Documents which will grant to Banks a valid, enforceable and first
priority Lien (subject to Permitted Liens) in such additional oil and gas
properties of Borrower (herein called "New Collateral Properties") which have a
present value of Proved Developed Producing Reserves attributable to such New
Collateral Properties which is not less than two times the amount of the
Borrowing Base Deficiency, or (iv) providing a combination of subclauses (i) and
(iii) above which in their aggregate equal the Borrowing Base Deficiency. In
the event that Borrower elects (in whole or in part) to remedy the Borrowing
Base Deficiency by providing Bank with Collateral Documents granting a Lien
against the New Collateral Properties, Borrower shall also deliver along with
such Collateral Documents (i) a reserve report covering the New Collateral
Properties prepared by a petroleum engineering firm acceptable to Agent, using
parameters set forth in Regulation S-X 210.4-10 of the Securities and Exchange
Commission and reflecting that the present value of the Proved Developed
Producing Reserves attributable to such New Collateral Properties is not less
than two times the Borrowing Base Deficiency (less the amount of principal
payment made, if any, on account of such Borrowing Base Deficiency) and (ii)
title opinions, title reports and other title information satisfactory to Agent
indicating that Borrower has good and defensible title to the New Collateral
Properties, subject to Permitted Liens. An Event of Default shall exist if
Borrower fails to remedy the Borrowing Base Deficiency within thirty (30) days
of its receipt of notice thereof in such manner as provided above.
4.4. Reduction to Commitment. If, as of any Determination Date, or
-----------------------
following a mandatory redetermination of the Borrowing Base as provided in
Section 4.2(b) hereof, or following any designation by Borrower of the Allocated
- --------------
Borrowing Base as provided in Section 4.1(c) the Allocated Borrowing Base (as
--------------
redetermined) is less than the Allocated Borrowing Base that was previously in
effect, then the Commitment shall be reduced to an amount equal to the
redetermined
-27-
<PAGE>
Allocated Borrowing Base.
4.5 Special Provisions for Discretionary Increase to the Maximum
------------------------------------------------------------
Commitment.
-----------
(a) In addition to its designating the Allocated Borrowing Base, not
more than once during any consecutive 90-day period, Borrower may request that
the Consolidated Borrowing Base be redetermined and that the Maximum Commitment
be increased to an amount agreed to by Banks and the Canadian Lenders after
taking into account the redetermined Borrowing Base plus the Canadian Commitment
----
then in effect. Borrower shall give Agent not less than thirty (30) Business
Day's prior notice of the effective date of the requested increase to the
Maximum Commitment.
(b) With each request to increase to the Maximum Commitment hereunder,
Borrower shall deliver to Agent a report prepared within 180 days prior to the
date of such request by a firm or firms of independent petroleum engineers
acceptable to Agent, in accordance with customary standards and procedures of
the petroleum industry, or such other engineering or reserve report reasonably
acceptable to Agent. The report shall evaluate the reserves attributable to the
oil and gas properties of Borrower which Borrower proposes to include in the
Borrowing Base for the purpose of increasing the Maximum Commitment (such
properties are herein called the "Additional Properties"), and which such
evaluation shall include, without limitation, a description of reserves which
relate to the Additional Properties, net revenue interests and working interests
attributable to such reserves, rates of production, gross revenues, operating
expenses, ad valorem taxes, projected capital expenditures necessary to cause
the Additional Properties to achieve the rates of production set forth in the
reserve report, net revenues and present value of future net revenues
attributable to such reserves and production therefrom, and a statement of the
assumptions upon which such determinations were made.
(c) Banks shall use every reasonable effort to notify Borrower within
30 Business Days after the receipt of such engineering reports and title
information relating to such Additional Properties whether Banks will increase
the Maximum Commitment, and if so, the amount of the Maximum Commitment as
increased. If the Maximum Commitment is increased, the Borrowing Base shall be
redetermined and the Allocated Borrowing Base shall be designated to an amount
that does not exceed the Maximum Commitment, as increased. Banks are under no
obligation to increase the Commitment unless Banks elects to do so, and any
increase shall be at the sole and absolute discretion of Banks. If Banks elect
to increase the Maximum Commitment, the increase to the Maximum Commitment shall
be effective as of the date upon which Borrower executes and delivers to Bank
appropriate documents reflecting an appropriate amendment to this Loan Agreement
and Collateral Documents which will grant to Bank a valid, enforceable and first
priority Lien (subject to Permitted Liens) against the Additional Properties as
security for the Loan.
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<PAGE>
ARTICLE 5.
SECURITY
5.1. Liens on Mortgaged Properties,
-----------------------------
(a) Mortgaged Properties. As security for the performance by Borrower
--------------------
of the Notes and the Obligation of Borrower hereunder, Borrower has previously
granted to Agent (subject to Permitted Liens) as security for the Indebtedness
under the Prior Loan Agreement a valid, enforceable, perfected, first priority
and the only Lien in Borrower's interests in certain oil and gas Properties
located in various counties and states, and in related accounts, wells, pipes,
personal property and fixtures (herein called the "Mortgaged Properties") as
shown by mortgages, deeds of trust and other documents previously executed by
Borrower and delivered to Bank according to the Prior Loan Agreement or other
loan agreements which have been amended by the Prior Loan Agreement. In the
event that Additional Properties and/or New Collateral Properties are pledged to
Banks as security for the Notes pursuant to Sections 2.2, 4.3 or 4.5 hereof,
------------------------
then such Properties shall be deemed to be Mortgaged Properties. At all times,
the Mortgaged Properties shall consist of Properties of Borrower containing not
less than ninety percent (90%) of the Proved Developed Producing Reserves of
Borrower utilized to establish the Borrowing Base then in effect.
(b) Onyx Subsidiaries Properties. As additional security for the
----------------------------
performance by Borrower of the Notes and Obligation of Borrower hereunder,
Borrower has caused the Onyx Subsidiaries to grant to Bank a valid, enforceable,
perfected, second priority lien (being secondary, inferior and subject to the
Lien and security interest of Bank of Scotland granted to secure the
indebtedness, liabilities and obligations of the Onyx Subsidiaries under the
Onyx Loan Agreement) in the properties of the Onyx Subsidiaries that are
described or referred to as "Mortgaged Properties" in the Onyx Loan Agreement,
provided however that such Lien secures the Obligation and the Notes only to the
extent of (i) the amounts or proceeds paid by Arch to Bank of Scotland under the
Arch (Onyx) Guaranty and/or (ii) the amounts or proceeds paid or allocable to
the Bank of Scotland upon foreclosure of any of the Mortgaged Properties or
Bank's exercise of any rights or remedies under the Collateral Documents and
such amounts or proceeds are attributable to the Arch (Onyx) Guaranty or are
applied by Bank of Scotland towards repayment of the indebtedness due under the
Onyx Loan Agreement. Notwithstanding anything herein or in the Notes to the
contrary, it is specifically provided that none of the Onyx Subsidiaries or any
member thereof shall have personal, partnership, or corporate liability for the
payment of the Obligations of Borrower hereunder or under the Notes or be liable
for a money judgment or otherwise hereunder or under the Notes.
(c) Pledge of Arch Canada Stock. As additional security for the
---------------------------
performance by Borrower or the Notes and Obligation of Borrower hereunder, API
shall grant to Agent (or the Canadian Lender) on behalf of all Banks a valid,
enforceable, perfected, first priority Lien in 66 2/3% of the shares of common
stock of Arch Canada (the "Pledged Shares"), together with the stock
certificates evidencing such shares and stock powers executed in blank.
(d) Collateral Documents. All Liens on the Mortgaged Properties,
--------------------
Additional Properties,
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<PAGE>
New Collateral Properties, the Pledged Shares and the second lien on the
properties of the Onyx Subsidiaries have been or shall be granted pursuant to,
and more fully described in, mortgages, pledge agreements, deeds of trust,
assignments of production, assignments of notes and liens, financing statements,
pledge agreements, stock powers, and other documents (including appropriate
amendments to the mortgages and deeds of trust covering the Mortgaged Properties
that were executed and delivered pursuant to the Prior Loan Agreement and the
second lien of the properties of the Onyx Subsidiaries to reflect that such
mortgages and deeds of trust secure payment of the Notes and that all such Liens
are held by Agent (or the Canadian Agent) as collateral agent for all Banks) in
form and substance satisfactory to Agent and which have been or will be executed
by Borrower (and the Onyx Subsidiaries) in favor of Banks (herein called the
"Collateral Documents").
5.2 Arch (Onyx) Guaranty. The Collateral Documents shall also secure
--------------------
Arch's obligations to Bank of Scotland arising under the Arch (Onyx) Guaranty.
Borrower and Banks hereby acknowledge and agree that the obligations of Arch
under the Arch (Onyx) Guaranty shall be pari passu (on a pro rata basis) with
the Obligations of Borrower under this Loan Agreement.
5.3 Arch (Canadian) Guaranty. The Collateral Documents shall also
------------------------
secure Arch's obligations to the Canadian Lenders arising under the Arch
(Canadian) Guaranty. Borrower and Banks hereby acknowledge and agree that the
obligations of Arch under the Arch (Canada) Guaranty shall be pari passu (on a
pro rata basis) with the Obligations of Borrower under this Loan Agreement.
ARTICLE 6.
CONDITIONS PRECEDENT
6.1 Conditions Precedent to Loan and Initial Advance. The obligations
------------------------------------------------
of Banks under this agreement are subject to the condition precedent that
Borrower shall have executed and/or delivered to Agent or Banks, as appropriate,
all of the following (in such quantities as may be requested by Agent), each
dated or effective as of the appropriate date thereof, in form and substance
satisfactory to Agent:
(a) Notes. A duly executed Note of each Bank, in the form of Exhibit "B"
-----
attached hereto with appropriate insertions.
(b) Loan Agreement. This Loan Agreement.
--------------
(c) Certificate. A certificate from the chief financial officer of
-----------
each of Arch and APC that Arch and APC are not in default under the Prior Loan
Agreement.
(d) Resolution. A copy of a resolution of the board of directors of
----------
each of Arch and APC approving each of Arch's and APC's execution of this Loan
Agreement, the Notes and the other Loan Documents, with a certificate of the
Secretary of each of Arch and APC that the copy is a true and correct copy of
the resolution and that such resolution has not been amended or rescinded and
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<PAGE>
remains in full force and effect.
(e) Collateral Documents. Collateral Documents covering the Mortgaged
--------------------
Properties and the second lien against the properties of the Onyx Subsidiaries.
(f) Canadian Facility/Arch (Canadian) Guaranty. A true and correct
------------------------------------------
copy of the Loan Agreement evidencing Canadian Facility and the Arch (Canadian)
Guaranty.
6.2 Conditions Precedent to All Advances. The obligation of Banks to
------------------------------------
make any Advance shall be subject to the following conditions precedent:
(a) No Defaults. As of the date of the making of such Advance, there
-----------
exists no Event of Default or event which with notice or lapse of time or both
could constitute an Event of Default.
(b) Compliance with Loan Agreement. Borrower shall have performed and
------------------------------
complied with all covenants, agreements and conditions contained herein which
are required to be performed or complied with by Borrower before or at the date
of such Advance.
(c) Representations and Warranties. The representations and warranties
------------------------------
contained in Article 7 hereof shall be true in all respects on the date of
---------
making of such Advance, with the same force and effect as though made on and as
of that date.
ARTICLE 7.
REPRESENTATIONS AND WARRANTIES
To induce Banks to enter into this Loan Agreement and to make any Advances
hereunder, Borrower represents and warrants to Banks that:
(a) Organization and Qualification of Borrower. Each Borrower is a
------------------------------------------
corporation duly organized and validly existing under the laws of the State of
Delaware and has all corporate power and authority required to own its property
and carry on its business as presently conducted and proposed to be conducted.
Each Borrower is duly qualified or licensed to do business in each state where
the Mortgaged Properties are located and in each jurisdiction where the nature
of the business in which it is engaged makes such qualification or licensing
necessary.
(b) Authorization and Power of Borrower. Each Borrower has the
-----------------------------------
corporate power and requisite authority to execute, deliver and carry out the
terms and provisions of the Loan Documents which it has executed, and all of the
documents and instruments delivered pursuant to the terms of such Loan
Documents, and has taken all corporate action necessary to duly authorize (i)
the execution, delivery and performance by each Borrower of the terms and
provisions of the Loan Documents which it has executed and (ii) the performance
by each Borrower of its obligations under the Loan Documents, including without
limitation the borrowing and repayment of money by Borrower under the Notes and
the Loan Agreement.
-31-
<PAGE>
(c) Conflicts. Neither the execution and delivery of the Loan
---------
Documents, nor consummation of any of the transactions herein or therein
contemplated, nor compliance with the terms and provisions hereof or with the
terms and provisions thereof by Borrower, will contravene in any material
respect any provision of law, statute, rule or regulation to which each Borrower
is subject or any judgment, decree, license, order or permit applicable to each
Borrower, or will conflict or will be inconsistent with, or will result in any
material breach of any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of any Lien
(except liens in favor of Banks) upon any of the property or assets of Borrower
pursuant to the terms of, any indenture, mortgage, deed of trust, agreement or
other instrument to which each Borrower is a party or by which each Borrower may
be bound, or to which each Borrower may be subject, or conflict with or
contravene any provision of the articles of incorporation and/or bylaws of each
Borrower.
(d) Consents, Etc. No consent, approval, authorization or order of
-------------
any court or governmental authority or third party is required in connection
with the execution and delivery by Borrower of the Loan Documents it has
executed or to consummate the transactions contemplated hereby or thereby.
(e) Enforceable Obligations. The Loan Documents, when duly executed
-----------------------
and delivered by Borrower with this Loan Agreement, will be legal and binding
obligations of Borrower, enforceable in accordance with their respective terms,
except as limited by bankruptcy, insolvency or other laws of general application
relating to the enforcement of creditors' rights.
(f) Liens. The Liens granted to Banks pursuant to the Collateral
-----
Documents are valid and enforceable first priority Liens securing the Notes and
the Obligation applicable to such Collateral Documents, except for Permitted
Liens.
(g) Financial Condition. The financial statements and information of
-------------------
Borrower and its Subsidiaries and all related notes to such financial statements
which have been delivered to Agent or Banks pursuant to the terms hereof, fairly
present the financial position (including all contingent liabilities) of
Borrower as of the dates of such financial statements; no material adverse
changes have occurred in the financial condition or business of Borrower since
such dates.
(h) Other Liabilities. As of the date hereof, there are no material
-----------------
obligations, liabilities (including contingent and indirect liabilities and
obligations), indebtedness or unusual forward or long-term commitments of
Borrower, which have not been disclosed to Agent or Banks in writing prior to
the date hereof.
(i) No Event of Default. No event has occurred and is continuing
-------------------
which constitutes an Event of Default or would, with the lapse of time or giving
of notice or both, constitute an Event of Default.
(j) Full Disclosure. There is no fact known to Borrower that has not
---------------
been disclosed to Agent or Banks in writing which could materially adversely
affect the properties, business, prospects
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<PAGE>
or condition (financial or otherwise) of Borrower.
(k) Principal Office, etc. The principal office and principal place of
---------------------
business of Borrower is in Fort Worth, Texas.
(1) No Litigation. Except as previously disclosed in writing by
-------------
Borrower to Agent or Banks, there are no actions, suits or legal, equitable,
arbitration or administrative proceedings pending, or to the knowledge of
Borrower threatened, against Borrower, in equity or before any federal, state,
municipal or other governmental department, commission, body, bureau, agency or
instrumentality, domestic or foreign which, if determined adversely to Borrower,
would have a material adverse effect on the financial or other condition or
business of Borrower, and there are no outstanding judgments, injunctions,
writs, rulings or orders by any court or governmental body against Borrower.
(m) Payment of Taxes. All federal income tax returns and all state
----------------
franchise tax returns required to be filed by Borrower in any jurisdiction have
been filed, and no taxes, assessments, fees or other governmental charges upon
Borrower or upon any of Borrower's properties, including without limitation the
Mortgaged Properties, are delinquent.
(n) Compliance with Laws and Regulations. Borrower is in material
------------------------------------
compliance with all statutes, laws, rules, regulations and orders pertaining to
its ownership and/or operation of the Mortgaged Properties.
(o) Mortgaged Properties. Subject to the Permitted Liens, Borrower
--------------------
holds good and defensible title to each of the Mortgaged Properties; Borrower
has granted to Banks to secure the Obligation a valid, enforceable, perfected,
first priority and the only (except for Permitted Liens) Lien in not less than,
and Borrower is entitled to receive not less than, that percentage of oil, gas
and other hydrocarbons produced from the land covered by the leases pertaining
to the Mortgaged Properties (after deduction of all royalties, overriding
royalties and other interests payable from or measured by production) equal to
the "net revenue interest" specified in the evaluation of such Mortgaged
Properties in the most recent engineering and/or reserve report(s) covering such
Mortgaged Properties which are delivered to Agent or Banks hereunder, with the
term "net revenue interest" meaning the proportionate share of the production of
oil, gas or other minerals to which Borrower is entitled after deduction of all
royalties, overriding royalties and other interests payable from or measured by
production; Borrower has granted to Banks to secure the Obligation a valid,
enforceable, perfected, first priority and the only (except for permitted Liens)
Lien in the "working interest" specified in the evaluation of such Mortgaged
Properties in the most recent engineering report(s) and/or reserve reports
covering such Mortgaged Properties which are delivered to Banks hereunder, with
the term "working interest", as used herein, meaning the right to explore for,
drill and produce oil, gas or other minerals; Borrower is not obligated to bear
more than that percentage of the cost of all operations conducted on the
Mortgaged Properties equal to the "working interest" as above described.
(p) Environmental Matters. Borrower and any Mortgaged Properties are
---------------------
not (i) in
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<PAGE>
violation of, in any material respect, any Environmental Laws, nor are there
existing, pending or, to the best of Borrower's knowledge, threatened any
investigation or inquiry by any Governmental Authority pursuant to any
Environmental Laws, nor are there existing or pending any remedial obligations
under any Environmental Laws, or (ii) subject to threatened investigation (other
than those the outcome of which would not involve substantial fees, penalties or
liability to Borrower) by any Governmental Authority pursuant to Environmental
Laws, or any remedial obligation under Environmental Laws (other than remedial
obligations that may be customary with respect to the operations or business of
the Borrower or that do not involve substantial fines, penalties or liability on
the part of the Borrower) and this representation will continue to be true and
correct following disclosure to the applicable Governmental Authorities of all
relevant facts, conditions and circumstances, if any, pertaining to Borrower or
any Mortgaged Property.
(q) ERISA. (a) No Reportable Event has occurred and is continuing
-----
with respect to any Plan; (b) PBGC has not instituted proceedings to terminate
any Plan; (c) neither Borrower, nor any duly-appointed administrator of a Plan
(i) has incurred any liability to PBGC with respect to any Plan other than for
premiums not yet due or payable or (ii) has instituted or intends to institute
proceedings to terminate any Plan under Section 4041 or 4041A of ERISA or
withdraw from any Multi-Employer Pension Plan (as that term is defined in
Section 3(37) of ERISA); and (d) each Plan of Borrower has been maintained and
funded in all material respects in accordance with its terms and with all
provisions of ERISA applicable thereto.
ARTICLE 8.
BORROWER'S COVENANTS
8.1. Affirmative Covenants. So long as the Notes or any part thereof
---------------------
is outstanding, and until payment in full of the Notes, the performance of the
Obligation thereunder and the termination of the Banks' commitment, Borrower
agrees that, unless Banks shall otherwise consent in writing:
(a) Financial Statements and Reports of Borrower. Borrower shall
--------------------------------------------
furnish to Agent: (i) as soon as available, but in any event within ninety (90)
days after the end of each fiscal year of Borrower, commencing with the fiscal
year ending December 31, 1995, a consolidated audited balance sheet of Borrower
prepared as of the close of such fiscal year and audited statements of
operations, changes in shareholders equity and statements of cash flows of
Borrower for such year, in each case setting forth in comparative form the
figures for the preceding fiscal year, all in reasonable detail; such financial
statements of Borrower shall be certified by an independent public accountant
selected by Borrower and satisfactory to Agent; and (ii) within forty-five (45)
days after the end of the first three fiscal quarters of each fiscal year of
Borrower, commencing with the fiscal quarter ending March 31, 1996, consolidated
unaudited financial information with respect to Borrower of the type described
in item (i); such financial information and reports of Borrower specified in
items (i) and (ii) to be accompanied by a quarterly certificate of compliance,
in the form of Exhibit "D", executed by the chief financial officer of Borrower
certifying that the attached financial statements are true and correct and have
been prepared in accordance with Generally Accepted Accounting Principles,
Borrower has complied with all of the terms and conditions of the
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<PAGE>
Loan Agreement, and no event has occurred which constitutes an Event of Default
or would, with the lapse of time or giving of notice, or both, constitute an
Event of Default.
(b) Financial Statements and Reports of Onyx Subsidiaries. Borrower
-----------------------------------------------------
shall furnish to Agent: (i) as soon as available, but in any event within
ninety (90) days after the end of each fiscal year of the Onyx Subsidiaries,
commencing with the fiscal year ending December 31, 1995, a consolidated audited
balance sheet of the Onyx Subsidiaries prepared as of the close of such fiscal
year and audited statements of operations, changes in members equity and
statements of cash flows of the Onyx Subsidiaries for such year, in each case
setting forth in comparative form the figures for the preceding fiscal year, all
in reasonable detail; such financial statements of the Onyx Subsidiaries shall
be certified by an independent public accountant selected by the Onyx
Subsidiaries and satisfactory to Agent; and (ii) within forty-five (45) days
after the end of the first three fiscal quarters of each fiscal year of the Onyx
Subsidiaries, commencing with the fiscal quarter ending March 31, 1996,
consolidated unaudited financial information with respect to the Onyx
Subsidiaries of the type described in item (i); and a statement setting forth
the total volumes of gas, liquid hydrocarbons or products thereof sold by the
Onyx Subsidiaries during the preceding fiscal quarter.
(c) Financial Statements and Reports of Arch Canada. Borrower shall
-----------------------------------------------
furnish to Agent on the identical dates prescribed in the Credit Agreement
evidencing the Canadian Facility all financial statements and reports concerning
Arch Canada that Arch Canada is required to provide to the Canadian Agent
pursuant to such Credit Agreement.
(d) Reserve and Production Reports. Borrower shall deliver to Agent
------------------------------
within ninety (90) days after the end of each fiscal year a reserve report,
prepared as of the end of such fiscal year, by Ryder Scott and Associates or
such firm or firms of independent petroleum engineers designated by Borrower and
approved by Agent, evaluating the Mortgaged Properties and prepared in
accordance with the customary standards and procedures of the petroleum industry
(such evaluation shall include, without limitation, a description of reserves,
rates of production, gross revenues, operating expenses, ad valorem taxes,
capital costs, net revenues and the discounted present value of future net
revenues attributable to the Proved Developed Producing Reserves, Proved
Developed Non-Producing Reserves and Proved Undeveloped Reserves and production
therefrom and a statement of the assumptions upon which such determinations were
made).
(e) Payment of Taxes, etc. Borrower shall pay and discharge all
---------------------
taxes, assessments, governmental charges, levies and all lawful claims which, if
unpaid, might become a Lien or charge upon the Mortgaged Properties; provided,
Borrower shall not be deemed in default if any such taxes, assessments,
governmental charges, levies or claims are being contested by Borrower in good
faith.
(f) Insurance and Insurance Summaries. Borrower shall maintain on all
---------------------------------
of its assets and properties, now owned or hereafter acquired, and with respect
to its personal liability, insurance issued by responsible companies in such
amounts and against such risks as it deems prudent. Within sixty (60) days
after the end of each fiscal year of Borrower, Borrower shall deliver to Agent a
summary of all insurance coverage maintained by Borrower, including a summary of
the carriers of such insurance, the properties and risks insured, the amounts of
such insurance and other information
-35-
<PAGE>
regarding insurance coverage as is reasonably requested by Bank.
(g) Operations and Properties. Borrower shall act prudently and in
-------------------------
accordance with customary industry standards in managing or operating its
assets, properties, business and investments, including without limitation the
Mortgaged Properties; Borrower shall keep in good working order and condition,
ordinary wear and tear excepted, all of its assets and properties which are
necessary and material to the conduct of its business, including without
limitation all wells and equipment necessary or useful in the operation of the
Mortgaged Properties; provided, Borrower shall never be deemed obligated to
rework, recomplete, redrill or otherwise maintain any well or production
facility when, in Borrower's judgment, it would be imprudent or uneconomic to do
so.
(h) Amendments to Onyx Loan Agreement/Arch (Onyx) Guaranty. Promptly
------------------------------------------------------
after execution of same, Borrower shall provide to Agent true and correct copies
of all amendments, supplements, modifications, renewals, extensions or
rearrangements of the Onyx Loan Agreement and the Arch (Onyx) Guaranty.
(i) Amendments to Canadian Facility/Arch (Canadian) Guaranty.
--------------------------------------------------------
Promptly after execution of same, Borrower shall provide to Agent true and
correct copies of all amendments, supplements, modifications, renewals,
extensions or rearrangements of the Loan Agreement evidencing the Canadian
Facility and the Arch (Canadian) Guaranty.
(j) Compliance with Applicable Laws. Borrower shall comply with the
-------------------------------
requirements of all applicable laws, rules, regulations and orders of any
governmental authority, a breach of which could materially and adversely affect
the business or credit of Borrower.
(k) Litigation. Borrower shall give notice in writing to Agent of the
----------
commencement of, and any material determination in, all litigation and all
proceedings before any governmental or regulatory agencies materially affecting
Borrower.
(l) Changes of Fact. Borrower shall notify Agent in writing of any
---------------
change in any material fact or circumstance represented or warranted in this
Loan Agreement or the other Loan Documents.
(m) Maintenance of Rights. Borrower shall preserve and maintain all
---------------------
of its rights, privileges and franchises necessary in the normal conduct of its
business, and conduct its business in an orderly and efficient manner consistent
with good business practices.
(n) Maintenance and Granting of Liens, Mortgages and Security
------------------------------------------------ --------
Interests. Borrower shall execute and deliver to Agent all security agreements,
- ---------
pledge agreements, stock powers, financing statements, documents and
instruments, and do such other things, as are required by Article 5 hereof, or
---------
as Agent (or the Canadian Agent) shall reasonably request in order to maintain
(subject to Permitted Liens) as valid, enforceable, perfected and first priority
Liens, all Liens granted to Banks pursuant to this Loan Agreement.
-36-
<PAGE>
(o) Notice of Default. Borrower shall furnish to Agent, upon becoming
-----------------
aware of the existence of any condition or event constituting an Event of
Default or any event which, with the lapse of time or giving of notice, or both,
would constitute an Event of Default, a written notice specifying the nature and
period of existence thereof and the action which Borrower is taking or proposes
to take with respect thereto.
(p) Compliance with Loan Documents. Borrower shall promptly comply
------------------------------
with any and all applicable covenants and provisions of the Loan Documents.
(q) Compliance with Material Agreements. Borrower shall comply in all
-----------------------------------
material respects with all material agreements, operating agreements, leases, or
other documents binding on Borrower, or affecting its properties or business.
(r) Books and Records; Inspection. Borrower and each of its
-----------------------------
Subsidiaries shall at all times keep complete and accurate books, records and
accounts of transactions, which records shall fairly present its financial
position and results of operations; and Borrower shall, upon request by Agent,
give any representative or agent of Agent or any Bank access during normal
business hours to, and permit such representative to examine, copy or make
excerpts from, any and all books, records and documents in the possession of
Borrower relating to its or its Subsidiaries' affairs.
(s) Agreements Affecting the Mortgaged Property. Borrower shall
-------------------------------------------
deliver to Agent upon request by Agent copies of all material operating
agreements, pooling or unitization agreements, sales or processing contracts,
preferential purchase right agreements, drilling and/or development agreements,
pipeline transportation agreements and other material agreements which pertain
to the Mortgaged Properties, the operation thereof or the disposition of
production attributable thereto.
(t) Compliance with Covenants in Collateral Documents. In addition to
-------------------------------------------------
the foregoing covenants, Borrower shall comply with all covenants contained in
the Collateral Documents, and specifically those covenants dealing with the
operation and maintenance of the Mortgaged Properties.
(u) Other Notices. Borrower shall promptly notify Agent of (a) any
-------------
default or claimed or asserted default under any agreement (including the Onyx
Loan Agreement or the Canadian Facility), contract or other instrument to which
Borrower is a party or by which any of its properties are bound, or any
acceleration of the maturity of any Indebtedness of Borrower in an amount
greater than $100,000, and (b) any adverse claim against or affecting Borrower
or any of its properties which is in excess of $100,000.
(v) Business Plan. Borrower shall furnish to Agent a five-year
-------------
business plan within 90 days after the end of each of its fiscal years. The
business plans shall contain in reasonable detail projections of revenue and
expense, capital expenditures and management's goals and objectives and shall
set forth the basis and assumptions utilized in the preparation thereof. The
plans shall also include (i) in financial statement format, projected balance
sheets, profit and loss statements and sources and uses of funds, and (ii) cash
flow projections.
-37-
<PAGE>
(w) Copies of Filings, Etc. Concurrently with transmission thereof,
-----------------------
Borrower shall furnish to Agent copies of all financial statements, proxy
statements and other statements and reports as Borrower or any Subsidiary sends
to its stockholders or members, and copies of all registration statements and
all regular, special or periodic reports which Borrower or any Subsidiary files,
or any of its officers or directors file with respect to Borrower, any
Subsidiary or their securities, with the Securities and Exchange Commission or
with any securities exchange on which any of Borrower's securities or its
Subsidiaries' securities are then listed, if any, and copies of all press
releases and other statements made available generally by Borrower or any
Subsidiary to the public concerning material developments in Borrower's or any
Subsidiary's business.
(x) Environmental. Borrower will provide to Agent copies of all
-------------
notices received from or required to be made to (when sent) any Governmental
Authority (other than notices routinely received or submitted in the ordinary
course of business) relating to the release or threatened release of hazardous
substances (as defined in any Environmental Law) by Borrower in connection with
any of the Mortgaged Properties that is reportable under any Environmental Law
now or hereafter in effect. Borrower agrees to indemnify and hold Banks
harmless, from and against any and all fines, penalties, cleanup costs and
assessments levied by any Governmental Authority, together with all claims,
liabilities, causes of action, damages, costs and expenses (including attorneys'
fees and court costs but excluding claims, liabilities, etc. arising out of the
gross negligence or willful misconduct of Banks), now existing or hereafter
arising, asserted against or incurred by any Bank arising out of or in
connection with the presence, storage, discharge, use, disposal, transportation
or remediation of any hazardous substances (as defined in any Environmental Law)
on or about any of the Mortgaged Properties in violation of any Environmental
Laws affecting any of the Mortgaged Properties.
8.2. Negative Covenants. So long as any Bank has any Commitment
------------------
hereunder or the Loan or any part thereof is outstanding and until payment in
full of the Notes and the performance of the obligation, Borrower agrees that,
unless Banks shall otherwise consent in writing:
(a) Limitation on Liens. Borrower shall not create or suffer to exist
-------------------
any Lien upon any of its oil and gas properties, except for Permitted Liens.
(b) Limitation on Sale of Mortgaged Properties. Without the prior
------------------------------------------
approval of Banks, Borrower shall not sell, convey, exchange, lease or otherwise
dispose of any of the Mortgaged Properties having an aggregate value in excess
of $100,000, excluding obsolete or worn-out equipment and oil, gas and
hydrocarbons sold in the ordinary course of Borrower's business.
(c) Certain Transactions. With respect to the Mortgaged Properties,
--------------------
Borrower shall not enter into any transaction with any Affiliate except for
transactions with Affiliates upon terms not less favorable to Borrower than
would be obtainable at the time in comparable transactions of Borrower in arm's
length dealings with Persons other than Affiliates.
(d) Place of Business. Borrower shall not move its principal place of
-----------------
business or chief executive office without giving Agent written notice thereof.
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<PAGE>
(e) Limitation on Consolidation, Merger, Etc. Borrower shall not
-----------------------------------------
consolidate with or merge into, or permit any Subsidiary to consolidate with or
merge into, any other Person or permit any other Person to consolidate with or
merge into it or any Subsidiary, or transfer, or permit any Subsidiary to
transfer, all, or substantially all, of its Property.
(f) Limitation on Investments and New Businesses. Borrower shall not
--------------------------------------------
engage directly or indirectly in any new business or make any acquisitions,
investments, or commitments, except such businesses, operations, acquisitions,
or investments which are incidental to or reasonably related to the present
businesses and operations conducted by Borrower or any Subsidiary and except (A)
investment in obligations of the United States government or any agency thereof
or obligations guaranteed by the United States government having a maturity not
in excess of one year, (B) investments in certificates of deposit of financially
sound commercial bank having a maturity not in excess of one year language, (C)
investments in commercial paper with a rating of at least "Prime 1" according to
Moody's Investors Service, Inc., or a similar rating of a comparable or
successor service, having a maturity not in excess of one year.
(g) Limitation on Credit Extensions. Borrower shall not extend credit,
-------------------------------
credit, make advances or make loans to any Person or entity other than normal
and prudent extensions of credit in the ordinary course of business, which
extensions shall not be for longer periods than those extended by similar
businesses operated in a normal and prudent manner; provided, however, that
Borrower shall make no advances, loans or extensions of credit to or for the
benefit of any of the Onyx Subsidiaries.
(h) Fiscal Year. Borrower shall not change its fiscal year.
-----------
(i) Certain Agreements. Borrower shall not enter into any agreement,
------------------
which by its terms would expressly restrict its performance of its obligations
pursuant to this Loan Agreement. Further, Borrower shall not enter into any
transaction with any of its officers, directors, employees or affiliates (as
defined in Rule 405 under Securities Act of 1933, as now or later amended),
except for agreements expressly contemplated by this Agreement and except for
employment and compensation arrangements entered into on an arms-length basis
and containing only reasonable and customary terms.
(j) Dividends. Borrower shall not declare or pay or permit any
---------
Subsidiary to declare or pay any dividends, other than stock dividends on
Borrower's stock; provided, however, to the extent permitted under the Onyx Loan
Agreement, the Onyx Subsidiaries may make distributions to their members in the
amount of such members' income tax liabilities respecting their respective
ownership interests in the Onyx Subsidiaries and, provided, further, so long as
no Event of Default exists hereunder, Borrower may declare and pay dividends on
the Exchangeable Convertible Preferred Stock that has been issued to Travelers
Insurance Company.
(k) Net Worth. Borrower shall not permit its Net Worth at the end of
---------
each of any fiscal year to be less than $27,000,000.
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<PAGE>
(1) Limitation on Additional Indebtedness. Borrower shall not create,
-------------------------------------
incur, assume or otherwise become or remain liable with respect to Indebtedness,
except:
(1) The Loan.
(2) The Indebtedness shown on Borrower's balance sheet for the year
ending December 31, 1995;
(3) Trade payables not more than sixty (60) days past due;
(4) The Arch (Onyx) Guaranty, provided, however, that, without the
prior consent of Banks, Arch shall not agree to amend the Arch (Onyx) Guaranty
if such amendment would cause the obligations of Arch (Onyx) under the Arch
Guaranty to exceed the obligations of Arch under the Arch (Onyx) Guaranty as
they exist as of the date hereof;
(5) The Arch (Canadian) Guaranty; and
(6) $5,000,000 Convertible Subordinated Notes held by Travelers
Insurance Company (and affiliates thereof) and Connecticut General Life
Insurance Company (and affiliates thereof).
(m) Indebtedness to Net Worth Ratio. Borrower shall not permit the
-------------------------------
ratio of the consolidated Indebtedness of Borrower and its Subsidiaries to Net
Worth to be greater than 2.5:1.
(n) Coverage Ratio. Borrower shall not permit the ratio of the
--------------
consolidated Net Income of Borrower and its Subsidiaries divided by the total of
consolidated interest and principal payments at any fiscal quarter end to be
less than 1.0:1.0. "Net Income" means the consolidated net income of Borrower
and its Subsidiaries before dividends on preferred stock calculated in the
manner shown on its statements of operations plus the following categories of
expense as shown on its statements of operations: (i) depreciation, depletion,
and amortization expense ("D,D&A"), (ii) current and deferred income tax
expense, and (iii) interest expense, less non-cash production payment revenues,
calculated on a rolling twelve month basis.
(o) Working Capital. Borrower shall not permit the ratio of the
---------------
current consolidated assets of Borrower and its Subsidiaries to the current
consolidated liabilities of Borrower and its Subsidiaries to be less than 0.9:1
at any time.
ARTICLE 9.
EVENTS OF DEFAULT
9.1. Event of Default. An "Event of Default" shall exist if any one
----------------
or more of the following events (herein called "Events of Default") shall occur:
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<PAGE>
(a) Failure of Payment. Borrower shall fail to pay or cause to be
------------------
paid when due (whether at stated maturity, by acceleration or otherwise) all or
any part of the principal of or interest on the Notes executed hereunder or any
other payment required hereunder or under the Loan Documents.
(b) False Representation. Any material representation or warranty
--------------------
made under the Loan Documents or in any certificate or statement furnished or
made to Agent or any Bank pursuant hereto or in connection herewith, shall prove
to be untrue in any material respect as of the date on which such representation
or warranty is made.
(c) Breach of Covenant. Any material default or breach shall occur in
------------------
the performance of any of the covenants or agreements of Borrower, contained
herein or in any of the other Loan Documents.
(d) Renunciation of Obligation. Borrower renounces its material
--------------------------
obligations hereunder or under the Loan Documents, or any of the Loan Documents
becomes or is declared invalid or unenforceable.
(e) Bankruptcy. Borrower shall (1) apply for or consent to the
----------
appointment of a receiver, trustee, intervenor, custodian or liquidator of
itself or of all or a substantial part of its assets, (2) file a voluntary
petition in bankruptcy or admit in writing that it is unable to pay its debts as
they become due, (3) make a general assignment for the benefit of creditors, (4)
file a petition or answer seeking reorganization or an arrangement with
creditors or to take advantage of any bankruptcy or insolvency laws, or (5) file
an answer admitting the material allegations of or consent to or default in
answering a petition filed against it in any bankruptcy, reorganization or
insolvency proceeding, or action shall be taken by such Person for the purpose
of effecting any of the foregoing.
(f) Bankruptcy Orders, etc. An order, judgment or decree shall be
----------------------
entered by any court of competent jurisdiction or other competent authority
approving a petition seeking reorganization of Borrower, an "order for relief"
under applicable bankruptcy law, or appointing a receiver, trustee, intervenor,
custodian, or liquidator of Borrower or of all or substantially all of its
assets.
(g) Default Under Other Documents. A material default shall occur
-----------------------------
under any other loan agreement, credit agreement or note between Banks and
Borrower or under any other collateral document executed by Borrower given to
secure payment of Indebtedness owed to Banks by Borrower.
(h) Liens Invalid. To a material extent, any of the Liens granted (or
-------------
purported to be granted) to Bank pursuant to, or as described in, Article 5
hereof should become invalid or unenforceable or cease to be (subject to
Permitted Liens) first priority Liens.
(i) Judgments. Any judgment or judgments for the payment of money in
---------
the aggregate excess of $100,000 shall be rendered against Borrower and such
judgment or judgments shall not be satisfied or discharged at least ten (10)
days prior to the date on which any of the assets of such Person could lawfully
be sold to satisfy such judgment or judgments.
-41-
<PAGE>
(j) Material Defaults. Borrower should fail to pay when due any
-----------------
Indebtedness in the aggregate excess of $100,000 or should default in the
performance of Borrower's material obligations under any promissory note, credit
agreement, loan agreement or collateral document relating to or securing any
such Indebtedness in the aggregate excess of $100,000.
(k) Dissolution of Borrower. The occurrence of any event resulting in the
-----------------------
dissolution of Borrower.
(1) Borrowing Base Deficiency. Upon the occurrence of a Borrowing
-------------------------
Base Deficiency, Borrower shall fail to remedy such Borrowing Base Deficiency in
the manner and within the time set forth in Section 4.3 hereof.
-----------
(m) Default Under Onyx Loan Agreement. A material default shall occur
---------------------------------
under the Onyx Loan Agreement and such default is not cured or satisfied within
the applicable cure period therefor as set forth in the Onyx Loan Agreement.
(n) Default Under Canadian Facility. A material default shall occur
-------------------------------
under the Loan Agreement evidencing the Canadian Facility and such default is
not cured or satisfied within the applicable cure period therefor as set forth
in such Loan Agreement.
9.2. Materiality. With respect to the Events of Default set forth in
-----------
Sections 9.1 (b), (c), (d), (g), (h), (m) and (n) the term "material" shall mean
- -------------------------------------------------
any event or occurrence which results or may result in a significant adverse
effect upon the Borrower, the Mortgaged Properties, Borrower's title to the
Mortgaged Properties or Borrower's ability to make payments on the Notes as they
come due, or which has an adverse impact on Borrower or Borrower's interest in
the Mortgaged Properties which is in excess of $100,000.
9.3. Notice of Event of Default.
--------------------------
(a) Monetary Defaults. Upon Agent's or any Bank's becoming aware of
-----------------
an Event of Default set forth in Section 9.1(a) hereof, Agent shall immediately
--------------
send notice to Borrower of such Event of Default, which notice shall set forth
the amount of the payment due from Borrower to Banks. As to an Event of Default
for which notice is due under this Section 9.3(a), before pursuing any remedies
--------------
to which it is entitled, Banks shall allow Borrower five (5) Business Days from
the date of such notice to remedy or cure such Event of Default.
(b) Certain Non-Monetary Defaults. Upon Agent's or any Bank's
-----------------------------
becoming aware of any Event of Default set forth in Sections 9.1 (b), (c), (d),
---------------------------
(g), (h), (i), or (j) hereof, Agent shall immediately send notice to Borrower of
- ------------- ---
such Event of Default, which notice shall sufficiently describe the
circumstances giving rise to such Event of Default. As to such Events of
Default for which notice is due under this Section 9.3(b), before pursuing any
--------------
remedies to which it is entitled, Banks shall allow Borrower twenty (20)
Business Days from the date of such notice within which to remedy or cure such
Event of Default. Banks shall not be required to provide to Borrower any notice
of any Events of Default set forth in Sections 9.1(e), (f), (k), (l), (m) or (n)
----------------------------------- ---
prior to its
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<PAGE>
exercising its remedies.
9.4. Remedies Upon Event of Default. If an Event of Default shall have
------------------------------
occurred and remain uncured or unremedied after the applicable cure periods set
forth in Section 9.3 hereof, then Banks may at their option, (i) terminate
-----------
their Commitment and any obligations to make Advances hereunder, (ii) declare
the principal of, and all interest then accrued on, the Notes and any other
liabilities hereunder to be forthwith due and payable, whereupon the same shall
forthwith become due and payable without presentment, demand, protest, notice of
acceleration or intention to accelerate or other notice of any kind, all of
which Borrower hereby expressly waives, anything contained herein or in the
Notes to the contrary notwithstanding, (iii) reduce any claim to judgment,
and/or (iv) pursue and enforce any of Banks' rights and remedies under the Loan
Documents, or otherwise provided under or pursuant to any applicable law or
agreement. In addition to the foregoing, the Obligation shall be deemed to be
immediately and automatically accelerated upon the occurrence of any Event of
Default specified in Sections 9.1(e) and (f) hereof.
--------------- ---
9.5. Performance by Banks. Should Borrower fail to perform any
--------------------
applicable covenant, duty or agreement contained herein or in any of the Loan
Documents, Agent or Banks may, at their option, perform or attempt to perform
such covenant, duty or agreement on behalf of such Person. In such event,
Borrower shall, at the request of Agent, promptly pay any amount expended by
Agent or Banks in such performance or attempted performance to Banks, together
with interest thereon from the date of such expenditure until paid at the
Default Rate. Notwithstanding the foregoing, it is expressly understood that
neither Agent nor Banks assume, and shall never have, any liability or
responsibility for the performance of any duties of Borrower or under any of the
Loan Documents or other control over the management and affairs of Borrower.
ARTICLE 10
YIELD PROTECTION; SPECIAL PROVISIONS FOR EURODOLLAR LOANS
10.1. Capital Adequacy. If, after the date hereof, any Bank shall
----------------
determine that either (i) the adoption of any applicable law, rule, regulation
or guideline regarding capital adequacy and applicable to commercial banks or
financial institutions generally or any change therein, or any change in the
interpretation or administration thereof by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or (ii) compliance by such Bank (or any lending office of such Bank)
with any request or directive applicable to commercial banks or financial
institutions generally regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency has or
would have the effect of reducing the rate of return on such Bank's capital or
the capital of such Bank's holding company as a consequence of its obligations
hereunder 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 reasonably deemed by such Bank to
be material, then from time to time, within fifteen (15) days after demand by
such Bank (with a copy to Agent), Borrower shall pay to such Bank such
additional amount or amounts as will adequately compensate such Bank for such
reduction. Each Bank will promptly notify Borrower and Agent of
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any event of which it has actual knowledge, occurring after the date thereof,
which will entitle such Bank to compensation pursuant to this Section 10.1. A
------------
certificate of such Bank claiming compensation under this Section 10.1 and
------------
setting forth the additional amount of amounts to be paid to it hereunder shall
be conclusive in the absence of manifest error, and provided that such
determination is made on a reasonable basis.
10.2. Special Provisions for Eurodollar Loans.
----------------------------------------
(a) Inadequacy of Eurodollar Loan Pricing. If, with respect to an
-------------------------------------
Interest Period for any Eurodollar Borrowing:
(i) Agent determines that, by reason of circumstances affecting the
interbank eurodollar market generally, deposits in Dollars (in the applicable
amounts) are not being offered to the Reference Banks in the interbank
eurodollar market for such Interest Period, or
(ii) Banks advise Agent that the InterBank Offered Rate as
determined by Agent will not adequately and fairly reflect the cost to Banks of
maintaining or funding the Eurodollar Borrowing for such Interest Period,
then Agent shall forthwith give notice thereof to Borrower and Banks, whereupon
until Agent notifies Borrower that the circumstances giving rise to such
suspension no longer exist, (a) the obligation of Banks to make Eurodollar
Advances shall be suspended and (b) Borrower shall either (i) repay in full the
then-outstanding principal amount of the Eurodollar Borrowings, together with
accrued interest thereon on the last day of the then-current Interest Period
applicable to such Eurodollar Borrowings, or (ii) convert such Eurodollar
Borrowings to Floating Base Borrowings in accordance with Section 2.1(c)(iii) of
-------------------
this Loan Agreement on the last day of the then-current Interest Period
applicable to each such Eurodollar Borrowing.
(b) Illegality. If, after the date of this Loan Agreement, the
----------
adoption of any applicable law, rule or regulation, or any change therein, or
any change in the interpretation or administration thereof by any Governmental
Authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for any Bank to make,
maintain or fund its Eurodollar Advances, and such Bank shall so notify Agent,
Agent shall forthwith give notice thereof to Banks and Borrower. Before giving
any notice pursuant to this Subsection, such Bank shall designate a different
Eurodollar lending office if such designation will avoid the need for giving
such notice and will not be otherwise disadvantageous to any non-trivial extent
to such Bank (as determined in good faith by such Bank). Upon receipt of such
notice, Borrower shall either (i) repay in full the then outstanding principal
amount of the Eurodollar Advance of such Bank, together with accrued interest
thereon, or (ii) convert such Eurodollar Advance to a Floating Base Advance, on
either (a) the last day of the then current Interest Period applicable to such
Eurodollar Advance if such Bank may lawfully continue to maintain and fund such
Eurodollar Advance to such day or (b) immediately if such Bank may not lawfully
continue to fund and maintain such Eurodollar Advance to such day.
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<PAGE>
(c) Increased Costs for Eurodollar Loans. If any Governmental Authority,
------------------------------------
central bank or other comparable authority, shall at any time impose, modify or
deem applicable any reserve (including, without limitation, any imposed by the
Board of Governors of the Federal Reserve System but excluding any reserve
requirement included in the Eurodollar Reserve Requirement of such Bank),
special deposit or similar requirement against assets of, deposits with or for
the account of, or credit extended by, any Bank, or shall impose on any Bank (or
its Eurodollar lending office) or the interbank eurodollar market any other
condition affecting its Eurodollar Advances, the Notes or its obligation to make
Eurodollar Advances; and the result of any of the foregoing is to increase the
cost to such Bank of making or maintaining its Eurodollar Advances, or to reduce
the amount of any sum received or receivable by such Bank under this Agreement,
or under the Notes, by an amount deemed by such Bank to be material, then,
within five (5) days after demand by such Bank (with a copy to Agent) Borrower
shall pay to Agent, for the account of such Bank, such additional amount or
amounts as will compensate such Bank for such increased cost or reduction. Each
Bank will promptly notify Borrower and Agent of any event of which it has
knowledge, occurring after the date hereof, which will entitle such Bank to
compensation pursuant to this Section 10.2(c). A certificate of any Bank
---------------
claiming compensation under this Section 10.2(c) and setting forth the
---------------
additional amount or amounts to be paid to it hereunder shall be conclusive in
the absence of manifest error and provided that such determination is made on a
reasonable basis. If any Bank demands compensation under this Section, then
Borrower may at any time, upon at least five (5) Business Days' prior notice to
such Bank through Agent, either (i) repay in full the then outstanding
Eurodollar Advances of such Bank, together with accrued interest thereon to the
date of prepayment or (ii) convert such Eurodollar Advances to Floating Base
Advances in accordance with the provisions of this Loan Agreement; provided,
however, that Borrower shall be liable for any Consequential Loss arising
pursuant to such actions.
(d) Effect on Floating Base Loans. If notice has been given pursuant
-----------------------------
to Section 10.2(b) or 10.2(c) requiring the Eurodollar Advances of any Bank to
--------------------------
be repaid or converted, then unless and until such Bank notifies Borrower that
the circumstances giving rise to such repayment no longer apply, all Advances
shall be Floating Base Advances. If such Bank notifies Borrower that the
circumstances giving rise to such repayment no longer apply, Borrower may
thereafter select Advances to be Eurodollar Advances in accordance with Section
-------
2.1(c)(iii) of this Loan Agreement.
- -----------
(e) Payments Not At End of Interest Period. If Borrower makes any
--------------------------------------
payment of principal with respect to any Eurodollar Borrowing on any day other
than the last day of an Interest Period applicable to such Eurodollar Borrowing,
then Borrower shall reimburse each Bank on demand the Consequential Loss
incurred by it as a result of the timing of such payment. A certificate of each
Bank setting forth the basis for the determination of the amount of
Consequential Loss shall be delivered to Borrower through Agent and shall, in
the absence of manifest error, be conclusive and binding. Any conversion of a
Eurodollar Borrowing to a Floating Base Borrowing on any day other than the last
day of the Interest Period for such Eurodollar Borrowing shall be deemed a
payment for purposes of this Section.
ARTICLE 11.
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<PAGE>
THE AGENT AND THE BANKS.
11.1 Appointment and Authorization. Each Bank hereby appoints Agent
-----------------------------
as its nominee and agent, in its name and on its behalf: (i) to act as nominee
for and on behalf of such Bank in and under all Loan Documents; (ii) to arrange
the means whereby the funds of Banks are to be made available to Borrower under
the Loan Documents; (iii) to take such action as may be requested by any Bank
under the Loan Documents (when such Bank is entitled to make such request under
Loan Documents); (iv) to receive all documents and items to be furnished to
Agent or Banks under the Loan Documents; (v) to be the secured party, mortgagee,
beneficiary, and similar party in respect of, and to receive, as the case may
be, any collateral for the benefit of Banks; (vi) to promptly distribute to each
Bank all material information, requests, documents and items received from
Borrower under the Loan Documents; (vii) to promptly distribute to each Bank
such Bank's Percentage of each payment or prepayment (whether voluntary, as
proceeds of insurance thereon, or otherwise) in accordance with the terms of the
Loan Documents; and (viii) to deliver to the appropriate Persons requests,
demands, approvals and consents received from Banks. With respect to its
Commitments hereunder and the Notes issued to it, Agent and any successor Agent
shall have the same rights under the Loan Documents as any other Bank and may
exercise the same as though it were not the Agent; and the term "Bank" or
"Banks" shall, unless otherwise expressly indicated, include Agent and any
successor Agent in its capacity as a Bank. Agent and any successor Agent and
its affiliates may accept deposits from, lend money to, act as trustee under
indentures of and generally engage in any kind of business with Borrower, and
any person which may do business with Borrower, all as if Agent and any
successor Agent were not Agent hereunder and without any duty to account
therefor to the Banks; provided that if any payments in respect of any property
-------------
(or the proceeds thereof) now or hereafter in the possession or control of Agent
which may be or become security for the obligations of Borrower arising under
the Loan Documents by reason of the general description of indebtedness secured
or of Property contained in any other agreements, documents or instruments
related to any such other business shall be applied to reduction of the
Obligations of Borrower arising under the Loan Documents, then each Bank shall
be entitled to share in such application according to its Percentage thereof.
Each Bank, upon request of any other Bank, shall disclose to all other Banks all
indebtedness and liabilities, direct and contingent, of Borrower to such Bank as
of the time of such request.
11.2 Note Holders. From time to time as other Banks become a party
------------
to this Agreement according to Section 12.10 the Agent shall obtain execution by
-------------
Borrower of additional Notes in amounts representing the Commitment of each such
new Bank. The obligation of such Bank shall be governed by the provisions of
this Agreement, including but not limited to, the obligations specified in
Section 2.1 hereof. From time to time, the Agent may require that the Banks
- -----------
exchange their Notes for newly issued Notes to better reflect the Commitments of
the Banks. Agent may treat the payee of any Note as the holder thereof until
written notice of transfer has been filed with it, signed by such payee and in
form satisfactory to Agent.
11.3 Consultation with Counsel. Banks agree that Agent may consult
-------------------------
with legal counsel selected by Agent and shall not be liable for any action
taken or suffered in good faith by it in accordance with the advice of such
counsel.
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<PAGE>
11.4 Documents. Agent shall not be under a duty to examine or pass
---------
upon the validity, effectiveness, enforceability, genuineness or value of any of
the Loan Documents or any other instrument or document furnished pursuant
thereto or in connection therewith, and Agent shall be entitled to assume that
the same are valid, effective, enforceable and genuine and what they purport to
be.
11.5 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 written notice thereof to Banks and Borrower, and Agent may be removed
at any time with or without cause by Banks. If no successor Agent has been so
appointed by Banks (and approved by Borrower) and has accepted such appointment
within 30 days after the retiring Agent's giving of notice of resignation or
removal of the retiring Agent, then the retiring Agent may, on behalf of Banks,
appoint a successor Agent, which appointment shall require the approval of the
Borrower. 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 and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Agent's resignation or removal hereunder as Agent, the provisions of
this Article 11 shall continue in effect for its benefit in respect to any
----------
actions taken or omitted to be taken by it while it was acting as Agent.
11.6 Responsibility of Agent. It is expressly understood and agreed
-----------------------
that the obligations of Agent under the Loan Documents are only those expressly
set forth in the Loan Documents and that Agent shall be entitled to assume that
no default or Event of Default has occurred and is continuing, unless Agent has
actual knowledge of such fact or has received notice from a Bank or Borrower
that such Bank or Borrower considers that a default or an Event of Default has
occurred and is continuing and specifying the nature thereof. Neither Agent nor
any of its directors, officers, attorneys or employees shall be liable for any
action taken or omitted to be taken by them under or in connection with the Loan
Documents, except for its or their own gross negligence or willful misconduct.
Agent shall incur no liability under or in respect of any of the Loan Documents
by acting upon any notice, consent, certificate, warranty or other paper or
instrument believed by it to be genuine or authentic or to be signed by the
proper party or parties, or with respect to anything which it may do or refrain
from doing in the reasonable exercise of its judgment, or which may seem to it
to be necessary or desirable.
Agent shall not be responsible to Banks for any of the Borrowers' recitals,
statements, representations or warranties contained in any of the Loan
Documents, or in any certificate or other document referred to or provided for
in, or received by any Bank under, the Loan Documents, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of or any of
the Loan Documents or for any failure by Borrower to perform any of its
obligations hereunder or thereunder. Agent may employ agents and attorneys-in-
fact and shall not be answerable except as to money or securities received by it
or its authorized agents, for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care.
The relationship between Agent and each Bank is only that of agent and
principal and has
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<PAGE>
no fiduciary aspects. Nothing in the Loan Documents or elsewhere shall be
construed to impose on Agent any duties or responsibilities other than those for
which express provision is therein made. In performing its duties and functions
hereunder, Agent assumes no and shall not be deemed to have assumed, and hereby
expressly disclaims, any obligation or responsibility toward or any relationship
of agency or trust with or for Borrower or any of its beneficiaries or other
creditors. As to any matters not expressly provided for by the Loan Documents,
Agent shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully protected
in so acting or refraining from acting) upon the instructions of all Banks and
such instructions shall be binding upon all Banks and all holders of the Notes;
provided, however, that Agent shall not be required to take any action which is
contrary to the Loan Documents or applicable law.
Agent shall have the right to exercise or refrain from exercising, without
notice or liability to the Banks, any and all rights afforded to Agent by the
Loan Documents or which Agent may have as a matter of law; provided,
---------
however, Agent shall not (i) without the consent of Banks, designate the amount
- -------
of the Consolidated Borrowing Base or the Maximum Commitment, or (ii) without
consent of Banks, release any collateral that secures the Loan, or (iii) without
the consent of Banks, take any other action with regard to amending the Loan
Documents, waiving any default under the Loan Documents or taking any other
action with respect to the Loan Documents which requires consent of Banks.
Provided further, however, that no amendment shall be effected pursuant to the
- ----------------- -------
preceding clause (ii) which: (i) would increase the Commitment Percentage of any
Bank, (ii) would reduce any fees hereunder, or the principal of, or the interest
on, any Bank's Note, (iii) would postpone any date fixed for any payment of any
fees hereunder, or any principal or interest of any Bank's Note, (iv) would
increase any Banks obligations hereunder or would materially alter Agent's
obligations to any Bank hereunder, or (v) would release Borrower from its
obligation to pay any Bank's Note, or (vi) would amend this sentence. For
purposes of this paragraph, a Bank shall be deemed to have consented to any such
action (excluding any action that would increase the Consolidated Borrowing
Base, the Maximum Commitment or altering the manner of the determination of a
Bank's Percentage) by Agent upon the passage of ten (10) Business Days after
written notice thereof is given to such Bank in accordance with Section 12.3
------------
hereof, unless such Bank shall have previously given Agent notice, complying
with the provision of Section 12.3 hereof, to the contrary. Agent shall have no
------------
liability to Banks for failure or delay in exercising any right or power
possessed by Agent pursuant to the Loan Documents or otherwise unless such
failure or delay is caused by the gross negligence of Agent.
11.7 Independent Investigation. Each Bank severally represents and
-------------------------
warrants to Agent that it has made its own independent investigation and
assessment of the financial condition and affairs of Borrower in connection with
the making and continuation of its participation hereunder and has not relied
exclusively on any information provided to such Bank by Agent in connection
herewith, and each Bank represents, warrants and undertakes to Agent that it
shall continue to make its own independent appraisal of the credit worthiness of
Borrower while the Notes are outstanding or its Commitments hereunder are in
force. Agent shall not be required to keep itself informed as to the performance
or observance by Borrower of this Agreement or any other document referred to or
provided for herein or to inspect the properties or books of Borrower. Other
than as provided in this
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<PAGE>
Agreement, Agent shall not have any duty, responsibility or liability to provide
any Bank with any credit or other information concerning the affairs, financial
condition or business of Borrower which may come into the possession of Agent.
11.8 Indemnification. Banks agree to indemnify Agent (to the extent
---------------
not reimbursed by Borrower), ratably according to their Percentage, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any proper and
reasonable kind or nature whatsoever which may be imposed on, incurred by or
asserted against Agent in any way relating to or arising out of the Loan
Documents or any action taken or omitted by Agent under the Loan Documents,
provided that no Bank shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from Agent's gross negligence or willful
misconduct. Each Bank shall be entitled to be reimbursed by Agent or for any
amount such Bank paid to Agent under this Section 11.8 to the extent Agent has
------------
been reimbursed for such payments by Borrower or any other Person.
11.9 Benefit of Article 11. The agreements contained in this Article
---------------------
11 are solely for the benefit of Agent and Banks and are not for the benefit of,
or to be relied upon by, Borrower, any affiliate of Borrower or any other
Person.
11.10 Pro Rata Treatment. Subject to the provisions of this Loan
------------------
Agreement, each payment (including each prepayment) by Borrower and collections
by Banks (including offsets) on account of the principal of and interest on the
Notes and fees provided for in this Agreement, payable by Borrower shall be made
pro rata to Banks according to the then Percentage of each Bank in the Loan
outstanding at the date of determination thereof. Notwithstanding the
foregoing, all Consequential Losses required to be paid by Borrower shall be
paid to the Bank that incurred such losses.
11.12 Interests of Banks. Nothing in this Loan Agreement shall be
------------------
construed to create a partnership or joint venture between Banks for any
purpose. Agent, Banks and Borrower each recognize that the respective
obligations of Banks under the Commitment shall be several and not joint and
that neither Agent nor any Banks shall be responsible or liable to perform any
of the obligations of the other under this Loan Agreement. Each Bank is deemed
to be the owner of an undivided interest in and to all rights, titles, benefits
and interests belonging and accruing to Agent under this Loan Agreement,
including, without limitation, the Notes, Liens and security interests in any
Collateral Documents, fees and payments of principal and interest by Borrower
under the Commitment in the proportion that each Banks' Percentage bears to the
total of all of such loan commitments of all Banks taken in the aggregate. Each
Bank shall perform all duties and obligations of Banks under this Loan Agreement
in the same proportion as its Percentage in the Loan outstanding at the date of
determination thereof.
11.13 Investments. Whenever Agent in good faith determines that it
-----------
is uncertain about how to distribute to Banks any funds which it has received,
or whenever Agent in good faith determines that there is any dispute among the
Banks about how such funds should be distributed, Agent may choose to defer
distribution of the funds which are the subject of such uncertainty or dispute.
If Agent in good faith believes that the uncertainty or dispute will not be
promptly resolved, or if Agent
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<PAGE>
is otherwise required to invest funds pending distribution to the Banks, Agent
may invest such funds pending distribution (at the risk of Borrower); all
interest on any such investment shall be distributed upon the distribution of
such investment and in the same proportions and to the same Persons as such
investment. All monies received by Agent for distribution to Banks (other than
to the Person who is the Agent in its separate capacity as a Bank) shall be held
by the Agent pending such distribution solely as Agent for such Banks, and Agent
shall have no equitable title to any portion thereof.
ARTICLE 12.
MISCELLANEOUS
12.1. Waiver. No failure to exercise, and no delay in exercising, on
------
the part of Banks, any right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right. The rights of Banks
hereunder and under the Loan Documents shall be in addition to all other rights
provided by law. No modification or waiver of any provision of this Loan
Agreement or any Loan Document, nor consent to departure therefrom, shall be
effective unless in writing and no such consent or waiver shall extend beyond
the particular case and purpose involved. No notice or demand given in any case
shall constitute a waiver of the right to take other action in the same, similar
or other instances without such notice or demand.
12.2. Payment of Expenses. Except as otherwise provided herein,
-------------------
Borrower agrees to pay all costs and expenses of Agent and Banks (including
without limitation the reasonable attorneys' fees of Agent's legal counsel (but
no other legal counsel for any Bank retained separately by such Bank), and the
reasonable fees incurred with respect to appraisers, expert witnesses and
accountants) in connection with the administration, enforcement, or preservation
of Bank's rights under this Loan Agreement and any other Loan Documents and,
furthermore, Borrower shall pay all costs and expenses of Agent (including
without limitation the reasonable attorneys' fees of Agent's legal counsel) (but
no other legal counsel for any Bank retained separately by such Bank) in
connection with the preparation, execution and delivery of this Loan Agreement
and the Loan Documents and any and all amendments, modifications and supplements
thereof or thereto.
12.3. Notices. Except for telephonic notices permitted herein, any
-------
notices or other communications required or permitted to be given by this Loan
Agreement or any other documents and instruments referred to herein must be (i)
given in writing and personally delivered or mailed by prepaid certified or
registered mail, or (ii) made by telecopy or facsimile delivered or transmitted,
to the party to whom such notice or communication is directed and if between any
Bank or Agent and Borrower, confirmed by a hard copy sent by overnight delivery
service for delivery the following day, to the address of such party as follows:
(a) Arch: Arch Petroleum Inc., 777 Taylor Street, Penthouse IIA, Fort
Worth Club Tower, Fort Worth, Texas 76102 (Attention: Larry Kalas); Telecopy No.
(817) 332-9249;
(b) APC: Arch Production Company, 777 Taylor Street, Penthouse IIA, Fort
Worth Club
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<PAGE>
Tower, Fort Worth, Texas 76102 (Attention: Larry Kalas); Telecopy No. (817) 332-
9249; and
(c) Agent or any Bank: at its address shown below its name on the
signature pages hereof.
Any notice to be personally delivered may be delivered to the principal offices
(determined as of the date of such delivery) of the party to whom such notice is
directed. Any such notice or other communication shall be deemed to have been
given (whether actually received or not) on the day it is personally delivered
as aforesaid or, if mailed, on the third day after it is mailed as aforesaid;
or, if transmitted by telecopy, on the day that such notice is transmitted as
aforesaid; provided, however, that any telephonic or other notice received by
Agent or any Bank after 12:00 noon Fort Worth time on any day from Borrower
pursuant to Section 2.1(c)(i) (with respect to a Request for Borrowing) shall be
-----------------
deemed for the purposes of such Section to have been given by Borrower on the
next succeeding Business Day. Any party may change its address for purposes of
this Loan Agreement by giving notice of such change to the other parties
pursuant to this Section 12.3.
12.4. GOVERNING LAW. THIS LOAN AGREEMENT IS BEING EXECUTED AND
-------------
DELIVERED, AND IS INTENDED TO BE PERFORMED, IN THE STATE OF TEXAS, AND THE
SUBSTANTIVE LAWS OF SUCH STATE SHALL GOVERN THE VALIDITY, CONSTRUCTION,
ENFORCEMENT AND INTERPRETATION OF THIS LOAN AGREEMENT AND ALL OTHER LOAN
DOCUMENTS, UNLESS OTHERWISE SPECIFIED THEREIN OR UNLESS THE LAWS GOVERNING
NATIONAL BANK SHALL HAVE APPLICATION.
12.5. Invalid Provisions. If any provision of this Loan Agreement is
------------------
held to be illegal, invalid, or unenforceable under present or future laws
effective during the term of this Loan Agreement, such provision shall be fully
severable and this Loan Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part of this
Loan Agreement, and the remaining provisions of this Loan Agreement shall remain
in full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Loan Agreement, unless
such continued effectiveness of this Loan Agreement, as modified, would be
contrary to the basic understandings and intentions of the parties as expressed
herein.
12.6. Interest Rate. Regardless of any provisions contained in this
-------------
Loan Agreement, the Notes or in any other Loan Document, Banks shall never be
deemed to have contracted for or be entitled to receive, collect or apply as
interest on the Notes, any amount in excess of the Highest Lawful Rate, and in
the event that any Bank ever receives, collects or applies as interest any such
excess, such amount which would be excessive interest shall be applied to the
reduction of the unpaid principal balance of such Bank's Note, and, if the
principal balance of such Bank's Note is paid in full, any remaining excess
shall forthwith be paid to Borrower. In determining whether or not the interest
paid or payable under any specific contingency exceeds the Highest Lawful Rate,
Borrower and Banks shall, to the maximum extent permitted under applicable law,
(i) characterize any non-principal payment (other than payments which are
expressly designated as interest payments hereunder) as an expense or fee,
rather than as interest, (ii) exclude voluntary prepayments and the
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<PAGE>
effect thereof, and (iii) spread the total amount of interest throughout the
entire contemplated term of the Notes so that the interest rate is uniform
throughout such term.
12.7. Amendments. This Loan Agreement and the other Loan Documents
----------
may be amended only by an instrument in writing executed by an authorized
officer or other representative of the parties to such documents.
12.8 Parties Bound. Except as provided in Section 12.10 below, this
------------- -------------
Loan Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, assigns and legal representatives;
provided however, that Borrower may not, without the prior written consent of
Bank, assign any rights, powers, duties or obligations hereunder.
12.9. Headings. Section headings are for convenience of reference
--------
only and shall in no way affect the interpretation of this Loan Agreement.
12.10. Participations and Sales; Assignments. Without Borrower's
-------------------------------------
consent, Banks shall have the right to enter into a participation agreement with
any other party or parties with respect to the Notes and this Loan Agreement,
which agreement may provide for the granting to such other party or parties of
any or all rights of Banks hereunder; provided, however, that Borrower shall
provide such notices or consents required by Borrower hereunder only to Banks,
or the Agent, as the case may be, and not to any participants or partial
assignees of Banks. No Bank may assign all or a portion of its rights and
obligations under this Loan Agreement and the Loan Documents to any other bank
or Person who, as a result of such assignment, would become a Bank party to this
Loan Agreement without the prior written consent of Borrower, which consent
shall not be unreasonably withheld.
12.11. Survival. All representations and warranties made by Borrower
--------
herein shall survive delivery of the Notes and the making of the Loan.
12.12. Multiple Counterparts. This Loan 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 Loan
Agreement by signing any such counterpart.
12.13. Consent to Jurisdiction; Service of Process. Borrower hereby
-------------------------------------------
waives any objection which it may have to the jurisdiction of the courts of the
State of Texas and of the United States of America for the Northern District of
Texas and agrees that any legal action or proceeding against Borrower with
respect to the Loan Documents may be brought in the courts of the State of Texas
or of the United States of America for the Northern District of Texas as Bank
may elect, and, by execution and delivery of this Loan Agreement, Borrower
accepts and submits to, for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Nothing herein shall
affect Banks' right to serve process in any other manner permitted by law or
Banks' right to bring any legal action or proceeding in any other court of
competent jurisdiction. Borrower agrees to be bound by the determination of the
aforesaid courts and hereby waives any rights which it might have under the law
of any other state or federal jurisdiction or otherwise to
-52-
<PAGE>
relitigate issues determined by the aforesaid courts or to raise new issues not
raised by it in the aforesaid courts.
12.14. Reasonableness. In exercising its rights hereunder, Banks
--------------
agree to act in a reasonable manner and consistent with standard banking
practices. However, if Banks exercise such rights in the manner specified
herein, it shall be deemed to be acting in a reasonable manner.
12.15. Confidentiality. All non-public and proprietary information
---------------
obtained by Agent or any Bank from Borrower pursuant to this Loan Agreement or
the other Loan Documents shall be held in confidence by Agent or such Bank, and
Agent or any Bank shall not disclose such information to any Person without
Borrower's consent, except that without Borrower's consent Agent or Banks may
disclose such information to Persons with whom Banks have entered into, or is
proposing to enter into, participation agreements concerning the Loan and/or
banking regulatory authorities except that without Borrower's consent, Agent or
Banks may disclose such information to any of their examiners, Affiliates,
outside auditors, counsel and other professional advisors in connection wit this
Loan Agreement or as reasonably required by any transferee, participant, or
assignee, or any prospective transferee, participant or assignee, or as required
by any governmental agency or representative thereof or pursuant to legal
process; provided, however, that all such information disclosed to such Persons
shall remain confidential and may not be subsequently disclosed by such Persons
except as permitted by this Section 12.15.
-------------
12.16 Article 15.10(b). Borrower and Banks hereby agree that, except
----------------
for Article 15.10(b) thereof, the provisions of Chapter 15 of Title 79 of the
Revised Civil Statutes of Texas, 1925, as amended (regulating certain revolving
credit loans and revolving tri-party accounts) shall not apply to the Loan or
the Loan Documents.
NOTICE: THIS LOAN AGREEMENT AND ALL OTHER LOAN DOCUMENTS RELATING TO
------
THIS LOAN CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENT THE FINAL
AGREEMENT BETWEEN BORROWER AND BANKS AND MAY NOT BE CONTRADICTED BY EVIDENCE OR
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF BORROWER AND BANK.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN BORROWER AND BANK RELATING TO
THIS LOAN.
-53-
<PAGE>
Signed in multiple originals on the date first written above.
BORROWER:
ARCH:
-----
ARCH PETROLEUM INC.,
a Delaware corporation
By: __________________________
Name Larry Kalas
Title: President
APC:
---
ARCH PRODUCTION COMPANY,
a Delaware corporation
By:___________________________
Name: Larry Kalas
Title: President
AGENT:
BANK ONE, TEXAS, N.A.,
a national banking association
By:___________________________
Name: Brad Bartek
Title: Vice President
Address for Notice Purposes:
---------------------------
Bank One, Texas, N.A.
500 Throckmorton Street
Post Office Box 2050
Fort Worth, Texas 76113-2059
Attn: Brad Bartek
Telecopy no.: (817) 884-5627
BANKS:
-----
-54-
<PAGE>
BANK ONE, TEXAS, N.A., a national banking
association
By:_______________________________
Name: Brad Bartek
Title: Vice President
Address for Notice Purposes:
---------------------------
Bank One, Texas, N.A.
500 Throckmorton Street
Post Office Box 2050
Fort Worth, Texas 76113-2059
Attn: Brad Bartek
Telecopy no.: (817) 884-5627
BANK OF MONTREAL
By:_______________________________
Name:_____________________________
Title:____________________________
Address for Notice Purposes:
---------------------------
Bank of Montreal
700 Louisiana Street
Suite 4400
Houston, Texas 77002
Attn: Robert L. Roberts
Telecopy no.: (713) 223-4007
______________________________
BANK OF SCOTLAND
By:_______________________________
Name:_____________________________
Title:____________________________
Address for Notice Purposes:
---------------------------
Bank of Scotland
1200 Smith Street
Two Allen Center, Suite 1750
Houston, Texas 77002
-55-
<PAGE>
Attn: Rex McSwain, Vice President
Telecopy no.: (713) 651-9714
and
Bank of Scotland
565 Fifth Avenue
New York, New York 10017
Attn: Catherine Oniffrey, Vice President
Telecopy no.: (212) 557-9460
-56-
<PAGE>
EXHIBIT 10.10
U.S.$11,000,000
CREDIT AGREEMENT,
dated as of February 20, 1996
among
TRAX PETROLEUMS LIMITED
as the Borrower,
and
CERTAIN FINANCIAL INSTITUTIONS,
as the Lenders,
and
BANK OF MONTREAL,
as the Agent for the Lenders.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C> <C>
I DEFINITIONS AND ACCOUNTING TERMS.................................... 1
1.1 Defined Terms................................................. 1
1.2 Use of Defined Terms.......................................... 20
1.3 Cross-References.............................................. 20
1.4 Accounting and Financial Determinations....................... 20
1.5 Currency References........................................... 21
II REVOLVING CREDIT FACILITY........................................... 21
2.1 Commitment.................................................... 21
2.1.1 Revolving Credit Commitment............................ 21
2.1.2 Lenders Not Permitted or Required to Make Borrowings
Available.............................................. 21
2.1.3 Several Obligations.................................... 22
2.1.4 Funding Borrowings Under Commitments................... 22
2.2 Borrowing Procedure; Disbursement............................. 22
2.3 Conditions Applicable to Bankers' Acceptances................. 23
2.3.1 Purchase of Bankers' Acceptances by a Lender........... 23
2.3.2 Payment to Borrower.................................... 23
2.3.3 Waiver of Presentment and Other Conditions............. 23
2.3.4 Terms of Each Bankers' Acceptance...................... 24
2.3.5 Delivery of Blank Bankers' Acceptances................. 24
2.3.6 Failure to Give Notice of Repayment (Automatic
Rollover or Conversion)................................ 25
2.3.7 Execution of Bankers' Acceptances...................... 25
2.3.8 Advice to the Lenders.................................. 26
2.3.9 Agent's Confirmation of Bankers' Acceptance Issuance... 26
2.3.10 Completion of Bankers' Acceptance...................... 26
2.3.11 Prepayment of Bankers' Acceptances..................... 26
2.3.12 Bankers' Acceptance Fees............................... 26
2.3.13 Borrower's Absolute Obligation to Repay Bankers'
Acceptances............................................ 27
2.4 Certain Procedural Matters.................................... 27
2.4.1 Revolving Loans and Bankers' Acceptance................ 27
2.4.2 Conversions............................................ 27
2.4.3 Rollovers.............................................. 28
2.4.4 Rollovers and Conversions not Prepayment............... 28
2.4.5 Limitation on Number of Borrowings..................... 28
2.4.6 Notice of Expiration of LIBOR Interest Periods......... 28
2.5 Intentionally Omitted......................................... 28
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
2.6 Interest and Fees............................................. 28
2.6.1 Rates and Payment of Interest.......................... 28
2.6.2 Acknowledgement........................................ 29
2.6.3 Intentionally Omitted.................................. 29
2.6.4 Interest Calculation................................... 29
2.6.5 Clawback............................................... 29
2.6.6 Default Rate........................................... 30
2.6.7 Interest Act Disclosure................................ 30
2.6.8 No Deemed Reinvestment................................. 30
2.7 Principal Payments on Stated Maturity Date.................... 30
2.8 Extension, Place and Application of Payments.................. 30
2.9 Mandatory Payment of Loans.................................... 31
2.9.1 Outstandings Exceed Facility Amount.................... 31
2.9.2 Deposits with Respect to Bankers' Acceptances.......... 31
2.9.3 Acceleration........................................... 31
2.9.4 Borrowing Base Deficiency.............................. 31
2.10 Voluntary Principal Prepayments............................... 31
2.11 Order of Application.......................................... 32
2.12 Commitment Fee................................................ 32
2.13 Evidence of Borrowings........................................ 33
2.14 Additional Fees............................................... 33
2.14.1 Agent's Fee............................................ 33
2.14.2 Intentionally Omitted.................................. 33
2.14.3 Consolidated Borrowing Base Redetermination Fee........ 33
2.14.4 Amendment Fee.......................................... 34
III BORROWING BASE...................................................... 34
3.1 Components for Determination of Trax Borrowing Base........... 34
3.2 Canadian Allocated Borrowing Base............................. 34
3.3 Semi-Annual Redetermination of Trax Borrowing Base............ 35
3.4 Borrowing Base Deficiency..................................... 36
3.5 Special Provisions for Discretionary Increase to the
Consolidated Borrowing Base................................... 36
3.6 Interim Sales of Borrowing Base Properties.................... 37
IV CERTAIN ADDITIONAL PROVISIONS CONCERNING LOANS, BANKERS'
ACCEPTANCES AND CURRENCY MATTERS.................................... 38
4.1 Lending Unlawful.............................................. 38
4.2 Deposits Unavailable.......................................... 38
4.3 Increased LIBO Rate Loan Costs, etc........................... 39
4.4 Additional Costs.............................................. 39
4.5 Prime Rate Loans or Base Rate Loans........................... 40
4.6 Compensation.................................................. 41
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C> <C>
4.7 Taxes ........................................................ 41
4.8 Payments, Computations, etc................................... 42
4.9 Sharing of Payments........................................... 43
4.10 Setoff........................................................ 43
4.11 Use of Proceeds............................................... 44
4.12 Currency Conversion and Currency Indemnity.................... 44
4.12.1 Payments in Agreed Currency............................ 44
4.12.2 Conversion of Agreed Currency into Judgment Currency... 44
4.12.3 Circumstances Giving Rise to Indemnity................. 44
4.12.4 Indemnity Separate Obligation.......................... 45
V CONDITIONS TO BORROWING............................................. 45
5.1 Initial Borrowing............................................. 45
5.1.1 Resolutions, etc....................................... 45
5.1.2 Arch Agreement......................................... 46
5.1.3 Payment of Outstanding Indebtedness, etc............... 46
5.1.4 Offer Consummated; Copies of Document and Other
Material Agreements and Consents; Control of Trax's
Board.................................................. 46
5.1.5 Guaranty............................................... 46
5.1.6 Pledge Agreement....................................... 46
5.1.7 Security Agreements.................................... 47
5.1.8 Opinions of Counsel.................................... 47
5.1.9 Closing Fees, Expenses, etc............................ 48
5.1.10 Acquisition............................................ 48
5.1.11 Pro forma.............................................. 48
5.1.12 Regulatory Approvals................................... 48
5.1.13 Intercreditor Agreement................................ 48
5.1.14 Effectiveness Notice................................... 48
5.1.15 Due Diligence.......................................... 48
5.1.16 Other Matters.......................................... 49
5.2 All Borrowings................................................ 49
5.2.1 Compliance with Warranties, No Default, etc............ 49
5.2.2 Borrowing Notice, Conversion Notice or Rollover
Notice................................................. 50
5.2.3 Satisfactory Legal Form................................ 50
VI REPRESENTATIONS AND WARRANTIES...................................... 50
6.1 Organization and Qualification of Borrower.................... 50
6.2 Authorization and Power of Borrower........................... 50
6.3 Financial Condition........................................... 51
6.4 No Litigation................................................. 51
6.5 No Breach..................................................... 51
6.6 No Consents................................................... 52
6.7 Validity...................................................... 52
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C> <C>
6.8 Subsidiaries.................................................. 52
6.9 Status of Title to Assets..................................... 52
6.10 Taxes......................................................... 53
6.11 Other Indebtedness or Liens................................... 53
6.12 Own Expertise................................................. 53
6.13 Environmental Warranties...................................... 54
6.14 Intentionally Omitted......................................... 55
6.15 Accuracy of Information....................................... 55
6.16 Full Disclosure............................................... 55
VII COVENANTS........................................................... 55
7.1 Affirmative Covenants......................................... 55
7.1.1 Financial Statements and Reports of Borrower........... 56
7.1.2 Reserve, Production and Operating Reports.............. 56
7.1.3 Payment of Taxes, etc.................................. 57
7.1.4 Insurance and Insurance Summaries...................... 57
7.1.5 Operations and Properties.............................. 57
7.1.6 Compliance with Applicable Laws........................ 57
7.1.7 Litigation............................................. 58
7.1.8 Changes of Fact........................................ 58
7.1.9 Maintenance of Rights.................................. 58
7.1.10 Maintenance of Properties.............................. 58
7.1.11 Maintenance and Granting of Liens, Mortgages and
Security Interests..................................... 58
7.1.12 Notice of Default...................................... 58
7.1.13 Compliance with Loan Documents......................... 59
7.1.14 Compliance with Material Agreements.................... 59
7.1.15 Books and Records; Inspection.......................... 59
7.1.16 Agreements Affecting the Borrowing Base Properties..... 59
7.1.17 Other Notices.......................................... 59
7.1.18 Value of Properties.................................... 59
7.1.19 Copies of Filings, etc................................. 60
7.1.20 Environmental Covenant................................. 60
7.1.21 Additional Security Documents.......................... 60
7.1.22 Intentionally Omitted.................................. 61
7.1.23 Other Information...................................... 61
7.2 Negative Covenants............................................ 61
7.2.1 Limitation on Liens.................................... 61
7.2.2 Disposition of Assets.................................. 61
7.2.3 Certain Transactions................................... 62
7.2.4 Place of Business...................................... 62
7.2.5 Consolidation, Amalgamation or Merger.................. 62
7.2.6 Limitation on Investments and New Businesses........... 62
7.2.7 Limitation on Credit Extensions........................ 63
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
7.2.8 Fiscal Year............................................ 63
7.2.9 Certain Agreements..................................... 63
7.2.10 Restrictions on Payment of Dividends; Issuance of
Capital Stock.......................................... 63
7.2.11 Financial Condition.................................... 64
7.2.12 Limitation on Additional Indebtedness.................. 64
7.2.13 Negative Pledges, Restrictive Agreements, etc.......... 64
VIII EVENTS OF DEFAULT................................................... 65
8.1 Listing of Event of Default................................... 65
8.1.1 Failure of Payment..................................... 65
8.1.2 False Representation................................... 65
8.1.3 Breach of Covenant..................................... 65
8.1.4 Renunciation of Obligation............................. 65
8.1.5 Bankruptcy............................................. 65
8.1.6 Bankruptcy Orders, etc................................. 66
8.1.7 Default Under Other Documents.......................... 66
8.1.8 Liens Invalid.......................................... 66
8.1.9 Judgments.............................................. 66
8.1.10 Material Defaults...................................... 67
8.1.11 Dissolution............................................ 67
8.1.12 Borrowing Base Deficiency.............................. 67
8.1.13 Default Under Arch Agreement........................... 67
8.1.14 Change of Control...................................... 67
8.2 Materiality; Notice of Defaults............................... 68
8.2.1 Materiality............................................ 68
8.2.2 Notice of Monetary Defaults............................ 68
8.2.3 Notice of Certain Non-Monetary Defaults................ 68
8.3 Acceleration.................................................. 68
8.4 Preservation of Rights........................................ 70
IX THE AGENT........................................................... 70
9.1 Actions....................................................... 70
9.2 Funding Reliance, etc......................................... 71
9.3 Repayment by Lenders to Agent................................. 71
9.4 Exculpation................................................... 72
9.5 Successor..................................................... 72
9.6 Extensions of Credit by the Bank of Montreal.................. 73
9.7 Credit Decisions.............................................. 73
9.8 Copies, etc................................................... 73
X MISCELLANEOUS PROVISIONS............................................ 74
10.1 Waivers, Amendments, etc...................................... 74
10.2 Notices....................................................... 75
10.3 Payment of Costs and Expenses................................. 75
10.4 Indemnification............................................... 76
10.4.1 General Provisions of Indemnification.................. 76
</TABLE>
v
<PAGE>
<TABLE>
<S> <C> <C>
10.4.2 Negligence Expressly Indemnified....................... 78
10.5 Survival...................................................... 78
10.6 Severability.................................................. 78
10.7 Headings...................................................... 78
10.8 Execution in Counterparts, Effectiveness, etc................. 78
10.9 Governing Law; Entire Agreement............................... 79
10.10 Successors and Assigns........................................ 79
</TABLE>
vi
<PAGE>
<TABLE>
<S> <C> <C>
10.11 Sale and Transfer of Borrowings; Participations in
Borrowings.................................................... 79
10.11.1 Assignments......................................... 79
10.11.2 Participations...................................... 81
10.11.3 Further Documentations in Event of Assignments or
Participation....................................... 81
10.12 No Oral Agreements............................................ 81
10.13 Other Transactions............................................ 82
10.14 Forum Selection and Consent to Jurisdiction................... 82
10.15 Certain Matters............................................... 82
10.16 Time of the Essence........................................... 83
</TABLE>
vii
<PAGE>
EXHIBITS
EXHIBIT A - Form of API Guaranty
EXHIBIT B - Form of Northern Guaranty
EXHIBIT C - Form of Borrowing Notice
EXHIBIT D - Form of Conversion Notice
EXHIBIT E - Form of Lender Assignment Agreement
EXHIBIT F - Form of Pledge Agreement
EXHIBIT G-1 - Form of Security Agreement (Stock)
EXHIBIT G-2 - Form of Security Agreement (General)
EXHIBIT G-3 - Form of Debenture
EXHIBIT G-4 - Form of Instrument of Pledge
EXHIBIT H - Form of Opinion of Borrower's Canadian Counsel
EXHIBIT I - Form of Opinion of Borrower's U.S. Counsel
EXHIBIT J - Form of Opinion of Agent's Canadian Counsel
EXHIBIT K - Form of Borrowing Base Allocation Certificate
EXHIBIT L - Form of Compliance Certificate
EXHIBIT M - Form of Acceptance
EXHIBIT N - Form of Rollover Notice
SCHEDULES
SCHEDULE I - DISCLOSURE SCHEDULE
viii
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of February 20, 1996, is among TRAX
PETROLEUMS LIMITED, a corporation organized under the laws of Alberta, Canada
("Trax" or the "Borrower"), the various financial institutions as are or may
---- --------
become parties hereto as lenders (collectively, the "Lenders"), and BANK OF
-------
MONTREAL, as agent (the "Agent") for the Lenders.
-----
W I T N E S S E T H:
WHEREAS, pursuant to that certain Cash Offer dated January 9, 1996 (the
"Offering Document") by Northern Arch Resources Ltd., a corporation organized
-----------------
under the laws of Alberta, Canada ("Northern"), Northern offered to purchase
--------
(the "Offer") all the issued and outstanding common shares (including the
-----
associated rights under the Shareholder Rights Plan Agreement) (the "Shares") of
------
the Borrower and as of the close of such Offer more than 90% (but less than
100%) of the Shares had been tendered to Northern (excluding any Shares owned by
Northern at the commencement of the Offer), and Northern following the Close of
the Offer has acquired the remaining Shares of the Borrower, such that the
Borrower is a wholly-owned Subsidiary of Northern (the Offer and such subsequent
transactions are referred to herein as the "Acquisition"); and
-----------
WHEREAS, the Borrower desires to obtain commitments from the Lenders
pursuant to which extensions of credit in the form of Revolving Loans and
Bankers' Acceptances will be made in the amounts and currencies herein provided
and pursuant to the terms and provisions herein set forth; and
WHEREAS, the proceeds of the Revolving Loans and the Bankers' Acceptances
will be used to fund an intercompany loan from the Borrower to Northern in an
amount up to $8,000,000 and for general corporate purposes of the Borrower and
its Subsidiaries (including payment of those amounts described in Section
-------
5.1.9); and
- ------
WHEREAS, the Lenders are willing, on the terms and subject to the
conditions hereinafter set forth (including Article V), to extend such
---------
commitments and make such extensions of credit to the Borrower;
NOW, THEREFORE, the parties hereto agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 Defined Terms. The following terms (whether or not
-------------
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
"Acceptance" means a bill of exchange drawn by the Borrower and accepted
----------
and purchased by a Lender, substantially in the form attached hereto as Exhibit
-------
M.
- -
"Acquisition" is defined in the first recital.
----------- -------------
"Acquisition Documents" means (i) individually, each of the Offering
---------------------
Document and each other document, instrument and agreement executed and
delivered pursuant thereto, including all assignments and conveyances
thereunder, and (ii) collectively, any two or more of the foregoing.
"Affiliate" of any Person means any other Person which, directly or
---------
indirectly, controls, is controlled by or is under common control with such
Person. A Person shall be deemed to be "controlled by" any other Person if such
other Person possesses, directly or indirectly, power (a) to vote 10% or more of
the securities (on a fully diluted basis) having ordinary voting power for the
election of directors or managing general partners or managers; or (b) to direct
or cause the direction of the management and policies of such Person whether by
contract or otherwise.
"Agent" is defined in the preamble and includes each other Person as shall
----- --------
have subsequently been appointed as the successor Agent pursuant to Section 9.5.
-----------
"Agent's Branch of Account" means the Bank of Montreal, First Canadian
-------------------------
Place, 350 - 7th Avenue S.W., Calgary, Alberta T2P 3N9 (Fax No. (403) 234 -
3644) or such other office or branch of the Agent in Canada as the Agent may
from time to time advise the Borrower and the Lenders in writing.
"Aggregate Outstandings" means, at any time, the sum, without duplication,
----------------------
of all Outstandings and all Arch Outstandings.
"Agreed Currency" is defined in Section 4.12.1.
--------------- --------------
2
<PAGE>
"Agreement" means, on any date, this Credit Agreement as originally in
---------
effect on the Effective Date and as thereafter from time to time amended,
supplemented, and restated, or otherwise modified and in effect on such date.
"Alternate Base Rate" means, on any date and with respect to all Base Rate
-------------------
Loans, a floating rate of interest per annum equal to the higher of
--- -----
(a) the floating rate of interest most recently announced by the Agent at
its Canadian Office as the reference rate of interest it will use to determine
rates of interest for U.S. Dollar loans in Canada and referred to by it as its
"U.S. base rate"; and
(b) the Federal Funds Rate for such date as determined by the Agent plus
1/2%.
The Alternate Base Rate is not necessarily intended to be the lowest rate of
interest determined by the Agent in connection with extensions of credit.
Changes in the rate of interest on that portion of any Loans maintained as Base
Rate Loans (and in the rate of interest of any other Obligations from time to
time bearing interest at a rate determined by reference to the Alternate Base
Rate) will take effect simultaneously with each change in the Alternate Base
Rate.
"APC" means Arch Production Company, a Delaware corporation.
---
"API" means Arch Petroleum Inc., a Delaware corporation.
---
"Applicable Lending Office" means, for each Lender and for each Type of
-------------------------
Loan, the Canadian Office or LIBOR Office, as the case may be, of such Lender
(or of an Affiliate of such Lender) designated for such Type of Loan on the
signature pages hereof or designated in the Lender Assignment Agreement or such
other office of such Lender (or of an Affiliate of such Lender) as such Lender
may from time to time specify to the Agent and the Borrower as the office by
which its Loans of such Type are to be made and maintained.
"Applicable Margin" means, at such times and from time to time as the ratio
-----------------
of Aggregate Outstandings to the Consolidated Borrowing Base is in one of the
following ranges, with respect to any Borrowing, the percentage per annum set
--- -----
forth below opposite the relevant Type of Borrowing and the relevant range:
3
<PAGE>
<TABLE>
<CAPTION>
Type of Borrowing Applicable Margin
- ----------------- -----------------
<S> <C>
Base Rate Loans 0.00%
At all times
Prime Rate Loans
Range 1: the Aggregate Outstandings are more 1.50%
than 75% of the Consolidated Borrowing
Base
Range 2: the Aggregate Outstandings are more 1.25%
than 50%, but equal to or less than
75%, of the Consolidated Borrowing Base
Range 3: the Aggregate Outstandings are more 1.00%
than 25%, but equal to or less than
50%, of the Consolidated Borrowing Base
Range 4: the Aggregate Outstandings are equal to 0.75%
or less than 25% of the Consolidated
Borrowing Base
LIBO Rate Loans and Bankers' Acceptances
During any period that
Range 1: the Aggregate Outstandings are more 2.50%
than 75% of the Consolidated Borrowing
Base
Range 2: the Aggregate Outstandings are more 2.25%
than 50%, but equal to or less than
75%, of the Consolidated Borrowing Base
Range 3: the Aggregate Outstandings are more 2.00%
than 25%, but equal to or less than
50%, of the Consolidated Borrowing Base
Range 4: the Aggregate Outstandings are equal to 1.75%
or less than 25% of the Consolidated
Borrowing Base
</TABLE>
Changes in the Applicable Margin on account of the ratio of Aggregate
Outstandings to the Consolidated Borrowing Base being in a different range will
occur automatically without prior notice, provided that for Bankers' Acceptances
--------
and LIBO Rate Loans such margin shall be determined at the time of purchase of
the applicable Bankers' Acceptance or commencement of the applicable LIBOR
Interest Period, as the case may be.
"Arch Agreement" means that certain Third Restated Revolving Credit Loan
--------------
Agreement dated as of February 20, 1996 among API, the
4
<PAGE>
Arch Banks and BankOne, as Agent, as amended, restated, supplemented or
otherwise modified from time to time.
"Arch Banks" shall mean the "Banks" as such term is defined in the Arch
----------
Agreement.
"Arch Outstandings" means, at any time, the aggregate of the principal
-----------------
amount of all then outstanding "Obligations" as defined under the Arch Agreement
(including, without duplication, the face amount of all then outstanding letters
of credit issued thereunder).
"Asset" means, as to any Person, all property of any kind, name or nature,
-----
real or personal, tangible or intangible, legal or equitable, whether now owned
or hereafter acquired, including, without limitation, money, stock, contract
rights, franchises, value as a going concern, causes of action, undivided
fractional ownership interests, and anything of any value which can be made
available for, or may be appropriated to, the payment of debts.
"Assignee Lender" is defined in Section 10.11.1.
--------------- ---------------
"Authorization" is defined in Section 10.15.
------------- -------------
"Authorized Officer" means, relative to the Borrower or a Guarantor, those
------------------
of its officers whose signatures and incumbency shall have been certified to the
Agent and the Lenders pursuant to a certificate delivered under Section 5.1.1.
-------------
"Available Unfunded Borrowing Base" means, on any date, the positive
---------------------------------
difference, if any, of the Canadian Allocated Borrowing Base minus the
Outstandings.
"BA Reference Banks" means Bank of Montreal and the Schedule II Reference
------------------
Lenders, if any.
"Bankers' Acceptance Fee" is defined in Section 2.3.12.
----------------------- --------------
"Bankers' Acceptances" means the Borrowings or any portion thereof made
--------------------
available by a Lender to the Borrower by way of Acceptances denominated in
Canadian Dollars which are issued by the Borrower and accepted and purchased by
a Lender hereunder.
"BankOne" means Bank One, Texas, N.A.
-------
"Base Rate Loan" means a Loan denominated in U.S. Dollars bearing interest
--------------
at a fluctuating rate determined by reference to the Alternate Base Rate.
5
<PAGE>
"Borrower" is defined in the preamble and includes its successors and
-------- --------
permitted assigns, including the amalgamated entity resulting from any
amalgamation of Northern and Trax.
"Borrowing" means any extension of credit made by the Lenders by way of
---------
Revolving Loans or arising upon a Conversion to or Rollover of Revolving Loans,
or Bankers' Acceptances purchased by the Lenders. For the purposes of this
Agreement, the "same Borrowing" or "one Borrowing" shall refer to any extension
of credit of the same Type and, in the case of LIBO Rate Loans and Bankers'
Acceptances, accepted, continued or converted, as applicable, by all the Lenders
on the same Business Day and pursuant to the same Borrowing Notice, Conversion
Notice or Rollover Notice, as the case may be.
"Borrowing Base Allocation Certificate" means a certificate duly executed
-------------------------------------
by an Authorized Officer of the Borrower, appropriately completed and
substantially in the form of Exhibit K hereto.
---------
"Borrowing Base Deficiency" is defined in Section 3.4.
------------------------- -----------
"Borrowing Base Properties" means, as of any date, all of Borrower's
-------------------------
interest in and to (i) oil, gas and/or mineral leases, royalty and overriding
royalty interests, production payments, net profits interests and mineral fee
interests, (ii) unitization, communitization and pooling arrangements (and all
properties covered and units created thereby), whether arising by contract or
operation of law, which include all or any part of the foregoing, (iii) lands
subject to any of the foregoing, (iv) equipment, fixtures, rights-of-way,
easements, goods, chattels, accounts, accounts receivable, contract rights,
chattel paper, general intangibles, and other items of personal property related
to, located on or used in connection with the foregoing; and (v) processing
facilities, pipelines, salt water disposal wells and facilities, transportation
rights and facilities, and other equipment, machinery, rights or facilities
related to or used in connection with the marketing, transporting, producing,
processing or gathering of oil, gas or hydrocarbons.
"Borrowing Notice" means a notice to effect a Borrowing delivered under
----------------
Section 2.2 and substantially in the form of Exhibit C with all applicable
- ----------- ---------
blanks completed and duly executed and completed by an Authorized Officer of the
Borrower.
6
<PAGE>
"Business Day" means
------------
(a) relative to the making, continuing, prepaying, repaying, conversion or
acceptance of a Loan (other than a LIBO Rate Loan), a Bankers' Acceptance, or
the determination of the Equivalent Amount of any currency in another currency,
or relative to any other matter except those set forth in clause (b) of this
----------
definition, any day which is neither a Saturday nor a Sunday nor a legal holiday
on which banks are authorized or required to be closed in Calgary, Alberta; and
(b) relative to the making, continuing, prepaying, repaying or conversion
of any LIBO Rate Loans, any day described in clause (a) of this definition which
----------
is also a day on which dealings in U.S. Dollars are carried on in the London
interbank market.
"Canadian Allocated Borrowing Base" is defined in Section 3.2.
--------------------------------- -----------
"Canadian Dollars" and "Cdn. $" each means lawful money of Canada.
---------------- ------
"Canadian Office" means, relative to any Lender or the Agent, the office of
---------------
such Lender or the Agent, as applicable, designated as such below its signature
hereto or designated in the Lender Assignment Agreement or such other office of
such Lender or the Agent, as applicable (or any successor or assign of such
Lender or any successor of the Agent), within Canada as may be designated from
time to time by notice from such Lender or the Agent, as the case may be, to
each other Person party hereto.
"CDOR Rate" means, on any day, the annual rate of interest which is the
---------
average of the rates applicable to Canadian Dollar bankers' acceptances having
identical issue and comparable maturity dates as the Bankers' Acceptances
proposed to be issued by the Borrower displayed and identified as such on the
Reuters' Screen CDOR Page at approximately 10:00 a.m. (Toronto, Canada time) on
such day, or if such day is not a Business Day then on the immediately preceding
Business Day (as adjusted by the Agent after 10:00 a.m. (Toronto, Canada time)
to reflect any error in a posted rate of interest or in the posted average
annual rate of interest); provided, however, if such rates do not appear on the
-------- -------
Reuter's Screen CDOR Page, then the "CDOR Rate" shall be the average of the
discount rates applicable to such Canadian Dollar bankers' acceptances in a
comparable amount to the BA Reference Banks' Percentages of the Bankers'
Acceptances proposed to be issued by the Borrower quoted to the Agent by the BA
Reference Banks as of 10:00 a.m. (Toronto, Canada time) on such day, or if such
day is not a Business Day, on the immediately preceding Business Day.
7
<PAGE>
"Collateral Agent" means BankOne, in its capacity as collateral agent for
----------------
the Lenders and the Arch Banks.
"Collateral Documents" is defined in Section 7.1.21.
-------------------- --------------
"Commitment" means the commitment of a Lender to make Revolving Loans to,
----------
and/or purchase Bankers' Acceptances from, the Borrower pursuant to Section 2.1.
-----------
"Commitment Termination Date" means the earliest of (a) May 1, 1997; (b)
---------------------------
the date on which the Facility Amount is terminated in full; and (c) the date on
which any Commitment Termination Event occurs. Upon the occurrence of any event
described in clause (b) or (c), the Commitments shall terminate automatically
---------- ---
and without any further action.
"Commitment Termination Event" means
----------------------------
(a) the occurrence of any Default described in Section 8.1.5, 8.1.6 or
--------------------
8.1.11; or
- ------
(b) the occurrence and continuance of any other Event of Default and
either
(i) the declaration of all or any part of the Obligations of the
Borrower to be due and payable pursuant to Section 8.3, or
-----------
(ii) in the absence of such declaration, the giving of notice by the
Agent to the Borrower that the Commitments have been terminated.
"Consequential Loss" is defined in Section 4.6.
------------------ -----------
"Consolidated Borrowing Base" has the meaning assigned to such term in the
---------------------------
Arch Agreement.
"Contract Rate" means a rate of interest based upon the LIBO Rate, the
-------------
Prime Rate or Alternate Base Rate in effect at any time pursuant to the terms
hereof.
"Conversion" means a conversion of a Borrowing, or portion thereof, to
----------
another Type of Borrowing.
"Conversion Date" means a Business Day on which a Conversion is to be made
---------------
pursuant to a Conversion Notice.
8
<PAGE>
"Conversion Notice" means a notice to effect a Conversion delivered under
-----------------
Section 2.4.2 and in substantially the form of Exhibit D with all applicable
- ------------- ---------
blanks completed and duly executed and completed by an Authorized Officer of the
Borrower.
"Current Ratio" means the ratio of
-------------
(a) consolidated current assets of the Borrower and its Subsidiaries
to
- --
(b) consolidated current liabilities of the Borrower and its
Subsidiaries.
"Debenture" means that certain Fixed and Floating Charge Debenture in the
---------
principal amount of Cdn. $35,000,000, and dated as of the date hereof, executed
by the Borrower in favor of Bank of Montreal in its capacity as Agent for the
Lenders and delivered pursuant to Section 5.1.7, substantially in the form of
-------------
Exhibit G-3 hereto as amended, supplemented, restated or otherwise modified from
- -----------
time to time.
"Default" means any Event of Default or any condition, occurrence or event
-------
which, with the giving of notice or lapse of time or both, would constitute an
Event of Default.
"Default Rate" means a rate of interest per annum equal to the lesser of
------------
(i) the Maximum Rate from time to time, or (ii) 5% in excess of the Alternate
Base Rate, if a Loan or other Obligation is denominated in U.S. Dollars, and 5%
in excess of the Prime Rate if such Loan or other Obligation is denominated in
Canadian dollars.
"Determination Date" means each November 1 and May 1 occurring prior to the
------------------
Commitment Termination Date.
"Discount Proceeds" means, in respect of any Bankers' Acceptance required
-----------------
to be accepted and purchased by a Lender hereunder, an amount (rounded to the
nearest whole cent with one-half of one cent being rounded up) in Canadian
Dollars determined as of the applicable Borrowing Date, Rollover Date or
Conversion Date which is equal to:
Face Amount x Price
-----------
100
where the "Face Amount" is the face amount of such Bankers' Acceptance and
"Price" is equal to:
9
<PAGE>
100
-----------------------
1 + (Rate x Term)
----
#Days
where: the "Rate" is the Discount Rate expressed as a decimal on the day of
purchase; the "Term" is the term of such Bankers' Acceptance expressed as a
number of days; "# Days" is the number of days in the 12 month period commencing
on the date of issuance of such Bankers' Acceptance; and the Price as so
determined is rounded up or down to the fifth decimal place with .000005 being
rounded up.
"Discount Rate" means, with respect to each Bankers' Acceptance which is
-------------
required to be accepted and purchased by a Lender hereunder, the percentage
discount rate (expressed to three decimal places) determined by the Agent at
approximately 10:00 a.m. Toronto time on the applicable Drawdown Date,
Conversion Date or Rollover Date, as the case may be, as being the arithmetic
average of the discount rates respectively announced by the BA Reference Banks
on such date, for Canadian Dollar bankers' acceptances in amounts comparable to
the Borrowing having an identical issue date to the Borrowing and a maturity
date comparable to the Borrowing. Each determination of the Discount Rate shall
be conclusive and binding, absent manifest error.
"Dollars" and the sign(s) "U.S.$" or "$" mean lawful currency of the United
------- ----- -
States of America.
"Domestic Borrowing Base" has the meaning assigned to such term in the Arch
-----------------------
Agreement.
"Drawdown Date" means a Business Day on which a Borrowing is to be made
-------------
pursuant to a Borrowing Notice and as defined in Section 2.2.
"Effective Date" means the date this Agreement becomes effective pursuant
--------------
to Section 10.8.
------------
"Environmental Laws" means, with respect to any Person,
------------------
(a) any federal, state, provincial, regional, municipal or local statute
(including the Environmental Protection and Enhancement Act (Alberta) and the
Canadian Environmental Protection Act), or rule or regulation promulgated
thereunder;
(b) any administrative order (including any consent order), judgment,
order, decree, or award of any court or written administrative request to which
such Person or any Subsidiary of
10
<PAGE>
such Person is party or which are applicable to such Person or any Subsidiary of
such Person (whether or not by consent); and
(c) any provision or condition of any ordinance, code, guideline, permit,
license or other governmental operating authorization, relating to (i)
protection of the environment, persons or the public welfare from actual or
potential discharge, spill or emission (whether past or present) of, or
regarding the manufacture, processing, production, gathering, transportation,
importation, use, treatment, storage or disposal of, any chemical, raw material,
pollutant, contaminant or toxic, corrosive, hazardous, or non-hazardous
substance or waste, including petroleum; or (ii) occupational or public health
or safety in connection with the manufacture, processing, production, gathering,
transportation, importation, use, treatment, storage or disposal of, any
chemical, raw material, pollutant, contaminant or toxic, corrosive, hazardous,
or non-hazardous substance or waste, including petroleum.
"Equivalent Amount" in one currency (the "first currency") of an amount in
-----------------
another currency (the "other currency") means the amount of the first currency
which is required to purchase such amount of the other currency at the rate
determined on the basis of the Spot Rate of Exchange for the other currency
against the first currency at the time of determination.
"Event of Default" is defined in Section 8.1.
---------------- -----------
"Facility Amount" means, on any date, Eleven Million U.S. Dollars
---------------
(U.S.$11,000,000) or the Equivalent Amount in Canadian Dollars of such amount on
such date.
"Federal Funds Rate" means, for any date, a fluctuating interest rate per
------------------ ---
annum equal to
- -----
(a) 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
(b) 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
Agent from three federal funds brokers of recognized standing selected by it.
"F.R.S. Board" means the Board of Governors of the Federal Reserve System
------------
or any successor thereto.
11
<PAGE>
"GAAP" is defined in Section 1.4.
---- -----------
"General Security Agreement" means that certain Security Agreement dated
--------------------------
the date hereof, between the Borrower and Bank of Montreal in its capacity as
Agent for the Lenders and delivered pursuant to Section 5.1.7, substantially in
-------------
the form of Exhibit G-2 hereto, as amended, supplemented, restated or otherwise
-----------
modified from time to time.
"Guarantor" means each of API and Northern.
---------
"Guaranty" means each of the Guaranty executed and delivered by API
--------
pursuant to Section 5.1.5, substantially in the form of Exhibit A hereto, and
------------- ---------
the Guaranty executed and delivered by Northern pursuant to Section 5.1.5,
-------------
substantially in the form of Exhibit B hereto, each as amended, supplemented,
---------
restated or otherwise modified and in effect from time to time.
"Hazardous Materials" means any pollutant or contaminant or any waste or
-------------------
substance defined or regulated as such from time to time by any Environmental
Law.
"herein", "hereof", "hereto", "hereunder" and similar terms contained in
------ ------ ------ ---------
this Agreement or any other Loan Document refer to this Agreement or such other
Loan Document, as the case may be, as a whole and not to any particular section,
paragraph or provision of this Agreement or such other Loan Document.
"including" means including without limiting the generality of any
---------
description preceding such term, and, for purposes of this Agreement and each
other Loan Document, the parties hereto agree that the rule of ejusdem generis
------- -------
shall not be applicable to limit a general statement, which is followed by or
referable to an enumeration of specific matters, to matters similar to the
matters specifically mentioned.
"Indebtedness" means, with respect to any Person as of any date, all
------------
liabilities and contingent liabilities which would be reflected on a balance
sheet and related notes thereto of such Person prepared as of such date in
accordance with GAAP, including without limitation: (i) all obligations for
money borrowed; (ii) all obligations under conditional sale or other title
retention agreements and all obligations issued or assumed as full or partial
payment for property, whether or not any such obligations represent obligations
for borrowed money; (iii) all indebtedness secured by any Lien existing on
property owned or acquired by such Person subject to any such Lien, whether or
not the obligations secured thereby shall have been assumed; (iv) the
proportionate share of
12
<PAGE>
such Person in all obligations, direct or indirect, to any joint venture,
partnership or other entity of which such Person is a member; (v) all
obligations under guaranties, note purchase agreements and other documents
having similar effect; (vi) all obligations for accounts payable or trade
credit; (vii) indebtedness of any joint venture, partnership or other Person for
which such Person is directly or indirectly liable; and (viii) all obligations
under capital leases, operating leases or any other leases only to the extent
such leases would be treated as indebtedness in accordance with GAAP.
"Instrument of Pledge" means that certain Instrument of Pledge dated as of
--------------------
the date hereof, executed by the Borrower in favor of Bank of Montreal in its
capacity as Agent for the Lenders and delivered pursuant to Section 5.1.7,
-------------
substantially in the form of Exhibit G-4 hereto, as amended, supplemented,
-----------
restated or otherwise modified from time to time.
"Intercreditor Agreement" means that certain Intercreditor Agreement dated
-----------------------
as of February 20, 1996 among the Lenders, the Agent, the Collateral Agent, the
Arch Banks, BankOne, as Agent under the Arch Agreement and Bank of Scotland as
Lender under the Onyx Loan Agreement (as defined in the Arch Agreement).
"Interest Payment Date" means, in the case of any Prime Rate Loan and any
---------------------
Base Rate Loan, (a) the last day of each calendar quarter during the term
hereof, commencing March 31, 1996, and (b) the Stated Maturity Date, unless
sooner matured or terminated pursuant to the terms hereof.
"Judgment Currency" is defined in Section 4.12.2.
----------------- --------------
"Lender Assignment Agreement" means a Lender Assignment Agreement
---------------------------
substantially in the form of Exhibit E hereto.
---------
"Lenders" is defined in the preamble and includes their respective
------- --------
successors and permitted assigns.
"LIBO Business Day" means a day on which dealings in Dollars are carried
-----------------
out in the London interbank market.
"LIBO Rate" means, with respect to each LIBOR Interest Period, on any day
---------
thereof the rate of interest per annum determined by the Agent (in accordance
with its customary general practice) to be the per annum rate at which deposits
in immediately available funds in U.S. Dollars are quoted by the Agent at
approximately 10:00 a.m. Toronto time two (2) Business Days prior to the first
day of such LIBOR Interest Period for the offering by the Agent to leading
13
<PAGE>
banks in the London interbank market for delivery on the first day of such LIBOR
Interest Period, such deposits being for a period of time equal or comparable to
such LIBOR Interest Period and in an amount equal to or comparable to the
principal amount of the LIBO Rate Loan to which such LIBOR Interest Period
relates.
"LIBO Rate Loan" means any principal balance of Revolving Loans which,
--------------
pursuant to a Borrowing Notice, Conversion Notice or Rollover Notice and subject
to the provisions hereof, bears interest at a rate based upon the LIBO Rate for
a LIBOR Interest Period specified in such Borrowing Notice, Conversion Notice or
Rollover Notice.
"LIBOR Interest Period" means, with respect to any LIBO Rate Loan, a period
---------------------
commencing: (i) on any date upon which, pursuant to a Borrowing Notice,
Conversion Notice or Rollover Notice, the principal amount of such LIBO Rate
Loan begins to accrue interest at the LIBO Rate, or (ii) on the last day of the
immediately preceding LIBOR Interest Period in the case of a Rollover to a
successive LIBOR Interest Period, and (in either (i) or (ii)) ending one (1)
month, two (2) months, three (3) months or six (6) months thereafter, as the
Borrower shall elect in accordance with the provisions hereof; provided,
--------
however, that: (A) any LIBOR Interest Period which would otherwise end on a day
- -------
which is not a LIBO Business Day shall be extended to the next succeeding LIBO
Business Day unless such LIBO Business Day falls in another calendar month, in
which case such LIBOR Interest Period shall end on the next preceding LIBO
Business Day; (B) any LIBOR Interest Period which begins on the last LIBO
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such LIBOR Interest
Period) shall, subject to clauses (C) below and (A) above, end on the last LIBO
Business Day of a calendar month; and (C) any LIBOR Interest Period which would
otherwise end after the Stated Maturity Date, shall end on the Stated Maturity
Date.
"LIBOR Office" means, relative to any Lender, the office of such Lender
------------
designated as such below its signature hereto or designated in the Lender
Assignment Agreement or such other office of a Lender as designated from time to
time by notice from such Lender to the Borrower and the Agent, within Canada,
which shall be making or maintaining LIBO Rate Loans of such Lender hereunder.
"Lien" means any lien, mortgage, security interest, tax lien, pledge or
----
encumbrance, charge or conditional sale or title retention arrangement, or any
other interest in property securing the repayment or performance of an
obligation, whether arising by agreement or under any statute or law, or
otherwise.
14
<PAGE>
"Loan" means, as the context may require, a Revolving Loan of any Type.
----
"Loan Document" means (i) individually, each of this Agreement, the
-------------
Bankers' Acceptances, the Guaranties, the Pledge Agreement, the Debenture, the
Instrument of Pledge, the General Security Agreement, the Security Agreement
(Stock), the Intercreditor Agreement, any Collateral Document, any letter
agreement concerning fees of the type described in Section 2.14.1, each
--------------
Borrowing Notice, each Conversion Notice, each Rollover Notice, each officer's
certificate, and each financing statement from time to time executed and
delivered in connection with this Agreement, and each other agreement, document,
certificate or instrument from time to time executed and delivered in connection
with this Agreement and (ii) collectively, any two or more of the foregoing.
"Majority Lenders" means, at any time, Lenders having 100% of the aggregate
----------------
amount of the Commitments; provided that, if the Commitments shall have been
terminated, "Majority Lenders" shall mean Lenders holding 100% of the then
aggregate outstanding principal amount and face amount of the Borrowings.
"Maximum Rate" means the maximum nonusurious interest rate, if any, that at
------------
any time, or from time to time, may be contracted for, taken, reserved, charged,
or received on any Revolving Loan under the laws in effect in Alberta including
the laws of Canada applicable therein.
"Net Worth" of any Person means the total consolidated shareholder equity
---------
of such Person and its Subsidiaries as shown on its balance sheet, including
such Person's exchangeable convertible preferred stock.
"Obligations" means (i) the obligation of the Borrower for the due and
-----------
punctual payment to the Lender of the face amount of outstanding Bankers'
Acceptances upon their maturity, and the principal of and interest on Revolving
Loans when due, whether at maturity, by acceleration, by notice of voluntary
prepayment or otherwise, (ii) all other obligations (including in respect of
out-of-pocket expenses) and indemnities now or hereafter existing of the
Borrower to the Lenders and the Agent under this Agreement, (iii) all out-of-
pocket costs and expenses, now or hereafter existing, that may be incurred by
the Lender or the Agent in connection with the administration and enforcement of
the Loan Documents, (iv) the obligations of each of the Guarantors or other
Persons obligated to the Lenders under the Loan Documents, and (v) all
obligations of the Borrower under Article IV hereof.
----------
15
<PAGE>
"Offer" is defined in the first recital.
----- -------------
"Offering Document" is defined in the first recital.
----------------- -------------
"One Month BA Rate" means, on any day, the annual rate of interest which is
-----------------
a rate determined as being the arithmetic average of the "BA 1 month" rate
applicable to Canadian Dollar bankers' acceptances for Schedule I banks under
the Bank Act (Canada) displayed and identified as such on the Reuters' Screen
CDOR Page as at approximately 10:00 a.m. (Toronto, Canada time) on such day, or
if such day is not a Business Day, then on the immediately preceding Business
Day (as adjusted by the Agent after 10:00 a.m. (Toronto, Canada time) to reflect
any error in a posted rate of interest or in the posted average annual rate of
interest); provided, however, if such a rate does not appear on the Reuter's
-------- -------
Screen CDOR Page as contemplated, the "One Month BA Rate" on any day shall be
the average of the thirty (30) day discount rate of the Reference Banks notified
to the Agent (determined as of 10:00 a.m. Toronto, Canada time on such day)
which would be applicable in respect of an issuance of bankers' acceptances with
a term to maturity of one month in an aggregate amount of Cdn. $500,000 issued
on such day, or if such day is not a Business Day, then on the immediately
preceding Business Day.
"Other Currency" is defined in Section 4.12.1.
-------------- --------------
"Outstandings" means, at any date, the aggregate of: (i) the Equivalent
------------
Amount in U.S. Dollars of the principal amount of, and interest which is overdue
and unpaid in respect of, any outstanding Prime Rate Loan; (ii) the Equivalent
Amount in U.S. Dollars of the face amounts of outstanding Bankers' Acceptances;
and (iii) the principal amount of, and interest which is overdue and unpaid in
respect of, outstanding LIBO Rate Loans and Base Rate Loans.
"Participant" is defined in Section 10.11.2.
----------- ---------------
"Percentage" means, relative to any Lender, the percentage set forth
----------
opposite its signature hereto or set forth in the Lender Assignment Agreement,
as such percentage may be adjusted from time to time pursuant to Lender
Assignment Agreement(s) executed by such Lender and its Assignee Lender(s) and
delivered pursuant to Section 10.11.
-------------
"Permitted Liens" means, as of any date: (i) liens granted in favor of the
---------------
Agent for the benefit of the Lenders to secure any Obligations granted under any
of the Loan Documents; (ii) pledges or deposits made to secure payment of
worker's compensation (or to participate in any fund in connection with worker's
compensation),
16
<PAGE>
unemployment insurance, pensions or social security programs; (iii) contractual
liens for the benefit of operators; (iv) liens imposed by provisions of law such
as for materialmen's, builders', carriers', warehousemen's and other like liens
arising in the ordinary course of business, to the extent such liens are
subordinate to all liens and security interests of the Lenders and related to
obligations not due or delinquent at that time; (v) liens for taxes, assessments
and governmental charges or levies imposed upon a Person or upon such Person's
income or profits or property, if the same are not yet due and payable or if the
same are being contested in good faith and as to which adequate reserves have
been provided; (vi) good faith deposits in connection with tenders, leases, real
estate bids or contracts (other than contracts involving the borrowing of
money), pledges or deposits to secure public or statutory obligations, deposits
to secure (or in lieu of) surety, stay, appeal or customs bonds and deposits to
secure the payment of taxes, assessments, customs duties or other similar
charges; (vii) encumbrances consisting of zoning restrictions, easements, or
other restrictions on the use of real property, provided that such do not impair
the use of real property for the uses intended, and none of which is violated in
any material respect by existing or proposed structures or land use; (viii) the
terms and provisions of the leases, assignments, unit agreements and other
agreements listed, identified or referred to in the Collateral Documents; (ix)
the terms and provisions of the assignments and other title transfer documents
under which Borrower acquired the Borrowing Base Properties including any right
retained by a predecessor in title of Borrower to purchase hydrocarbons produced
therefrom; and (x) any other liens or encumbrances to which the Lenders agree in
writing that their Lien shall be subject.
"Person" means any natural person, corporation, joint venture, partnership,
------
firm, association, trust, government, governmental agency or any other entity,
whether acting in an individual, fiduciary or other capacity.
"Pledge Agreement" means the Pledge Agreement executed and delivered
----------------
pursuant to Section 5.1.6, substantially in the form of Exhibit F hereto, as
------------- ---------
amended, supplemented, restated or otherwise modified from time to time.
"Present Value" means a calculation by an independent engineering firm
-------------
specified in or otherwise satisfying the requirements of this Agreement of the
net present value of the net cash flow of petroleum and natural gas reserves of
the Borrower calculated on a basis satisfying the requirements of National
Policy No. 2-B Guide for Engineers and Geologists Submitting Oil
17
<PAGE>
and Gas Reports to Canadian Securities Administrators in relation to the
petroleum and natural gas reserves of the Borrower and based on the following:
(a) a description of net revenue interests and working interests attributable to
such reserves; (b) escalation or de-escalation of commodity prices and capital,
operating and other costs (including abandonment and reclamation costs) over the
economic life of the relevant reserves; (c) specified assumptions as to foreign
exchange rates; (d) calculated on a pre-income tax basis; (e) calculated
including applicable Alberta Royalty Tax Credits; (f) descriptions and
assumptions as to royalties, burdens of all kinds, taxes (including those based
on volume or value of production or reserves), rates of production,
recoverability and deliverability of reserves and demand for production; and (g)
descriptions of the reserves and of such assumptions and other factors as were
used in making the above determinations.
"Prime Rate" means, on any day, the greater of (i) a fluctuating rate per
----------
annum equal to the floating rate of interest per annum then most recently
announced by the Agent as the reference rate it will use to determine rates of
interest on Canadian Dollar commercial loans made by it to borrowers in Canada
and referred to by it as its "prime rate" and (ii) the aggregate of (a) the One
Month BA Rate, plus (b) one hundred ten basis points (1.10%). Changes in the
----
rate of interest on that portion of any Loans maintained as Prime Rate Loans
(and in the rate of interest of any other Obligations from time to time bearing
interest at a rate determined by reference to the Prime Rate) will take effect
simultaneously with each change in the Prime Rate.
"Prime Rate Loan" means a Loan denominated in Canadian Dollars to which the
---------------
Prime Rate applies.
"Probable Additional Reserves" means those reserves which analysis of
----------------------------
drilling, geological, geophysical and engineering data does not demonstrate to
be proved under current technology and existing economic conditions, but where
such analysis suggests the likelihood of their existence and future recovery.
Probable additional reserves to be obtained by the application of enhanced
recovery processes will be the increased recovery over and above that estimated
in the proved category which can be realistically estimated for the pool on the
basis of enhanced recovery processes which can be reasonably expected to be
instituted in the future.
"Proved Producing Reserves" means those Proved Reserves that are actually
-------------------------
on production or, if not producing, that could be recovered from existing wells
or facilities and where the reasons for the current non-producing status is the
choice of the owner rather than the lack of markets or some other reasons. An
18
<PAGE>
illustration of such a situation is where a well or zone is capable but is shut-
in because its deliverability is not required to meet contract commitments.
"Proved Non-Producing Reserves" means those Proved Reserves that are not
-----------------------------
currently producing either due to lack of facilities and/or markets.
"Proved Reserves" means those reserves estimated as recoverable under
---------------
current technology and existing economic conditions, from that portion of a
reservoir which can be reasonably evaluated as economically productive on the
basis of analysis of drilling, geological, geophysical and engineering data,
including the reserves to be obtained by enhanced recovery processes
demonstrated to be economic and technically successful in the subject reservoir.
"Regulatory Change" means, with respect to any Lender, any change after the
-----------------
Effective Date in any Canadian or foreign federal, state or provincial law,
regulations (including regulations relating to reserve requirements), rule,
treaty, decree or regulatory requirement or the adoption or making after such
date of any interpretations, directives, requests, guidelines or orders applying
to a class of lenders including such Lender of or under any Canadian or foreign
federal, state or provincial law, regulations, rules, treaties, decrees or
regulatory requirements (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.
"Reserve Requirement" means, for any LIBOR Interest Period for any LIBO
-------------------
Rate Loan, the average maximum rate at which reserves (including any marginal,
supplemental or emergency reserves) are required to be maintained during such
LIBOR Interest Period under applicable federal, state or provincial law,
regulation, directive, order, guideline or other regulatory requirement imposed
by Bank of Canada, the Office of the Superintendent of Financial Institutions,
the F.R.S. Board or any other governmental or monetary authority having or
asserting jurisdiction. Without limiting the effect of the foregoing, the
Reserve Requirement shall reflect any other reserves required to be maintained
by reason of any Regulatory Change against (i) any category of liabilities which
includes deposits by reference to which the LIBO Rate is to be determined as
provided in the definition of "LIBO Rate" in this Section 1.1 or (ii) any
-----------
category of extensions of credit or other assets which includes any LIBO Rate
Loan.
"Revolving Loans" has the meaning set forth in Section 2.1.1.
--------------- -------------
19
<PAGE>
"Rollover" means, in respect of (i) maturing Bankers' Acceptances, the
--------
purchase by the Lenders of further Bankers' Acceptances the proceeds of which
are to be applied to the repayment of the maturing Bankers' Acceptances, or (ii)
the end of a LIBOR Interest Period applicable to all or a portion of a LIBO Rate
Loan, selection by the Borrower of a further LIBOR Interest Period to be
applicable thereto, as applicable.
"Rollover Date" means the date that a Rollover is to be made pursuant to a
-------------
Rollover Notice.
"Rollover Notice" means a notice to effect a Rollover delivered under
---------------
Section 2.4.3 and in substantially the form of Exhibit N with all applicable
- ------------- ---------
blanks completed and duly executed and completed by an Authorized Officer of the
Borrower.
"Schedule II Lender" means any Lender which is a bank chartered under and
------------------
referred to in Schedule II of the Bank Act (Canada).
"Schedule II Reference Lenders" means (i) at any time when there are three
-----------------------------
or more Schedule II Lenders, two Schedule II Lenders, one to be selected from
time to time by the Agent with the consent of the Borrower (which consent will
not be unreasonably withheld or delayed) and the other to be selected from time
to time by the Borrower with the consent of the Agent (which consent will not be
unreasonably withheld or delayed); and (ii) at any other time, such Schedule II
Lenders, if any, or such other financial institutions as the Agent and the
Borrower shall agree.
"Security Agreement (Stock)" means the Security Agreement executed and
--------------------------
delivered pursuant to Section 5.1.7, substantially in the form of Exhibit G-1
------------- -----------
hereto, as amended, supplemented, restated or otherwise modified from time to
time.
"Shares" is defined in the first recital.
------ -------------
"Spot Rate of Exchange" means, on any date, the rate of exchange between
---------------------
two currencies which is quoted on the Reuters' Screen page BOFC at or about noon
Toronto time on that day.
"Stated Maturity Date" means May 1, 1997.
--------------------
"Subsidiary" means, with respect to any Person, (a) any corporation of
----------
which 50% or more of the outstanding capital stock having ordinary voting power
to elect a majority of the board of directors of such corporation (irrespective
of whether at the time capital stock of any other class or classes of such
corporation
20
<PAGE>
shall or might have voting power upon the occurrence of any contingency) is at
the time directly or indirectly owned by such Person, by such Person and one or
more Subsidiaries of such Person, or by one or more other Subsidiaries of such
Person, (b) any partnership of which such Person, or one or more other
Subsidiaries of such Person is a general partner, and (c) any limited liability
company in which such Person, such Person and one or more other Subsidiaries of
such Person, or one or more other Subsidiaries of such Person is a member or
manager and with an aggregate interest of 50% or more.
"Taxes" is defined in Section 4.7.
----- -----------
"Trax Borrowing Base" is defined in Section 3.1.
------------------- -----------
"Type" means, relative to any Borrowing, the portion thereof, if any, being
----
maintained as a Base Rate Loan, a BA Equivalent Loan, a Bankers' Acceptance, a
Prime Rate Loan or a LIBO Rate Loan.
"United States" or "U.S." means the United States of America, its fifty
------------- ----
States and the District of Columbia.
"U.S. Allocated Borrowing Base" has the meaning assigned to such term in
-----------------------------
the Arch Agreement.
SECTION 1.2 Use of Defined Terms. Unless otherwise defined or the
--------------------
context otherwise requires, terms for which meanings are provided in this
Agreement shall have such meanings when used in each Borrowing Notice,
Conversion Notice, Rollover Notice, Loan Document, notice and other
communication delivered from time to time in connection with this Agreement or
any other Loan Document.
SECTION 1.3 Cross-References. Unless otherwise specified, references in
----------------
this Agreement and in each other Loan Document to any Article or Section are
references to such Article or Section of this Agreement or such other Loan
Document, as the case may be, and, unless otherwise specified, references in any
Article, Section or definition to any clause are references to such clause of
such Article, Section or definition.
SECTION 1.4 Accounting and Financial Determinations. Unless otherwise
---------------------------------------
specified, all accounting terms used herein or in any other Loan Document shall
be interpreted, all accounting determinations and computations hereunder or
thereunder shall be made, and all financial statements required to be delivered
hereunder or thereunder shall be prepared in accordance with, those generally
accepted accounting principles as applied to U.S. financial
21
<PAGE>
statements ("GAAP") applied in the preparation of the financial statements
----
referred to in Section 5.1.12.
--------------
SECTION 1.5 Currency References. Unless otherwise specified herein, all
-------------------
dollar amounts expressed herein shall refer to U.S. Dollars. Except as
otherwise herein specified, for purposes of calculating compliance with the
terms of this Agreement and the other Loan Documents (including for purposes of
calculating compliance with the covenants), any other obligation or calculation
shall be converted to its Equivalent Amount in U.S. Dollars.
ARTICLE II
REVOLVING CREDIT FACILITY
SECTION 2.1 Commitments.
-----------
SECTION 2.1.1 Revolving Credit Commitment. Subject to and in reliance
---------------------------
upon the terms, conditions, representations and warranties contained in this
Agreement, each Lender severally agrees to make revolving credit loans to the
Borrower in one or more advances ("Revolving Loans") of LIBO Rate Loans, Prime
---------------
Rate Loans, Base Rate Loans and/or purchase Bankers' Acceptances and deliver the
Discount Proceeds in respect thereof (less the applicable fee payable in respect
thereof pursuant to Section 2.3.12) in a principal amount equal to such Lender's
--------------
Percentage of the aggregate amount of the Borrowings requested by the Borrower
on any date.
The Commitment of each Lender described in this Section 2.1.1 is herein referred
to as its "Commitment".
SECTION 2.1.2 Lenders Not Permitted or Required to Make Borrowings
----------------------------------------------------
Available. No Lender shall be permitted or required to make any Loan or accept
- ---------
any Bankers' Acceptance, or otherwise make any Borrowing under its Commitment
available to the Borrower if, after giving effect thereto and to all other
Borrowings to be made on such date, and to all reductions of the Commitments,
the Outstandings of all Lenders would exceed the lesser of (v) the Facility
Amount and (x) the Canadian Allocated Borrowing Base then in effect, or the
aggregate amount of such Lender's Borrowings would exceed the lesser of (y) such
Lender's Percentage of the Facility Amount and (z) such Lender's Percentage of
the Canadian Allocated Borrowing Base then in effect. If the amount of a
Lender's Outstandings exceeds its Commitment, the amount of such excess shall
immediately be repaid except to the extent that any excess arises solely as a
result of fluctuations in the rate of
22
<PAGE>
exchange for conversion of Canadian Dollars against U.S. Dollars, in which case
the Borrower shall only be required to repay the amount of any such excess on
each Borrowing Date, Conversion Date, Rollover Date and the last Business Day of
each fiscal quarter of Borrower, provided, that if the amount required to be
-------- ----
repaid on any day exceeds the amount of the Revolving Loans, then the Borrower
shall make a deposit of an amount of the excess in an account under Section
-------
2.9.2. No Lender shall have any obligation to make or effect any Borrowing (i)
- ------
on a non-Business Day, or (ii) after the Commitment Termination Date; provided,
--------
however, that Borrower's Obligations and Lender's rights under the Loan
- -------
Documents shall continue in full force and effect until the Obligations are
indefeasibly paid and performed in full. Prior to the Commitment Termination
Date, Borrower may request the Lender to purchase Bankers' Acceptances, borrow,
repay and reborrow Revolving Loans in whole or part, and effect Conversions and
Rollovers all in accordance with terms and conditions of this Agreement.
SECTION 2.1.3 Several Obligations. No Lender shall be responsible for the
-------------------
failure of any other Lender to make a Loan to be made by such other Lender or to
accept any Bankers' Acceptance to be accepted by any other Lender.
SECTION 2.1.4 Funding Borrowings Under Commitments.
------------------------------------
(a) On or before 11:00 a.m. Toronto time on each Drawdown Date on which a
Loan is requested to be made to a Borrower, each Lender shall deposit with the
Agent immediately available funds in an amount equal to such Lender's Percentage
of the requested Loans and in the currency specified in the relevant Borrowing
Notice. Such deposit will be made to accounts in Canada which the Agent shall
specify from time to time by notice to the Lenders. To the extent funds on
account of Loans made to or for the account of the Borrower are received by the
Agent from the Lenders pursuant to this Section 2.1.4, the Agent shall make
-------------
funds available to the Borrower by depositing such funds to the accounts at the
Agent's Branch of Account. No Lender's obligation to make any Loan or otherwise
fund any Borrowing shall be affected by any other Lender's failure to make any
other Loan or otherwise fund any Borrowing.
(b) In the event of any failure by a Lender to make a Loan required
hereunder, the other Lenders may (but shall not be required to) purchase (on a
pro rata basis, according to their respective Percentages) such Lender's Loan.
Upon the failure of a Lender to make a Loan required to be made by it hereunder,
the Agent may (but shall not be required to) obtain one or more banks,
acceptable to Borrower, to replace such Lender, but neither the
23
<PAGE>
Agent nor any other Lender shall have any liability or obligation whatsoever as
a result of the failure to purchase a Loan or to obtain a replacement for such
Lender.
SECTION 2.2 Borrowing Procedure; Disbursement.
---------------------------------
(a) Subject to the provisions hereof, each Borrowing shall be made on
Borrower's delivery of a Borrowing Notice to the Agent requesting an advance of
a Revolving Loan or purchase by the Lender of Bankers' Acceptances on a certain
date (the "Drawdown Date"). Each Borrowing Notice shall be irrevocable and
-------------
binding and must be received by the Agent no later than: (i) 10:00 a.m.
(Toronto time), on the Drawdown Date in the case of Prime Rate Loan or Base Rate
Loan; (ii) 10:00 a.m. (Toronto time) one (1) Business Day prior to the Borrowing
Date in the case of a Borrowing by way of Bankers' Acceptances; and (ii) 1:00
p.m. (Toronto time) three (3) Business Days prior to the Drawdown Date in the
case of a requested Borrowing by way of a LIBO Rate Loan.
(b) Prior to submitting a Borrowing Notice, the Borrower may (without
specifying whether the anticipated Borrowing shall be a Base Rate Loan, LIBO
Rate Loan, Prime Rate Loan or Bankers' Acceptance) request that the Agent
provide the Borrower with the most recent Alternate Base Rate, Prime Rate and
Discount Rate available to the Agent. The Agent shall endeavor to provide such
quoted rates to the Borrower on the date of such request. The Borrower
acknowledges and agrees that such quoted rates are subject to change from the
time provided by the Agent to the time specified for determining the Alternate
Base Rate, Prime Rate and Discount Rate in accordance with this Agreement.
SECTION 2.3 Conditions Applicable to Bankers' Acceptances.
---------------------------------------------
SECTION 2.3.1 Purchase of Bankers' Acceptances by a Lender. Subject to
--------------------------------------------
the provisions hereof, each Lender hereby agrees to purchase (at the applicable
Discount Rate) its Lender's Percentage of Bankers' Acceptances as requested by
the Borrower pursuant to a Borrowing Notice, Conversion Notice or Rollover
Notice delivered under Section 2.2, 2.4.2 or 2.4.3. Any Lender may at any time
----------- ----- -----
and from time to time hold, sell, rediscount or otherwise dispose of any or all
such Acceptances purchased by it.
SECTION 2.3.2 Payment to Borrower. On the Borrowing Date, Rollover Date
-------------------
or Conversion Date relating to any issue of Bankers' Acceptances, each Lender
shall deposit with the Agent in immediately available funds at the Agent's
Branch of Account in an amount equal to the Discount Proceeds of such Bankers'
Acceptances (less any fees payable to the Lender in respect thereof pursuant to
24
<PAGE>
Section 2.3.12). Such deposit will be made to accounts in Canada which the
- --------------
Agent shall specify from time to time by notice to the Lenders. To the extent
funds on account of Discount Proceeds are received by the Agent from the Lenders
pursuant to this Section 2.3.2, the Agent shall make funds available to the
-------------
Borrower by depositing such funds to the accounts at the Agent's Branch of
Account or, if applicable, the Agent may apply such amount to the Borrower's
obligations in respect of any Borrowing which is being converted under Section
-------
2.4.2 or rolled over under Section 2.4.3.
- ----- -------------
SECTION 2.3.3 Waiver of Presentment and Other Conditions. The Borrower
------------------------------------------
waives presentment for payment and, except to the extent of the gross negligence
or wilful misconduct of the Lenders referred to in Section 2.3.5, any other
-------------
defense to payment of any amounts due to the Lender in respect of a Bankers'
Acceptance purchased by it pursuant to this Agreement and the Borrower agrees
not to claim any days of grace if a Lender as holder demands payment of the
Bankers' Acceptance on the maturity date thereof. On the specified maturity date
of a Bankers' Acceptance, the Borrower shall pay each Lender holding any
Bankers' Acceptance (as original purchaser, on any repurchase or purchase in the
market or as a result of having honored its obligations as the drawee therefor
to pay the payee thereof), the full face amount of such Bankers' Acceptance,
which payment, subject to the provisions hereof, may be from the proceeds of a
Conversion or Rollover.
SECTION 2.3.4 Terms of Each Bankers' Acceptance. Each Bankers' Acceptance
---------------------------------
shall:
(a) have a maturity date which shall be on a Business Day prior to or on
the Stated Maturity Date;
(b) unless the Lender agrees otherwise, have a term of not less than ten
(10) and not more than one hundred eighty (180) days;
(c) be in the form set forth in Exhibit M; and
---------
(d) be denominated in the minimum amount of Cdn. $500,000 and whole
multiples of Cdn. $100,000.
SECTION 2.3.5 Delivery of Blank Bankers' Acceptances. As a condition
--------------------------------------
precedent to any Lender's obligation to accept Bankers' Acceptances hereunder,
the Borrower shall have delivered to the Lender through the Agent at the Agent's
Branch of Account sufficient Acceptances endorsed and executed by the Borrower
in blank in sufficient time for such Lender to forward to and hold same at its
Toronto offices (or any other office in Canada as
25
<PAGE>
specified from time to time by such Lender) for issuance in accordance with a
request from the Borrower. No Lender shall be responsible or liable for any
failure to make credit available by way of Bankers' Acceptances if such failure
is due to the failure of the Borrower to return duly pre-signed and pre-endorsed
bankers' acceptance forms to the Lender on a timely basis. No Lender shall be
liable for any damage, loss or other claim arising by reason of any loss or
improper use of any such Acceptance endorsed and executed in blank except any
loss arising by reason of the gross negligence or wilful misconduct of such
Lender or its officers, employees, agents or representatives or any loss arising
by reason of such Lender or its officers, employees, agents or representatives
failing to use the same standard of care in the custody of such Acceptances
endorsed and executed in blank as such Lender uses in the custody of its own
property of a similar nature. In addition to, and not by way of limitation of
all other indemnities contained in this Agreement and/or in any other Loan
Document, the Borrower agrees to indemnify and hold each Lender and the Agent
harmless from any loss or expense with respect to any Bankers' Acceptance dealt
with by such Lender or Agent, as the case may be, in accordance with this
Agreement, arising from any act by or failure to act on the part of the
Borrower.
Each Lender shall maintain a record with respect to such Acceptances endorsed
and executed in blank that are received from the Borrower and with respect to
such Acceptances that are:
(a) voided by the Lender for any reason;
(b) accepted by the Lender hereunder; or
(c) cancelled by the Lender at the maturity thereof.
Each Lender agrees to provide such record to the Agent upon request therefor by
the Agent as well as concurrently with any request by such Lender to the Agent
for such additional acceptances endorsed in blank which are required from the
Borrower. The Agent shall provide a report of such records received by the
Agent to the Borrower upon request from the Borrower.
SECTION 2.3.6 Failure to Give Notice of Repayment (Automatic Rollover or
----------------------------------------------------------
Conversion). If the Borrower fails to give timely notice to the Agent at the
- -----------
Agent's Branch of Account of a Rollover Notice, Conversion Notice or other
notice of the method of repayment of the full face amounts of maturing Bankers'
Acceptances ("Maturing Bankers' Acceptances") in accordance with the provisions
hereof, prior to the date of maturity of such Maturing Bankers' Acceptances in
accordance with the period of notice required for
26
<PAGE>
the original issuance of such Maturing Bankers' Acceptances as set forth in
Section 2.2, then the full face amounts of such Maturing Bankers' Acceptances
- -----------
(or so much thereof for which the Borrower has not made provision) shall be
converted to Prime Rate Loans on their maturity.
SECTION 2.3.7 Execution of Bankers' Acceptances. Acceptances of the
---------------------------------
Borrower which are endorsed or executed in blank and are to be purchased as
Bankers' Acceptances hereunder shall be signed by a duly authorized signatory or
duly authorized signatories of the Borrower, and may, at the option of the
Borrower, 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 Borrower 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 Borrower.
SECTION 2.3.8 Advice to the Lenders. The Agent, promptly following
---------------------
receipt of a notice of Borrowing by way of Bankers' Acceptance in the form of
Exhibit C, a notice of conversion of a Borrowing to a Bankers' Acceptance in the
- ---------
form of Exhibit D, or a notice of Rollover in the form of Exhibit N shall so
--------- ---------
advise the Lenders and shall advise each Lender of the face amount of each
Bankers' Acceptance to be purchased by it and the term thereof, which term shall
be identical for all Lenders. By no later than 10:30 a.m. (Toronto time) on
each Drawdown Date, Conversion Date or Rollover Date on which the Lenders are
required to purchase Bankers' Acceptances hereunder, the Agent shall determine
the applicable CDOR Rate in respect of such Bankers' Acceptances.
SECTION 2.3.9 Agent's Confirmation of Bankers' Acceptance Issuance. On or
----------------------------------------------------
prior to 11:30 a.m. (Toronto time) on the Drawdown Date, Rollover Date or
Conversion Date relating to Bankers' Acceptances to be purchased by the Lenders
on such date, the Agent shall provide telephone advice to the Borrower and each
Lender confirming the particulars with respect to such Bankers' Acceptances.
SECTION 2.3.10 Completion of Bankers' Acceptance. Each Lender is
---------------------------------
authorized to complete blank Acceptances executed by the Borrower held by it in
accordance with the particulars determined under Section 2.3.9.
-------------
27
<PAGE>
SECTION 2.3.11 Prepayment of Bankers' Acceptances. A Bankers' Acceptance
----------------------------------
may only be repaid on its maturity date.
SECTION 2.3.12 Bankers' Acceptance Fees. The Borrower shall pay to the
------------------------
Lender fees in Canadian Dollars forthwith upon the purchase by the Lender of
each Bankers' Acceptance hereunder at a rate per annum equal to the product of
(i) the Applicable Margin with respect to Bankers' Acceptances in effect at the
time of purchase of such Bankers' Acceptance, (ii) the face amount of such
Bankers' Acceptance and (iii) the number of days in the term of such Bankers'
Acceptance, divided by the actual number of days in the twelve (12) month period
commencing on the date of purchase; provided that for the purpose of this
Section 2.3.12 the Applicable Margin for any Bankers' Acceptance shall not
- --------------
exceed an amount such that the sum of such margin plus the Discount Rate with
respect to such Bankers' Acceptance for the term thereof exceeds the sum of (x)
the CDOR Rate with respect to such Bankers' Acceptance, (y) the Applicable
Margin with respect to such Bankers' Acceptance and (z) ten basis points
(0.10%).
Fees payable to the Lender pursuant to this Section 2.3.12 shall be paid in the
--------------
manner specified in Section 2.4.
-----------
SECTION 2.3.13 Borrower's Absolute Obligation to Repay Bankers'
------------------------------------------------
Acceptances. The obligations of the Borrower with respect to Bankers'
- -----------
Acceptances under this Agreement shall be unconditional and irrevocable, and
shall be paid strictly in accordance with the terms of this Agreement in all
circumstances, including, without limitation, any lack of validity or
enforceability of any Acceptance accepted by a Lender as a Bankers' Acceptance,
or the existence of any claim, set-off, defense or other right which the
Borrower may have at any time against the holder of a Bankers' Acceptance, the
Agent or any other Lender or Person, whether in connection with this Agreement
or otherwise.
2.4 Certain Procedural Matters
--------------------------
SECTION 2.4.1 Revolving Loans and Bankers' Acceptance. Utilizations of
---------------------------------------
credit hereunder, whether arising upon a Borrowing, Conversion (including any
portion of the Borrowing which is not converted) or Rollover shall be in the
following minimum amounts:
(a) in the case of Bankers' Acceptances having common issue and maturity
dates, a minimum aggregate amount of Cdn. $500,000 and in an integral
multiple of Cdn. $100,000; and
28
<PAGE>
(b) in the case Revolving Loans, a minimum aggregate principal amount of
Cdn. or U.S. $500,000 and in an integral multiple of Cdn. or U.S.
$100,000, as the case may be.
SECTION 2.4.2 Conversions. Subject to the provisions hereof, and in
-----------
particular Section 2.4.1, the Borrower may effect a Conversion of all or part of
-------------
a Borrowing upon giving a Conversion Notice to the Agent in accordance with the
period of notice and other requirements set out in Section 2.2 applicable to a
-----------
Borrowing of the Type to which the Conversion is to be made; provided, however,
that a Bankers' Acceptance may only be converted on its maturity date and a LIBO
Rate Loan may only be converted at the end of a LIBOR Interest Period or upon
the Borrower paying to each Lender Consequential Loss under Section 4.6.
-----------
Accordingly, on each Conversion Date, but subject to the terms hereof, the
obligation of the Borrower to repay to a Lender the amount and Type of the
Borrowing which is being converted shall be replaced with an obligation to repay
the amount and Type of the Borrowing into which such Conversion is being
effected. No Conversion of all or part of a Borrowing shall be effected,
without the consent of the Agent, at any time when any Default or Event of
Default has occurred and is continuing. The Borrower may not (i) convert U.S.$
Borrowings to Cdn$ Borrowings or (ii) convert Cdn$ Borrowings to U.S.$
Borrowings.
SECTION 2.4.3 Rollovers. Subject to the provisions hereof, the Borrower
---------
may effect a Rollover of all or, subject to Section 2.4.1, part of a Borrowing
-------------
upon giving a Rollover Notice to the Agent in accordance with the period of
notice and other requirements set out in Section 2.2 applicable to a Borrowing
-----------
of the same Type.
SECTION 2.4.4 Rollovers and Conversions not Prepayment. Any Conversion or
----------------------------------------
Rollover, and any repayment in connection therewith, shall not constitute a
prepayment or repayment for the purposes hereof.
SECTION 2.4.5 Limitation on Number of Borrowings. There shall not be more
----------------------------------
than six (6) LIBOR Interest Periods or six (6) Borrowings by way of Bankers'
Acceptances outstanding at any one time.
SECTION 2.4.6 Notice of Expiration of LIBOR Interest Periods. At least
----------------------------------------------
three (3) Business Days prior to the termination of any LIBOR Interest Period,
Borrower shall give the Agent a Rollover Notice or Conversion Notice, or notice
of repayment or prepayment with respect thereto. If, with respect to any LIBO
Rate Loan or
29
<PAGE>
portion thereof, no such notice has been timely received by Lender, Borrower
shall be deemed to have selected a Conversion of such LIBO Rate Loan or portion
to a Base Rate Loan on the expiration of such LIBOR Interest Period and to have
given the Agent a Conversion Notice in respect thereof.
SECTION 2.5 Intentionally Omitted.
SECTION 2.6 Interest and Fees.
-----------------
SECTION 2.6.1 Rates and Payment of Interest. Until the Stated Maturity
-----------------------------
Date, (i) the unpaid principal of any Prime Rate Loan shall bear interest at a
rate per annum which shall from day to day be equal to the lesser of (A) the sum
of the Applicable Margin with respect to Prime Rate Loans in effect from day to
day plus the Prime Rate in effect from day to day or (B) the Maximum Rate; (ii)
----
the unpaid principal of each LIBO Rate Loan shall bear interest at a rate per
annum for each day of each LIBOR Interest Period applicable to such LIBO Rate
Loan which shall from day to day be equal to the lesser of (A) the sum of the
Applicable Margin for LIBO Rate Loans with respect to such LIBOR Interest Period
plus the LIBO Rate for such LIBOR Interest Period or (B) the Maximum Rate; and
(iii) the unpaid principal of any Base Rate Loan shall bear interest at a rate
per annum which shall from day to day be equal to the lesser of (A) the sum of
the Applicable Margin with respect to Base Rate Loans in effect from day plus
----
the Alternate Base Rate in effect from day to day or (B) the Maximum Rate.
Interest accrued on the principal amount from time to time outstanding of each
Revolving Loan shall be payable, without duplication: (i) on the Stated
Maturity Date; (ii) on the date and to the extent of any payment or prepayments,
in whole or in part, of principal outstanding on such Revolving Loan; (iii) with
respect to Base Rate Loans and Prime Rate Loans, on each Interest Payment Date
occurring after the Effective Date; (iv) with respect to LIBO Rate Loans, the
last day of each applicable LIBOR Interest Period (and with respect to LIBO Rate
Loans, if such LIBOR Interest Period shall exceed ninety (90) days, on the last
Business Day of each ninety (90) day period during such LIBOR Interest Period);
(v) with respect to any Base Rate Loan converted in whole or in part into a LIBO
Rate Loan, or any Prime Rate Loan converted in whole or in part into Bankers'
Acceptances, on a day when interest would not otherwise have been payable
pursuant to clause (iii), on the date of such conversion; and (vi) on that
------------
portion of any Revolving Loan the Stated Maturity Date of which is accelerated
pursuant to Section 8.3, immediately upon such acceleration.
-----------
30
<PAGE>
Interest accrued on Revolving Loans or other monetary Obligations arising under
this Agreement or any other Loan Document after the date such amount is due and
payable (whether on the Stated Maturity Date, upon acceleration or otherwise)
shall be payable upon demand.
SECTION 2.6.2 Acknowledgement. The Borrower acknowledges that the
---------------
determination of the Applicable Margin is dependent upon the Consolidated
Borrowing Base and that the Consolidated Borrowing Base is an amount specified
by the Lenders and the Arch Banks. The Borrower agrees to be bound by the
Consolidated Borrowing Base and any resulting change in the Applicable Margin
hereunder.
SECTION 2.6.3 Intentionally Omitted.
---------------------
SECTION 2.6.4 Interest Calculation. The Agent shall as soon as
--------------------
practicable notify Borrower of the effective date and the amount of each change
in the Contract Rate. Each determination of an interest rate by Agent pursuant
to any provision of this Agreement shall be presumptively conclusive and binding
on the Borrower in the absence of manifest error.
SECTION 2.6.5 Clawback. Notwithstanding anything to the contrary herein
--------
or in any other Loan Document contained, in the event that any rate of interest
hereunder should ever exceed the Maximum Rate, thereby causing the interest
accruing on any of the indebtedness hereunder to be limited to such Maximum
Rate, then any subsequent reduction in such rate of interest shall not reduce
the rate of interest charged hereunder below the Maximum Rate until the total
amount of interest accrued on such indebtedness, equals the amount of interest
which would have accrued on such indebtedness if the rate of interest hereunder
had been in effect at all times in the period during which the rate charged
thereon was limited to the Maximum Rate.
SECTION 2.6.6 Default Rate. At the Majority Lenders' option and to the
------------
extent permitted by applicable Law, all past due Obligations and accrued
interest thereon and related fees shall bear interest from maturity (stated or
by acceleration) at the Default Rate until paid, regardless of whether such
payment is made before or after entry of a judgment.
SECTION 2.6.7 Interest Act Disclosure. Where in this Agreement a rate of
-----------------------
interest or a fee or other amount is to be calculated on the basis of a year of
360 or 365 days, the yearly rate to which the said rate is equivalent, for the
purposes of the Interest Act (Canada) is the said rate multiplied by a fraction,
the numerator of which is the number of days in the twelve month period
commencing on the first day of the period for which such
31
<PAGE>
calculation is made, and the denominator of which is 360 or 365, as applicable.
SECTION 2.6.8 No Deemed Reinvestment. The theory of deemed re-investment
----------------------
of interest shall not apply to the calculation or payment of interest or fees or
other amounts hereunder, notwithstanding anything contained herein or in any
Loan Document or any other instrument. All interest and fees payable hereunder
shall accrue from day to day, computed as described herein in accordance with
the "nominal rate" method of calculation and not the "effective rate" or any
similar method of calculation.
SECTION 2.7 Principal Payments on Stated Maturity Date. On the Stated
------------------------------------------
Maturity Date, the Commitments shall reduce to nil and the Borrower shall repay
all Borrowings then outstanding, together with all interest, fees and other
amounts owing hereunder.
SECTION 2.8 Extension, Place and Application of Payments. Subject to
--------------------------------------------
the terms of the definition of LIBOR Interest Period, should the principal of,
or any interest on, a Revolving Loan become due and payable on any day other
than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day, and interest shall be payable with respect to such
extension, provided, however, that if the repayment of the Obligations on the
-------- -------
Stated Maturity Date, or on an earlier date due to an acceleration pursuant to
Section 8.3 hereof, is on a day other than a Business Day, all outstanding
- -----------
principal and interest shall be due and payable on the immediately preceding
Business Day. All payments of principal of, and interest on, the Obligations
shall be made by Borrower to the Agent to the appropriate account at the Agent's
Branch of Account in immediately available funds.
SECTION 2.9 Mandatory Payment of Loans.
--------------------------
SECTION 2.9.1 Outstandings Exceed Facility Amount. If, at any time prior
-----------------------------------
to the Commitment Termination Date, the total amount of all Outstandings exceeds
the Facility Amount, then, Borrower shall immediately repay, without premium or
penalty Borrowings in an amount equal to such excess, along with accrued unpaid
interest on the amount so repaid to the date of such repayment together with any
Consequential Loss under Section 4.6.
-----------
SECTION 2.9.2 Deposits with Respect to Bankers' Acceptances. If the
---------------------------------------------
amount of the excess under Section 2.9.1 exceeds the outstanding amount of
-------------
Revolving Loans hereunder, or if required by Section 2.1.2, Section 2.9.3 or
----------------------------
Section 2.9.4, then in any such case the Borrower shall deposit with the Agent,
- -------------
or such other financial institution stipulated by the Agent, in an account from
32
<PAGE>
which Borrower has no withdrawal rights (except to apply the same to maturing
Bankers' Acceptances) an amount equal to the remaining excess, or outstanding
Bankers' Acceptances, as the case may be, and interest on such amount shall be
for the account of Borrower and such amount shall be applied to maturing
Bankers' Acceptances. The Agent shall have a first and paramount charge and
Lien on all such funds in such account for payment of the Obligations.
SECTION 2.9.3 Acceleration. The Borrower shall, immediately upon any
------------
acceleration of the Stated Maturity Date of any Borrowings outstanding pursuant
to Section 8.3, repay all Borrowings then outstanding, or, in the case of
-----------
outstanding Bankers' Acceptances, immediately make a payment in accordance with
Section 2.9.2 in the face amount of each Bankers' Acceptance then outstanding,
- -------------
unless pursuant to Section 8.3 only a portion of all Borrowings are so
-----------
accelerated.
SECTION 2.9.4 Borrowing Base Deficiency. Unless the Borrower cures the
-------------------------
Borrowing Base Deficiency by designating a new Canadian Allocated Borrowing
Base, the Borrower shall, within thirty (30) days following the Agent's notice
of a Borrowing Base Deficiency, (i) first make a mandatory prepayment of the
principal amount of all outstanding Revolving Loans and (ii) second make a
mandatory payment in the face amount of Bankers' Acceptances in accordance with
Section 2.9.2, for such prepayments and payments to be equal, in the aggregate,
- -------------
to the Borrowing Base Deficiency.
SECTION 2.10 Voluntary Principal Prepayments.
-------------------------------
(a) Upon giving the Agent at least three (3) but no more than five (5)
Business Day's notice, Borrower shall be entitled to prepay the Obligations from
time to time and at any time, in whole or in part, without penalty; provided,
--------
however, (i) any such prepayment shall be made pro rata among Loans of the same
- -------
Type outstanding and, if applicable, having the same LIBOR Interest Period, and
made on the same day and constituting one (1) Borrowing of all Lenders, (ii) all
such voluntary partial prepayments of the Loans shall be in an aggregate minimum
amount of Cdn. or U.S. $500,000 and an integral multiple of Cdn. or U.S.
$100,000, as the case may be, (iii) outstanding Bankers' Acceptances may only be
repaid on their respective maturity dates, and (iv) Borrower shall only be
entitled to make a prepayment if all accrued interest on the amount prepaid and
any and all fees and other sums (including, without limitation, past due
interest, if any) payable to the Lenders hereunder shall be paid to the date of
such prepayment. Prior to the Commitment Termination Date, the Revolving Loans
prepaid may, subject to the conditions of this Agreement, be reborrowed
hereunder, and this Agreement shall not be deemed to be
33
<PAGE>
terminated or cancelled prior to the expiration or termination of each Lender's
Commitment to lend hereunder solely because the Obligations may from time to
time be paid in full. After the Commitment Termination Date, Revolving Loans may
not be reborrowed and the Lenders shall not be obliged to purchase Bankers'
Acceptances hereunder.
(b) Any prepayment of Revolving Loans made hereunder shall be made
together with interest accrued through the date of such prepayment. If any
portion of any LIBO Rate Loan should for any reason be repaid prior to the
expiry of the applicable LIBOR Interest Period, including as a result of any
Conversion, any mandatory prepayment under Section 2.1.2 or Section 2.9, any
------------- -----------
voluntary prepayment under this Section 2.10, or any Default or Event of
------------
Default, the Borrower shall reimburse each Lender on demand for the
Consequential Loss incurred by any Lender as a result of the timing of such
payment. A certificate of a Lender as to the amount of any Consequential Loss
shall be presumptively conclusive and binding on the Borrower in the absence of
manifest error.
SECTION 2.11 Order of Application. Each Lender may apply all payments
--------------------
and prepayments of the Obligations in such order as such Lender deems
appropriate; provided that so long as no Default or Event of Default has
--------
occurred and is continuing, all payments and prepayments of the Obligations
shall be applied first to accrued and unpaid fees, second to accrued and unpaid
interest and third to principal.
SECTION 2.12 Commitment Fee. The Borrower shall pay to the Agent for the
--------------
account of each Lender, for the period (including any portion thereof when any
Lender's Commitment is suspended by reason of the Borrower's inability to
satisfy any condition of Article V) commencing on the Effective Date and
---------
continuing through the Commitment Termination Date, a commitment fee in U.S.$,
at the rate of 1/2 of 1 percent (0.5%) per annum, calculated daily (on the basis
of a year consisting of 365 days or, if appropriate, 366 days) on such Lender's
Percentage of the average daily Available Unfunded Borrowing Base. Such
commitment fees shall be payable in arrears on the last day of each calendar
quarter, commencing with the first such day following the Effective Date, and on
the Commitment Termination Date.
SECTION 2.13 Evidence of Borrowings. The Agent is hereby directed and
----------------------
authorized by the Borrower to open and maintain accounts on the books of the
Agent to evidence the Borrowings and other amounts owing by the Borrower to the
Agent and each Lender under this Agreement. Each Lender shall open and maintain
accounts
34
<PAGE>
evidencing its Lender's Percentage of the Borrowings and other amounts owing by
the Borrower to the Lender under this Agreement. The Agent or Lender, as
applicable, shall debit therein the amount of such Borrowings or Lender's
Percentage thereof, as applicable, and shall enter therein each payment of
principal of and interest on the Borrowings or Lender's Percentage thereof, as
applicable, and fees and other amounts payable pursuant to this Agreement and
shall record the Bankers' Acceptances purchased by each Lender or, in the case
of a Lender, such Lender, and all other amounts becoming due to the Agent and
each Lender or, in the case of a Lender, such Lender, under this Agreement and,
upon request, shall provide the Borrower a copy of such accounts and records, as
applicable. The accounts and records of the Agent in the case of amounts owing
to it as such, or the Lender's so kept shall constitute conclusive and binding
evidence, absent demonstrable error, of the foregoing matters, the information
contained therein and the Outstandings hereunder at any time; provided that the
obligation of the Borrower to pay any Outstandings in accordance with the Loan
Documents shall not be affected by the failure of the Agent or any Lender to
make any such recording or to provide a copy thereof to the Borrower.
SECTION 2.14 Additional Fees.
---------------
SECTION 2.14.1 Agent's Fee. The Borrower agrees to pay to the Agent for
-----------
its own account the fees payable on such dates and in such amounts as the Agent
and the Borrower shall agree in writing.
SECTION 2.14.2 Intentionally Omitted.
---------------------
SECTION 2.14.3 Consolidated Borrowing Base Redetermination Fee. Pursuant
-----------------------------------------------
to Section 3.5, should the Borrower request a discretionary redetermination of
-----------
the then existing Consolidated Borrowing Base, the Borrower shall pay to the
Agent, for the account of each Lender, a fee of such Lender's Percentage of
U.S.$5,000 as reasonable compensation to the Lenders for conducting such
redetermination of the Consolidated Borrowing Base.
SECTION 2.14.4 Amendment Fee. For each amendment to this Agreement that is
-------------
requested by the Borrower which amends, modifies or changes a material or
significant term or provision of this Agreement (excluding any amendments to
this Agreement entered into to reflect the redetermination of the Trax Borrowing
Base pursuant to Section 3.5), the Borrower shall pay to the Agent, for the
-----------
account of each Lender, an amendment fee equal to such Lender's Percentage of
U.S.$5,000.
35
<PAGE>
ARTICLE III
BORROWING BASE
SECTION 3.1 Components for Determination of Trax Borrowing Base. The
---------------------------------------------------
term "Trax Borrowing Base" shall mean the designated loan value (as calculated
-------------------
by the Agent in accordance with then-current practices, customary procedures,
and standards used by the Agent for its petroleum industry customers) determined
by the Agent in its sole discretion and assigned to the Borrowing Base
Properties, as redetermined from time to time pursuant to the terms hereof, and
shall be based upon pertinent economic variables selected by the Agent in its
sole discretion and upon the Agent's consideration and review of the Present
Value of the Borrowing Base Properties. In determining the Trax Borrowing Base,
the Agent shall utilize (i) the pertinent economic parameters customarily used
by the Agent with respect to credits of a similar size and nature, (ii) the
information that the Agent has available to it at the time of each
determination, including assets, liabilities, cash flow and other financial
information regarding the Borrower and the Borrowing Base Properties and the
business, properties, prospects, management and ownership of the Borrower, (iii)
such combination of Proved Producing Reserves, Proved Non-Producing Reserves,
and/or Probable Additional Reserves attributable to the Borrowing Base
Properties as it deems proper in its sole discretion and (iv) in considering the
Present Value, a discount rate determined by the Agent in its sole discretion.
The initial Trax Borrowing Base is U.S. $0.
SECTION 3.2 Canadian Allocated Borrowing Base. As of the first Business
---------------------------------
Day of each calendar quarter (commencing April 1, 1996), and upon each
redetermination of the Trax Borrowing Base made pursuant to Section 3.5 and upon
-----------
each redetermination of the Domestic Borrowing Base made pursuant to Section
4.2(b) or Section 4.5 of the Arch Agreement, the Borrower at its sole discretion
shall designate, pursuant to a Borrowing Base Allocation Certificate, to Agent
that portion of the Consolidated Borrowing Base that will be allocated to this
Agreement (that portion of the Consolidated Borrowing Base allocated to this
Agreement from time to time is herein called the "Canadian Allocated Borrowing
----------------------------
Base"); provided, however, that the Canadian Allocated Borrowing Base (i) shall
- ---- -------- -------
not be less than the Outstandings at such time and (ii) shall not be greater
than the lesser of (a) the Facility Amount then in effect and (b) the difference
of (x) the Consolidated Borrowing Base then in effect minus (y) the U.S.
-----
Allocated Borrowing Base. The effective date of each Canadian Allocated
Borrowing Base that is not a result of a redetermination of the Trax Borrowing
Base according to Section 3.5 or of the Domestic
-----------
36
<PAGE>
Borrowing Base according to Section 4.2(b) or Section 4.5 of the Arch Agreement
shall be the first Business Day of the calendar quarter that the Agent receives
the Borrower's Borrowing Base Allocation Certificate designating the Canadian
Allocated Borrowing Base. Borrower may designate the Canadian Allocated
Borrowing Base at any time and from time to time during the existence of a
Borrowing Base Deficiency (in which case the effective date of such Canadian
Allocated Borrowing Base shall be the first Business Day of the calendar month
that succeeds the date that the Agent receives Borrower's Borrowing Base
Allocation Certificate designating the Canadian Allocated Borrowing Base). The
effective date of each Canadian Allocated Borrowing Base that is a result of a
redetermination of the Trax Borrowing Base according to Section 3.5 shall be as
provided in Section 3.5(c), and the effective date of each Canadian Allocated
--------------
Borrowing Base that is a result of a redetermination of the Domestic Borrowing
Base according to Section 4.2(b) or Section 4.5 of the Arch Agreement shall be
the first Business Day of the calendar month that succeeds the date the Borrower
provides notice to the Agent its notice of the designated Canadian Allocated
Borrowing Base. As of the Effective Date, the Canadian Allocated Borrowing Base
shall be $10,000,000.
SECTION 3.3 Semi-Annual Redetermination of Trax Borrowing Base. The
--------------------------------------------------
Trax Borrowing Base shall be redetermined as of each Determination Date
occurring prior to the Commitment Termination Date. As of each Determination
Date, the Agent shall determine at its sole discretion the Trax Borrowing Base
based upon the information contained in the most recent annual reserve report
required to be delivered to the Agent pursuant to Section 7.1.2(i), the
----------------
information provided to the Agent pursuant to Section 7.1.2(ii), and/or such
-----------------
economic variables and production information that the Agent has available to it
at such time. The Agent shall provide the Borrower with notice of the
redetermined Trax Borrowing Base and the resulting Consolidated Borrowing Base
that has been agreed to by the Lenders and the Arch Banks within thirty (30)
days following the applicable Determination Date. Within ten (10) Business Days
after Borrower's receipt of the notice of the redetermined Trax Borrowing Base
and Consolidated Borrowing Base, the Borrower shall designate the Canadian
Allocated Borrowing Base. The effective date of such Canadian Allocated
Borrowing Base shall be the first Business Day of the calendar quarter that
succeeds the date that the Borrower provides to the Agent its notice of the
Canadian Allocated Borrowing Base.
SECTION 3.4 Borrowing Base Deficiency. If, as of any Determination Date
-------------------------
or following a mandatory redetermination of the Domestic Borrowing Base pursuant
to Section 3.6 hereof, or Section 4.2(b) of the Arch Agreement, the Canadian
-----------
Allocated Borrowing Base
37
<PAGE>
(as designated by the Borrower) is less than the Outstandings as of such
redetermination (the amount by which the Outstandings exceeds the Canadian
Allocated Borrowing Base is herein called a "Borrowing Base Deficiency"), then
-------------------------
the Agent shall provide the Borrower with written notice of such Borrowing Base
Deficiency, which notice shall set forth the amount of the Borrowing Base
Deficiency. Within thirty (30) days following the Borrower's receipt of such
notice, the Borrower shall remedy the Borrowing Base Deficiency by either (i)
designating a Canadian Allocated Borrowing Base that exceeds the Obligations, or
(ii) paying to the Lenders as a mandatory prepayment under Section 2.9.4 an
-------------
amount equal to the Borrowing Base Deficiency or (iii) providing a combination
of subclauses (i) and (ii) above which in their aggregate equal the Borrowing
-------------- ----
Base Deficiency. An Event of Default shall exist if the Borrower fails to remedy
the Borrowing Base Deficiency within thirty (30) days of its receipt of notice
thereof in such manner as provided above.
SECTION 3.5 Special Provisions for Discretionary Increase to the
----------------------------------------------------
Consolidated Borrowing Base. (a) In addition to its designating the Canadian
- ---------------------------
Allocated Borrowing Base, not more than once during any consecutive 90-day
period (inclusive of any such requests by Arch pursuant to Section 4.5 of the
Arch Agreement), the Borrower may request that the Consolidated Borrowing Base
be redetermined and increased to an amount agreed to by the Lenders and the Arch
Banks after taking into account the redetermined Trax Borrowing Base and the
commitments of the Arch Banks under the Arch Agreement then in effect. Borrower
shall give the Agent not less than thirty (30) Business Day's prior notice of
the effective date of the requested increase to the Consolidated Borrowing Base.
(b) With each request to increase to the Consolidated Borrowing Base
hereunder, the Borrower shall deliver to the Agent a report prepared within one
hundred eighty (180) days prior to the date of such request by a firm or firms
of independent petroleum engineers acceptable to the Agent evaluating the
Present Value of the reserves attributable to the additional properties of the
Borrower which the Borrower proposes to include in the Trax Borrowing Base for
the purposes of increasing the Consolidated Borrowing Base (the "Additional
----------
Properties") or such other engineering or reserve report reasonably acceptable
- ----------
to the Agent, together with title opinions, title reports and other title
information satisfactory to the Agent indicating that the Borrower has good and
defensible title to the Additional Properties, subject to Permitted Liens.
(c) The Agent shall use every reasonable effort to notify Borrower within
thirty (30) Business Days after the receipt of such
38
<PAGE>
engineering reports and title information relating to such Additional Properties
whether the Lenders and the Arch Banks have agreed to increase the Consolidated
Borrowing Base, and if so, the amount of the Consolidated Borrowing Base as
increased. If the Consolidated Borrowing Base is so increased, the Canadian
Allocated Borrowing Base shall be designated by the Borrower to an amount that
is not less than the Outstandings and does not exceed the lesser of (a) the
Facility Amount then in effect and (b) the difference of (x) the Consolidated
Borrowing Base minus (y) the U.S. Allocated Borrowing Base. The effective date
-----
of such Canadian Allocated Borrowing Base shall be the first Business Day of the
calendar month that the Borrower provides to the Agent its notice of the
designated Canadian Allocated Borrowing Base. The Lenders are under no
obligation to increase the Consolidated Borrowing Base unless the Lenders and
the Arch Banks elects to do so, and any increase shall be at the sole and
absolute discretion of the Lenders and subject to approval by the Arch Banks. If
the Lenders and the Arch Banks agree to increase the Consolidated Borrowing
Base, the increase to the Consolidated Borrowing Base shall be effective as of
the date upon which the Borrower executes and delivers to the Agent appropriate
documents reflecting an appropriate amendment (if any) to this Agreement and
appropriate Collateral Documents which will grant to the Agent, for the benefit
of the Lenders, a valid, enforceable and first priority Lien (subject to
Permitted Liens) against the Additional Properties which comprise ninety percent
(90%) of the Present Value attributable to the Additional Properties as security
for the Obligations.
SECTION 3.6 Interim Sales of Borrowing Base Properties. Once the
------------------------------------------
Consolidated Borrowing Base and the Canadian Allocated Borrowing Base are
determined for any period, upon the subsequent sale by Borrower of any Borrowing
Base Properties (other than the sale of hydrocarbons in the ordinary course of
business), the Consolidated Borrowing Base and the Canadian Allocated Borrowing
Base shall be reduced, effective on the first Business Day of the calendar month
that succeeds the date of consummation of such sale, by an amount which is equal
to seventy-five percent (75%) of the Present Value assigned to such Borrowing
Base Property according to the most recent reserve report; provided further,
-------- -------
that no such reduction shall be required with respect to aggregate net sale
proceeds of up to $100,000 during any calendar year prior to the Commitment
Termination Date, and provided further, that all such sales shall be subject to
-------- -------
the provisions of Section 7.2.2. In the event that the provisions of this
-------------
Section 3.6 cause the Trax Borrowing Base to be reduced by an amount in excess
- -----------
of five percent (5%) of the Present Value of all Borrowing
39
<PAGE>
Base Properties according to the most recent reserve report delivered to the
Agent prior to a subsequent redetermination of the Consolidated Borrowing Base
according to this Agreement, the Lenders may cause a mandatory redetermination
(which redetermination shall be in addition to a redetermination under Section
-------
3.3) of the Consolidated Borrowing Base, in which case the Consolidated
- ----
Borrowing Base and the Canadian Allocated Borrowing Base shall be redetermined
substantially in the manner provided in Section 3.3.
-----------
ARTICLE IV
CERTAIN ADDITIONAL PROVISIONS CONCERNING
LOANS, BANKERS' ACCEPTANCES AND CURRENCY MATTERS
SECTION 4.1 Lending Unlawful. If any Lender shall determine (which
----------------
determination shall, upon notice thereof to the Borrower, be conclusive and
binding on the Borrower) that the introduction of or any change in or in the
interpretation of any law, regulation, guideline or order makes it unlawful, or
any central bank or other governmental authority asserts that it is unlawful,
for such Lender to make, continue or maintain any Borrowing as, or to convert
any Borrowing into, a Loan of a certain Type or a Bankers' Acceptance, or in a
certain currency, the obligations of all Lenders to make, continue, maintain,
convert or Rollover any such Loans or accept any such Bankers' Acceptances
shall, upon such determination, forthwith be suspended until such Lender shall
notify the Agent that the circumstances causing such suspension no longer exist,
and all Loans of such Type payable to each Lender shall automatically convert
into, if such Loan is in U.S. Dollars, Base Rate Loans or, if such Borrowings
are in Canadian Dollars, Prime Rate Loans, at the end of the then current LIBOR
Interest Periods with respect thereto, or term of the applicable Bankers'
Acceptance, or sooner, if required by such law or assertion.
SECTION 4.2 Deposits Unavailable. If (a) any Lender shall have
--------------------
determined that U.S. Dollar deposits in the relevant amount and for the relevant
LIBOR Interest Period are not available to such Lender in its relevant market;
or (b) the Agent shall have determined that by reason of circumstances affecting
the Agent's relevant market, adequate means do not exist for ascertaining the
interest rate applicable hereunder to LIBO Rate Loans or U.S. Dollar Loans of a
certain Type, then, upon notice from such Lender or the Agent to the Borrower,
----
the obligations of all Lenders under Section 2.1 and Section 2.4 to make or
----------- -----------
continue any Borrowings as, or to convert any Loans into, LIBO Rate Loans or
U.S. Dollar Loans of such Type, as the case may be, shall forthwith be suspended
until such Lender or the Agent shall notify the
40
<PAGE>
Borrower and the Lenders that the circumstances causing such suspension no
longer exist.
SECTION 4.3 Increased LIBO Rate Loan Costs, etc. The Borrower agrees
-----------------------------------
to reimburse each Lender for any increase in the cost to such Lender of, or any
reduction in the amount of any sum receivable by such Lender in respect of,
making, continuing or maintaining (or of its obligation to make, continue or
maintain) any Loans as, or of converting (or of its obligation to convert) any
Loans into, LIBO Rate Loans. Such Lender shall promptly notify the Agent and
the Borrower in writing of the occurrence of any such event, such notice to
state, in reasonable detail, the reasons therefor and the additional amount
required fully to compensate such Lender for such increased cost or reduced
amount. Such additional amounts shall be payable by the Borrower directly to
such Lender within five (5) days of its receipt of such notice, and such notice
shall, in the absence of manifest error, be conclusive and binding on the
Borrower.
SECTION 4.4 Additional Costs.
----------------
(a) If any change in, or the introduction, adoption, effectiveness,
interpretation, reinterpretation or phase-in of, any law or regulation,
directive, guideline, decision or request (whether or not having the force of
law) of any court, central bank, regulator or other governmental authority
affects or would affect the amount of capital required or expected to be
maintained by any Lender or any Person controlling such Lender, and such Lender
determines (in its sole and absolute discretion) that the rate of return on such
Lender's or such controlling Person's capital as a consequence of its
Commitment, its Loans or its Bankers' Acceptances is reduced to a level below
that which such Lender or such controlling Person could have achieved but for
the occurrence of any such circumstance, then, in any such case upon notice from
time to time by such Lender to the Borrower, the Borrower shall immediately pay
directly to such Lender additional amounts sufficient to compensate such Lender
or such controlling Person for such reduction in rate of return. A statement of
such Lender as to any such additional amount or amounts (including calculations
thereof in reasonable detail) shall, in the absence of manifest error, be
conclusive and binding on the Borrower. In determining such amount, such Lender
may use any method of averaging and attribution that it (in its sole and
absolute discretion) shall deem applicable.
(b) If any law or any governmental or quasi-governmental rule,
regulation, policy, guideline or directive (whether or not having the force of
law), or any reasonable interpretation thereof, or compliance of any Lender with
such,
41
<PAGE>
(i) imposes or increases or deems applicable any reserve (including,
without limitation, any imposed by the Office of the Superintendent of
Financial Institutions), assessment, insurance charge, special deposit or
similar requirement against assets of, deposits with or for the account of,
or credit extended by, any Lender (other than reserves and assessments
taken into account in determining the interest rate applicable to LIBO Rate
Loans), or
(ii) imposes any other condition,
the result of which is to increase the cost to any Lender of making, funding or
maintaining Loans or reduces any amount receivable by any Lender or its
Applicable Lending Office in connection with Loans or other Borrowings, or
requires any Lender to make any payment calculated by reference to the amount of
Loans or other Borrowings held or interest received, then, within fifteen (15)
days following written demand by such Lender, the Borrower shall pay such Lender
that portion of such increased expense incurred or reduction in an amount
received which such Lender reasonably determines is attributable to making,
funding and maintaining its Loans and other Borrowings and its Commitment. A
statement of such Lender as to any such increased expense incurred or reduction
in an amount received (including calculations thereof in reasonable detail)
shall, in the absence of manifest error, be conclusive and binding on the
Borrower.
(c) Without limiting the effect of the provisions of Section 4.4 hereof,
-----------
in the event that, by reason of any Regulatory Change, any Lender becomes
subject to restrictions on the amount of any category of liabilities or assets
which it may hold, then, if such Lender so elects by notice to the Borrower
(with a copy to the Agent), the obligation of such Lender to make additional
Borrowings shall be suspended (in which case the provisions of Section 4.5 shall
-----------
be applicable) until such Regulatory Change ceases to be in effect.
SECTION 4.5 Prime Rate Loans or Base Rate Loans. If the obligation of
-----------------------------------
any Lender to make Borrowings of any Type shall be suspended pursuant to Section
-------
4.2 or 4.4 hereof (Borrowings of such Type being herein called "Affected
- --- --- --------
Borrowings" and such Type being herein called the "Affected Type"), all
- ---------- -------------
Borrowings which would otherwise be made by such Lender as Borrowings of the
Affected Type which are denominated as U.S. Dollar Borrowings shall be made
instead as Base Rate Loans and Borrowings of the Affected Type which are
denominated as Canadian Dollar Borrowings shall be made instead as Prime Rate
42
<PAGE>
Loans or, in Canadian Dollars, such Lender's Borrowings shall continue as Base
Rate Loans and, (a) if an event referred to in Section 4.2(b) or 4.4(c) hereof
-------------- ------
has occurred and such Lender so requests by notice to the Borrower with a copy
to the Agent, or (b) in any such case, if the Borrower so requests by notice to
the Agent with a copy to each Lender, all Affected Borrowings of such Lender
then outstanding shall be automatically converted into Prime Rate Loans or Base
Rate Loans, as the case may be, in a principal amount equal to the principal
amount of Affected Borrowings made as Loans in Canadian Dollars or U.S. Dollars,
as the case may be, on the date specified by such Lender or by the Borrower in
such notice and, to the extent that Affected Borrowings are so made as (or
converted into) Prime Rate Loans, all payments of principal which would
otherwise be applied to such Lender's Affected Borrowings shall be applied
instead to its Prime Rate Loans.
SECTION 4.6 Compensation. The Borrower shall pay to the Agent for
------------
account of each Lender, upon the request of such Lender through the Agent, such
amount or amounts as shall be sufficient (in the reasonable opinion of such
Lender) to compensate it for any loss, cost or expense (including, without
limitation, any loss or cost in liquidating or employing deposits acquired to
fund or maintain the relevant LIBO Rate Loan) (any and all such loss, cost or
expense referred to herein as "Consequential Loss") which such Lender determines
------------------
is attributable to:
(a) Any payment, prepayment or conversion of a Borrowing made by such
Lender for any reason (including, without limitation, acceleration pursuant to
Section 8.3 hereof) on a date other than the last day of the LIBOR Interest
- -----------
Period or the Interest Payment Date for such Borrowing; or
(b) Any failure by the Borrower for any reason (including, without
limitation, the failure of any of the conditions precedent specified in Article
-------
V hereof to be satisfied) to borrow a LIBO Rate Loan from, or issue a Bankers'
- -
Acceptance to be accepted by, such Lender on the date for such Borrowing
specified in the relevant Borrowing Notice, Conversion Notice or Rollover
Notice.
SECTION 4.7 Taxes. All payments by the Borrower of principal of, and
-----
interest on, the Borrowings and all other amounts payable hereunder and in
connection herewith shall be made free and clear of and without deduction for
any present or future income, excise, stamp or franchise taxes and other taxes,
fees, duties, withholdings or other charges of any nature whatsoever imposed by
any taxing authority, but excluding franchise taxes and taxes imposed on or
measured by the Agent's or any Lender's, as applicable, overall taxable income,
capital or receipts (such non-excluded items being called "Taxes"). In the
-----
event that any
43
<PAGE>
withholding or deduction from any payment to be made by the Borrower hereunder
or under any other Loan Document is required in respect of any Taxes pursuant to
any applicable law, rule or regulation, then the Borrower will:
(a) pay directly to the relevant authority the full amount required to be
so withheld or deducted;
(b) promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent or the relevant Lender evidencing such
payment to such authority; and
(c) pay to the Agent for the account of the Agent and the Lenders such
additional amount or amounts as is necessary to ensure that the net amount
actually received by the Agent and each Lender will equal the full amount the
Agent or such Lender would have received had no such withholding or deduction
been required.
Moreover, if any Taxes are directly asserted against the Agent or any Lender,
with respect to any payment received by it hereunder or in connection herewith,
the Agent or the relevant Lender may paysuch Taxes and the Borrower will
promptly pay such additional amounts (including any penalties, interest or
expenses) as is necessary in order that the net amount received by such Person
after the payment of such Taxes (including any taxes on such additional amount)
shall equal the amount such Person would have received had not such Taxes been
asserted.
If the Borrower fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the Agent, for the account of the respective
Lenders, the required receipts or other required documentary evidence, the
Borrower shall indemnify the Agent and the Lenders for any incremental Taxes,
interest or penalties that may become payable by the Agent or any Lender as a
result of any such failure. For purposes of this Section 4.7, a payment
-----------
hereunder by the Agent or any Lender to or for the account of any other Person
which is the Agent or any Lender shall be deemed a payment by the Borrower.
SECTION 4.8 Payments, Computations, etc. Unless otherwise expressly
----------------------------
provided, all payments by the Borrower pursuant to this Agreement or any other
Loan Document shall be made by the Borrower to the Agent for the pro rata
--- ----
account of the Lenders entitled to receive such payment. All such payments
required to be made to the Agent shall be made, without setoff, deduction or
counterclaim, not later than 2:00 p.m. Toronto time, on the date due, in
immediately available funds, to the Agent's Branch of Account or to such other
account as the Agent shall specify from time to time by notice to the Borrower.
Funds received after that time shall be deemed to
44
<PAGE>
have been received by the Agent on the next succeeding Business Day. The Agent
shall promptly remit in immediately available funds to each relevant Lender its
share, if any, of such payments received by the Agent for the account of such
Lender. All interest and fees shall be computed on the basis of the actual
number of days (including the first day but excluding the last day) occurring
during the period for which such interest or fee is payable over a year
comprised of 365 days or, if appropriate, 366 days (or, in the case of interest
on a LIBO Rate Loan, 360 days). Whenever any payment to be made shall otherwise
be due on a day which is not a Business Day, such payment shall (except as
otherwise required by the definition of the term "LIBOR Interest Period" with
---------------------
respect to LIBO Rate Loans) be made on the next succeeding Business Day and such
extension of time shall be included in computing interest and fees, if any, in
connection with such payment.
SECTION 4.9 Sharing of Payments. If any Lender shall obtain any payment
-------------------
or other recovery (whether voluntary, involuntary, by application of setoff or
otherwise) on account of any Borrowing (other than pursuant to the terms of
Sections 4.3, 4.4, 4.6 and 4.7) in excess of its pro rata share of payments then
- ------------ --- --- --- --- ----
or therewith obtained by all Lenders, such Lender shall purchase from the other
Lenders such participations in Borrowings held by them as shall be necessary to
cause such purchasing Lender to sharethe excess payment or other recovery
ratably with each of them; provided, however, that if all or any portion of the
-------- -------
excess payment or other recovery is thereafter recovered from such purchasing
Lender, the purchase shall be rescinded and each Lender which has sold a
participation to the purchasing Lender shall repay to the purchasing Lender the
purchase price to the ratable extent of such recovery together with an amount
equal to such selling Lender's ratable share (according to the proportion of (a)
the amount of such selling Lender's required repayment to the purchasing Lender
to (b) the total amount so--recovered from the purchasing Lender) of any
interest or other amount paid or payable by the purchasing Lender in respect of
the total amount so recovered. The Borrower agrees that any Lender so purchasing
a participation from another Lender pursuant to this Section may, to the fullest
extent permitted by law, exercise all its rights of payment (including pursuant
to Section 4.10) with respect to such participation as fully as if
------------
such Lender were the direct creditor of the Borrower in the amount of such
participation. If under any applicable bankruptcy, insolvency or other similar
law, any Lender receives a secured claim in lieu of a setoff to which this
Section applies, such Lender shall, to the extent practicable, exercise its
rights in respect of such secured claim in a manner consistent with the rights
of the Lenders entitled under this Section to share in the benefits of any
recovery on such secured claim.
45
<PAGE>
SECTION 4.10 Setoff. Each Lender shall, upon the occurrence of any
------
Default described in Section 8.1.5, 8.1.6 or 8.1.11 or any other Event of
------------- ----- ------
Default, have the right to setoff, appropriate and apply to the payment of the
Obligations owing to it (whether or not then due), and (as security for such
Obligations) the Borrower hereby grants to each Lender and to the Agent on
behalf of each Lender a continuing security interest in, any and all balances,
credits, deposits, accounts or moneys of the Borrower then or thereafter
maintained with the Agent or such Lender; provided, however, that any such
-------- -------
setoff, appropriation and application shall be subject to the provisions of
Section 4.9. Each Lender agrees promptly to notify the Borrower and the Agent
- -----------
after any such setoff and application made by such Lender; provided, however,
-------- -------
that the failure to give such notice shall not affect the validity of such
setoff and application. The rights of each Lender under this Section are in
addition to other rights and remedies (including other rights of setoff under
applicable law or otherwise) which such Lender may have.
SECTION 4.11 Use of Proceeds. The proceeds of each Borrowing may be used
---------------
by the Borrower to fund the loan referred to in the third recital, to acquire
----- -------
additional Borrowing Base Properties, to fund expenditures to drill or
recomplete oil and/or gas wells on Borrower's Borrowing Base Properties and for
other general corporate purposes.
SECTION 4.12 Currency Conversion and Currency Indemnity.
------------------------------------------
SECTION 4.12.1 Payments in Agreed Currency. The Borrower shall make
---------------------------
payment relative to each Borrowing in the currency (the "Agreed Currency") in
---------------
which the Borrowing was effected. If any payment is received on account of any
Borrowing in any currency (the "Other Currency") other than the Agreed Currency
--------------
(whether voluntarily or pursuant to an order or judgment or the enforcement
thereof or the realization of any security or the liquidation of the Borrower or
otherwise howsoever), such payment shall constitute a discharge of the liability
of the Borrower hereunder and under the other Loan Documents in respect of such
obligation only to the extent of the amount of the Agreed Currency which the
relevant Lender or the Agent, as the case may be, is able to purchase with the
amount of the Other Currency received by it on the Business Day next following
such receipt in accordance with its normal procedures and after deducting any
premium and costs of exchange.
SECTION 4.12.2 Conversion of Agreed Currency into Judgment Currency. If,
----------------------------------------------------
for the purpose of obtaining or enforcing judgment in any court in any
jurisdiction, it becomes necessary to convert into a particular currency (the
"Judgment Currency") any amount due in the Agreed Currency then the conversion
- ------------------
shall be made on the
46
<PAGE>
basis of the rate of exchange prevailing on the Business Day next preceding the
day on which judgment is given and in any event the Borrower shall be obligated
to pay the Agent and the Lenders any deficiency in accordance with Section
-------
4.12.1. For the foregoing purposes "rate of exchange" means the rate at which
- ------
the relevant Lender or the Agent, as applicable, in accordance with its normal
banking procedures is able on the relevant date to purchase the Agreed Currency
with the Judgment Currency after deducting any premium and costs of exchange.
SECTION 4.12.3 Circumstances Giving Rise to Indemnity. If (i) any Lender
--------------------------------------
or the Agent receives any payment or payments on account of the liability of the
Borrower hereunder pursuant to any judgment or order in any Other Currency, and
(ii) the amount of the Agreed Currency which the relevant Lender or the Agent,
as applicable, is able to purchase on the Business Day next following such
receipt with the proceeds of such payment or payments in accordance with its
normal procedures and after deducting any premiums and costs of exchange is less
than the amount of the Agreed Currency due in respect of such obligations
immediately prior to such judgment or order, then the Borrower on demand shall,
and the Borrower hereby agrees to, indemnify and save the Lenders and the Agent
harmless from and against any loss, cost or expense arising out of or in
connection with such deficiency.
SECTION 4.12.4 Indemnity Separate Obligation. The agreement of indemnity
-----------------------------
provided for in Section 4.12.3 shall constitute an obligation separate and
--------------
independent from all other obligations contained in this Agreement, shall give
rise to a separate and independent cause of action, shall apply irrespective of
any indulgence granted by the Lenders or the Agent or any of them from time to
time, and shall continue in full force and effect notwithstanding any judgment
or order for a liquidated sum in respect of an amount due hereunder or under any
judgment or order.
ARTICLE V
CONDITIONS TO BORROWING
SECTION 5.1 Initial Borrowing. The obligations of the Lenders and the
-----------------
Agent to effectuate the initial Borrowing shall be subject to the prior or
concurrent satisfaction of each of the conditions precedent set forth in this
Section 5.1. All documents executed or submitted pursuant to this Article V by
- ----------- ---------
or on behalf of the Borrower or any of its respective Subsidiaries or any
Guarantor (including all Acquisition Documents) shall be reasonably satisfactory
in form and substance to the Agent and its counsel.
47
<PAGE>
SECTION 5.1.1 Resolutions, etc. The Agent shall have received from each
-----------------
of the Borrower and the Guarantors a certificate, dated the date of the initial
Borrowing (or such other date acceptable to the Agent), of its Secretary or
Assistant Secretary as to
(a) resolutions of its Board of Directors then in full force and effect
authorizing the execution, delivery and performance of this Agreement and each
other Loan Document to be executed by it;
(b) its charter or articles and by-laws;
(c) the incumbency and signatures of those of its officers authorized to
act with respect to this Agreement and each other Loan Document executed by it;
and
(d) such other factual matters as may be reasonably required by the Agent;
and
upon which certificate each Lender may conclusively rely until it shall have
received a further certificate of the Secretary of such Borrower or Guarantor,
as applicable, cancelling or amending such prior certificate.
SECTION 5.1.2 Arch Agreement. The Agent shall have received a true,
--------------
correct and complete copy of fully executed Arch Agreement.
SECTION 5.1.3 Payment of Outstanding Indebtedness, etc. All Indebtedness
-----------------------------------------
identified in Item 7.2.12 ("Indebtedness to be Paid") of the Disclosure
-----------
Schedule, together with all interest, all prepayment premiums and other amounts
due and payable with respect thereto, shall have been paid in full (including,
to the extent necessary, from proceeds of the initial Borrowing); and all Liens,
(other than those in favor of Hong Kong Bank of Canada ("HKBC")) securing
----
payment of any such Indebtedness have been released and the Agent shall have
received all financing change statements, discharges or other instruments as may
be suitable or appropriate in connection therewith and HKBC shall have executed
and delivered to the Agent an undertaking in form and substance satisfactory to
the Agent whereby HKBC agrees either to release the Liens in its favor on the
assets of the Borrower or to assign such Liens to the Agent for the benefit of
the Lenders.
SECTION 5.1.4 Offer Consummated; Copies of the Offering Document and Other
------------------------------------------------------------
Material Agreements and Consents; Control of Trax's Board. The Borrower shall
- ---------------------------------------------------------
have delivered to the Agent certified copies of the Offering Document and each
of the other Acquisition Documents, if any, and of all opinions, certificates,
instruments and agreements, if any, required to be delivered
48
<PAGE>
thereunder certified by an authorized officer of any of the Guarantors as being
true, complete and correct copies of such agreements and as being in full force
and effect. Northern shall provide evidence satisfactory to the Agent that it
has succeeded in having sufficient of its nominees elected to the Board of
Directors of the Borrower such that such nominees, when added to any existing
director remaining on the Board of Directors of the Borrower after such election
who was a nominee of Northern prior to the commencement of the Offer, constitute
a majority of the Board of Directors of the Borrower.
SECTION 5.1.5 Guaranty. The Agent shall have received the Guaranties,
--------
each dated the Effective Date (or such other date acceptable to the Agent), duly
executed by each of API and Northern.
SECTION 5.1.6 Pledge Agreement. The Collateral Agent shall have received
----------------
executed counterparts of the Pledge Agreement, dated as of the date hereof, duly
executed by API, pledging 65% (calculated on a fully diluted basis) of the
issued and outstanding capital stock of Northern, together with the
certificates, evidencing all of the issued and outstanding shares of capital
stock pledged pursuant to the Pledge Agreement, which certificates shall in each
case be accompanied by undated stock powers duly executed in blank.
SECTION 5.1.7 Security Agreements. The Agent shall have received:
-------------------
(a) executed counterparts of the Security Agreement (Stock), dated as of
the date hereof, duly executed by Northern, pledging all of the issued and
outstanding capital stock of Trax, together with (i) satisfactory evidence of
the completion of all recordings and filings of the Security Agreement (Stock)
as may be necessary, or in the reasonable opinion of the Agent, desirable to
create a valid, perfected, first priority Lien against the collateral as therein
described, and (ii) the certificates, evidencing all of the issued and
outstanding shares of capital stock pledged pursuant to the Security Agreement
(Stock), which certificates shall in each case be accompanied by undated stock
powers duly executed in blank;
(b) executed counterparts of the General Security Agreement, dated as of
the date hereof, duly executed by the Borrower, together with satisfactory
evidence of completion of all recordings and filings of the General Security
Agreement as may be necessary, or in the reasonable opinion of the Agent,
desirable to create a valid, perfected first priority Lien (subject to Permitted
Liens) against the collateral as therein described;
49
<PAGE>
(c) executed counterparts of the Debenture, dated as of the date hereof,
duly executed by the Borrower in favor of the Agent; and
(d) executed counterparts of the Instrument of Pledge, dated as of the
date hereof, duly executed by the Borrower in favor of the Agent, pledging the
Debenture as security for the Obligations of the Borrower.
SECTION 5.1.8 Opinions of Counsel. The Agent shall have received
-------------------
opinions, dated the date of the initial Borrowing (or such other date acceptable
to the Agent) and addressed to the Agent and all Lenders, from
(a) Code Hunter Wittman, Canadian counsel to the Borrower and the
Guarantors, substantially in the form of Exhibit H hereto, together with all
---------
backup opinions on which such counsel shall have relied in connection therewith;
(b) Murphy Mahon Keffler & Farrier, L.L.P., U.S. counsel to the Borrower
and the Guarantors, substantially in the form of Exhibit I hereto, together with
---------
all backup opinions on which such counsel shall have relied in connection
therewith; and
(c) Burnet, Duckworth & Palmer, Canadian counsel to the Agent,
substantially in the form of Exhibit J hereto, together with all backup opinions
---------
on which such counsel shall have relied in connection therewith.
SECTION 5.1.9 Closing Fees, Expenses, etc. The Agent shall have received
----------------------------
for its own account, or for the account of each Lender, as the case may be, all
fees, costs and expenses due and payable pursuant to Section 2.14.1, and if then
--------------
invoiced, 10.3.
----
SECTION 5.1.10 Acquisition. Northern shall have acquired 100% of the
-----------
issued and outstanding Shares.
SECTION 5.1.11 Pro forma. The Agent shall have received a copy of the
---------
pro forma balance sheet of the Borrower dated as of the Effective Date and
giving effect to the consummation of the Offer and the initial Borrowing
hereunder.
SECTION 5.1.12 Regulatory Approvals. The Borrower and the Guarantors shall
--------------------
have obtained all authorizations and approvals and taken all other actions
required by, and notices to, each governmental authority, regulatory body or
other Person required, and all waiting periods, if any, shall have expired, for
the execution, delivery and performance of this Agreement and the consummation
of the Offer.
50
<PAGE>
SECTION 5.1.13 Intercreditor Agreement. The Agent, the Lenders, the Arch
-----------------------
Banks, Bank One as agent and the other parties thereto shall have entered into
the Intercreditor Agreement, together with a joinder thereto duly executed by
the Borrower and the Guarantors.
SECTION 5.1.14 Effectiveness Notice. The Agent shall have received from
--------------------
the Borrower a certificate, in sufficient number of counterparts to provide one
for each Lender, signed by an Authorized Officer of the Borrower, satisfactory
to the Agent, addressed to the Agent and the Lenders, stating (i) that the
Borrower has satisfied all of the conditions precedent to the initial Borrowing
under the foregoing provisions of Section 5.1 hereto and (ii) that on the date
-----------
of such initial Borrowing no Default or Event of Default exists.
SECTION 5.1.15 Due Diligence. The Agent and the Lenders shall be satisfied
-------------
with the scope of and results of their due diligence with respect to the
Borrower, the Acquisition and Northern.
SECTION 5.1.16 Other Matters. The Agent and its counsel shall have
-------------
received all information, approvals, opinions, documents or instruments as the
Agent or its counsel may reasonably request.
SECTION 5.2 All Borrowings. The obligation of each Lender to fund,
--------------
convert or rollover any Borrowing on the occasion of the drawdown, conversion or
rollover of any Borrowing (including the initial Borrowing) shall be subject to
the satisfaction of each of the conditions precedent set forth in this Section
-------
5.2.
- ---
SECTION 5.2.1 Compliance with Warranties, No Default, etc. Both before
-------------------------------------------
and after giving effect to any Borrowing (but, if any Default of the nature
referred to in Section 8.1.10 shall have occurred with respect to any other
--------------
Indebtedness, without giving effect to the application, directly or indirectly,
of the proceeds thereof) the following statements shall be true and correct
(a) the representations and warranties set forth in Article VI (excluding,
----------
however, those contained in Section 6.4) or in any other Loan Document shall be
-----------
true and correct with the same effect as if then made (unless stated to relate
solely to an earlier date, in which case such representations and warranties
shall be true and correct as of such earlier date);
(b) except as disclosed by the Borrower to the Agent and the Lenders
pursuant to Section 6.4
-----------
51
<PAGE>
(i) no labor controversy, litigation, arbitration or governmental
investigation or proceeding shall be pending or, to the knowledge of the
Borrower, threatened against the Borrower or any of its Subsidiaries which
might materially adversely affect the Borrower's consolidated business,
operations, assets, revenues, properties or prospects or which purports to
affect the legality, validity or enforceability of this Agreement or any
other Loan Document; and
(ii) no development shall have occurred in any labor controversy,
litigation, arbitration or governmental investigation or proceeding
disclosed pursuant to Section 6.4 which might materially adversely affect
-----------
the consolidated businesses, operations, assets, revenues, properties or
prospects of the Borrower and its Subsidiaries; and
(c) no Default shall have then occurred and be continuing, and neither the
Borrower nor any of its Subsidiaries nor any Guarantor are in material violation
of any law or governmental regulation or court order or decree.
SECTION 5.2.2 Borrowing Notice, Conversion Notice or Rollover Notice. The
------------------------------------------------------
Agent shall have received a Borrowing Notice, Conversion Notice or Rollover
Notice, as the case may be, for such Borrowing. Each of the delivery of a
Borrowing Notice, Conversion Notice or Rollover Notice and the acceptance by a
Borrower of the proceeds of such Borrowing shall constitute a representation and
warranty by the Borrower that on the date of such Borrowing (both immediately
before and after giving effect to such Borrowing and the application of the
proceeds thereof) the statements made in Section 5.2.1 are true and correct in
-------------
all material respects.
SECTION 5.2.3 Satisfactory Legal Form. All documents executed or
-----------------------
submitted pursuant hereto by or on behalf of the Borrower or any of its
Subsidiaries shall be satisfactory in form and substance to the Agent and its
counsel; the Agent and its counsel shall have received all information,
approvals, opinions, documents or instruments as the Agent or its counsel may
reasonably request.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders and the Agent to enter into this Agreement
and to make Borrowings hereunder, the Borrower represents and warrants unto the
Agent and each Lender as set forth in this Article VI.
----------
52
<PAGE>
SECTION 6.1 Organization and Qualification of Borrower. The Borrower is
------------------------------------------
a corporation, and each of its Subsidiaries is a corporation or other legal
entity, in either case duly incorporated or otherwise organized and validly
existing under the laws of its jurisdiction of incorporation or organization and
has all corporate power and authority required to own its property and carry on
its business as presently conducted and proposed to be conducted. The Borrower
and each of its Subsidiaries is duly qualified or licensed to do business in
each jurisdiction where the Borrowing Base Properties are located and in each
jurisdiction where the nature of the business in which it is engaged makes such
qualification or licensing necessary.
SECTION 6.2 Authorization and Power of Borrower. The Borrower has
-----------------------------------
the corporate power and requisite authority to execute, deliver and carry out
the terms and provisions of the Loan Documents which it has executed, and all of
the documents and instruments delivered pursuant to the terms of such Loan
Documents, and has taken all corporate action necessary to duly authorize (i)
the execution, delivery and performance by the Borrower of the terms and
provisions of the Loan Documents which it has executed and (ii) the performance
by the Borrower of its obligations under the Loan Documents, including without
limitation the Borrowings under this Agreement.
SECTION 6.3 Financial Condition. The annual financial statements and
-------------------
information of the Borrower as at November 30, 1994 and the interim financial
statements of the Borrower as at October 31, 1995 and all related notes to all
such financial statements which have been delivered to the Agent and each Lender
fairly present the financial position (including all contingent liabilities) of
the Borrower as of the dates of such financial statements; no material adverse
changes have occurred in the financial condition, operations, assets, business,
properties or prospects of the Borrower or of the Borrower and its Subsidiaries
since such dates.
SECTION 6.4 No Litigation. Except as set forth in Item 6.4
------------- --------
("Litigation") of the Disclosure Schedule, there are no actions, suits or legal,
equitable, arbitration or administrative proceedings pending, or to the
knowledge of the Borrower threatened, against the Borrower or any of its
Subsidiaries in equity or before any federal, provincial, state, municipal or
othergovernmental department, commission, body, bureau, agency or
instrumentality, domestic or foreign, which, if determined adversely to the
Borrower or any of its Subsidiaries, would have a material adverse effect on the
financial or other condition or business of the Borrower or any of its
Subsidiaries or which purports to affect the legality, validity or
enforceability of this
53
<PAGE>
Agreement or any other Loan Document, and there are no outstanding judgments,
injunctions, writs, rulings or orders by any court or governmental body against
the Borrower or any of its Subsidiaries.
SECTION 6.5 No Breach. Neither the execution and delivery by the
---------
Borrower of this Agreement and each other Loan Document executed or to be
executed by it, the consummation of the transactions herein or therein
contemplated nor compliance with the terms and provisions hereof or thereof,
will conflict with or result in a breach of any of the terms, conditions or
provisions of the articles of incorporation, by-laws or other organizational
documents of the Borrower or any of its Subsidiaries of any law, rule or
regulation, order, writ, injunction or decree of any court or governmental
instrumentality, or of any indenture, mortgage, deed of trust, agreement or
instrument to which the Borrower or any of its Subsidiaries is a party or by
which any of them is bound or to which any of them is subject, or constitute a
default thereunder or result in the creation or imposition of any Lien (except
Liens in favor of the Agent), upon any of the property of the Borrower or any of
its Subsidiaries pursuant to the terms of any such agreement or instrument.
Each of the Borrower and its Subsidiaries is in material compliance with all
statutes, laws, rules, regulations and orders pertaining to its ownership and/or
operation of the Borrowing Base Properties.
SECTION 6.6 No Consents. No consent, approval, authorization, order
-----------
or other action by, and no notice to or filing with, any governmental authority
or regulatory body or court or other Person is required in connection with the
due execution, performance or delivery by the Borrower, any of its Subsidiaries
or any Guarantor of the Loan Documents or to consummate the transactions
contemplated hereby or thereby.
SECTION 6.7 Validity. This Agreement has been duly and validly
--------
executed and delivered by the Borrower and constitutes, and the other Loan
Documents will, when duly executed and delivered by the Borrower pursuant to the
provisions hereof, constitute, the legal, valid and binding obligations of the
Borrower, enforceable against the Borrower, in accordance with their respective
terms, except as limited by bankruptcy, insolvency or other similar laws of
general application relating to the enforcement of creditors' rights at law or
in equity.
SECTION 6.8 Subsidiaries. The Borrower has no Subsidiaries, except
------------
those Subsidiaries which are identified in Item 6.8 ("Existing Subsidiaries") of
--------
the Disclosure Schedule.
SECTION 6.9 Status of Title to Assets. Subject to the Permitted Liens,
-------------------------
the Borrower holds good and defensible title to
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each of the Borrowing Base Properties. Upon execution and delivery of the
Collateral Documents the Borrower will have granted to the Agent, for the
benefit of the Lenders, to secure the Obligations, a valid, enforceable, and the
only (except for Permitted Liens) Lien, and upon registration a perfected first
priority (except for Permitted Liens) Lien, in not less than, and the Borrower
is entitled to receive not less than, that percentage of oil, gas and other
hydrocarbons produced from the land covered by the leases pertaining to the
Borrowing Base Properties (after deduction of all royalties, overriding
royalties and other interests payable from or measured by production) not less
than the "net revenue interest" specified in the evaluation of such Borrowing
Base Properties in the most recent engineering and/or reserve report(s) covering
such Borrowing Base Properties which are delivered to the Agent hereunder, with
the term "net revenue interest" meaning the proportionate share of the
production of oil, gas or other minerals to which the Borrower is entitled after
deduction of all royalties, overriding royalties and other interests payable
from or measured by production. Upon execution and delivery of the Collateral
Documents, the Borrower will have granted to the Agent, for the benefit of the
Lenders, to secure the Obligations, a valid, enforceable, and the only (except
for Permitted Liens) Lien, and upon registration a perfected first priority
(except for Permitted Liens) Lien, in the "working interest" specified in the
evaluation of such Borrowing Base Properties in the most recent engineering
report(s) and/or reserve reports covering such Borrowing Base Properties which
are delivered to the Agent hereunder, with the term "working interest", as used
herein, meaning the right to explore for, drill and produce oil, gas or other
minerals; neither the Borrower nor any of its Subsidiaries is obligated to bear
more than that percentage of the cost of all operations conducted on the
Borrowing Base Properties equal to the "working interest" as above described.
SECTION 6.10 Taxes. Each of the Borrower and its Subsidiaries have
-----
filed all tax returns and reports required by law to have been filed by it and
have paid all taxes, assessments, fees and other governmental charges thereby
shown to be owing, except any such taxes, assessments, fees or charges which are
being diligently contested in good faith by appropriate proceedings and for
which adequate reserves in accordance with GAAP shall have been set aside on its
books.
SECTION 6.11 Other Indebtedness or Liens. As of the date hereof,
---------------------------
except for Permitted Liens there are no material Indebtedness, obligations,
liabilities (including contingent and indirect liabilities and obligations),
Liens, charges, encumbrances or unusual forward or long-term commitments of the
Borrower or any of its Subsidiaries, which have not been previously disclosed in
55
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the Disclosure Schedule or the pro forma balance sheet delivered pursuant to
Section 5.1.12.
- --------------
SECTION 6.12 Own Expertise. Each of the Borrower and its Subsidiaries
-------------
(i) is not relying (for purposes of making any investment or
financing decision or otherwise) upon any advice, counsel or
representations (whether written or oral) of any Lender or the Agent;
(ii) has consulted with its own legal, regulatory, tax, business,
investment, financial and accounting advisors to the extent it has deemed
necessary, and it has made its own investment and financing decisions
(including decisions regarding the structure and suitability of the
transactions contemplated by this Agreement and the other Loan Documents)
based upon its own judgment and upon any advice from such advisors as it
has deemed necessary and not upon any view expressed by any Lender or the
Agent;
(iii) has full understanding of all the terms, conditions and risks
(economic, tax and otherwise) of this Agreement, each Loan Document, and
the transactions contemplated hereby and thereby and is capable of assuming
and willing to assume (financially and otherwise) those risks; and
(vi) neither any Lender nor the Agent is acting as a fiduciary or
financial, investment or tax advisor for the Borrower or any of its
Subsidiaries or has given to the Borrower or any of its Subsidiaries
(directly or indirectly through any other Person) any assurance, guarantee
or representation whatsoever as to the merits (either legal, regulatory,
tax, financial, accounting or otherwise) of this Agreement, any other Loan
Document, or any transaction contemplated hereby or thereby.
SECTION 6.13 Environmental Warranties. Except as set forth in Item 6.13
------------------------ ---------
("Environmental Matters") of the Disclosure Schedule: (a) all facilities and
property (including underlying groundwater) owned, leased or operated by the
Borrower or any of its Subsidiaries have been, and continue to be, owned, leased
or operated by the Borrower and its Subsidiaries in Material compliance with all
Environmental Laws; (b) there have been no past, and there are no pending or
threatened (i) Material claims, complaints, notices or inquiries to, or requests
for information received by the Borrower or any of its Subsidiaries with respect
to
56
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any alleged violation of any Environmental Law, or (ii) Material claims,
complaints, notices or inquiries to, or requests for information received by,
the Borrower or any of its Subsidiaries regarding potential liability under any
Environmental Law or under any common law theories relating to operations or the
condition of any facilities or property (including underground water) owned,
leased or operated by the Borrower or any of its Subsidiaries; (c) there have
been no releases of Hazardous Materials at, on or under any property now or
previously owned, leased or operated by, or on behalf of, the Borrower or any of
its Subsidiaries nor any landfill or waste disposal site located thereon, that
singly or in the aggregate, have, or may reasonably be expected to have, a
Material adverse effect on the financial condition, operations, assets,
business, properties or prospects of the Borrower and its Subsidiaries; (d) the
Borrower and its Subsidiaries have been issued and are in Material compliance
with all permits, certificates, approvals, licenses and other authorizations
relating to environmental matters and necessary or desirable for their
businesses; (e) there are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any property now or previously
owned, leased or operated by the Borrower or any of its Subsidiaries that,
singly or in the aggregate, have, or may reasonably be expected to have, a
Material adverse effect on the financial condition, operations, assets,
business, properties or prospects of the Borrower and its Subsidiaries; (f)
neither the Borrower nor any Subsidiary of the Borrower has directly transported
or directly arranged for the transportation of any Hazardous Material to any
location except in Material accordance with and in Material compliance with
Environmental Law; (g) there are no polychlorinated biphenyls, radioactive
materials or friable asbestos present at any property now or previously owned or
leased by the Borrower or any Subsidiary of the Borrower that, singly or in the
aggregate, have, or may reasonably be expected to have, a Material adverse
effect on the financial condition, operations, assets, business, properties or
prospects of the Borrower and its Subsidiaries; and (h) no conditions exist at,
on or under any property now or previously owned or leased by the Borrower
which, with the passage of time, or the giving of notice or both, would give
rise to Material liability under any Environmental Law. "Material" as used in
--------
this Section 6.13 only, shall mean $100,000 or more or, as the context requires,
------------
any circumstances, state of facts, breach, non-compliance or matters which have,
or may reasonably be expected to have, an adverse effect, individually or in the
aggregate, of $100,000 or more (whether for remedial measures, penalties or
otherwise).
SECTION 6.14 Intentionally Omitted.
---------------------
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SECTION 6.15 Accuracy of Information. All factual information heretofore
-----------------------
or contemporaneously furnished by or on behalf of the Borrower in writing to any
Lender for purposes of or in connection with this Agreement or any transaction
contemplated hereby (including the financial statements described in Section 6.3
-----------
and the engineering and reserve reports delivered hereunder, true and complete
copies of which were furnished to any Lender in connection with its execution
and delivery hereof) is, and all other such factual information hereafter
furnished by or on behalf of the Borrower to any Lender will be, true and
accurate in every material respect on the date as of which such information is
dated or certified and as of the date of execution and delivery of this
Agreement by any Lender, and such information is not, or shall not be, as the
case may be, incomplete by omitting to state any material fact necessary to make
such information not misleading.
SECTION 6.16 Full Disclosure. There is no fact known to the Borrower or
---------------
any of its Subsidiaries that has not been disclosed to the Agent in writing
which could materially adversely affect the properties, business, prospects or
condition (financial or otherwise) of the Borrower or its Subsidiaries.
ARTICLE VII
COVENANTS
SECTION 7.1 Affirmative Covenants. The Borrower agrees with the Agent and
---------------------
each Lender that, until all Commitments have terminated and all Obligations have
been paid and performed in full, the Borrower will perform the obligations set
forth in this Section 7.1 unless the Agent shall otherwise consent in writing.
-----------
SECTION 7.1.1 Financial Statements and Reports of Borrower. The Borrower
--------------------------------------------
will furnish, or will cause to be furnished, to the Agent and each Lender copies
of the following financial statements, reports, notices and information: (i) as
soon as available, but in any event within ninety (90) days after the end of
each fiscal year of the Borrower, commencing with the fiscal year ending
December 31, 1996, consolidated and consolidating balance sheets for the
Borrower and its Subsidiaries, on an unaudited basis, prepared as of the close
of such fiscal year and statements of operations, changes in shareholders'
equity and changes in cash flows of the Borrower and its Subsidiaries on a
consolidated and consolidating basis for such year, in each case setting forth
in comparative form the figures for the preceding fiscal year, all in reasonable
detail, and (ii) as soon as available, but in any event within forty-five (45)
days after the end of the first three fiscal quarters of each fiscal year of the
Borrower, commencing with the
58
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fiscal quarter ending March 31, 1996, consolidated and consolidating balance
sheets of the Borrower and its Subsidiaries, on an unaudited basis, with respect
to the Borrower and its Subsidiaries of the type described in clause (i); such
----------
financial information and reports of the Borrower specified in clauses (i) and
-----------
(ii) to be accompanied by (a) a quarterly certificate of compliance, in the form
- ----
of Exhibit L, executed by the chief financial Authorized Officer of the Borrower
---------
certifying that the attached financial statements are true and correct and have
been prepared in accordance with GAAP, the Borrower has complied with all of the
terms and conditions of the Agreement, and no event has occurred which
constitutes an Event of Default or would, with the lapse of time or giving of
notice, or both, constitute an Event of Default, and (b) a statement setting
forth the total volume of gas, liquid hydrocarbons or products thereof sold by
the Borrower and its Subsidiaries during the preceding fiscal quarter.
SECTION 7.1.2 Reserve, Production and Operating Reports. The Borrower
-----------------------------------------
shall deliver to the Agent (i) within ninety (90) days after the end of each
fiscal year a reserve report, prepared as of the end of such fiscal year, by
Sproule Associates Limited, Ryder Scott and Associates or such firm or firms of
independent petroleum engineers designated by the Borrower and approved by the
Agent, evaluating the Present Value attributable to the Proved Producing
Reserves, Proved Non-Producing Reserves and Probable Additional Reserves and
production therefrom attributable to the Borrowing Base Properties; (ii) no
later than thirty (30) days before each Determination Date, (a) to the extent
available to the Borrower, complete revenue, expense and production information
for the Borrowing Base Properties for the most recent twelve-month period
preceding such Determination Date, and (b) detailed revenue, expense and
production information for the same time period, on a property-by-property or
well-by-well basis, for Borrower's oil and gas wells producing seventy-five
percent (75%) of the Borrower's oil and gas revenue for the applicable time
period; and (iii) at such times as Agent may from time to time request, an oil
and gas operating statement concerning Borrower's operation and production from
its Borrowing Base Properties, prepared on a basis reasonably acceptable to
Agent, reflecting for the period requested, net production volume, prices
received, severance taxes, and capital and operating expenses, including a
calculation of net operating income.
SECTION 7.1.3 Payment of Taxes, etc. The Borrower will, and will cause
----------------------
each of its Subsidiaries to, pay and discharge all taxes, assessments,
governmental charges, levies and all lawful claims which, if unpaid, might
become a Lien or charge upon the Borrowing Base Properties or any other of their
properties; provided, the Borrower shall not be deemed in default if any such
59
<PAGE>
taxes, assessments, governmental charges, levies or claims are being diligently
contested in good faith by appropriate proceedings and for which adequate
reserves in accordance with GAAP shall have been set aside on its books.
SECTION 7.1.4 Insurance and Insurance Summaries. The Borrower will, and
---------------------------------
will cause each of its Subsidiaries to, maintain or cause to be maintained on
all of their assets and properties, now owned or hereafter acquired, and with
respect to their personal liability insurance issued by responsible insurance
companies and against such risks and in such amounts as it deems prudent and
naming Agent as co-insured. Within sixty (60) days after the end of each fiscal
year of the Borrower, the Borrower shall deliver to the Agent a summary of all
insurance coverage maintained by the Borrower, including a summary of the
carriers of such insurance, the properties and risks insured, the amounts of
such insurance and other information regarding insurance coverage as is
reasonably requested by the Agent.
SECTION 7.1.5 Operations and Properties. The Borrower will, and will
-------------------------
cause each of its Subsidiaries to, act prudently and in accordance with
customary industry standards in managing or operating its assets, properties,
business and investments, including, the Borrowing Base Properties; the Borrower
shall keep in good working order and condition, ordinary wear and tear excepted,
all of its assets and properties which are necessary and material to the conduct
of its business, including without limitation all wells and equipment necessary
or useful in the operation of the Borrowing Base Properties; provided, the
--------
Borrower shall never be deemed obligated to rework, recomplete, redrill or
otherwise maintain any well or production facility when, in the Borrower's
judgment, it would be imprudent or uneconomic to do so.
SECTION 7.1.6 Compliance with Applicable Laws. The Borrower will, and
-------------------------------
will cause each of its Subsidiaries to, comply in all material respects with the
requirements of all applicable laws, rules, regulations and orders of any
governmental authority, a breach of which could materially and adversely affect
the business or credit of the Borrower or any of its Subsidiaries. Such
compliance shall include (without limitation) (i) the maintenance and
preservation of its corporate or business existence and qualification as a
foreign corporation or other business entity; and (ii) the payment, before
delinquency, of all taxes, assessments or governmental charges as required by
Section 7.1.3.
- -------------
SECTION 7.1.7 Litigation. The Borrower will, and will cause each of its
----------
Subsidiaries to, give notice in writing to the Agent of the commencement of, and
any material determination in, all litigation and all proceedings before any
governmental or
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regulatory agencies materially affecting the Borrower or any of its
Subsidiaries.
SECTION 7.1.8 Changes of Fact. The Borrower will, and will cause each of
---------------
its Subsidiaries to, notify the Agent in writing of any change in any material
fact or circumstance represented or warranted in this Agreement or the other
Loan Documents.
SECTION 7.1.9 Maintenance of Rights. The Borrower will, and will cause
---------------------
each of its Subsidiaries to, preserve and maintain all of its rights, privileges
and franchises necessary in the normal conduct of its business, and conduct its
business in an orderly and efficient manner consistent with good business
practices.
SECTION 7.1.10 Maintenance of Properties. The Borrower will, and will
-------------------------
cause each of its Subsidiaries to, maintain, preserve, protect and keep its
properties in good repair, working order and condition, and make necessary and
proper repairs, renewals and replacements so that its business carried on in
connection therewith may be properly conducted at all times unless the Borrower
determines in good faith that the continued maintenance of any of its properties
is no longer economically desirable.
SECTION 7.1.11 Maintenance and Granting of Liens, Mortgages and Security
---------------------------------------------------------
Interests. The Borrower will, and will cause each of its Subsidiaries to,
- ---------
execute and deliver to the Agent for the benefit of the Lenders, all security
agreements, pledge agreements, mortgages, debentures, assignments, financing
statements, documents and instruments, and do such other things as are required
by Article III, Article V or Section 7.1.21, or as the Agent shall reasonably
----------- --------- --------------
request in order to maintain (subject, in the case of the Collateral Documents,
to Permitted Liens) as valid, enforceable, perfected and first priority Liens,
all Liens granted to the Agent for the benefit of the Lenders pursuant to the
Loan Documents.
SECTION 7.1.12 Notice of Default. The Borrower will, and will cause each
-----------------
of its Subsidiaries to, furnish to the Agent, upon becoming aware of the
existence of any condition or event constituting a Default or an Event of
Default, a written notice specifying the nature and period of existence thereof
and the action which the Borrower is taking or proposes to take with respect
thereto.
SECTION 7.1.13 Compliance with Loan Documents. The Borrower will, and will
------------------------------
cause each of its Subsidiaries to, comply promptly with any and all applicable
covenants and provisions of the Loan Documents, including all covenants
contained in the Collateral
61
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Documents, and specifically those covenants dealing with the operation and
maintenance of the Borrowing Base Properties.
SECTION 7.1.14 Compliance with Material Agreements. The Borrower will, and
-----------------------------------
will cause each of its Subsidiaries to, comply in all material respects with all
material agreements, operating agreements, leases, or other documents binding on
the Borrower, or affecting its properties or business.
SECTION 7.1.15 Books and Records; Inspection. The Borrower will, and will
-----------------------------
cause each of its Subsidiaries to, at all times keep complete and accurate
books, records and accounts of transactions, which records shall fairly present
its financial position and results of operations, and upon request by the Agent,
give any representative or agent of the Agent or any Lender access during normal
business hours to, permit such representative or agent to examine, copy or make
excerpts from, any books, records and documents in the possession of the
Borrower or any of its Subsidiaries relating to any of their affairs.
SECTION 7.1.16 Agreements Affecting the Borrowing Base Properties. The
--------------------------------------------------
Borrower will, and will cause each of its Subsidiaries to, deliver to the Agent
upon request by the Agent copies of all material operating agreements, pooling
or unitization agreements, sales or processing contracts, preferential purchase
right agreements, drilling and/or development agreements, pipeline
transportation agreements and other material agreements which pertain to the
Borrowing Base Properties, the operation thereof or the disposition of
production attributable thereto.
SECTION 7.1.17 Other Notices. The Borrower will, and will cause each of
-------------
its Subsidiaries to, promptly notify the Agent of (a) any default or claimed or
asserted default under any agreement, contract or other instrument to which the
Borrower or any of its Subsidiaries is a party or by which any of its or their
properties are bound, or any acceleration of the maturity of any Indebtedness of
the Borrower in an amount greater than $100,000, and (b) any adverse claim
against or affecting the Borrower or any of its Subsidiaries or any of its or
their properties which is in excess of $100,000.
SECTION 7.1.18 Value of Properties. The Borrower will ensure that (i) at
-------------------
all times the Borrowing Base Properties, and (ii) at all times after the
execution and delivery of the supplemental debentures to the Debenture or other
documents creating a fixed charge pursuant to Section 7.1.21, the properties
described in, and subject to the first fixed charges (subject only to Permitted
Liens) created by, the Debenture, supplemental debenture to the Debenture and
such other documents, shall consist of Assets of the
62
<PAGE>
Borrower containing not less than ninety percent (90%) of the Present Value of
the Borrower's Borrowing Base Properties reflected in the most recent reserve
report.
SECTION 7.1.19 Copies of Filings, etc. Concurrently with transmission
-----------------------
thereof, the Borrower will furnish to the Agent copies of all financial
statements, proxy statements and other statements and reports as the Borrower
sends to its stockholders, and copies of all registration statements and all
regular, special or periodic reports which the Borrower or any of its
Subsidiaries files, or any of their officers or directors file with respect to
the Borrower or any of its Subsidiaries or their respective securities, with any
securities regulatory authority or with any securities exchange on which any of
the Borrower's or such Subsidiary's securities are then listed, if any, and
copies of all press releases and other statements made available generally by
the Borrower or any of its Subsidiaries to the public concerning material
developments in the Borrower's or any of its Subsidiary's business.
SECTION 7.1.20 Environmental Covenant. The Borrower will, and will cause
----------------------
each of its Subsidiaries to, (a) use, operate and maintain all of its facilities
and properties in material compliance with all Environmental Laws, keep all
necessary permits, approvals, certificates, licenses and other authorizations
relating to environmental matters in effect and remain in material compliance
therewith, and handle all Hazardous Materials in material compliance with all
applicable Environmental Laws; (b) immediately notify the Lenders and provide
copies upon receipt of all written claims, complaints, notices, liens or
inquiries relating to the condition of its facilities and properties or
compliance with Environmental Laws (other than notices which are routinely
received or submitted in the ordinary course of business and which do not
involve substantial fines, penalties or liabilities to the Borrower or any of
its Subsidiaries), and shall promptly cure and have dismissed with prejudice to
the satisfaction of the Agent any actions and proceedings relating to compliance
with Environmental Laws; and (c) provide such information and certifications
which the Lender may reasonably request from time to time to evidence compliance
with this Section 7.1.20.
--------------
SECTION 7.1.21 Additional Security Documents. Promptly, and in any event
-----------------------------
within forty-five (45) days following the Effective Date, and whenever required
pursuant to Section 3.5, the Borrower will mortgage, pledge, assign or grant to
-----------
the Agent for the benefit of the Lenders, pursuant to duly authorized, executed,
delivered and registered supplemental debentures to the Debenture and such other
security agreements, financing statements, mortgages, debentures, deeds of trust
or other applicable security documents as the Agent may require, all in form and
substance satisfactory to
63
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the Agent, a first fixed charge (subject only to Permitted Liens) on the
Borrowing Base Properties of the Borrower, and all products and proceeds thereof
(all the foregoing documents delivered pursuant to this Section 7.1.21 or
--------------
pursuant to Section 3.5 or Section 5.1.7 herein collectively called the
----------- -------------
"Collateral Documents"), and the Borrower shall also deliver to the Agent at the
--------------------
same times (a) a reserve report dated within ninety (90) days of delivery,
prepared by a petroleum engineering firm acceptable to the Agent setting forth
the Present Value of the Borrowing Base Properties described in, and subject to
the Lien created by, such Collateral Documents, and (b) title opinions, title
reports and other title information covering not less than eighty percent (80%)
of the Present Value of the Proved Producing Reserves of the Borrower utilized
to establish the Trax Borrowing Base then in effect and providing confirmation
satisfactory to the Agent that Borrower has good and defensible title to the
Borrowing Base Properties, subject only to Permitted Liens. The Borrower shall
further deliver any and all instruments, opinions of counsel or documents
reasonably requested by the Agent in connection with any additional security
document required to be executed pursuant to the foregoing provisions of this
Section 7.1.21.
- --------------
SECTION 7.1.22 Intentionally Omitted.
---------------------
SECTION 7.1.23 Other Information. The Borrower will furnish, or will cause
-----------------
to be furnished, to the Agent such other information respecting the condition or
operations, financial or otherwise, of the Borrower or any of its Subsidiaries
as any Lender through the Agent may from time to time reasonably request.
SECTION 7.2 Negative Covenants. So long as any Lender has any Commitment
------------------
hereunder or the Borrowings or any part thereof remain outstanding and until
payment in full of the Borrowings and the payment and performance of the other
Obligations, the Borrower agrees that, unless the Majority Lenders shall
otherwise consent in writing:
SECTION 7.2.1 Limitation on Liens. The Borrower will not, and will not
-------------------
permit any of its Subsidiaries to, create, incur, assume or suffer to exist any
Lien upon its property, revenues or assets (including the Borrowing Base
Properties), whether now owned or hereafter acquired, except for the Permitted
Liens.
SECTION 7.2.2 Disposition of Assets. Without the prior approval of the
---------------------
Majority Lenders, the Borrower will not, and will not permit any of its
Subsidiaries to, sell, convey, exchange, lease or otherwise dispose of any of
its Assets having an aggregate value in excess of $100,000 for all such sales,
conveyances, exchanges, leases or dispositions during the period from the date
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hereof until all Obligations are paid in full and all Commitments are
terminated, except obsolete or worn out equipment and oil, gas and hydrocarbons
sold in the ordinary course of the business of the Borrower and its
Subsidiaries.
SECTION 7.2.3 Certain Transactions. With respect to the Borrowing Base
--------------------
Properties, the Borrower will not, and will not permit any of its Subsidiaries
to, enter into any transaction with any Affiliate except for transactions with
Affiliates upon terms not less favorable to the Borrower than would be
obtainable at the time in comparable transactions of the Borrower in arm's
length dealings with Persons other than Affiliates.
SECTION 7.2.4 Place of Business. The Borrower will not move its principal
-----------------
place of business or chief executive office without giving the Agent prior
written notice thereof.
SECTION 7.2.5 Consolidation, Amalgamation or Merger. Except as expressly
-------------------------------------
provided in this Section 7.2.5, the Borrower will not, and will not permit any
-------------
of its Subsidiaries to, amalgamate with, consolidate with or merge into, any
other Person, permit any other Person to amalgamate with, consolidate with or
merge into the Borrower or any Subsidiary of the Borrower, or transfer or lease
all, or substantially all, of its Assets except the Borrower may amalgamate with
Northern so long as the surviving entity is the Borrower, no Default or Event of
Default has occurred and is continuing or will occur as a result of such
amalgamation and the Obligations do not exceed the Canadian Allocated Borrowing
Base after giving effect thereto.
SECTION 7.2.6 Limitation on Investments and New Businesses. The Borrower
--------------------------------------------
will not, and will not permit any of its Subsidiaries to, engage directly or
indirectly in any new business or make any acquisitions, investments, or
commitments, except such businesses, operations, acquisitions, or investments
which are incidental to or reasonably related to the present businesses and
operations conducted by the Borrower or any Subsidiary of the Borrower and
except (a) investment in obligations of the government of Canada or any agency
thereof, or obligations guaranteed by the government of Canada, having a
maturity not in excess of one year, (b) investments in certificates of deposit
of a bank listed under Schedule I or Schedule II of the Bank Act (Canada) and
which has a combined capital and surplus and undivided profits of not less than
$500,000,000, having a maturity not in excess of one year, (c) investments in
commercial paper with a rating of at least "Prime 1" according to Moody's
Investors Service, Inc., or a similar rating of a comparable or successor
service, having a maturity not in excess of one year.
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SECTION 7.2.7 Limitation on Credit Extensions. The Borrower will not, and
-------------------------------
will not permit any of its Subsidiaries to, extend credit, make advances or make
loans to any Person or entity other than normal and prudent extensions of credit
in the ordinary course of business, which extensions shall not be for longer
periods than those extended by similar businesses operated in a normal and
prudent manner; provided, however, that neither Borrower nor any of its
-------- -------
Subsidiaries shall make any advances, loans or extensions of credit to or for
the benefit of Northern, API, APC or any of the Onyx Subsidiaries (as defined in
the Arch Agreement) except for the loan from the Borrower to Northern described
in the third recital.
-------------
SECTION 7.2.8 Fiscal Year. The Borrower will not, and will not permit any
-----------
of its Subsidiaries to, change its fiscal year except for a change by the
Borrower to the same fiscal year as API.
SECTION 7.2.9 Certain Agreements. The Borrower will not, and will not
------------------
permit any of its Subsidiaries to, enter into any agreement, which by its terms
would expressly restrict its performance of its obligations pursuant to this
Agreement, or any arrangement for the purchase of materials, supplies, other
property or services if such arrangement by its express terms requires that
payment be made by the Borrower or such Subsidiary regardless of whether such
materials, supplies, other property or services are delivered or furnished to
it. Further, the Borrower will not, and will not permit any of its Subsidiaries
to, enter into any transaction with any of its officers, directors, employees or
affiliates (as defined in Rule 405 under Securities Act of 1933, as now or later
amended), except for employment and compensation arrangements entered into on an
arms-length basis and containing only reasonable and customary terms.
SECTION 7.2.10 Restrictions on Payment of Dividends; Issuance of Capital
---------------------------------------------------------
Stock. On and at all times after the Effective Date:
- -----
(a) the Borrower will not declare, pay or make any dividend or
distribution (in cash, property or obligations) on any shares of any class of
capital stock (now or hereafter outstanding) of the Borrower or on any warrants,
options or other rights with respect to any shares of any class of capital stock
(now or hereafter outstanding) of the Borrower (other than dividends or
distributions payable in its common stock or warrants to purchase its common
stock or splitups or reclassifications of its stock into additional or other
shares of its common stock) or apply, or permit any of its Subsidiaries to
apply, any of its funds, property or assets to the purchase, redemption, sinking
fund or other retirement of, or agree or permit any of its Subsidiaries to
purchase or redeem, any shares of any class of capital stock (now or hereafter
outstanding) of the Borrower, or warrants, options or other rights with respect
to any
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shares of any class of capital stock (now or hereafter outstanding) of the
Borrower; and
(b) the Borrower will not, and will not permit any of its Subsidiaries
to, make any deposit for any of the foregoing purposes.
SECTION 7.2.11 Financial Condition. The Borrower will not, at any time,
-------------------
permit its Current Ratio to be less than 1:1.
SECTION 7.2.12 Limitation on Additional Indebtedness. The Borrower will
-------------------------------------
not, and will not permit any of its Subsidiaries to, create, incur, assume or
otherwise become or remain liable with respect to Indebtedness, except: (a)
Indebtedness incurred pursuant to this Agreement or any of the Loan Documents;
(b) Indebtedness of the Borrower consisting of advances, loans or extensions of
credit owing to Northern to the extent permitted by Section 4.2.7 of the
Guaranty of API; (c) until the date of the initial Borrowing, Indebtedness
identified in Item 7.2.12 ("Indebtedness to be Paid") of the Disclosure
-----------
Schedule; (d) trade payables not more than sixty (60) days past due; (e)
Indebtedness of the Borrower's Subsidiaries owing to the Borrower; provided,
--------
however, that no Indebtedness otherwise permitted by clauses (b) or (e) shall be
- ------- ----------- ---
permitted if, after giving effect to the incurrence thereof, any Default or
Event of Default shall have occurred and be continuing.
SECTION 7.2.13 Negative Pledges, Restrictive Agreements, etc. The Borrower
---------------------------------------------
will not, and will not permit any of its Subsidiaries to, enter into any
agreement (excluding this Agreement, any other Loan Document and any agreement
governing any Indebtedness permitted by clause (c) of Section 7.2.12 as in
---------- --------------
effect on the Effective Date) prohibiting
(a) the creation or assumption of any Lien upon its properties, revenues
or assets, whether now owned or hereafter acquired, or the ability of the
Borrower or any of its Subsidiaries to amend or otherwise modify this Agreement
or any other Loan Document; or
(b) the ability of any Subsidiary to make any payments, directly or
indirectly, to the Borrower by way of dividends, advances, repayments of loans
or advances, reimbursements of management and other intercompany charges,
expenses and accruals or other returns on investments, or any other agreement or
arrangement which restricts the ability of any such Subsidiary to make any
payment, directly or indirectly, to the Borrower.
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ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1 Listing of Event of Default. An "Event of Default" shall
---------------------------
exist if any one or more of the following events (herein called "Events of
---------
Default") shall occur:
- -------
SECTION 8.1.1 Failure of Payment. Borrower shall fail to pay or cause to
------------------
be paid when due (whether at stated maturity, by acceleration or otherwise) all
or any part of the principal of or interest on any Loan, any Bankers' Acceptance
or any fee or any other Obligation.
SECTION 8.1.2 False Representation. Any material representation or
--------------------
warranty made or deemed to be made under the Loan Documents or in any
certificate or statement furnished to made to Agent or any Lender pursuant to
this Agreement or any other Loan Document or in connection herewith or therewith
(including any other writing or certificate furnished by or on behalf of the
Borrower or any Guarantor to Agent or any Lender), shall prove to be untrue in
any material respect as of the date on which such representation or warranty is
made.
SECTION 8.1.3 Breach of Covenant. Any default or breach shall occur in
------------------
the performance of the covenants set forth in Section 7.2.11 or 7.2.12 hereof or
-------------- ------
in Section 4.2.11 or 4.2.12 of the Guaranty of API, or any material default or
breach shall occur in the performance of any of the covenants (other than those
listed above) or agreements of the Borrower contained herein or in any of the
other Loan Documents.
SECTION 8.1.4 Renunciation of Obligation. Borrower or any Guarantor
--------------------------
renounces its material obligations hereunder or under the Loan Documents, or any
of the Loan Documents becomes or is declared, in whole or in part, invalid or
unenforceable.
SECTION 8.1.5 Bankruptcy. Borrower, any of its Subsidiaries, any
----------
Guarantor or any Subsidiary of any Guarantor shall (1) pursuant to bankruptcy,
insolvency, arrangement or similar laws, apply for or consent to the appointment
of a receiver, trustee, intervenor, custodian, liquidator, interim receiver,
receiver-manager, assignee, sequestrator or similar official of itself or of all
or a substantial part of its assets, (2) file a voluntary petition in bankruptcy
or admit in writing that it is unable to pay its debts as they become due, (3)
make a general assignment for the benefit of creditors, (4) commence any
proceeding or file a petition, answer, consent, proposal or plan, or give any
notice of its intention to do so, seeking any liquidation, winding-up or
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reorganization or seeking any arrangement, compromise, adjustment, composition,
moratorium or other relief whatsoever in respect of its indebtedness and
liabilities to its creditors, or any class or classes thereof, under any
applicable bankruptcy, insolvency, arrangement or similar law (including the
Companies Creditors Arrangement Act (Canada), the Bankruptcy and Insolvency Act
(Canada) and the Canada Business Corporations Act), or consent to the filing of
any such petition, proposal, plan or proceeding, or (5) file an answer admitting
the material allegations of or consent to or default in answering a petition
filed against it in any bankruptcy, reorganization or insolvency proceeding, or
action shall be taken by such Person for the purpose of effecting any of the
foregoing.
SECTION 8.1.6 Bankruptcy Orders, etc. An order, judgment or decree shall
-----------------------
be entered by any court of competent jurisdiction or other competent authority
approving a petition, proposal, plan or plan of arrangement seeking
reorganization of Borrower, any of its Subsidiaries, any Guarantor or any
Subsidiary of any Guarantor, an "order for relief" or stay of proceeding under
applicable bankruptcy or insolvency law, or appointing a receiver, receiver-
manager, interim receiver, trustee in bankruptcy, trustee, intervenor,
custodian, or liquidator of Borrower, any of its Subsidiaries, any Guarantor or
any Subsidiary of any Guarantor, or of all or substantially all of the assets of
Borrower, any of its Subsidiaries, any Guarantor or any Subsidiary of any
Guarantor.
SECTION 8.1.7 Default Under Other Documents. A material default shall
-----------------------------
occur under any other loan agreement, credit agreement or note between Lenders
or Arch Banks and Borrower, any of its Subsidiaries, any Guarantor or any
Subsidiary of any Guarantor, or under any other collateral document executed by
Borrower, any of its Subsidiaries, any Guarantor (other than a default
constituting an Event of Default under Section 8.1.3) or any Subsidiary of any
-------------
Guarantor, given to secure payment of Indebtedness owed to Lenders or Arch Banks
by Borrower, any of its Subsidiaries, any Guarantor or any Subsidiary of any
Guarantor.
SECTION 8.1.8 Liens Invalid. To a material extent, any of the Liens
-------------
granted (or purported to be granted) to the Collateral Agent for the benefit of
the Lenders and the Arch Banks or to Agent for the benefit of the Lenders
pursuant to any Loan Document should become invalid or unenforceable or cease to
be (subject, in the case of the Collateral Documents, to Permitted Liens) first
perfected priority Liens; or Northern or the Borrower is or becomes a party to
any unanimous shareholder agreement, or other shareholder agreement which in any
manner restricts or limits the transferability of the collateral granted (or
purported to be
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granted) pursuant to the Pledge Agreement or the Security Agreement (Stock).
SECTION 8.1.9 Judgments. Any judgment or judgments for the payment of
---------
money in the aggregate excess of $100,000 shall be rendered against Borrower,
any of its Subsidiaries, any Guarantor or any Subsidiary of any Guarantor, and
(i) such judgment or judgments shall not be satisfied or discharged, or
proceedings to enforce any such judgment are not stayed, at least ten (10) days
prior to the date on which any of the assets of such Person could lawfully be
sold to satisfy such judgment or judgments or (ii) any such stay shall not be in
effect.
SECTION 8.1.10 Material Defaults. Borrower, any of its Subsidiaries, any
-----------------
Guarantor or any Subsidiary of any Guarantor, should fail to pay when due any
Indebtedness (including any production and royalty payments burdening oil and
gas properties of such Person, whether or not such payments constitute
"Indebtedness") in the aggregate in excess of $100,000 or should default in the
performance of any material obligations of Borrower, any of its Subsidiaries or
any Guarantor or any Subsidiary of any Guarantor, under any promissory note,
credit agreement, loan agreement or collateral document relating to or security
for any such Indebtedness (including any such production and royalty payments)
in the aggregate in excess of $100,000.
SECTION 8.1.11 Dissolution. The occurrence of any event resulting in the
-----------
dissolution, winding-up or reorganization of Borrower, any of its Subsidiaries,
any Guarantor or any Subsidiary of any Guarantor, other than as permitted by
Section 7.2.5.
- -------------
SECTION 8.1.12 Borrowing Base Deficiency. Upon the occurrence of a
-------------------------
Borrowing Base Deficiency, Borrower shall fail to remedy such Borrowing Base
Deficiency in the manner and within the time set forth in Section 3.4.
-----------
SECTION 8.1.13 Default Under Arch Agreement. A default (including an "Event
----------------------------
of Default" as defined in the Arch Agreement) shall occur under the Arch
Agreement and such default (including such "Event of Default") is not cured or
satisfied within the applicable cure period therefor as set forth in the Arch
Agreement.
SECTION 8.1.14 Change of Control. API shall cease to own, directly or
-----------------
indirectly, free and clear of all Liens and other encumbrances (other than
Liens in favor of the Collateral Agent for the benefit of the Lenders), 100% of
the issued and outstanding shares of capital stock of Northern; or prior to the
amalgamation of Northern and Trax permitted by Section 7.2.5, Northern shall
-------------
cease to own, directly or indirectly, free and clear of all Liens
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and other encumbrances (other than Liens in favor of the Agent), 100% of the
issued and outstanding shares of capital stock of Trax.
SECTION 8.2 Materiality; Notice of Defaults.
-------------------------------
SECTION 8.2.1 Materiality. With respect to the Events of Default set
-----------
forth in Sections 8.1.2, 8.1.3, 8.1.4, 8.1.7 and 8.1.8, the term "material"
-------------- ----- ----- ----- -----
shall mean any event or occurrence which results or may result in a significant
adverse effect upon the Borrower, any Subsidiary of the Borrower, any Guarantor,
any Subsidiary of any Guarantor, the Borrowing Base Properties, title of the
Borrower to the Borrowing Base Properties or Borrower's ability to make payments
on its Obligations as they come due, or any Guarantor's ability to make payments
on its Guaranty, or which has an adverse impact on Borrower, any Subsidiary of
the Borrower, any Guarantor, any Subsidiary of any Guarantor which is in excess
of $100,000 or the interest of the Borrower in the Borrowing Base Properties
which is in excess of $100,000.
SECTION 8.2.2 Notice of Monetary Defaults. Upon Agent's or any Lender's
---------------------------
becoming aware of an Event of Default set forth in Section 8.1.1 hereof, Agent
-------------
shall immediately send notice to Borrower of such Event of Default, which notice
shall set forth the amount of the payment due from Borrower to Lenders. As to
an Event of Default for which notice is due under this Section 8.2.2, before
-------------
pursuing any remedies to which it is entitled, Lenders shall allow Borrower five
(5) Business Days from the date of such notice to remedy or cure such Event of
Default.
SECTION 8.2.3 Notice of Certain Non-Monetary Defaults. Upon Agent's or
---------------------------------------
any Lender's becoming aware of any Event of Default set forth in Sections 8.1.2,
--------------
8.1.3, 8.1.4, 8.1.7, 8.1.8, 8.1.9, or 8.1.10, hereof Agent shall immediately
- ----- ----- ----- ----- ----- ------
send notice to Borrower of such Event of Default, which notice shall
sufficiently describe the circumstances giving rise to such Event of Default.
As to such Events of Default for which notice is due under this Section 8.2.3,
-------------
before pursuing any remedies to which it is entitled, Lenders shall allow
Borrower twenty (20) Business Days from the date of such notice within which to
remedy or cure such Event of Default. Lenders shall not be required to provide
to Borrower any notice of any Events of Default set forth in Sections 8.1.5,
--------------
8.1.6, 8.1.11, 8.1.12, 8.1.13 or 8.1.14 hereof prior to exercising its remedies.
- ----- ------ ------ ------ ------
SECTION 8.3 Acceleration.
------------
(a) If any Event of Default described in Sections 8.1.5, 8.1.6 or
-------------- -----
8.1.11 occurs with respect to the Borrower:
------
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(i) the Commitments of the Lenders, including all obligations
of the Lenders to make Loans and extend credit with respect to other
Borrowings hereunder shall automatically terminate;
(ii) the Obligations shall immediately become due and payable
without any election or action on the part of the Agent or any Lender
and without presentment, demand, protest or notice of any kind,
including without notice of acceleration or notice of intent to
accelerate, all of which the Borrower hereby expressly waives;
(iii) the Borrower shall immediately pay to the Agent for the
benefit of the applicable Lenders the full face amount of all
outstanding Bankers' Acceptances issued by such Lender, whether or
not such Bankers' Acceptances have by their terms matured, in
accordance with the provisions of Section 2.9.2, the Borrower
-------------
acknowledging that such Lenders would not have an adequate remedy at
law for failure by the Borrower to honor any such demand; and
(iv) the Agent and the Lenders and each of them shall be able
to exercise any rights available to it or them under the Loan
Documents or by law.
(b) If any other Event of Default occurs and remains uncured or
unremedied after the applicable cure periods set forth in Sections 8.2.2
--------------
and 8.2.3:
-----
(i) the Majority Lenders may terminate or suspend all or any
portion of the Commitments of the Lenders, including obligations of
the Lenders to extend credit with respect to any Borrowings and make
Loans hereunder, or declare all or any portion of the Obligations to
be due and payable, or both, whereupon the Obligations which shall be
so declared due and payable shall become immediately due and payable,
without presentment, demand, protest or notice of any kind, including
without notice of acceleration or notice of intent to accelerate, all
of which the Borrower hereby expressly waives;
(ii) the Majority Lenders may demand that the Borrower
immediately pay to the Agent for the benefit of the applicable
Lenders the full face amount of all outstanding Bankers' Acceptances,
whether or not such Bankers' Acceptances have by their terms matured,
in
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accordance with the provisions of Section 2.9.2, and the Borrower
-------------
agrees to immediately make such payment and acknowledges and agrees
that such Lenders would not have an adequate remedy at law for
failure of the Borrower to honor any such demand; and
(iii) the Agent and the Lenders shall be able to exercise any
rights available to it or them under the Loan Documents or by law.
The Agent hereby agrees, at the written direction of the Majority
Lenders, subject to the provisions of Article IX, to exercise any of
----------
the foregoing rights available to it.
SECTION 8.4 Preservation of Rights. All remedies contained in the Loan
----------------------
Documents or afforded by law shall be cumulative and all shall be available to
the Agent and the Lenders until the Obligations have been paid in full. No
delay or omission of the Lenders, the Agent or any of them to exercise any right
under the Loan Documents shall impair such right or be construed to be a waiver
of any Default or an acquiescence therein, and the making of a Loan or
acceptance of a Bankers' Acceptance notwithstanding the existence of a Default
or the inability of the Borrower to satisfy the conditions precedent to such
Loan or other Borrowing shall not constitute any waiver or acquiescence. Any
single or partial exercise of any such right shall not preclude other or further
exercise thereof or the exercise of any other right, and no waiver, amendment or
other variation of the terms, conditions or provisions of the Loan Documents
whatsoever shall be valid unless in writing signed by the Lenders and the Agent
required pursuant to Section 10.1, and then only to the extent specifically set
------------
forth in such writing.
ARTICLE IX
THE AGENT
SECTION 9.1 Actions. Each Lender hereby irrevocably appoints Bank of
-------
Montreal as its Agent under and for purposes of this Agreement and each other
Loan Document. Each Lender authorizes the Agent to act on behalf of such Lender
under this Agreement and each other Loan Document and, in the absence of other
written instructions from the Majority Lenders received from time to time by the
Agent (with respect to which the Agent agrees that it will comply, except as
otherwise provided in this Section or as otherwise advised by counsel), to
exercise such powers hereunder and thereunder as are specifically delegated to
or required of the Agent by the terms hereof and thereof, together with such
powers as may be reasonably incidental thereto. Each Lender hereby indemnifies
(which indemnity shall survive any termination of this
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Agreement) the Agent, from and against such Lender's ratable share of any and
all liabilities, obligations, losses, damages, claims, costs or expenses of any
kind or nature whatsoever which may at any time be imposed on, incurred by, or
asserted against, the Agent in any way relating to or arising out of this
Agreement or any other Loan Document, including reasonable fees of counsel (on a
solicitor and his own client basis) and court costs, and as to which the Agent
is not reimbursed by the Borrower; provided, however, that no Lender shall be
-------- -------
liable for the payment of any portion of such liabilities, obligations, losses,
damages, claims, costs or expenses which are determined by a court of competent
jurisdiction in a final proceeding to have resulted solely from the Agent's
gross negligence or wilful misconduct. The Agent shall not be required to (a)
exercise any discretion or to take or to refrain from taking any action in any
manner which is contrary in any manner to this Agreement, the Loan Documents,
any other agreement between the Lenders or to applicable law; or (b) take any
action hereunder or under any other Loan Document, or to prosecute or defend any
suit in respect of this Agreement or any other Loan Document, unless it is
indemnified hereunder to its satisfaction. If any indemnity in favor of the
Agent shall be or become, in the Agent's determination, inadequate, the Agent
may call for additional indemnification from the Lenders and cease to do the
acts indemnified against hereunder until such additional indemnity is given.
SECTION 9.2 Funding Reliance, etc. Unless the Agent shall have been
----------------------
notified by telephone, confirmed in writing, by any Lender by 5:00 p.m., Toronto
time, on the Business Day prior to a Borrowing to be made by the Borrower, that
such Lender will not make available the amount which would constitute its
relevant percentage, if any, of such Borrowing on the date specified therefor,
the Agent may assume that such Lender has made such amount available to the
Agent and, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If and to the extent that such Lender shall not have made
such amount available to the Agent, such Lender and the Borrower severally agree
to repay the Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date the Agent made such amount
available to such Borrower to the date such amount is repaid to the Agent, at
the interest rate applicable at the time to Loans comprising such Borrowing or
at a rate equal to the stamping fee applicable at the time to Bankers'
Acceptances comprising such Borrowing, as the case may be.
SECTION 9.3 Repayment by Lenders to Agent. Unless the Agent has been
-----------------------------
notified in writing by the Borrower at least one (1) Business Day prior to the
date on which any payment to be made by
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<PAGE>
the Borrower hereunder is due that the Borrower does not intend to remit such
payment, the Agent may, in its discretion, assume that the Borrower has remitted
such payment when so due and the Agent may, in its discretion and in reliance
upon such assumption, make available to each Lender on such payment date an
amount equal to the amount of such payment which is due to such Lender pursuant
to this Agreement. If the Borrower does not in fact remit such payment to the
Agent, the Agent shall promptly notify each Lender and each such Lender shall
forthwith on demand repay to the Agent the amount of such assumed payment made
available to such Lender, together with interest thereon until the date of
repayment thereof at a rate determined by the Agent (such rate to be conclusive
and binding on such Lender) in accordance with the Agent's usual banking
practice for similar advances to financial institutions of like standing to such
Lender.
SECTION 9.4 Exculpation. Neither the Agent nor any of its directors,
-----------
officers, employees or agents shall be liable to any Lender for any action taken
or omitted to be taken by it or any of them under this Agreement or any other
Loan Document, or in connection herewith or therewith, except for its or their
own wilful misconduct or gross negligence, nor responsible for any recitals or
warranties herein or therein, nor for the effectiveness, enforceability,
validity or due execution of this Agreement or any other Loan Document, nor for
the creation, perfection or priority of any Liens purported to be created by or
pursuant to any of the Loan Documents, or the validity, genuineness,
enforceability, existence, value or sufficiency of any collateral security, nor
to make any inquiry respecting the performance by the Borrower, the Guarantor or
any other obligor of its respective obligations hereunder or under any other
Loan Document. Any such inquiry which may be made by the Agent shall not
obligate it to make any further inquiry or to take any action. The Agent shall
be entitled to rely upon advice of counsel concerning legal matters and upon any
notice, consent, certificate, statement or writing which the Agent believes to
be genuine and to have been presented by a proper Person.
SECTION 9.5 Successor. The Agent may resign as such at any time upon at
---------
least 30 days' prior notice to the Borrower and all Lenders. If the Agent at
any time shall resign, the Majority Lenders may appoint another Lender as a
successor Agent which shall thereupon become the Agent hereunder. If no
successor Agent shall have been so appointed by the Majority Lenders, and shall
have accepted such appointment, within 30 days after the retiring Agent's giving
notice of resignation, then the retiring Agent may, on behalf of the Lenders,
appoint a successor Agent. Any successor Agent appointed hereunder shall be one
of the Lenders and a commercial banking institution organized under the laws of
Canada
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or a Canadian branch or agency of a commercial banking institution, and having a
combined capital and surplus of at least U.S. $500,000,000 or an Equivalent
Amount of Canadian Dollars. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall be entitled to
receive from the retiring Agent such documents of transfer and assignment as
such successor Agent may reasonably request, and shall thereupon succeed to and
become vested with all rights, powers, privileges and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Agent's resignation as the
Agent, the provisions of
(a) this Article IX shall inure to its benefit as to any actions taken or
----------
omitted to be taken by it while it was the Agent under this Agreement; and
(b) Section 10.3 and Section 10.4 shall continue to inure to its benefit.
------------ ------------
SECTION 9.6 Extensions of Credit by the Bank of Montreal. Bank of
--------------------------------------------
Montreal shall have the same rights and powers with respect to the Loans made
and the Bankers' Acceptances accepted and purchased by it or any of its
Affiliates as any other Lender and may exercise the same as if it were not the
Agent. Bank of Montreal and its Affiliates may accept deposits from, lend money
to, enter into swaps, futures and other contracts with and/or accept bankers'
acceptances for the account of, and generally engage in any kind of business
with, the Borrower or any Subsidiary or Affiliate of the Borrower as if Bank of
Montreal were not the Agent or Lender hereunder.
SECTION 9.7 Credit Decisions. Each Lender acknowledges that it has,
----------------
independently of the Agent and each other Lender, and based on such Lender's
review of the financial information of the Borrower, the Guarantors, this
Agreement, the other Loan Documents (the terms and provisions of each of the
foregoing which being satisfactory to such Lender) and such other documents,
information and investigations as such Lender has deemed appropriate, made its
own credit decision to extend its Commitments. Each Lender also acknowledges
that it will, independently of the Agent and each other Lender, and based on
such other documents, information and investigations as it shall deem
appropriate at any time, continue to make its own credit decisions as to
exercising or not exercising from time to time any rights and privileges
available to it under this Agreement or any other Loan Document.
SECTION 9.8 Copies, etc. The Agent shall give prompt notice to each
------------
Lender of each notice or request required or permitted to
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be given to the Agent by the Borrower pursuant to the terms of this Agreement
(unless concurrently delivered to the Lenders by the Borrower). The Agent will
distribute to each Lender each document or instrument received for its account
and copies of all other communications received by the Agent from the Borrower
or any Guarantor for distribution to the Lenders by the Agent in accordance with
the terms of this Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1 Waivers, Amendments, etc. The provisions of this Agreement
-------------------------
and of each other Loan Document may from time to time be amended, modified or
waived, if such amendment, modification or waiver is in writing and consented to
by the Borrower and the Majority Lenders; provided, however, that no such
-------- -------
amendment, modification or waiver which would:
(a) modify any requirement hereunder that any particular action be taken
by all the Lenders or by the Majority Lenders shall be effective unless
consented to by each Lender; or
(b) modify this Section 10.1, change the definitions of "Majority
------------
Lenders", increase the Facility Amount or the "Percentage" of any Lender, reduce
----------
any fees described in Article II or Article III or release any collateral
---------- -----------
security (including any Guaranty), except as otherwise specifically provided in
any Loan Document or extend the Commitment Termination Date without the written
consent of each Lender; or
(c) extend the due date for, or reduce the amount of, any scheduled
repayment or prepayment of principal of, or interest on, any Borrowing (or
reduce the principal amount of, or face amount of, or rate of interest or fees
on or payable with respect to, any Borrowing), shall be made (i) without the
written consent of each Lender that made such Borrowing in the case of any such
extensions or reductions relating to Loans or (ii) without the written consent
of all Lenders and the Agent in the case of any such extensions or reductions
relating to Bankers' Acceptances; or
(d) affect adversely the interests, rights or obligations of the Agent
qua the Agent, shall be made without the written consent of the Agent.
- ---
No failure or delay on the part of the Agent or any Lender in exercising any
power or right under this Agreement or any other Loan Document shall operate as
a waiver thereof, nor shall any
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single or partial exercise of any such power or right preclude any other or
further exercise thereof or the exercise of any other power or right. No notice
to or demand on the Borrower in any case shall entitle such Borrower to any
notice or demand in similar or other circumstances. No waiver or approval by the
Agent or any Lender under this Agreement or any other Loan Document shall,
except as may be otherwise stated in such waiver or approval, be applicable to
subsequent transactions. No waiver or approval hereunder shall require any
similar or dissimilar waiver or approval thereafter to be granted hereunder.
SECTION 10.2 Notices. All notices and other communications provided to
-------
any party hereto under this Agreement or any other Loan Document shall be in
writing or by facsimile and addressed, delivered or transmitted to such party at
its address or facsimile number set forth below its signature hereto or set
forth in the Lender Assignment Agreement or at such other address or facsimile
number as may be designated by such party in a notice to the other parties. Any
notice, if mailed and properly addressed with postage prepaid or if properly
addressed and sent by pre-paid courier service, shall be deemed given when
received; any notice, if transmitted by facsimile, shall be deemed given when
transmitted.
SECTION 10.3 Payment of Costs and Expenses. The Borrower agrees to pay on
-----------------------------
demand all reasonable expenses of the Agen (including the reasonable fees and
out-of-pocket expenses of Messrs. Mayer, Brown & Platt and Messrs. Burnet,
Duckworth & Palmer (on a solicitor and his own client basis), counsel to the
Agent, and of local counsel, if any, who may be retained by counsel to the Agent
and of engineers, accountants, geologists, and consultants) in connection with
(a) the negotiation, preparation, execution, delivery, syndication and
publicity with respect to this Agreement and of each other Loan Document,
including schedules and exhibits, and any amendments, waivers, consents,
supplements or other modifications to this Agreement or any other Loan Document
as may from time to time hereafter be required, whether or not the transactions
contemplated hereby are consummated,
(b) the filing, recording, refiling or rerecording of any Collateral
Documents, the Pledge Agreement, the Security Agreement (Stock), the General
Security Agreement, the Debenture, the Instrument of Pledge, any other Loan
Document and/or any and all Uniform Commercial Code financing statements,
Personal Property Security financing statements, security notices, caveats or
other instruments or notices relating thereto and all amendments, supplements
and modifications to any thereof and any and all other documents or instruments
of further assurance required to be filed
78
<PAGE>
or recorded or refiled or rerecorded by the terms hereof or of the Loan
Documents, and
(c) the preparation and review of the form of any document or instrument
relevant to this Agreement or any other Loan Document including any engineering
and reserve report and any accounting review of the books and records and
accounting procedures of the Borrower, and any other review of the business,
assets and operations of the Borrower as the Agent shall in its sole and
absolute discretion deem necessary or desirable.
The Borrower further agrees to pay, and to save the Agent and the Lenders
harmless from all liability for, any stamp or other taxes which may be payable
in connection with the execution or delivery of this Agreement, the Borrowings
hereunder, or any other Loan Document. The Borrower also agrees to reimburse the
Agent and each Lender upon demand for all reasonable out-of-pocket expenses
(including reasonable attorneys' fees and legal expenses (on a solicitor and his
own client basis)) incurred by the Agent or such Lender in connection with (x)
the negotiation of any restructuring or "work-out", whether or not consummated,
of any Obligations and (y) the enforcement of any Obligations.
SECTION 10.4 Indemnification.
SECTION 10.4.1 General Provisions of Indemnification. In consideration of
-------------------------------------
the execution and delivery of this Agreement by each Lender and the extension of
the Commitments, the Borrower hereby indemnifies, exonerates and holds the Agent
and each Lender and each of their respective officers, directors, employees and
agents (collectively, the "Indemnified Parties") free and harmless from and
-------------------
against any and all actions, causes of action, suits, losses, costs, fees,
penalties, assessments, liabilities and damages, and expenses incurred in
connection therewith (irrespective of whether any such Indemnified Party is a
party to the action for which indemnification hereunder is sought), including
reasonable attorneys' fees and disbursements (collectively, the "Indemnified
-----------
Liabilities"), incurred by the Indemnified Parties or any of them as a result
- -----------
of, or arising out of, or relating to
(a) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of any Loan;
(b) the entering into and performance of this Agreement and any
other Loan Document by any of the Indemnified Parties (including any action
brought by or on behalf of the Borrower as the result of any determination
by
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<PAGE>
the Majority Lenders pursuant to Article V not to fund any Borrowing, but
---------
excluding any claims, losses, liabilities and damages resulting from any
Lender's breach of its Commitment or other obligations hereunder);
(c) any investigation, litigation or proceeding related to any
acquisition or proposed acquisition by the Borrower or any of its
Subsidiaries of all or any portion of the stock or assets of any Person,
whether or not the Agent or such Lender is party thereto;
(d) any investigation, litigation or proceeding related to any
environmental cleanup, audit, compliance or other matter relating to the
protection of the environment or the release by the Borrower or any of its
Subsidiaries of any Hazardous Material, any Environmental Law or the
condition of any facility or property owned, leased or operated by the
Borrower or any of its Subsidiaries; or
(e) the presence, storage or disposal on or under, or the escape,
seepage, leakage, spillage, discharge, emission, transportation,
discharging or releases from, any facility, property owned, leased or
operated by the Borrower or any Subsidiary thereof of any Hazardous
Material (including any losses, liabilities, damages, injuries, costs,
expenses or claims asserted or arising under any Environmental Law),
regardless of whether caused by, or within the control of, the Borrower or
such Subsidiary; or
(f) any misrepresentation, inaccuracy or any breach in or of Section
-------
6.13 or Section 7.1.20;
---- --------------
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's gross
negligence, wilful misconduct or breach in performing its Commitment or
obligations to the Borrower under this Agreement. If and to the extent that the
foregoing undertaking may be unenforceable for any reason, the Borrower hereby
agrees to make the maximum contribution to the payment and satisfaction of each
of the Indemnified Liabilities which is permissible under applicable law.
If Agent or any Lender shall have knowledge of any claim or liability
required to be indemnified against under this Section 10.4, Agent or such Lender
------------
shall give reasonably prompt written notice thereof to Borrower after becoming
aware of such claim, but the failure of Agent or such Lender so to notify
Borrower shall not relieve Borrower from any liability that it would otherwise
have to Lenders hereunder. Borrower and Borrower's
80
<PAGE>
insurers shall have the right, at their sole cost and expense, to investigate,
defend or, except as limited hereinafter, compromise any claim for which
indemnification is sought under this Section 10.4. Borrower shall assume all
------------
responsibility for any claim covered by the foregoing indemnity, and the Agent
and Lenders shall provide reasonable assistance and cooperation during the
defense or settlement of the claim, and, except as limited hereafter, Borrower
shall have control of the defense or settlement of such claim or compromise
thereof; provided, that counsel selected by Borrower shall be completely
acceptable to Agent in its sole discretion, and no compromise or settlement of
any claim may be effected by Borrower without Agent's consent, which consent
shall not be unreasonably withheld; provided, no consent shall be required if
(i) there is no finding or admission of any violation of any law by Agent or any
Lender or any violation of the rights of any Person by Agent or any Lender, (ii)
there is no effect on any claim that may be made by any Lender, and (iii) the
relief provided is the sole responsibility of Borrower. Agent or any Lender
shall have the right, but not the duty, at its own expense, to participate in
the defense and/or settlement of any claim with counsel of its own choosing
without relieving Borrower of any obligations hereunder. Borrower and its
counsel shall cooperate with Agent's and/or any Lender's counsel and shall
supply Agent and such Lender with such information reasonably requested by Agent
and such Lender. Notwithstanding anything to the contrary contained herein, if
Agent, in its sole discretion, determines that a conflict of interest exists
with respect to Agent and/or any Lender and Borrower, Agent, at its option, may
terminate, or if Borrower's assumption of the defense has not begun, refuse to
permit, Borrower or Borrower's insurer's representation, defense, and control of
the indemnity matter. In such event, Borrower shall remain completely and fully
liable for all indemnity matters, including the then existing indemnity matter,
as provided above.
SECTION 10.4.2 Negligence Expressly Indemnified. Without limiting any
--------------------------------
provision of this Agreement or any of the other Loan Documents, it is the
express intention of the parties hereto that each Indemnified Party shall be
indemnified and held harmless against any and all losses, liabilities, claims or
damages arising out of or resulting from the sole or contributory negligence but
not the gross negligence of such Indemnified Party.
SECTION 10.5 Survival. The obligations of the Borrower under
--------
Sections 4.3,4.4, 4.6, 4.7, 9.1, 10.3 and 10.4, and the obligations of the
- ------------ --- --- --- --- ---- ----
Lenders under Section 10.15, shall in each case survive any termination of
-------------
this Agreement and each other Loan Document, the payment in full of all
Obligations and the termination of all Commitments. The representations and
warranties made by the Borrower and each Guarantor in this Agreement and in
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<PAGE>
each other Loan Document shall survive the execution and delivery of this
Agreement and each such other Loan Document.
SECTION 10.6 Severability. Any provision of this Agreement or any other
------------
Loan Document which is prohibited or unenforceable in any jurisdiction shall, as
to such provision and such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
this Agreement or such Loan Document or affecting the validity or enforceability
of such provision in any other jurisdiction.
SECTION 10.7 Headings. The various headings of this Agreement and of
--------
each other Loan Document are inserted for convenience only and shall not affect
the meaning or interpretation of this Agreement or such other Loan Document or
any provisions hereof or thereof.
SECTION 10.8 Execution in Counterparts, Effectiveness, etc. This
---------------------------------------------
Agreement may be executed by the parties hereto in several counterparts, each of
which shall be deemed to be an original and all of which shall constitute
together but one and the same agreement. This Agreement shall become effective
when counterparts hereof executed on behalf of the Borrower, the Agent and each
Lender (or notice thereof satisfactory to the Agent) shall have been received by
the Agent and notice thereof shall have been given by the Agent to the Borrower
and each Lender.
SECTION 10.9 Governing Law; Entire Agreement. THIS AGREEMENT AND EACH
-------------------------------
OTHER LOAN DOCUMENT (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF
LAW PROVISION) SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY
THE LAWS OF THE PROVINCE OF ALBERTA AND THE LAWS OF CANADA APPLICABLE THEREIN.
This Agreement and the other Loan Documents constitute the entire understanding
among the parties hereto with respect to the subject matter hereof and supersede
any prior agreements, written or oral, with respect thereto.
SECTION 10.10 Successors and Assigns. This Agreement shall be binding
----------------------
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that: (a) except in compliance with
-------- -------
Section 7.2.5 the Borrower may not assign or transfer its rights or obligations
- -------------
hereunder without the prior written consent of the Agent and all Lenders; and
(b) the rights of sale, assignment and transfer of the Lenders are subject to
Section 10.11.
- -------------
SECTION 10.11 Sale and Transfer of Borrowings; Participations in
--------------------------------------------------
Borrowings. Each Lender may assign, or sell participations in,
- ----------
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<PAGE>
its Loans and to one or more other Persons in accordance with this Section
-------
10.11.
- -----
SECTION 10.11.1 Assignments. Any Lender, (a) with the written consent
-----------
of the Borrower and the Agent (which consents shall not be unreasonably withheld
or delayed and which consent, in the case of the Borrower, shall be deemed to
have been given in the absence of a written notice delivered by the Borrower to
the Agent, on or before the fifth Business Day after receipt by the Borrower of
such Lender's request for consent, stating, in reasonable detail, the reasons
why the Borrower proposes to withhold such consent, and which consent of the
Borrower shall not be required after the occurrence of an Event of Default that
is continuing) may at any time assign and delegate to one or more commercial
banks or other financial institutions or to any of its Affiliates or to any
other Lender, in each case where such assignee is organized under the laws of
and resident in Canada for purposes of the Income Tax Act (Canada), or (b) with
notice to the Borrower and the Agent, but without the consent of the Borrower or
the Agent, may assign and delegate to any of its Affiliates or to any other
Lender, in each case where such assignee is organized under the laws of and
resident in Canada for purposes of the Income Tax Act (Canada), (each Person
described in either of the foregoing clauses as being the Person to whom such
assignment and delegation is to be made, being hereinafter referred to as an
"Assignee Lender"), all or any fraction of such Lender's total Borrowings and
---------------
Commitments (which assignment and delegation may be of a varying percentage of
all or a portion of the assigning Lender's Borrowings and Commitments) in a
minimum aggregate amount of U.S.$ 5,000,000 (or the Equivalent Amount thereof in
Canadian Dollars) and, if assigned in part only, such assignor Lender would
thereafter retain for its own account a Commitment of at least U.S.$10,000,000;
provided however, that anything herein or in any other Loan Document to the
- -------- -------
contrary notwithstanding, the Agent and the Borrower may from time to time,
without the consent of the Lenders or any of them, consent to assignments by a
Lender in amounts other than those set forth above. The Borrower and the Agent
shall be entitled to continue to deal solely and directly with such Lender in
connection with the interests so assigned and delegated to an Assignee Lender
until (a) written notice of such assignment and delegation, together with
payment instructions, addresses and related information with respect to such
Assignee Lender, shall have been given to the Borrower and the Agent by such
Lender and such Assignee Lender, (b) such Assignee Lender shall have executed
and delivered to the Borrower and the Agent a Lender Assignment Agreement,
accepted by the Agent, and (c) the processing fees described below shall have
been paid.
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From and after the date that the Agent accepts such Lender Assignment
Agreement, (x) the Assignee Lender thereunder shall be deemed automatically to
have become a party hereto and to the Intercreditor Agreement and to the extent
that rights and obligations hereunder have been assigned and delegated to such
Assignee Lender in connection with such Lender Assignment Agreement, shall have
the rights and obligations of a Lender hereunder and under the Intercreditor
Agreement and the other Loan Documents, and (y) the assignor Lender, to the
extent that rights and obligations hereunder have been assigned and delegated by
it in connection with such Lender Assignment Agreement, shall be released from
its obligations hereunder and under the Intercreditor Agreement and the other
Loan Documents and (z) the Assignee Lender shall be deemed to have represented
to the Borrower, the Guarantor and the Agent as of the date of becoming an
Assignee Lender to the effect of the representations in the first sentence of
Section 10.15. Accrued interest, accrued fees and amounts in respect of
- -------------
outstanding Bankers' Acceptances shall be paid as provided in the relevant
Lender Assignment Agreement. Accrued interest, accrued fees and amounts in
respect of outstanding Bankers' Acceptances shall be paid at the same time or
times provided in this Agreement. Such assignor Lender or such Assignee Lender
must also pay a processing fee in the amount of U.S.$250 to the Agent upon
delivery of any Lender Assignment Agreement for the account of the Agent as its
own property.
Any attempted assignment and delegation not made in accordance with this
Section 10.11.1 shall be null and void.
- ---------------
SECTION 10.11.2 Participations. Any Lender may at any time sell to one or
--------------
more commercial banks or other Persons organized under the laws of and resident
of Canada for the purposes of the Income Tax Act (Canada) (each of such
commercial banks and other Persons being herein called a "Participant")
-----------
participating interests in any of the Borrowings, Commitments, or other rights
or interests of such Lender hereunder; provided, however, that
-------- ------- ----
(a) no participation contemplated in this Section 10.11 shall relieve
-------------
such Lender from its Commitments or its other obligations hereunder or under any
other Loan Document,
(b) such Lender shall remain solely responsible for the performance of
its Commitments and such other obligations,
(c) the Borrower, the Guarantors and the Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and each of the other Loan Documents,
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<PAGE>
(d) no Participant, unless such Participant is an Affiliate of such
Lender, or is itself a Lender, shall be entitled to require such Lender to take
or refrain from taking any action hereunder or under any other Loan Document,
except that such Lender may agree with any Participant that such Lender will
not, without such Participant's consent, take any actions of the type described
in clause (c) of Section 10.1, and
---------- ------------
(e) all amounts payable by the Borrower to any Lender pursuant to Article
-------
IV shall be determined as if the Lender had not sold any participation and as if
- --
such Lender were funding all of its Loans and Bankers' Acceptances in the same
way that it is funding the portion of Loans and Bankers' Acceptances in which no
participations have been sold.
SECTION 10.11.3 Further Documentations in Event of Assignments or
-------------------------------------------------
Participation. The Borrower hereby agrees to execute and deliver such further
- -------------
instruments or documents as such Lender reasonably considers necessary or
advisable to effect an assignment and/or participation under Section 10.11.1 and
---------------
Section 10.11.2, provided such documents do not adversely modify any of the
- ---------------
Borrower's rights or increase its obligations hereunder or under the Loan
Documents.
SECTION 10.12 No Oral Agreements. THIS WRITTEN AGREEMENT TOGETHER WITH
------------------
THE OTHER LOAN DOCUMENTS REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
SECTION 10.13 Other Transactions. Nothing contained herein shall preclude
------------------
the Agent or any other Lender from engaging in any transaction, in addition to
those contemplated by this Agreement or any other Loan Document, with the
Borrower or any of its Affiliates in which such Borrower or such Affiliate is
not restricted hereby from engaging with any other Person.
SECTION 10.14 Forum Selection and Consent to Jurisdiction. THE BORROWER
-------------------------------------------
HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE PROVINCE OF
ALBERTA, CANADA IN CONNECTION WITH ANY LITIGATION BASED HEREON, OR ARISING OUT
OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN)
OR ACTIONS OF THE AGENT, THE LENDERS, THE BORROWER OR ANY OF THEM; PROVIDED,
--------
HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER
- -------
85
<PAGE>
PROPERTY MAY BE BROUGHT, AT THE AGENT'S OPTION, IN THE COURTS OF ANY
JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. BORROWER
HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF
THE PROVINCE OF ALBERTA, CANADA FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET
FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY
IN CONNECTION WITH SUCH LITIGATION. BORROWER FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE
WITHIN OR WITHOUT THE PROVINCE OF ALBERTA, CANADA. BORROWER HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION
BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH
LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT
BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY
COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT
PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
ITSELF OR ITS PROPERTY, BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN
RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 10.15 Certain Matters. Each Lender and the Agent (collectively
---------------
"Recipients" and individually a "Recipient") represents to the Borrower, the
Guarantor and the Agent that as of the date hereof either (i) it is a
corporation resident in Canada for purposes of the Income Tax Act, Canada (in
this Section referred to as the "Act"), or (ii) it is entitled to complete
exemption from Canadian withholding tax imposed on or with respect to any
payments, including fees, to be made to it pursuant to this Agreement because
any payments so made are attributable to a business carried on by it in Canada
through a permanent establishment in Canada. Each Recipient that is not
resident in Canada for purposes of the Act agrees to provide to the Borrower and
the Guarantors written authorization of Revenue Canada pursuant to Regulation
805(2) of the Act (in this Section referred to as the "Authorization")
-------------
permitting payments to be made to the Lender without deduction of withholding
tax. If a Recipient determines, as a result of any Regulatory Change or other
change in its circumstances, that it is unable to submit the Authorization that
it is obliged to submit pursuant to this Section, or that the Borrower or the
Guarantor is no longer entitled to rely on the Authorization, it shall promptly
notify the Borrower, the Guarantors and the Agent of such fact. In the event
that any Recipient fails to deliver any Authorization required under this
Section upon its initially becoming a Recipient hereunder, the Borrower's
obligation to pay to the Agent or any Recipient additional amounts under Section
-------
4.7 with respect to Taxes and each Guarantor's obligation to pay additional
- ---
amounts under Section 2.8 of its respective Guaranty shall be reduced to the
amount that it would have been obliged to pay to the Agent or such Recipient had
86
<PAGE>
such Authorization been provided. The agreements, representations and other
benefits accruing to Guarantors' benefit under this Section are made and given
in consideration of the Guarantors' execution and delivery of the Guaranties and
shall be directly held and enforceable by the Guarantors, in their own name.
SECTION 10.16 Time of the Essence. Time shall be of the essence of this
-------------------
Agreement.
[SIGNATURES BEGIN ON FOLLOWING PAGE]
87
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
BANK OF MONTREAL, as Agent
By:_______________________________________
Name: Richard N. Miller
Title: Director
Address: BANK OF MONTREAL
First Canadian Place, 22nd Floor
100 King Street West
Toronto, Ontario
1A1 M S X
Attention: Sid Levin, Director
Telephone: (416) 867 - 6904
Fax: (416) 867 - 5938
<PAGE>
PERCENTAGE LENDER
- ---------- ------
BANK OF MONTREAL, as Lender
100%
By:________________________________
Name: Richard N. Miller
Title: Director
Address: BANK OF MONTREAL
2400, 350-7th Avenue S.W.
Calgary, Alberta
T2P 3N9
Attention: Carol Blanche
Telephone: (403) 234 - 3096
Fax: (403) 234 - 3644
LIBOR
Office:
Address: BANK OF MONTREAL
2400, 350-7th Avenue S.W.
Calgary, Alberta
T2P 3N9
Attention: Carol Blanche
Telephone: (403) 234 - 3096
Fax: (403) 234 - 3644
<PAGE>
BORROWER
--------
TRAX PETROLEUMS LIMITED
By: _______________________________
Name: Larry Kalas
Title: Director
By: _______________________________
Name: Randall Scroggins
Title: Vice President
Address: 2120 530-8 Ave. S.W.
Calgary, Alberta
T2P 3S8
Attention: Troy Welch
Telex: N/A
Telecopy: (403) 265-7822
Telephone: (403) 232-6677
with a copy to:
Arch Petroleum Inc.
777 Taylor Street
Fort Worth Club Tower
Penthouse IIA
Fort Worth, Texas 76102
Attention: Larry Kalas
Telex: N/A
Telecopy: (817) 332-9249
Telephone: (817) 332-9209
