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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR YEAR ENDED DECEMBER 31, 1995
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-13446
BARRETT RESOURCES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 84-0832476
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1515 ARAPAHOE STREET, TOWER 3, SUITE 80202
1000, DENVER, COLORADO (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(303) 572-3900
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
(NONE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK (PAR VALUE $.01 PER SHARE)
TITLE OF CLASS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [_] Yes X [_] No
Indicate by check mark if there are no delinquent filers to disclose herein
pursuant to Item 405 of Regulation S-K, and there will not be any delinquent
filers to disclose, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [_]
As of March 12, 1996, the Registrant had 25,103,666 common shares
outstanding, and the aggregate market value of the common shares held by non-
affiliates was approximately $523,651,915. This calculation is based upon the
closing sale price of $22.625 per share for the stock on March 12, 1996.
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TABLE OF CONTENTS
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ITEM PAGE
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PART I
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1 and 2. BUSINESS AND PROPERTIES....................................... 1
3. LEGAL PROCEEDINGS............................................. 15
4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS............. 16
PART II
5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDERS MATTERS.............................................. 16
6. SELECTED FINANCIAL DATA....................................... 17
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................... 17
8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.................... 21
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES.................................... 21
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY............... 22
11. EXECUTIVE COMPENSATION........................................ 26
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................... 29
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 31
PART IV
14. EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K........ 31
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PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
Barrett Resources Corporation (the "Company" or "Barrett", which reference
shall include the Company's wholly owned subsidiaries) was incorporated in
December 1980 as an oil and gas company under the name AIMEXCO Inc. and became
publicly owned with a $5.8 million common stock offering in May 1981. In
December 1983, AIMEXCO acquired all of the common stock of Barrett Energy
Company, which owned a number of oil and gas properties, in exchange for 71.5
percent of the common stock of AIMEXCO that was outstanding after the
transaction. In January 1984, the Company changed its name to Barrett
Resources Corporation.
In November 1985, the Company acquired Excel Energy Corporation ("Excel"), a
Utah corporation that owned oil and gas interests, in exchange for
approximately 1,425,000 shares of the Company's common stock. In June 1987,
the Company acquired all the outstanding stock of Finance For Energy, Ltd.
("FFE"), whose assets consisted primarily of cash and mortgages, in exchange
for 1,174,100 shares of the Company's common stock.
In September 1987, the Company effected a one-for-twenty reverse stock split
of the Company's common shares and changed the par value of its common stock
to $.01 per share. All references in this Item to numbers of shares of the
Company's common stock have been adjusted for the effect of this one-for-
twenty reverse stock split.
In May 1990, the Company completed the public offering of 3,565,000 shares
of its common stock for aggregate proceeds of $21,260,250, net of the
underwriting discount. In March 1993, the Company completed the public
offering of an additional 2,000,000 shares of its Common Stock for aggregate
proceeds of $19,160,000, net of the underwriting discount.
In August 1993, the Company completed the sale, effective July 1, 1993, of
substantially all the interests of the Company in oil and gas properties, a
gas processing plant and the related gas gathering system located in the
Wattenberg Field of Colorado. The adjusted sales price, net of selling
expenses, was approximately $14.4 million.
On July 18, 1995, the Company completed the merger of the Company and Plains
Petroleum Company ("Plains") pursuant to which Plains became a wholly owned
subsidiary of the Company. The Company issued a total of 12.8 million shares
of Common Stock in exchange for all the outstanding shares of Plains.
Oil and Gas Exploration and Development
Barrett is primarily an independent oil and gas exploration and production
company with major emphasis in the Rocky Mountain region of Colorado and
Wyoming and the Mid-Continent region of Kansas, Oklahoma and the Texas
Panhandle. Barrett utilizes its own exploration staff to develop a geologic
concept into an exploration prospect, which is drilled either solely by
Barrett or with partners. Oil and gas leases are acquired by Barrett's land
department primarily in the Company's strategic core areas of interest.
Barrett typically will retain an interest and serve as operator of a joint
venture exploration program on the prospect acreage. Barrett also acquires
interests in exploration and development programs operated by other companies
through acquisition or farm-ins.
Barrett will act as the operator, when possible, of the exploration or
development drilling program. Barrett's operations division is currently
operating major projects, including properties in the Piceance Basin in
Colorado, Hugoton and Panoma-Council Grove Fields in Kansas, Anadarko and
Arkoma Basins in Oklahoma, and Wind River Basin in Wyoming. When serving as
operator, Barrett is responsible for the drilling, evaluation and production
activities associated with the prospect and for negotiating the sales of oil
and gas production. As of December 31, 1995, Barrett was serving as operator
for approximately 1,061 producing wells, 186 shut-in wells, four wells that
were drilling, four wells that were being completed and five wells that were
waiting on completion.
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During 1995, more than 82 percent of the Company's total production was
natural gas, and the Company's primary natural gas production came from the
Hugoton and Panoma-Council Grove Fields, and the Piceance and Wind River,
Basins.
The Company has constructed and operates, on behalf of itself and others, an
approximate 150-mile pipeline gathering system and related facilities in the
Company's Piceance Basin Project, as well as a 16-inch, 27-mile pipeline and a
gas processing plant in the Piceance Basin. This pipeline enables the Company
to move gas to three interstate pipelines, which allows the transport of the
Company's gas to eastern markets for the first time. The Company also owns and
operates a 30-mile gas gathering system in the Washakie-Red Desert Basin of
Wyoming. See "Gas Gathering".
Barrett Fuels Corporation ("Barrett Fuels"), a wholly owned subsidiary, is
engaged in natural gas trading activities as well as natural gas marketing
activities on behalf of itself and others. See "Gas Marketing And Trading".
The Company is headquartered in Denver, Colorado with additional offices in
Gillette, Wyoming; Lakin, Kansas; Midland, Texas; Parachute, Colorado; and
Tulsa, Oklahoma. In 1996, Barrett opened an office in Houston, Texas. Barrett
currently has 131 full time employees, including eight officers (two of whom
are geologists and one of whom is a petroleum engineer), seven geologists, two
geophysicists, nine engineers, one environmental manager, four landmen, four
district managers, one operations superintendent, and administrative,
clerical, accounting and field operations personnel.
Colorado
PICEANCE BASIN PROJECT
The Piceance Basin of northwestern Colorado is a core operating area for the
Company and will continue to be very prominent in the Company's capital
spending plans. Barrett drilled its first well in the Piceance Basin in 1984.
At present, the Company owns and operates 289 gross, 100 net, wells in the
Piceance Basin. The Company's activities in the Piceance Basin are conducted
primarily in three fields: Parachute, Rulison, and Grand Valley. In addition,
the Company has small projects in the Trailridge area and the Story Gulch
Federal Unit.
The Company's drilling activities in the Piceance Basin primarily target the
lenticular sandstones of the Williams Fork Formation of the Mesaverde Group.
These sandstone reservoirs overlie the blanket sandstones of the Iles
Formation in the basal Mesaverde. The Company operates and owns an interest in
an approximate 150 mile pipeline gathering system with related production and
compression facilities, a 27 mile pipeline and a gas processing plant in the
Piceance Basin. During March 1996, the Company was operating one rig
continuously in the Basin.
In February 1995, the Company received approval for 40-acre density by the
Colorado Oil and Gas Conservation Commission on 81 640-acre sections across
the three main fields. In November 1995, the Company completed the drilling of
a three well, 40-acre test program and plans to drill a similar three well,
40-acre test program in Grand Valley Field during the first half of 1996.
Grand Valley Field. The Grand Valley Field, located in Mesa and Garfield
Counties of Colorado, produces gas primarily from the Mesaverde Formation with
wells drilled to depths ranging from 6,000 to 7,500 feet. The Formation
consists of numerous tight gas sandstone reservoirs. As of December 31, 1995,
the Company had, from the inception of the project, drilled 86 wells in the
Grand Valley Field with 80 wells producing gas, three wells shut-in and three
wells plugged and abandoned. During 1995, the Company's activities in this
area included the drilling and completion of two wells, both of which are
producing and operated by the Company.
Rulison Field. The Rulison Field, located in Garfield County, Colorado,
produces from the Wasatch and Mesaverde Formations with wells drilled to
depths varying from 1,200 to 2,500 feet in the Wasatch and 7,500 to 8,500 feet
in the deeper Mesaverde Formation. As of December 31, 1995, the Company had,
from the inception
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of the project, drilled 101 wells in the Rulison Field with 92 wells producing
and eight wells shut-in and one well waiting on completion. The Company has a
working interest in an additional 21 non-operated producing wells.
During 1995, the Company's activities in this area included the drilling and
completion of 18 wells, 17 of which are producing and one is waiting on
completion. All of these wells are Company operated. During 1996, the Company
plans to initiate a program to test the lower Mesaverde Cozzette and Corcoran
Sandstones, which underlie the Williams Fork Formation in the north Rulison
Field.
Testing of the #1 Rulison Deep well, drilled in 1994, demonstrated the
Entrada, Morrison, and Dakota Formations to be non-commercial. Tests of the
Mancos section, at a depth of approximately 9,250 feet, indicated the presence
of natural gas. However, the lack of properly cemented casing over this zone
prevented adequate testing of the Mancos. The Company is currently evaluating
the need to drill a nearby offset to the Mancos for testing. Completion of the
Williams Fork section in the #1 Rulison Deep began in January 1996.
Parachute Field. The Parachute Field, located in Garfield County, Colorado,
produces from the Wasatch and Mesaverde Formations with wells drilled to
depths varying from 1,200 to 1,800 feet in the Wasatch and 6,000 to 7,500 feet
in the deeper Mesaverde Formation. As of December 31, 1995, the Company had,
from the inception of the project, drilled 76 wells in the Parachute Field
with 73 wells producing, two wells shut-in, and one well plugged and
abandoned.
In the Axial Fold belt area, Moffat County, Colorado, the Company drilled
the Waddle Creek #1 well as a 2,633 foot high angle test of the fractured
Niobrara Formation. The well was plugged and abandoned after three days of
drilling indicated no hydrocarbons in the objective. The Company had a 55
percent working interest in the well. The Company has no further plans in the
Axial Fold belt area.
Kansas
HUGOTON EMBAYMENT PROJECT
The largest single producing area for the Company is the Hugoton Embayment
located in southwest Kansas and the Oklahoma panhandle. The Company produces
gas from three fields in the Hugoton Embayment including the Hugoton and
Panoma Fields in Kansas, and the Guymon-Hugoton Field in Oklahoma.
Hugoton and Guymon-Hugoton Fields. The Hugoton Field, located in southwest
Kansas, is the northern portion of the Panhandle-Hugoton Field that
encompasses portions of Kansas, Oklahoma and Texas and is one of the largest
gas fields in the United States. The portion of the Field within Kansas is
designated as the Hugoton Field, while the portion in Oklahoma is referred to
as the Guymon-Hugoton Field. In this case, the difference in field name does
not imply different reservoirs, but only the naming convention used in each
particular state.
Gas production is from the Chase Group, a section of marine carbonates and,
to a lesser extent, sand and silt beds, deposited in six distinct sedimentary
cycles. Production is from a 200 to 350 foot thick Chase Sequence at depths of
2,300 to 2,800 feet.
At present, the Company has a working interest in 324 gross Hugoton wells
and operates 275 of those wells. During 1995, the Company participated in the
drilling of one successful development infill well in Hugoton. The Company is
evaluating additional Hugoton infill wells.
Early in 1995, the Company attempted to increase production from an old
Hugoton well by drilling two horizontal legs into selected portions of the
Chase Group. Results of that work were disappointing, and the Company has no
plans to expand that project in the near future.
Panoma Field. Panoma is the field designation for gas produced from the
Council Grove Group, a formation immediately beneath the Chase Group. The
Council Grove Group has similar reservoir rocks as the
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Chase section, however, the productive limits are not as extensive. Presently,
the Company has a working interest in 53 gross Panoma wells and operates 49 of
those wells.
In 1995, the Company drilled one development well, which is currently shut-
in, waiting on a pipeline connection. At least one additional Council Grove
well is expected to be drilled by the Company during 1996.
Louisiana
GULF COAST PROJECT
The Company had a limited exposure to drill wells and 3-D seismic programs
in onshore and offshore Louisiana in 1995. The Company plans to expand its
activity in the Louisiana and Texas Gulf Coast and shallow Gulf of Mexico
waters through a focused exploration effort with extensive application of 3-D
seismic technology. The Company established a division office in Houston in
1996, staffed with persons with Gulf Coast expertise.
Ship Shoal Block 65. In November 1995, the Company participated in drilling
the Estate of William G. Helis State Lease 14571 #1 well, a 14,199 foot
wildcat in Ship Shoal Block 65. The prospect was developed utilizing the 3-D
seismic data acquired in 1994. The well was completed and tested for rates as
high as 720 barrels of oil per day from a zone at 12,280 feet. One offset well
is being completed and another well will be drilled in 1996 to fully develop
the reservoir and to determine the design of production facilities, which will
be installed shortly thereafter. The Company owns a 33.3 percent working
interest in this new discovery and in the Ship Shoal Block 45 gas field
located immediately to the north of Ship Shoal Block 65. Both fields are
located in Louisiana state waters, immediately offshore of the Terrebonne
Parish, Louisiana.
Ship Shoal Block 275/292. During the second quarter of 1995, the Company
participated in the drilling of the Meridian OCS-G-14507 #1 well, a 9,000 foot
wildcat. The well reached total depth in July 1995 and was plugged and
abandoned due to a lack of reservoir quality rock. The Company has a 33.3
percent working interest in all of Ship Shoal Block 275 and the east half of
Ship Shoal Block 292. Ship Shoal Blocks 275 and 292 are located in Federal
Waters approximately 65 miles offshore of Louisiana. The Company has no
further plans for this property.
South Perry Point. The South Perry Point Prospect is located 14 miles
southwest of Lafayette, Louisiana in Acadia Parish. During the first quarter
of 1995, the Company participated in the drilling of the Total #1 Lambert
well. The well reached a total depth of 17,457 feet before the contractor
plugged and abandoned the well prior to reaching the planned total depth of
18,000. Under the terms of the turnkey contract, the participants were not
obligated for the cost of the well. A 3-D seismic survey is in the process of
being acquired over the prospect with the intent of selecting a 1996 wildcat
location. The Company has a 19 percent working interest in the project.
Patterson Deep. In February 1995, the Helmerich & Payne Shadyside "A" #1
well reached a total depth of 19,030 feet. The Company has a 12.5 percent
working interest in the well and in the prospect leases. The well did not
reach the objective section and was plugged and abandoned. The Company, along
with the other participants, are planning the acquisition of a 3-D seismic
survey over the prospect area. The prospect is located in St. Mary Parish,
Louisiana.
Oklahoma
ARKOMA BASIN PROJECT
During 1995, the Company drilled or participated in the drilling of 15 wells
in the five main focus areas of the Arkoma Basin: Red Oak Field, Limestone
Ridge area, White Ranch Field, Wilburton Field, and the Choctaw Thrust 3-D
area. Additionally, the Company entered two new areas in 1995 with large
leasehold purchases and acquisitions in the Choctaw Thrust 3-D area extension
and the South Panola 3-D area.
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Red Oak Field. In the Red Oak Field, located in Latimer and LeFlore
Counties, Oklahoma, since 1992, the Company has drilled, or participated in
the drilling of, 41 wells, of which 40 wells are producing and one well was
plugged and abandoned. The Company drilled or participated in the drilling of
five wells during 1995, of which all five are producing. These wells were
primarily infill development wells targeting Red Oak, Fanshawe, and/or Spiro
Sandstones at depths ranging from 6,500 to 11,500 feet. The Company obtained
the majority of its interests through farmout agreements with industry
partners or through production purchases that had associated rights for
further infill wells. Some of these agreements involved a number of wells,
while others involved only a single well. The Company's working interests
after payout in the wells drilled in 1995 ranges from 1.9 to 21.5 percent, and
its working interests in wells drilled in previous years range from 1.3 to 44
percent after payout. Typical terms of the farmout agreements vary, but all
provide for the Company to receive all the respective industry partner's
working interest and for the industry partner to retain an overriding royalty
interest in the wells until payout, at which time the industry partner has a
right to convert the overriding royalty interest to a working interest. The
Company continues to drill wells in the Red Oak Field, both with interests
obtained by farmouts and also with interests it has purchased from other
companies.
Limestone Ridge. In the Limestone Ridge area, located in Pittsburg County,
Oklahoma, the Company has drilled or participated in the drilling of, from the
inception of the project in January 1993, nine wells with seven wells
producing and two wells plugged and abandoned. The Company drilled four wells
during 1995, of which three wells were successfully completed.
Wilburton Field. During 1995, the Company drilled three wells in the
Wilburton Field area, which is located in Latimer and Pittsburg Counties,
Oklahoma. The Bowman #5-29 had an initial potential of 1,838 Mcf per day from
the Spiro Sandstone. The Company owns a 14.6 percent working interest in the
well. During 1996, the Company will be participating with industry partners in
shooting a 3-D seismic program over some of the Company's properties in the
Wilburton Field. The 3-D program will be acquired over 12.5 square miles
during early 1996. The Company has plans to drill as many as three wells in
1996 based on the results of the 3-D seismic.
Choctaw 3-D Seismic Area. In fiscal 1994, the Company entered into an
agreement with an industry partner to explore and develop gas reserves in the
Frontal Choctaw Thrust area of the Ouachita Mountains in the Arkoma Basin of
Oklahoma. This agreement allows the Company to prospect on the partner's large
acreage holdings in the area using a 3-D seismic survey developed by that
partner and another party. The 3-D seismic data is extremely useful in
identifying prospective targets in structurally complex areas, such as this
Choctaw Thrust area. The main gas producing zones in this area are the Middle
Atoka Sandstone, the Spiro Sandstone, and the Wapanucka Limestone.
The Company participated in two wells in this area during 1995. One well was
plugged and abandoned as a dry hole and the other is still drilling. Current
plans call for the drilling of three wells in this area during 1996.
Choctaw 3-D Seismic Extension. During 1995, the Company embarked on a
strategy to enlarge and extend the 3-D seismic coverage that the Company has
access to in the Choctaw area. Barrett and a 15 percent working interest
partner have taken leases on an approximately 50 square mile block with the
intent of shooting a 3-D seismic survey. Currently, the Company and its
partner own 7,500 acres of leasehold over the block, the majority of it with a
three to five year term. The Company intends to acquire more leasehold as well
as producing interests in the block before acquiring the 3-D data later in the
year. Four wells have been planned to drill in the new 3-D area in 1996.
South Panola 3-D Area. In 1995, the Company increased its activity in the
South Panola Field in Latimer County, Oklahoma. The South Panola Field
produces from thrust faulted Spiro Sandstone sheets that range in depth from
13,500 to 17,000 feet. Various wells in the Field have produced as much as 24
Bcf at rates in excess of 12,000 Mcf per day. In 1995, a geophysical
contractor proposed a 3-D group shoot over a portion of the South Panola
Field. The Company proposed extending the 3-D to cover a larger part of the
Field and the contractor
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agreed, ultimately resulting in a 71 square mile seismic program. The Company
is a participant in the 3-D program with an agreement to buy 41 square miles of
data.
Previously owning a working interest in just one well, the Company sought to
expand its presence in the South Panola area, making two producing property
acquisitions and taking two farmouts that cover multiple sections. The Company
paid a total of $2.87 million for the two acquisitions, which gave the Company
an interest in 32 different sections, both in the South Panola Field and other
areas within the Arkoma Basin. Two farmout agreements were reached with two
different companies covering 20 different sections in the South Panola Field.
The 3-D seismic was acquired during 1995 and is currently being processed by
the geophysical contractor. The data is expected to be released to participants
in the first quarter of 1996. The Company has budgeted four wells in the South
Panola Field for 1996.
ANADARKO BASIN PROJECT
The Anadarko Basin is one of the Company's most active drilling areas. Since
1993, the Company drilled or participated in a total of 65 wells. In 1995, the
Company drilled or participated in 32 wells with working interests ranging from
1.5 to 100 percent after payout. While staying active in the Strong City Red
Fork Play, the Company become increasingly active in the Mountain Front Granite
Wash plays and the Sentinel Field area.
Watonga-Chickasha Trend. The Watonga-Chickasha Trend is a north-south
trending field. It produces dominantly from Morrowan and Springeran-age
Sandstones at depths ranging from 8,000 feet on the north end to 13,000 feet on
the south end. Drilling in the Watonga-Chickasha Trend accounted for five of
the wells that the Company participated in during 1995 in the Anadarko Basin.
The Company's working interest after payout ranges from one to 100 percent. Of
these five wells, two wells are currently producing, one well had production
casing set and is waiting on completion, one well is still drilling, and one
well was a dry hole.
Strong City Red Fork Play. The Strong City Red Fork Play refers to an active
drilling area that covers approximately 750 square miles in Roger Mills and
Custer Counties in western Oklahoma. The primary targets are the Pennsylvanian-
aged Red Fork, Pure and Skinner Sandstones at depths ranging from 11,000 to
13,500 feet across the region. The Red Fork, Pure and Skinner Sandstones are
relatively tight and impermeable. This lack of permeability has required more
than one well per section be drilled to fully develop the gas reserves that are
in place and has accounted for a great deal of drilling activity in this area
by other companies. The Company has targeted this area as one of high potential
due to the widespread nature of sand deposition, improving drilling economics
with decreasing costs, and the opportunity for multiple locations within each
section. The Company has acquired working interests through several avenues,
including farm-in arrangements with industry partners, producing property
acquisitions and leasing minerals.
The Company drilled or participated in 12 wells in this area during 1995. Of
these 12 wells, 10 wells are producing, one well is being completed, and one
well was a dry hole. The Strong City Red Fork Play will be an important part of
the Company's activity in the Anadarko Basin during 1996 with current plans for
drilling or participating in 21 wells.
During 1995, the Company drilled a successful Red Fork well near the town of
Clinton in western Oklahoma. The Barrett Stratton Farms #2 tested in excess of
10,000 Mcf per day from the Red Fork Sandstone. The well is currently selling
into the pipeline at a rate of 4,600 Mcf per day after producing 500 Mmcf since
September 1995. The Company owns a 56 percent working interest in the well
after payout. The Company is currently drilling an offset to the Stratton Farms
called the Cabaniss #1. The Company owns a 70.25 percent working interest in
the Cabaniss #1. The Company also drilled the Barrett Glen Miller #1 and
completed the well in the Skinner Sandstone at a rate of 2,400 Mcf per day. The
well is currently waiting on pipeline connection. The Company owns a 43 percent
working interest in the well after payout.
Mountain Front Granite Wash Play. The Company became active during 1995 in a
play along the structurally complex Wichita Mountain front that borders the
Anadarko Basin to the south. Thick sequences of
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sandstone composed of granite and other rock fragments were deposited into the
Anadarko Basin as erosion wore down the exposed granite of the Wichita
Mountains to the south. These Granite Wash Sandstones have been drilled
through for many years, yet overlooked, as operators targeted the deeper
Morrow, Springer and Hunton horizons.
Recent workovers and recompletions have shown that, while some of these
rocks may exhibit low receptivity on electrical logs, it does not necessarily
mean they are non-productive. Newer techniques have also resulted in better
completions as the water sensitiveness of the formations have become better
understood. In fact, some excellent producers have been made within hundreds
of feet of wells that have been historically poor producers.
During 1995, the Company participated in three wells in the Mountain Front
Granite Wash Play. Of these, one well is producing into a pipeline and two
wells have had production casing set and are waiting on completion. The first
well the Company participated in this area was the Kamphaus #1, which is
currently selling into the pipeline at a rate of 4,600 Mcf per day and 266
barrels of oil per day. The Company has a seven percent working interest in
the well after payout. The Company has been very active acquiring leasehold in
several different areas along the Mountain Front to drill Granite Wash wells.
The Company has budgeted 11 wells in this area during 1996.
Sentinel Field. Sentinel Field, located in Washita County, Oklahoma,
produces gas both from steeply dipping and overturned Morrow and Springer
Formations, and overlying and nearly flat lying Granite Wash reservoirs.
Granite Wash reservoirs are encountered at approximately 9,700 feet and the
Morrow/Springer produces from approximately 12,000 feet. The Company drilled
and completed four wells in the Sentinel Field in 1995. The Baker #1 is
currently flowing 10,000 Mcf per day and the Banks #2 is currently testing gas
from the same Springer Sandstone. The Company's working interest is 25 and 65
percent, respectively. The Sears #2, in which the Company owns an 86 percent
working interest, missed the Morrow Sandstone, but was completed uphole in the
Granite Wash as a new field discovery flowing 2,200 Mcf per day. Subsequently,
the Huckaby #3, in which the Company has an 88 percent working interest, was
drilled and completed, flowing 4,500 Mcf per day from the Granite Wash. The
Latham #3, a well in which the Company owns a 100 percent working interest, is
flowing 600 Mcf per day from the Granite Wash. The Company plans to drill at
least three Granite Wash wells and three Morrow/Springer wells in 1996.
Wyoming
WIND RIVER BASIN PROJECT
In fiscal 1994, the Company began a focused exploration program in the Wind
River Basin, particularly along the Owl Creek Thrust fault. The primary
reservoir target in this program is a thick section of lenticular sandstones
in the Fort Union and Lance Formations of Tertiary and Upper Cretaceous age.
Cave Gulch Field Discovery. In August 1994, the Company drilled the Cave
Gulch Federal Unit #1 and discovered a significant natural gas field in the
Fort Union and Lance Sandstones below the Owl Creek Thrust. In September 1994,
the Company acquired additional interests, thereby increasing its working
interest in the well and the 440-acre Cave Gulch Unit from 72 to 94 percent.
The well began flowing on-line December 2, 1994 at a rate of 9.7 Mmcf of gas
per day and 116 barrels of oil per day. The Company owns working interests
from 40 to 100 percent in the surrounding area and owns leasehold in 15,687
gross and 7,839 net acres in the Cave Gulch area.
Cave Gulch Development. During 1995, the Company drilled and set production
casing on eight wells, the Cave Gulch Nos. 2, 3, 4, 7, 8, 9, 11 and 13. Of
those eight wells, four have been completed in various intervals from the Ft.
Union, Lance and Meeteetse Formations, two are undergoing completion testing,
and two are waiting on completion. Current combined daily production for the
Cave Gulch Field at year end 1995 was 52 Mmcf of natural gas per day and 232
barrels of oil per day. As of November 30, 1995, the field had a total
7
<PAGE>
cumulative production of 7.37 Bcf of natural gas and 42,668 barrels of oil.
The Company owns a 94.1 percent working interest in each of the wells drilled
in 1995.
In December 1995, the Company drilled a 12,661 foot twin to the Cave Gulch
Unit #1 well to probe for deeper Mesaverde and Cody Sandstones of the Upper
Cretaceous. Production pipe was run to total depth in the well. However, due
to requirements of the Cave Gulch environmental assessment, testing will be
completed in the summer of 1996. The Company owns a 90.62 percent working
interest below the shallower Lance Formation. Subsequent to completion, its
working interest is reduced to 58.13 percent.
During 1996, the Company had planned to drill up to 10 wells. However, the
Bureau of Land Management has determined that an environmental impact
statement in the greater Cave Gulch area may be required to assess future
development proposals from the Company and other operators in the area. The
Company believes that certain locations could be drilled in the Cave Gulch
area during the environmental impact statement process, and the Company will
proceed accordingly.
Owl Creek Thrust. The Company continues to evaluate additional exploration
prospects in the Owl Creek Thrust and central Wind River Basin. The Company
has 80,100 gross and 62,222 net acres under lease outside of the Cave Gulch
area. The Company plans to drill two exploratory tests in 1996.
POWDER RIVER BASIN PROJECT
The Powder River Basin in Wyoming is a new core area for the Company and is
primarily an oil province, with production from Cretaceous and Permian-age
Formations. One of the reservoir targets in this area is the Permian Minnelusa
Formation. This Basin contributes nearly half of the Company's daily oil
production and further activity will concentrate on development drilling and
enhanced recovery projects utilizing 3-D seismic technology where appropriate.
North Adon Road Field Waterflood. The Company initiated waterflood
operations in November, 1995. It is anticipated that the Field's gross
production should increase from 40 barrels of oil per day to 750 barrels of
oil per day by the end of 1996. The application of alkaline surfactant polymer
("ASP") technology to chemically enhance the Field's waterflood performance is
currently being evaluated. The Company's working interest in this property is
80.28 percent. In May 1995, the Company drilled an unsuccessful development
well in the downdip area of North Adon Road Field.
West Rozet Unit. The Minnelusa A and Upper B Sandstone reservoirs at the
West Rozet Unit have produced over nine million barrels of oil and have been
under waterflood for many years. In an effort to further develop this
property, a 3-D seismic survey was acquired in March 1995. The West Rozet #24-
23 well was drilled based on the interpretation of this 3-D survey. The well
was completed on December 21, 1995 producing 181 barrels of oil per day with
no water from the Minnelusa Upper B Sandstone. Production from the West Rozet
Unit prior to completing the West Rozet #24-23 well totaled 134 barrels of oil
per day from four producing wells. The seismic data indicate the potential for
an additional Upper B Sandstone location, which may be drilled later in 1996.
The application of ASP in a tertiary waterflood is also being considered in
this unit, in which the Company has a 99.8 percent working interest.
South Rozet Field. A 3-D seismic survey was acquired over the Minnelusa
Lower B Sandstone portion of South Rozet Field in March 1995 in an attempt to
define an additional drilling location. The Billy Nelson #23-19 was drilled in
December 1995, and is presently being completed. Based on initial production
tests, the well is expected to produce approximately 100 barrels of oil per
day. The Company's working interest in this well is 98.4 percent. The South
Rozet Field also includes the Northern Minnelusa A Sandstone Unit, which is
operated by the Company with a 96.7 percent working interest. The Minnelusa A
Sandstone reservoir performance suggests the possibility of additional
development opportunities within this unit. Further evaluation of this
property will be carried out in 1996.
8
<PAGE>
Rozet Minnelusa Unit. The Company acquired a 3-D seismic survey over the
Rozet Minnelusa Unit in August 1995, in an attempt to define additional
drilling locations in this Minnelusa Upper B Sandstone Field. The data is
currently being processed, and it is anticipated that a development well will
be drilled during the first quarter of 1996. Depending on the drilling
results, the Company will evaluate the applicability of ASP technology at
Rozet Minnelusa Unit. The Company's working interest is 87.9 percent.
Cambridge Unit. The Cambridge Minnelusa ASP project was initiated in January
1993 and continues its strong performance of enhanced oil recovery. In
December 1995, oil production averaged 950 barrels of oil per day. The Company
is currently completing an additional development well. The location for this
well was based on an updated interpretation of the 3-D seismic survey, which
covers the entire field. The Company's working interest in the Cambridge Unit
is 73.2 percent.
West Moran Unit. During the third quarter of 1995, the Company participated
in the drilling of an unsuccessful Minnelusa A Sand development well in the
West Moran Unit. The West Moran Unit #5-5, operated by Northstar Operating
Co., was plugged and abandoned after recovering water on a drill stem test.
The Company's working interest in the West Moran Unit is 12.4 percent.
East Moran Unit. The East Moran Unit is immediately adjacent to the West
Moran Unit, and produces from the Minnelusa Upper B Sand. The Company has a
100 percent working interest in this unit, and believes the reservoir's
recovery efficiency may be improved by the drilling of an additional Minnelusa
Upper B injection well. This opportunity will be further evaluated during
1996.
Powell Field. The Company has a significant working interest and acreage
position in the Powell Field area in Converse County, Wyoming, in the southern
portion of the Powder River Basin. Production in the Powell Field is primarily
from stratigraphically-trapped sandstones in the Cretaceous Frontier and
Dakota Formation, as well as secondary potential in the shallower Sussex
Sandstone. The Company currently has 7,603 gross acres, and 4,221 net acres
under lease in the Powell area and plans to drill one to two infill and
stepout locations in 1996, primarily targeting reserves in the Dakota
Sandstone. The Company will have an approximate 62 to 68 percent working
interest in these locations.
GREEN RIVER BASIN/WYOMING OVERTHRUST PROJECT
The Company owns leasehold within the greater Green River Basin, primarily
in the Moxa Arch, Rock Springs Uplift and Wamsutter Arch areas, and in the
Wyoming Overthrust Trend. The Company participated in one well in the Green
River Basin and one well in the Wyoming Overthrust in 1995. The Company has
plans for additional wells in the Green River Basin in 1996.
Whiskey Springs Field. The Company holds 6,524 gross acres and 4,610 net
acres in the Whiskey Springs Field of the southern Moxa Arch. Currently, the
Company is evaluating the area in anticipation of drilling one well during the
summer of 1996.
Nighthawk Prospect. The Redtail Unit #1 well was drilled to a depth of
11,918 feet to the Jurassic Twin Creek Formation. Structural data indicated
the Jurassic Nugget Formation was no longer prospective and the well was
plugged and abandoned prior to reaching the proposed total depth of 13,000
feet. The Company had a 100 percent working interest in the well.
Texas
PERMIAN BASIN PROJECT
The Company's activities in 1995 in the Permian Basin included the final
phases of exploratory drilling and a continuing effort in development
drilling. As of December 31, 1995, the Company had an interest in 300 gross
wells (225 net wells) located in the Permian Basin, which produce
approximately 1,100 net barrels of oil per
9
<PAGE>
day. The primary areas of production for the Company are in the South Cowden
Field, Spraberry Trend area, Novice Field and North Knox City Field in Ector,
Midland, Martin, Coleman and Knox Counties, Texas, respectively.
Dawson County. During 1995, the Company's exploration activities included
the participation in five successful wells located in Dawson County, Texas.
These prospects were identified through the use of 3-D seismic technology. The
Company has a 10 percent working interest in this project. In 1996, the
operator of this 3-D project plans to drill three additional west Texas
exploration prospects and the Company has the option of participating in each
of these prospects.
Foster Grayburg San Andres Unit. In Ector County, Texas, the Company
acquired an 80 percent working interest before payout (50 percent after
payout) in a waterflood project in the Foster Grayburg San Andres Unit that
produces from the Grayburg Formation. In 1995, four producing wells and one
water injection well were drilled and four producing wells and six water
injection wells were reactivated. Production increased from 112 barrels of oil
per day to 235 barrels of oil per day from the pilot areas in the Foster
Grayburg San Andres Unit. The Company has the option to expand the development
of the Foster Grayburg Unit in 1996 if successful waterflood response results
are realized from the pilot test.
Teague Field. Two Simpson-McKee Formation wells were drilled and placed on
production in the Teague Field in Lea County, Texas in 1995. Two Simpson-McKee
wells were converted to water injection wells, initiating a pressure
maintenance project in December 1995. In 1996, in the immediate Teague Field
area, three water injection wells will be reactivated and one producing well
will be converted to a water injection well at the G. H. Mattix Lease in Lea
County, New Mexico to increase oil recovery from the Queen Formation. This
will be similar to an active waterflood that the Company operates in this same
area, the Blinebry-Cade Waterflood, that also produces from the Queen
Formation.
Boys Ranch Project. During 1993, the Company joined in three exploration
projects in and around the Permian Basin of West Texas. Each project centered
on acquiring lease options over large tracts of land and then utilizing 3-D
seismic to define prospects. In 1995, Barrett participated in two wells within
the Boys Ranch project in Borden and Scurry Counties of the Northern Midland
Basin. The Ruwco #1 Von Roeder drilled a reef that came in as expected
structurally, yet the well had excessive water production. The Ruwco #1-A
Griffen found non-commercial amounts of oil. The Company has a 10 percent
working interest in both wells, which were plugged and abandoned.
Utah
UINTA BASIN PROJECT
Brundage Canyon Field. Brundage Canyon Field, located in the Uinta Basin in
Duchesne County, Utah, was purchased by the Company in December 1995. The
Company currently owns a working interest ranging from 49 to 100 percent in 20
producing wells, a pipeline gathering and transmission system, and 24,660
gross acres, approximately 21,700 net acres, all of which are on the Ute
Indian Reservation. The Field has produced 1,270,000 barrels of oil to date
and is currently producing 300 barrels of oil and 750 Mcf per day, primarily
from multiple sandstone reservoirs of the lower Green River Formation at
depths averaging 5,500 feet. Individual wells can have a primary recovery of
over 200,000 barrels of oil of black wax crude, which can command a premium
price over spot market prices.
The Company plans extensive work in this Field during 1996 including: a 10
well program to develop infill and field extension locations; a 40-acre pilot
project that will lay the groundwork for a future waterflood project; and
recompletions and workovers of existing wells to test the viability of
shallower horizons for potential future development. Deeper gas bearing
Wasatch and Mesaverde reservoirs are also prospective and will be tested in
the future.
10
<PAGE>
Production
The Company's total gas production averaged 130,700 Mcf of gas per day in
1995 compared with 91,200 Mcf per day in 1994. The Company's total crude oil
production averaged 4,700 barrels per day in 1995 compared with 3,540 barrels
per day during the prior year. On a barrel of oil equivalent basis (BOE),
using a ratio of six Mcf of gas to one barrel of oil, the Company's total
production averaged 26,400 BOE per day for 1995 compared with 18,740 BOE per
day for 1994.
The table below sets forth information with respect to the Company's
producing oil and gas properties for each of its last three years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Quantities Produced And Sold
Oil and Condensate (Bbls)................ 1,702,000 1,293,000 1,293,000
Gas (Mcf)................................ 47,692,000 33,282,000 31,712,000
Average Sales Price
Oil and Condensate ($/Bbls).............. $ 15.76 $ 13.95 $ 14.93
Gas ($/Mcf).............................. $ 1.47 $ 1.83 $ 1.94
Average Production Costs
Oil and Condensate ($/Bbls).............. $ 3.58 $ 4.13 $ 4.62
Gas ($/Mcf).............................. $ 0.60 $ 0.69 $ 0.77
</TABLE>
Productive Wells And Acreage
The productive wells and developed acreage in which the Company owned a
working interest as of December 31, 1995 are described in the following table:
<TABLE>
<CAPTION>
PRODUCTIVE WELLS(A)(B)
-------------------------
OIL WELLS GAS WELLS DEVELOPED ACREAGE
------------ ------------ -----------------
GROSS NET GROSS NET GROSS NET
----- ------ ----- ------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Piceance Basin, CO................. 0 0.00 289 99.93 35,200 10,600
Greater Green River Basin, WY...... 3 1.80 45 21.43 19,998 9,396
Powder River Basin, WY............. 288 67.60 16 2.30 42,654 25,521
Wind River Basin, WY............... 0 0.00 9 8.46 440 414
Arkoma Basin, OK................... 0 0.00 135 24.81 41,181 11,755
Anadarko Basin, OK/TX.............. 13 12.60 180 66.34 40,725 14,571
Hugoton Embayment, KS/OK........... 0 0.00 411 346.80 118,238 114,100
Permian Basin, TX/NM............... 287 215.73 13 9.60 25,922 20,407
Gulf Coast, TX/LA.................. 10 0.60 12 2.90 2,934 420
Uinta Basin, UT.................... 20 15.42 0 0.00 -- --
Miscellaneous Properties........... 233 18.52 93 58.30 45,403 30,741
--- ------ ----- ------ -------- --------
Total............................ 854 332.27 1,203 640.87 372,695 237,925
=== ====== ===== ====== ======== ========
</TABLE>
- --------
(a) Each well completed to more than one producing zone is counted as a single
well.
(b) The Company has royalty interests in certain wells that are not included
in this table.
11
<PAGE>
Drilling Activity
The following table summarizes the Company's oil and gas drilling
activities, all of which were located in the continental United States, during
the last three years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
----------- ----------- -----------
WELLS DRILLED GROSS NET GROSS NET GROSS NET
- ------------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Exploratory
Oil....................................... 1 0.33 5 0.58 1 0.10
Gas....................................... 0 0.00 1 0.50 0 0.00
Non-productive............................ 8 2.65 8 1.84 12 4.55
--- ----- --- ----- --- -----
Total................................... 9 2.98 14 2.92 13 4.65
=== ===== === ===== === =====
Development
Oil....................................... 22 11.68 19 12.62 13 10.40
Gas....................................... 88 39.03 100 36.51 70 24.29
Non-productive............................ 10 3.51 18 7.65 9 1.35
--- ----- --- ----- --- -----
Total................................... 120 54.22 137 56.78 92 36.04
=== ===== === ===== === =====
</TABLE>
In addition, the Company was participating in 10 gross (2.97 net) wells
which were in the process of being drilled at December 31, 1995.
Reserves
The table below sets forth the Company's estimated quantities of proved
reserves, all of which were located in the continental U.S., and the present
value of estimated future net revenues from these reserves on a non-escalated
basis, discounted by 10 percent per year, as of the end of each of the last
three years:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Estimated Proved Oil Reserve (MMbls)... 12,967 11,443 6,946
Estimated Proved Gas Reserves (MMcf)... 513,531 458,820 364,791
Estimated Proved Reserves in Gas
Equivalents (MMcfe)................... 591,331 527,478 406,468
Prices as of December 31, for Oil
($/Bbl)............................... $ 17.35 $ 14.43 $ 11.05
Prices as of December 31, for Gas
($/Mcf)............................... $ 1.77 $ 1.67 $ 1.95
Present Value of Estimated Future Net
Revenues
(before future income tax expense).... $432,603,000 $322,689,000 $277,571,000
</TABLE>
Reference should be made to "SUPPLEMENTAL OIL AND GAS INFORMATION" on page
F-20 of this report for additional information pertaining to the Company's
proved oil and gas reserves. During 1995, the Company filed, prior to the
merger, as Barrett and Plains, the Annual Survey of Domestic Oil and Gas
Reserves with the Energy Information Administration (EIA) as required by law.
Only minor differences of less than five percent are anticipated in reserve
estimates, which were due to small variances in actual production versus year
end estimates, and in certain classifications reported in Form 10-K as
compared to those in the EIA report.
12
<PAGE>
Undeveloped Acreage
Working Interest. The Company's working interests in undeveloped acreage as
of December 31, 1995 are summarized in the following table:
<TABLE>
<CAPTION>
WORKING INTEREST
ACRES
-----------------
STATE OF LOCATION GROSS NET
----------------- -----------------
<S> <C> <C>
Arkansas................................................... 360 360
Colorado................................................... 78,737 23,815
Louisiana.................................................. 5,803 1,516
Montana.................................................... 15,950 8,255
New Mexico................................................. 240 240
North Dakota............................................... 12,721 2,684
Oklahoma................................................... 39,948 20,203
Texas...................................................... 22,937 4,493
Utah....................................................... 10,823 9,703
Wyoming.................................................... 221,238 119,723
Offshore................................................... 12,500 2,713
-------- --------
Total.................................................... 421,257 193,705
======== ========
</TABLE>
Substantially all of the leases summarized in the preceding table will
expire at the end of their respective primary terms unless production has been
obtained from the acreage subject to the lease prior to that date, in which
event the lease will remain in effect until the cessation of production. The
following table sets forth the gross and net acres subject to leases
summarized in the proceeding table that will expire:
<TABLE>
<CAPTION>
ACRES EXPIRING
---------------
GROSS NET
------- -------
<S> <C> <C>
Twelve Month Ending:
December 31, 1996.......................................... 82,041 23,555
December 31, 1997.......................................... 72,902 32,016
December 31, 1998.......................................... 45,551 25,636
December 31, 1999 and later................................ 220,763 112,496
</TABLE>
Overriding Royalty Interests. The Company owns overriding royalty interests
covering in excess of 52,394 gross acres. The majority of these overriding
royalty interests are within a range of approximately 0.25 to 2.5 percent.
Gas Gathering
The Company currently owns interests in and operates three gas gathering
systems through its wholly owned subsidiary, Bargath Inc. ("Bargath"). All
three systems connect to producing wells, in which the Company owns an
interest. The Company also owns various gathering assets in the Hugoton Field
through another wholly owned subsidiary, Plains Petroleum Gathering Company.
Grand Valley and Trailridge Gas Gathering Systems. In 1985, Bargath designed
and constructed a gathering system in the Grand Valley Field to transport
natural gas from certain of the Company's wells to Questar Pipeline
Corporation's interstate pipeline at Rifle, Colorado. As of December 31, 1995,
the Grand Valley Gathering System was connected to 210 producing gas wells in
the Piceance Basin.
The system has the flexibility to deliver gas to three interstate pipelines,
owned by Questar Pipeline Company, Northwest Pipeline Corporation, and
Colorado Interstate Gas Company, and one intrastate pipeline owned by Public
Service Company of Colorado and KN Energy, Inc. In December 1994, the Company
13
<PAGE>
completed the construction of a 90,000 MMBtu per day gas processing plant to
extract liquid hydrocarbons from the gas stream. Depending on the take-away
capacity from time to time of these four pipeline systems, the gathering
system has the capability of delivering approximately 110,000 MMBtu of gas per
day. Bargath owns a 29.5 percent interest in and operates these systems in the
Piceance Basin.
Latham Draw Gathering System. During fiscal 1992, Bargath designed and
constructed a gas gathering system in southwestern Wyoming to connect wells
drilled and completed by the Company on the Red Desert-Washakie prospect. To
date, the system consists of approximately 30 miles of pipeline connecting
seven gas wells. The Latham Draw Gathering System interconnects with the
Colorado Interstate Gas Co. interstate pipeline. Bargath owns a 48 percent
interest in and operates the Latham Draw Gathering System. At year end 1995,
the Company was negotiating to exchange these assets for assets that were more
closely aligned to its core needs.
Blue Mountain Gathering System. The Company acquired the Blue Mountain
Gathering System in January 1995, to compliment drilling activity Barrett was
conducting in Latimer County, Oklahoma. The 5 1/2 mile system moves Barrett's
and third party gas into NorAm Gas Transmission System for flow to Midwest and
East Coast markets.
Gas Marketing and Trading
Natural Gas. The Company's gas marketing and trading activities consist of
marketing the Company's own production, and the production of others from
wells operated by the Company, and trading activities that consist of the
purchase and resale of natural gas.
The Company has entered into a number of gas sales agreements on behalf of
itself and its industry partners with respect to the sale of gas from its
properties in each of the Company's basins. These contracts vary with respect
to their specific provisions, including price, quantity, and length of
contract. As of December 31, 1995, approximately 33 percent of the Company's
production was committed to gas sales contracts that had fixed prices.
However, with the exception of one contract covering approximately 1,500 MMBtu
per day of production from the Piceance Basin through 2011, none of the
contracts provides for fixed prices beyond March 1996. The Company believes
that it has sufficient production from its properties to meet the Company's
delivery obligations under its existing gas sales contracts.
For 1996, the Company successfully renegotiated the pricing provisions
associated with its Hugoton and Panoma-Council Grove gas production. Pricing
is based upon the average price of a basket of four Mid-Continent indexes on a
monthly basis less a variable amount not to exceed $0.20 per MMbtu.
During the year ended December 31, 1995, there was one gas purchaser who
accounted for approximately 18 percent of the Company's total revenues. The
Company believes it would be able to locate alternate customers in the event
of the loss of this customer.
As a result of its gas trading activities, the Company may from time to time
have gas purchase or sales commitments without corresponding contracts to
offset these commitments, which could result in losses to the Company. The
Company currently attempts to control and manage its exposure to these risks
by monitoring and hedging its trading positions as it deems appropriate and by
having the Company's financial officers and Chief Executive Officer review
significant trades or positions before they are committed to by trading
personnel. All fixed price trading activities are hedged to lock in margins.
During the year ended December 31, 1995, revenue from trading activities,
which includes the cost of gas purchased or sold for trading purposes, was
$28.6 million, representing 22 percent of the Company's consolidated revenues.
Gas trading is highly competitive and the Company competes with many other
companies, some of which have more experience, personnel, and other resources
available to them. However, management does not believe
14
<PAGE>
that any one competitor is dominant in the industry. The Company's ability to
generate profits from natural gas trading is dependent primarily on the
knowledge and experience of its employees. It is also dependent on its ability
to anticipate changes and trends in the natural gas market, including future
gas prices, which to a degree, depend upon factors beyond the Company's
control, such as gas supplies, competing fuel supplies, the weather, consumer
attitudes, the demand for natural gas, transportation constraints, and
government actions and regulations.
Oil and Condensate. Oil, including wellhead condensate production, is
generally sold from the leases at currently posted field prices, plus
negotiated bonuses. Marketing arrangements are made locally with various
petroleum companies. The Company sells its oil production to numerous
customers. No customer's total 1995 oil purchases represented more than 10
percent of total Company revenues. Oil revenues totaled $26.8 million for 1995
and represented 21 percent of the Company's total revenues for the year.
Government Regulation
The production of oil and gas is subject to a variety of federal, state and
local government regulations including regulations concerning the prevention
of waste, the discharge of materials into the environment, the conservation of
oil and natural gas, pollution, permits for drilling operations, drilling
bonds, reports concerning operations, the spacing of wells, the unitization
and pooling of properties, and various other matters including taxes. The
costs of complying with these regulations, of monitoring compliance with these
regulations, and of dealing with the agencies that administer them, can be
significant.
At present, there are no known environmental or other regulatory matters
related to the Company's operations which are reasonably expected to result in
a material liability to the Company. The Company believes that expenditures
for compliance with current federal, state or local provisions regulating the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, will not have a material adverse effect in the
future upon the capital expenditures, earnings or competitive position of the
Company.
Operating Hazards
The Company's operations are subject to all the risks normally incident to
the exploration for and production of oil and gas, including blowouts,
encountering formations with abnormal pressure, cratering, pollution and
fires. Any of these events could result in damage to, or destruction of, oil
and gas wells or producing facilities, suspension of operations, damage to
property or the environment, and injury to persons. Losses and liabilities
arising from such events could reduce revenues and increase costs to the
extent the Company is liable and such loss or liability is not covered by
insurance. The Company maintains insurance, which it believes is customary in
the industry against some, but not all, of these risks. There is no assurance
that such insurance will continue to be available in the future at a
reasonable cost.
ITEM 3. LEGAL PROCEEDINGS
On November 2, 1994, a putative class action was filed in Delaware Chancery
Court. In that case, entitled Miller v. Cody, the plaintiff has alleged that
certain named former directors of Plains and Plains have, among other things,
breached their fiduciary duties and otherwise acted to entrench themselves in
office. Plaintiff seeks various forms of injunctive relief, damages and an
award of plaintiff's costs and disbursements.
On May 3, 1995, the same day Plains announced it had executed a merger
agreement with the Company, a putative class action, entitled Crandon Capital
Partners v. Miller, was filed in Delaware Chancery Court against Plains and
the then-current members of its Board of Directors. In this suit, it is
alleged that, among other things, the agreement was inadequate, plaintiff
seeks various forms of declaratory and injunctive relief, damages and an award
of plaintiff's costs and disbursements.
15
<PAGE>
Plains and its former directors have received a status report filed by
plaintiffs' counsel in both cases indicating a "stipulation of dismissal
without prejudice will be circulated shortly."
Except as noted above, at December 31, 1995, the Company was a party to
certain other legal proceedings which have arisen out of the ordinary course
of business. Based on the facts currently available, in management's opinion
the liability, individually or in the aggregate, if any, to the Company
resulting from such actions will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of the year ended December 31, 1995.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDERS
MATTERS.
(a) Market Information. Beginning on November 29, 1994, the Company's Common
Stock was listed and began trading on the New York Stock Exchange under the
symbol BRR. Before trading on the New York Stock Exchange, the Company's
Common Stock was traded on NASDAQ National Market System under the symbol
BARC. The range of high and low sales prices for each quarterly period during
the two most recent years, as reported by the New York Stock Exchange, is as
follows:
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ------ ------
<S> <C> <C>
March 31, 1994*................................................ $14.37 $10.37
June 30, 1994*................................................. 16.50 13.25
September 30, 1994*............................................ 20.00 15.62
December 31, 1994.............................................. 22.75 17.87
March 31, 1995................................................. 21.75 16.87
June 30, 1995.................................................. 25.87 19.37
September 30, 1995............................................. 25.37 19.37
December 31, 1995.............................................. 30.62 21.00
</TABLE>
- --------
* As reported by NASDAQ, before the Company's Common Stock began trading on
the NYSE.
On March 12, 1996, the closing price for the Company's Common Stock was
$22.625 per share.
(b) Holders. The approximate number of record holders of the Company's
Common Stock as of March 12, 1996, was 4,956.
(c) Dividends. The Company has not paid any cash dividends since its
inception. The Company's credit agreement restricts payment of dividends to
amounts that are less than 50 percent of net income. The Company anticipates
that all earnings will be retained for the development of its business and
that no cash dividends on its Common Stock will be declared in the foreseeable
future.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data of the
Company for each of the last five years ended December 31:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues................ $128,016,000 $109,458,000 $106,072,000 $ 89,050,000 $ 74,835,000
Net income (loss)....... (2,240,000) 11,299,000 13,666,000 13,872,000 19,167,000
Per share.............. (0.09) 0.46 0.55 0.47 0.84
Total assets at the end
of each period......... 340,412,000 310,952,000 243,452,000 208,601,000 184,187,000
Long-term debt at the
end of each period..... 89,000,000 53,000,000 13,500,000 20,000,000 15,000,000
</TABLE>
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On July 18, 1995, the Company consummated the merger of a wholly owned
subsidiary of the Company with Plains Petroleum Company ("Plains") by issuing
12.8 million shares of its common stock to the former Plains stockholders. As
a result of this merger, Plains became a wholly owned subsidiary of the
Company. Also, on July 18, 1995, the Company changed its fiscal year end from
September 30 to December 31 effective January 1, 1995. The merger is being
accounted for using the pooling of interests method. The pooling of interests
method combines previously reported results as though the combination occurred
at the beginning of the periods being presented. Merger costs have been
expensed during the 1995 year. The financial statements of the Company and
Plains for the 1993, 1994 and 1995 years have been restated and adjusted for
the merger with Plains and the change in fiscal year end. Due to this
restatement, these financial statements are not comparable to the financial
statements for the same periods as previously presented by the separate
companies.
Liquidity and Capital Resources
At December 31, 1995, the Company had cash and short-term investments of
$7.5 million, working capital of $3.7 million, property and equipment of
$300.7 million and total assets of $340.4 million. Compared to December 31,
1994, cash and short-term investments decreased $4.8 million, working capital
increased $1.2 million and property and equipment increased $39.2 million.
Total assets increased $29.5 million as the increase in property and equipment
was funded by a $36.0 million increase in long-term debt. During 1995, the
Company actively invested in oil and gas properties in its areas of activity,
which increased both property and equipment and long-term debt.
During 1995, the Company generated operating cash flow of $33.4 million
before working capital changes, which is $5.6 million less than the amount
generated in 1994, as production increases were offset by merger costs
incurred during the year. After working capital changes, cash flow provided by
operations was $35.5 million, a decrease of three percent from 1994. Excluding
merger costs, cash flow from operations before working capital changes was
$47.6 million, ($49.7 million after working capital changes).
As of December 31, 1995, the outstanding balance under the bank line of
credit was $89 million, a net increase of $36 million from the balance at
December 31, 1994. In July 1995, the Company entered into a $200 million
credit agreement. The line of credit matures on July 19, 1999 and is funded by
a consortium of six banks. The line of credit is unsecured and provides for
interest rates based on LIBOR or prime rates at the Company's option. The
availability under the Credit Agreement is based on the bank's review of the
collateral value of the Company's oil and gas properties. The current
borrowing base is $160 million determined from a review of the oil and gas
reserves as of December 31, 1994 for Plains and March 31, 1995 for Barrett.
The borrowing base is scheduled for a review in early 1996 based on the
Company's December 31, 1995 reserves.
17
<PAGE>
During the year, the Company invested $72.3 million in property and
equipment principally in the Piceance, Wind River and Arkoma Basins. The
Company's drilling activities were primarily to develop and extend producing
fields. Included in oil and gas property additions is $7.4 million to purchase
interests in proved properties to acquire 4.0 Bcf of gas and 831,000 barrels
of oil.
During 1995, the Company increased its gas reserves by 12 percent to 514 Bcf
and its oil reserves by 13 percent to 13.0 million barrels. The Company
replaced 210 percent of its 1995 production. On an energy equivalent basis,
the Company's reserves are 87 percent natural gas. Proved undeveloped reserves
are 17 percent of the Company's total reserves, virtually unchanged from
December 31, 1994. Thirty-four percent of the Company's reserves are located
in the Hugoton Embayment, 20 percent are located in the Piceance Basin, and 15
percent are located in the Wind River Basin.
Reserve quantities increased 12 percent on an energy equivalent basis over
the last year, while the standardized measure of discounted future net cash
flows increased $67.3 million, 28 percent, primarily due to reserve additions
and an increase in the sales price of oil and gas. As of December 31, 1995,
the Company was receiving an average of $17.35 per barrel for its oil
production and $1.77 per Mcf for its gas production. Reserve extensions and
discoveries added $85.5 million to the standardized measure, and purchases of
proved reserves added $7.4 million to the valuation. In addition the change in
sales prices and production costs increased the standardized measure of
discounted future net cash flows by $24.6 million. These additions were offset
by a $62.3 million reduction due to reserves produced during the year and
$33.2 million for additional income taxes being deducted in the computation.
The Company's reserve values remain sensitive to gas prices in the current
volatile commodities market.
The Company uses gas price swaps to hedge the sales price of its oil and
natural gas. In a typical swap agreement, the Company and a counter party will
enter into an agreement whereby one party will pay a fixed price and the other
will pay an index price on a specified volume of production during a specified
period of time. Settlement is made by the parties for the difference between
the two prices approximately the same time as the physical transactions. The
intent of hedging activities is to reduce the volatility associated with the
sales price of oil and gas production.
As of December 31, 1995 the Company held positions to hedge 16.9 Bcf of gas
and 91,000 barrels of oil for periods through March 31, 1996. Of these
positions, 834,000 Mcf of gas were being hedged to reduce risks associated
with gas trading activities, and the balance was associated with producing
activities. These positions include various hedging instruments based on
exchange based sales prices, index denominated prices or a combination of
both. The positions are more fully described in the notes to the financial
statements. During December 1995 the gas commodities market used as a basis
for the Company's hedging activities became unusually volatile causing
significant differences between the underlying commodity price and the market
price of the Company's gas production in certain basins. As a result, the
Company recorded an expense of $1.2 million in the fourth quarter due to the
lack of correlation between the hedging instrument and the sales price of
underlying natural gas.
The Company's merger with Plains and its drilling activities have increased
its reserve base and its productive capacity and, therefore, its potential
cash flow. Continued low gas prices may adversely affect cash flow. The
Company intends to continue to acquire and develop oil and gas properties in
its areas of activity as dictated by market conditions and financial ability.
The Company retains flexibility to participate in oil and gas activities at a
level that is supported by its cash flow and financial ability. Management
believes that the Company's borrowing capacities and cash flow are sufficient
to fund its currently anticipated activities. The Company intends to continue
to use financial leverage to fund its operations as investment opportunities
become available on terms that management believe warrant investment of the
Company's capital resources.
18
<PAGE>
Results of Operations
1995 VS. 1994
During 1995, the Company incurred a net loss of $2.2 million ($.09 per
share) compared to net income of $11.3 million ($.46 per share) in 1994. The
1995 results include merger and reorganization costs of $14.2 million.
Excluding the merger costs, the Company's net income after taxes would be $9.5
million ($.38 per share).
Revenues increased 17 percent from 1994 to $128.0 million and operating
expenses, including $14.2 million of merger and reorganization costs,
increased 38 percent to $128.4 million. Oil and gas production revenue
increased 23 percent to $97.0 million. Lease operating expenses increased $6.3
million and depreciation, depletion and amortization increased $10.7 million.
Production revenues increased $18.2 million primarily due to a 43 percent
increase in gas production to 47.7 Bcf (130,700 Mcf per day). Oil production
increased 32 percent to 1,702,000 barrels (4,660 barrels per day). Average gas
sales prices decreased 20 percent to $1.47 per Mcf, while average oil prices
increased 13 percent to $15.76 per barrel. Gas production accounted for 82
percent of total production on an energy equivalent basis. The Hugoton
Embayment and Piceance Basin properties accounted for 37 and 14 percent,
respectively, of total gas production. The Powder River and Permian Basins
accounted for 43 and 32 percent, respectively, of total oil production. The
decreased gas sales price was due to an overall deterioration in gas markets
during most of the year.
Lease operating expenses of $34.5 million averaged $.60 per Mcfe ($3.58 per
BOE) of production compared to $.69 per Mcfe ($4.13 per BOE) in 1994.
Depreciation, depletion and amortization increased $10.7 million primarily due
to production increases. During 1995, depreciation, depletion and amortization
on oil and gas production was provided at an average rate of $.55 per Mcfe
($3.28 per BOE) compared to an average rate of $.52 per Mcfe ($3.14 per BOE)
in 1994.
The gross margin on trading activities was virtually unchanged from 1994 at
$943,000. Gas trading volumes increased 26 percent to 22.2 Bcf in 1995.
During 1995, the Company hedged 4.9 Bcf (22 percent) of its gas trading
volumes to achieve the margins on specific transactions at a cost of $2.1
million. In addition, the Company hedged 11.0 Bcf (23 percent) of gas
production for a net gain of $417,000. The hedging gain related to production
is net of $1.2 million for an expense recorded in the fourth quarter due to a
lack of correlation of the hedging instruments to the underlying commodity as
of December 31, 1995. The Company enters into the hedging arrangements to
minimize its exposure to price risks associated with commodities markets.
Although hedging transactions associated with its production minimize the
Company's exposure to losses as a result of unfavorable price changes, the
transactions also limit the Company's ability to benefit from favorable price
changes. At the end of December, 1995, the basis differential between the
commodities markets and the market price of the Company's gas widened to
historic levels. Because the increase in the commodities price was not
accompanied by a similar increase in the market price of the Company's gas,
the Company recorded an expense for the difference due to the inefficient
hedge and positions that did not qualify for hedge accounting treatment. With
respect to trading activities, the Company will not generally enter into a
commitment for either a purchase or a sale unless (i) it has established a
commitment for an offsetting sale or purchase, or (ii) it has established a
hedge arrangement with a counter party that creates the same matching
position.
General and administrative expenses of $13.4 million are one percent greater
than the previous year. The 1995 amount is net of $3.8 million of operating
fee recoveries compared to a $3.4 million recovery in 1994. General and
administrative expense in 1995 is generally a combination of the separate
companies' expenses, since the integration of the two entities did not occur
until late in the year, and included costs for the Company to expand its
business in existing and new activity areas. The Company expects a reduction
in general and administrative expenses due to the elimination of duplicative
costs throughout 1996. Interest expense increased
19
<PAGE>
significantly from $942,000 in 1994 to $4.6 million in 1995 as the Company
financed a portion of its growth with bank debt. The Company incurred a 1995
expense of $14.2 million to combine Barrett and Plains and to integrate the
separate company's operations. The costs consist primarily of $7.4 million of
investment banker and other professional fees to evaluate and consummate the
merger and $5.6 million for employee termination and benefit costs.
During 1995, the Company recorded a $1.8 million income tax expense even
though it incurred a loss before taxes due to non-deductible merger costs.
Excluding non-deductible merger costs, the Company would have had a $600,000
tax benefit.
The Company's results of operations depend primarily on the production of
natural gas which accounted for 87 percent of the Company's reserves and 82
percent of its production during 1995. Therefore, the Company's future results
will depend on both the volume of natural gas production and the sales price
for gas. The Company continues to explore for oil and gas to increase its
production. The lack of predictability of both production volumes and sales
prices may influence future operating results.
1994 VS. 1993
During 1994, the Company earned net income of $11.3 million ($.46 per share)
compared to net income of $13.7 million ($.55 per share) in 1993. The 1994
results include a tax benefit of $2.1 million due to an increase in financial
reporting value of the Company's net operating loss carryover. Without the tax
benefit from the net operating loss carryover, the Company's net income after
taxes in 1994 would have been $9.2 million ($.37 per share). The 1993 results
include a tax benefit of $1.4 million from the value of the tax loss carryover
and an expense of $656,000 for the cumulative effect of adopting SFAS No. 106
to recognize accumulated post retirement benefit liabilities as of January 1,
1993. Net income before income taxes and the cumulative effect of the change
in accounting method was $16.4 million in 1994 compared to $21.0 million in
1993.
Revenues increased three percent from 1993 to $109.5 million, and operating
expenses increased nine percent to $93.0 million. Production revenue decreased
$2.1 million, and trading revenues increased $5.2 million. These changes were
offset by a decrease of $2.1 million in lease operating expenses, an increase
of $2.6 million in depreciation, depletion and amortization and an increase of
$5.5 million in the cost of trading.
Production revenues decreased $2.1 million as a five percent increase in gas
production was offset by a six percent decrease in the average gas sales price
and a seven percent decline in the average oil sales price. Oil production was
virtually unchanged from 1993 to 1994. During 1994, the Company produced
91,200 Mcf of gas per day and 3,540 barrels of oil per day. Gas production
accounted for 81 percent of total production on an energy equivalent basis of
41.0 Bcf of gas equivalent (6.8 million barrels of oil equivalent). During
1994, the average gas sales price was $1.83 per Mcf ($1.94 in 1993) and the
oil sales price was $13.95 per barrel ($14.94 in 1993). The decreased oil and
gas sales prices were due to an overall market reduction in the commodity
prices of the products.
Lease operating expenses of $28.2 million averaged $.69 per Mcfe ($4.13 per
BOE) of production compared with $.77 per Mcfe ($4.62 per BOE) in 1993.
Depreciation, depletion and amortization increased $2.6 million primarily due
to production increases. During 1994, depreciation, depletion and amortization
on oil and gas production was provided at an average rate of $.52 per Mcfe
($3.14 per BOE) compared to an average rate of $.48 per Mcfe ($2.87 per BOE)
in 1993.
The gross margin on trading activities decreased to $924,000 from $1.3
million in 1993. Gas trading volumes increased 62 percent to 17.5 Bcf in 1994.
The reduced results are due to a reduction of margins available for gas
trading activities.
General and administrative expenses of $13.3 million are 18 percent greater
than the previous year. The 1994 amount is net of $3.4 million of operating
fee recoveries compared to a $3.8 million recovery in 1993. The
20
<PAGE>
increased general and administrative expense is due to additional costs
incurred by the Company to expand its activities and to explore in other
areas.
During 1994, the Company recorded a $5.1 million net income tax expense
compared to a $6.7 net income tax expense in 1993. The 1994 expense is net of
a $2.1 million reduction in the valuation allowance provided for the deferred
income tax benefit of the net operating loss carryover. The valuation
allowance was reduced to reflect increased oil and gas reserves that are
expected to generate future taxable income and the tax gain realized on the
sale of the Wattenberg properties.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Consolidated Financial Statements and schedules that constitute Item 8
are attached at the end of this Annual Report on Form 10-K. An index to these
Consolidated Financial Statements and Schedules is also included in Item 14(a)
of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
21
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information with respect to the
directors and executive officers of the Company, including, with respect to
each individual, his age, his position with the Company, the expiration of his
term as a director, and the year in which he first became a director of the
Company. Additional information concerning each of these individuals follows
the table:
<TABLE>
<CAPTION>
POSITION WITH EXPIRATION OF INITIAL DATE
NAME AGE THE COMPANY (7) TERM AS DIRECTOR AS DIRECTOR
---- --- ------------------------- ---------------- ------------
<S> <C> <C> <C> <C>
William J. Barrett ..... 67 Chief Executive Next Annual 1983
(3) Officer and Chairman Meeting
of the Board of
Directors
C. Robert Buford........ 61 Director Next Annual 1983
(1)(2)(6) Meeting
Derrill Cody............ 57 Director Next Annual 1995
(1)(2) Meeting
James M. Fitzgibbons.... 61 Director Next Annual 1987
(1)(2)(4) Meeting
Hennie L.J.M. Gieskes... 55 Director Next Annual 1985
(1)(2) Meeting
William W. Grant, III... 63 Director Next Annual 1995
(1) Meeting
J. Frank Keller......... 52 Chief Financial Officer, Next Annual 1983
(3) Executive Vice President, Meeting
Secretary, and a Director
Paul M. Rady............ 42 President, Chief Next Annual 1994
Operating Officer, Meeting
and a Director
A. Ralph Reed........... 58 Executive Vice Next Annual 1990
President--Operations Meeting
and a Director
James T. Rodgers........ 61 Director Next Annual 1993
(1)(2) Meeting
Philippe S.E. 55 Director Next Annual 1985
Schreiber.............. Meeting
(1)(2)(7)
William F. Wallace...... 56 Vice Chairman --(8) 1995
of the Board of Directors
Harry S. Welch.......... 72 Director Next Annual 1995
(2) Meeting
Joseph P. Barrett....... 42 Vice President-- -- --
(9)
Robert W. Howard........ 41 Senior Vice -- --
President--Finance
and Treasurer
Eugene A. Lang, Jr...... 42 Senior Vice President-- -- --
General Counsel
Donald H. Stevens....... 43 Vice President-- -- --
(10) Corporate Relations
and Capital Markets
</TABLE>
22
<PAGE>
- --------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
(3) Mr. Barrett and Mr. Keller are brothers-in-law.
(4) Mr. Fitzgibbons served as a Director of the Company from July 1987 until
October 1992. He was re-elected to the Board of Directors in January 1994.
(5) All officers are elected annually at the first Board Of Directors' meeting
following the annual meeting of stockholders.
(6) One transaction in July 1995, required to be reported by Mr. Buford on a
Statement Of Change In Beneficial Ownership Of Securities on Form 4, was
reported late with the Securities and Exchange Commission ("SEC") on a
Form 5, Annual Statement Of Changes In Beneficial Ownership.
(7) A Statement Of Changes In Beneficial Ownership Of Securities on Form 4
with respect to one transaction by Mr. Schreiber in November 1995 was
filed two days late with the SEC.
(8) Mr. Wallace resigned as Vice Chairman and as a member of the Board of
Directors of the Company effective January 11, 1996.
(9) Joseph P. Barrett is the son of William J. Barrett.
(10) One transaction in October 1995, required to be reported by Mr. Stevens
on a Statement Of Changes In Beneficial Ownership Of Securities on Form
4, was reported late with the SEC on a Form 5, Annual Statement Of
Changes In Beneficial Ownership.
William J. Barrett has been Chief Executive Officer since December 1983 and
Chairman of the Board of Directors of the Company since March 1994. Mr.
Barrett was President of the Company from December 1983 through September
1994. Mr. Barrett has been the Chairman of the Board, Chief Executive Officer,
and a director of Plains since it became a wholly owned subsidiary of the
Company as the result of a merger in July 1995. Mr. Barrett has also been a
director of Barrett Fuels Corporation, a wholly owned subsidiary of the
Company, since its formation in September 1990. From January 1979 to February
1982, Mr. Barrett was an independent oil and gas operator in the western
United States in association with Aeon Energy, a partnership composed of four
sole proprietorships. From 1971 to 1978, Mr. Barrett served as Vice
President--Exploration and a director of Rainbow Resources, Inc., a publicly
held independent oil and gas exploration company that merged with a subsidiary
of the Williams Companies in 1978. Mr. Barrett served as President,
Exploration Manager and Director for B&C Exploration from 1969 until 1971 and
was a chief geologist for Wolf Exploration Company, now known as Inexco Oil
Co., from 1967 to 1969. He was an exploration geologist with Pan-American
Petroleum Corporation from 1963 to 1966 and worked as an exploration
geologist, a petroleum geologist and a stratigrapher for El Paso Natural Gas
Co. at various times from 1958 to 1963. Mr. Barrett received a B.S. Degree in
Geology and an M.S. Degree in Geology from Kansas State University in 1956 and
1957, respectively.
C. Robert Buford has been a director of the Company since December 1983 and
served as Chairman of the Board of Directors from December 1983 through March
1994. Mr. Buford has been President, Chairman of the Board and controlling
shareholder of Zenith Drilling Corporation ("Zenith"), Wichita, Kansas, since
February 1966. Zenith is engaged in the oil and gas business and owns
approximately three percent of the Company's Common Stock. Since 1993, Mr.
Buford has served as a director of Encore Energy, Inc., a wholly owned
subsidiary of Zenith engaged in the marketing of natural gas. Mr. Buford is
also a member of the Board Of Directors of First Bancorp of Wichita, Kansas, a
bank holding company, and Lonestar Steakhouse & Saloon, Inc., a restaurant
company headquartered in Wichita, Kansas. He received a B.A. Degree in
Business Administration from Oklahoma State University in 1955.
Derrill Cody has been a director of the Company since July 1995. Mr. Cody
was a director of Plains from May 1990 through July 1995. Since January 1990,
Mr. Cody has been an attorney in private practice in Oklahoma City, Oklahoma.
From 1986 to 1990, he was Executive Vice President of Texas Eastern
Corporation, and from 1987 to 1990 he was the Chief Executive Officer of Texas
Eastern Pipeline Company. He has been a director of the General partner of
TEPPCO Partners, L.P. since January 1990. Mr. Cody received a B.A. Degree in
History from East Central State College in 1960 and an L.L.B. from the
University of Oklahoma in 1964.
23
<PAGE>
James M. Fitzgibbons has been a director of the Company since January 1994,
and previously served as a director of the Company from July 1987 until
October 1992. Since October 1990, Mr. Fitzgibbons has been Chairman and Chief
Executive Officer of Fieldcrest Cannon, Inc., a manufacturer of home
furnishing textiles. From January 1986 until October 1990, Mr. Fitzgibbons was
President of Amoskeag Company in Boston, Massachusetts. Prior to 1986, he was
President of Howes Leather Company, a producer of leather. Mr. Fitzgibbons is
also member of the Board Of Directors of Lumber Insurance Company, American
Textile Manufacturers Institute and a Trustee of Laurel Funds, a series of
mutual funds. Mr. Fitzgibbons received an A.B. Degree from Harvard College in
1956.
Hennie L.J.M. Gieskes has been a director of the Company since November
1985. Mr. Gieskes is the Managing Director of Spaarne Compagnie N.V., a
Netherlands company engaged in the investment business. From before 1976 until
December 1990, Mr. Gieskes was a Managing Director of Vitol Beheer B.V.
("Vitol"), a Netherlands trading company engaged primarily in energy-related
commodities. Mr. Gieskes received a law degree from the University of
Amsterdam, The Netherlands, in 1968.
William W. Grant, III has been a director of the Company since July 1995.
Mr. Grant was a director of Plains from May 1987 through July 1995. He has
been an advisory director of Colorado National Bankshares, Inc. and Colorado
National Bank since 1993. He was a director of Colorado National Bankshares,
Inc. from 1982 to 1993 and the Chairman of the Board of Colorado National Bank
from 1986 to 1993. He served as the Chairman of the Board of Colorado Capital
Advisors from 1989 through 1994. Mr. Grant received a B.A. Degree in English
from Yale University in 1954 and attended the Harvard University Graduate
School of Business' Advanced Management Program from 1970 to 1971.
J. Frank Keller has been Chief Financial Officer since July 1995 and an
Executive Vice President, the Secretary and a director of the Company since
December 1983. Mr. Keller has been the Chief Financial Officer, an Executive
Vice President, the Secretary, and a director of Plains, a wholly owned
subsidiary, since July 1995. He also has been the President and a director of
Barrett Fuels Corporation since its formation in September 1990. Mr. Keller
was an Executive Vice President of the Company from December 1983 through
September 1995. Mr. Keller was the President and a co-founder of Myriam Corp.,
an architectural design and real estate development firm beginning in 1976,
until it was reorganized as Barrett Energy in February 1982. Mr. Keller
graduated from Kansas State University in 1967 with a B.S. Degree and received
an M.B.A. Degree from Colorado State University in 1992.
Paul M. Rady has been President, Chief Operating Officer, and a director of
the Company since September 1994. Prior to that time Mr. Rady served as
Executive Vice President--Exploration of the Company beginning February 1993.
Mr. Rady has been the President, Chief Operating Officer, and a director of
Plains, a wholly owned subsidiary, since July 1995. From August 1990 until
July 1992, Mr. Rady served as Chief Geologist for the Company, and from July
1992 until January 1993 he served as Exploration Manager for the Company. From
July 1980 until August 1990, Mr. Rady served in various positions with the
Denver, Colorado regional office of Amoco Production Company, the exploration
and production subsidiary of Amoco Corporation. Mr. Rady was a Geologist and
Geophysicist for Amoco Production Company. While with Amoco Production
Company, Mr. Rady's areas of responsibility included the Rocky Mountain
Basins, Utah-Wyoming Overthrust Belt, offshore Alaska, Oklahoma, particularly
with respect to the Arkoma Basin, and the New Ventures Group, which
concentrated on the western United States. Mr. Rady received a B.A. Degree in
Geology in 1978 from Western State College of Colorado in Gunnison, Colorado,
and an M.S. Degree in Geology in 1980 from Western Washington University in
Bellingham, Washington.
A. Ralph Reed has been an Executive Vice President of the Company since
November 1989 and a director of the Company since September 1990. Mr. Reed has
served as Executive Vice President--Operations and a director of Plains, a
wholly owned subsidiary, since July 1995. From 1986 to 1989, Mr. Reed was an
independent oil and gas operator in the Mid-Continent region of the United
States, including the period from January 1988 to November 1989 when he acted
as a consultant to Zenith Drilling Corporation. From 1982 to 1986, Mr. Reed
was President and Chief Executive Officer of Cotton Petroleum Corporation, a
wholly owned exploration and
24
<PAGE>
production subsidiary of United Energy Resources, Inc. Prior to joining Cotton
Petroleum Corporation in 1980, Mr. Reed was employed by Amoco Production
Company from 1962, holding various positions including Manager of
International Production, Division Production Manager and Division Engineer.
Mr. Reed received a B.S. Degree in Petroleum Engineering from the University
of Oklahoma in 1959 and in 1975 attended the Executive School at the
University of Virginia.
James T. Rodgers has been a director of the Company since October 1993. Mr.
Rodgers served as the President, Chief Operating Officer and a director of
Anadarko Petroleum Corporation ("Anadarko") from 1986 through 1992. Anadarko
is a Houston-based oil and gas exploration and production company. Prior to
1986, Mr. Rodgers was employed in other capacities by Anadarko and Amoco
Production Company. Mr. Rodgers taught Petroleum Engineering at the University
of Texas in Austin in 1958 and at Texas Tech University in Lubbock from 1958
to 1961. Mr. Rodgers currently serves as a Director of Louis Dreyfus Natural
Gas Corporation and as an Advisory Director for Texas Commerce Bank in
Houston. Mr. Rodgers received a B.S. Degree from Louisiana State University in
1956 and an M.S. Degree from the University of Texas in 1958.
Philippe S.E. Schreiber has been a director of the Company since November
1985. Mr. Schreiber is an independent lawyer and business consultant who also
is of counsel to the law firm of Walter, Conston, Alexander & Green, P.C. in
New York, New York. Mr. Schreiber has been affiliated with that law firm as
counsel or partner since August 1985. From 1988 to mid-1992, he also was the
Chairman of the Board and a principal shareholder of HSE, Inc., d/b/a
Manhattan Kids Limited, a privately owned corporation involved in catalogue
sales of American made children's clothing in Europe. From October 1985
through June 1992, Mr. Schreiber served as a director, and from July 1990
until June 1991 as Managing Director, of Owl Creek Investments Plc, a publicly
traded English oil and gas company. Mr. Schreiber received an A.B. Degree from
Columbia College in 1964 and a J.D. Degree from Columbia University School of
Law in 1967.
Harry S. Welch has been a director of the Company since July 1995. Mr. Welch
was a director of Plains from May 1986 to July 1995. Since August 1989, he has
been an attorney in private practice in Houston, Texas. He served as Vice
President and General Counsel of Texas Eastern Corporation from 1988 to July
1989. Mr. Welch received a B.B.A. Degree and an L.L.B. Degree from the
University of Texas in 1947 and 1949, respectively.
Joseph P. Barrett has been a Vice President since March 1995 and has been
with the Company since it began in 1982. Mr. Barrett has served as Vice
President--Land and a director of Plains, a wholly owned subsidiary, since
July 1995. He is a 1977 graduate of the University of Colorado where he earned
a Bachelor's Degree in Business and Mineral Land Management, and a 1982
graduate of Washburn University Law School where he earned his law degree.
Robert W. Howard has been Senior Vice President of the Company since March
1992. Mr. Howard has served as Senior Vice President and a director of Plains,
a wholly owned subsidiary, since July 1995. Mr. Howard served as the Executive
Vice President--Finance from December 1989 until March 1992 and served as Vice
President--Finance of the Company from December 1983 until December 1989. Mr.
Howard has been the Treasurer of the Company since March 1986. During 1982,
Mr. Howard was a Manager/Accountant with Weiss & Co., a certified public
accounting firm. Mr. Howard received a B.B.A. Degree from the University of
Wisconsin, Eau Claire, in 1976.
Eugene A. Lang, Jr. has been Senior Vice President--General Counsel of the
Company since September 1995. Mr. Lang served as a Senior Vice President,
General Counsel and Secretary of Plains from May 1994 to July 1995, and from
October 1990 to May 1994 he served as Vice President, General Counsel and
Secretary of Plains. From 1986 to 1990 he was an associate with the Houston,
Texas law firm of Vinson & Elkins. From 1984 to 1986, he was General Attorney
and Assistant Secretary of K N Energy, Inc. From 1978 to 1984, he was an
attorney for K N Energy, Inc.
25
<PAGE>
Donald H. Stevens has been the Vice President--Corporate Relations and
Capital Markets for the Company since August 1992. From July 1989 until August
1992, Mr. Stevens served as Manager of Corporate and Tax Planning for
Kennecott Corporation, a mining company. From May 1986 until September 1989,
Mr. Stevens served as Corporate Planning Analyst in Corporate Acquisition and
Divestitures for BP America, Inc., formerly The Standard Oil Company. Prior to
May 1986, Mr. Stevens served in various finance, tax and analyst positions
with Seco Energy Corporation and Gulf Oil Corporation, both of which are oil
and gas companies. Mr. Stevens received his B.S. Degree in Finance/Accounting
from the University of Wyoming in 1975.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth, in summary form, the compensation received
during each of the Company's last three completed years by the Chief Executive
Officer of the Company and by the four other most highly compensated executive
officers whose compensation exceeded $100,000 during the year ended December
31, 1995. Beginning with the year ended December 31, 1995, the Company changed
its fiscal year end from September 30 to December 31. The figures in the
following table are for each of the one year periods ended December 31, 1995,
1994, and 1993:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------
AWARDS PAYOUTS
--------------------- -------
SECURITIES
RESTRICTED UNDERLYING
OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
POSITION YEAR ($)(1) ($)(2) ($)(3) ($)(4) (#)(5) ($)(6) ($) (7)
------------------ ------ -------- ------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William J. Barrett...... 1995 $200,000 0 0 0 0 0 4,680
Chief Executive
Officer, 1994 $200,000 $40,000 0 0 100,000 0 4,560
and Chairman of the
Board 1993 $175,000 $60,000 0 0 0 0 4,555
Paul M. Rady............ 1995 $175,000 0 0 0 0 0 4,680
President, Chief
Operating 1994 $139,583 $30,000 0 0 70,000 0 4,247
Officer, and a director 1993 $100,000 $30,000 0 0 0 0 3,060
A. Ralph Reed........... 1995 $200,000 0 0 0 0 0 4,680
Executive Vice
President-- 1994 $164,583 $30,000 0 0 100,000 0 4,705
Operations, and a
director 1993 $135,000 $40,000 0 0 0 0 4,110
J. Frank Keller......... 1995 $150,000 0 0 0 0 0 4,560
Chief Financial
Officer, 1994 $128,750 $25,000 0 0 55,000 0 3,922
Executive Vice
President, 1993 $ 97,500 $31,075 0 0 0 0 2,985
Secretary and a
director
William F. Wallace...... 1995 $211,373 0 0 0 0 0 3,412
Former Vice Chairman of 1994 $ 76,993 0 0 0 99,030(9) 0 6,900
the Board (8) 1993 -- -- -- -- -- -- --
</TABLE>
- --------
(1) The dollar value of base salary (cash and non-cash) earned during the year
indicated.
(2) The dollar value of bonus (cash and non-cash) earned during the year
indicated.
(3) During the period covered by the Table, the Company did not pay any other
annual compensation not properly categorized as salary or bonus, including
perquisites and other personal benefits, securities or property.
(4) During the period covered by the Table, the Company did not make any award
of restricted stock, including share units.
(5) The sum of the number of shares of Common Stock to be received upon the
exercise of all stock options granted. The 1994 Stock Option Plan was
approved by the Board Of Directors effective April 1, 1994 and was
approved by stockholders at the March 16, 1995 Annual Meeting. At the
March 5, 1996 meeting of the Board Of Directors, the Board approved,
subject to stockholder approval, an amendment to the 1994 Plan to increase
from 400,000 to 1,000,000 the number of shares subject to the 1994 Plan.
See below "Option Grants Table".
26
<PAGE>
(6) Except for stock option plans, the Company does not have in effect any
plan that is intended to serve as incentive for performance to occur over
a period longer than one fiscal year.
(7) All other compensation received that the Company could not properly report
in any other column of the Table including annual Company contributions or
other allocations to vested and unvested defined contribution plans, and
the dollar value of any insurance premiums paid by, or on behalf of, the
Company with respect to term life insurance for the benefit of the named
executive officer, and the full dollar of the remainder of the premiums
paid by, or on behalf of, the Company. Effective in November 1993, the
Company obtained directors and officers insurance. Coverage of the named
officers under this policy may be considered compensation for the named
officers, although it has not been included in the table.
(8) Mr. Wallace's compensation was paid by Plains during the period from
October 3, 1994 (when he first became an executive officer of Plains)
through July 18, 1995 when Plains merged with and into the Company. Mr.
Wallace resigned as an officer and director of the Company effective
January 11, 1996 and as an employee of the Company effective as of March
6, 1996.
(9) Consists of options to purchase 76,185 shares of Common Stock of Plains
that became options to purchase 99,030 shares of Common Stock of the
Company upon the merger of Plains with and into a subsidiary of the
Company on July 18, 1995.
Option Grants Table
No grants of stock options were made during the fiscal year ended December
31, 1995 to the Company's Chief Executive Officer or the four other most
highly compensated executive officers of the Company whose compensation
exceeded $100,000 during the year ended December 31, 1995.
Aggregated Option Exercises And Fiscal Year-End Option Value Table
The following table sets forth information concerning each exercise of stock
options during the year ended December 31, 1995 by the Company's Chief
Executive Officer and the four other most highly compensated executive
officers of the Company whose compensation exceeded $100,000 during the year
ended December 31, 1995, and the year-end value of unexercised options held by
these persons:
AGGREGATED OPTION EXERCISES
FOR YEAR ENDED DECEMBER 31, 1995
AND YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES VALUE YEAR-END (#)(3) YEAR-END ($)(4)
ACQUIRED ON REALIZED ------------------------- -------------------------
NAME EXERCISE(#)(1) ($) (2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William J. Barrett...... 25,000 $206,875 0 75,000 $ 0 $ 997,615
Chief Executive
Officer, and Chairman
of the Board
Paul M. Rady............ 30,000 $562,500 17,499 52,501 $253,859 $ 731,641
President, Chief
Operating Officer, and
a director
A. Ralph Reed........... 0 0 25,000 75,000 $339,650 $1,018,950
Executive Vice
President--Operations,
and a director
J. Frank Keller......... 10,000 $202,500 13,749 41,251 $198,097 $ 594,354
Chief Financial
Officer, Executive Vice
President, Secretary
and a director
William F. Wallace...... 0 0 29,710 69,320 $272,818 $ 636,545
Former Vice Chairman of
the Board
</TABLE>
27
<PAGE>
- --------
(1) The number of shares received upon exercise of options during the year
ended December 31, 1995.
(2) With respect to options exercised during the Company's year ended December
31, 1995, the dollar value of the difference between the option exercise
price and the market value of the option shares purchased on the date of
the exercise of the options.
(3) The total number of unexercised options held as of December 31, 1995,
separated between those options that were exercisable and those options
that were not exercisable.
(4) For all unexercised options held as of December 31, 1995, the aggregate
dollar value of the excess of the market value of the stock underlying
those options over the exercise price of those unexercised options. These
values are shown separately for those options that were exercisable, and
those options that were not yet exercisable, on December 31, 1995. As
required, the price used to calculate these figures was the closing sale
price of the Common Stock at year-end. On December 29, 1995, the last day
of trading for the year, the closing sale price of the Common Stock was
$29.375 per share. On March 12, 1996, the closing sale price was $22.625
per share.
Employee Retirement Plans, Long-Term Incentive Plans, And Pension Plans
The Company has an employee retirement plan (the "401(k) Plan") that
qualifies under Section 401(k) of the Internal Revenue Code Of 1986, as
amended. Employees of the Company are entitled to contribute to the 401(k)
Plan up to 15 percent of their respective salaries. For each pay period
through March 31, 1996, the Company will contribute, on behalf of each
employee, 50 percent of the contribution made by that employee, up to a
maximum contribution by the Company of three percent of that employee's gross
salary for that pay period. Effective April 1, 1996, the Company's matching
contribution will be increased to 100 percent of each participating employee's
contribution, up to a maximum of six percent of base salary, with one-half of
the match paid in cash and one-half of the match paid in the Company's Common
Stock. Benefits payable to employees upon retirement are based on the
contributions made by the employee under the 401(k) Plan, the Company's
matching contributions, and the performance of the 401(k) Plan's investments.
Therefore, the Company cannot estimate the annual benefits that will be
payable to participants in the 401(k) Plan upon retirement at normal
retirement age.
Excluding the Company's stock option plans, the Company has no long-term
incentive plan to serve as incentive for performance to occur over a period
longer than one fiscal year.
Excluding the 401(k) Plan, the Company has no defined benefit or actuarial
or pension plans or other retirement plans.
Compensation of Directors
Standard Arrangements. Pursuant to the Company's standard arrangement for
compensating directors of the Company, no compensation for serving as a
director is paid to directors who are not also employees of the Company, and
those directors who are not also employees of the Company ("Outside
Directors") receive an annual retainer of $20,000 paid in equal quarterly
installments. In addition, for each meeting attended, each Outside Director
receives a $750 meeting attendance fee, and will have options to purchase 500
shares of the Common Stock become exercisable. Although these options become
exercisable only at the rate of 500 for each Board Of Directors meeting
attended, each director will be granted options to purchase 10,000 shares at
the time the person initially becomes a director. Any options that have not
become exercisable at the time of termination of a director's service will
expire at that time. At such time that the options to purchase all 10,000
shares have become exercisable, options to purchase an additional 10,000
shares will be granted to the director subject to the restrictions on
exercise. The options are granted to the Outside Directors pursuant to the
Company's Non-Discretionary Stock Option Plan, and their exercise price is
equal to the closing sales price for the Company's Common Stock on the date of
grant. These options expire upon the later to occur of (i) five years after
the date of grant, and (ii) two years after the date those options first
become exercisable.
28
<PAGE>
Effective in November 1993, the Company obtained directors and officers
insurance coverage. Coverage of the directors of the Company under this policy
may be considered compensation for the directors.
Other Arrangements. During the year ended December 31, 1995, no compensation
was paid to directors of the Company other than pursuant to the standard
compensation arrangements described in the previous section.
Employment Contracts And Termination Of Employment And Change-In-Control
Arrangements
The Company does not have any written employment contracts with respect to
any of its executive officers named in the Summary Compensation Table except
for William F. Wallace. The Company entered into a six month employment
agreement with Mr. Wallace effective at the consummation of the Barrett-Plains
merger. In addition, Mr. Wallace is a party to an agreement with Plains to
which the Company became bound as a result of the Barrett-Plains merger. That
agreement provides, among other things, that if, within three years after a
"Change In Control" (as defined in the agreement), Mr. Wallace's employment
with Plains is involuntarily terminated or is terminated by Mr. Wallace for
"Good Reason", Mr. Wallace is to be paid a cash amount equal to (a) 299
percent of the higher of (i) his then annual compensation (including salary,
bonuses and incentive compensation) or (ii) the highest annual compensation
(including salary, bonuses and incentive compensation) paid or payable during
any of the three calendar years ending with the year of his termination, plus,
(b) an amount equal to any excise taxes payable by Mr. Wallace with respect to
these amounts and any excise or income taxes payable by Mr. Wallace as a
result of the reimbursement of the excise taxes. "Good Reason" is defined as a
reduction in Mr. Wallace's compensation or employment responsibilities, a
required relocation outside the greater Denver, Colorado area or, generally,
any conduct by Plains that renders Mr. Wallace unable to discharge his
employment duties effectively. Following the cessation of Mr. Wallace's
employment with the Company on March 6, 1996, the Company paid to Mr. Wallace
$1,024,440 in satisfaction of the Company's obligations pursuant to Mr.
Wallace's employment agreement with Plains. The Company has no other
compensatory plan or arrangement that results or will result from the
resignation, retirement, or any other termination of the employment with the
Company and its subsidiaries of the executive officers named in the Summary
Compensation Table or from a change-in-control, except that (i) in January
1994, the Board Of Directors approved a resolution allowing all options
outstanding under the Company's 1990 Stock Option Plan to become exercisable
if an announcement is made concerning a business combination with the Company;
and (ii) in September 1994, the Compensation Committee committed to Mr. Reed
that all stock options that has been granted to him as of September 10, 1994
would become exercisable upon termination of his employment provided that he
remains in the employment of the Company continuously until September 10,
1997, and further provided that the Compensation Committee, or its successor,
determines as of the date of his termination that his employment performance
has satisfied the Company's employment standards for executive officers.
Compensation Committee Interlocks And Insider Participation
During the year ended December 31, 1995, each of C. Robert Buford, James M.
Fitzgibbons, Derrill Cody, Hennie L.J.M. Gieskes, James T. Rodgers, Philippe
S.E. Schreiber and Harry S. Welch served as members of the Compensation
Committee of the Board Of Directors. Mr. Schreiber served as the President of
Excel Energy Corp. prior to the 1985 merger of Excel with and into the Company
and Mr. Gieskes served as Chairman Of The Board of Excel at the time of the
merger of Excel with and into the Company. No other person who served as a
member of the Compensation Committee during the year ended December 31, 1995
was, during that year, an officer or employee of the Company or of any of its
subsidiaries, or was formerly an officer of the Company or of any of its
subsidiaries. For a description of transactions involving Mr. Buford and the
Company, please see Item 13. "Certain Relationships and Related Transactions".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table summarizes certain information as of March 12, 1996 with
respect to the ownership by each director, by each executive officer named in
the "Executive Compensation" section above, by all executive officers and
directors as a group, and by each other person known by the Company to be the
beneficial owner of more than five percent of the Common Stock:
29
<PAGE>
<TABLE>
<CAPTION>
AMOUNT/NATURE OF PERCENT OF CLASS
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP BENEFICIALLY OWNED
------------------------ -------------------- ------------------
<S> <C> <C>
William J. Barrett................... 386,660 Shares(1) 1.5%
C. Robert Buford..................... 623,111 Shares(2) 2.5%
Derrill Cody......................... 9,560 Shares(3) (4)
James M. Fitzgibbons................. 8,500 Shares(3) (4)
Hennie L.J.M. Gieskes................ 896,214 Shares(3) 3.6%
William W. Grant, III................ 22,650 Shares(3) (4)
J. Frank Keller...................... 81,570 Shares(3) (4)
Paul M. Rady......................... 56,500 Shares(3) (4)
A. Ralph Reed........................ 63,822 Shares(5) (4)
James T. Rodgers..................... 8,500 Shares(3) (4)
Philippe S.E. Schreiber.............. 16,507 Shares(3) (4)
William F. Wallace................... 99,293 Shares(3) (4)
Harry S. Welch....................... 16,800 Shares(3) (4)
All Directors And Executive Officers 2,339,517 Shares(6) 9.3%
As A Group (17 persons).............
State Farm Mutual Insurance Company 2,065,233 Shares 8.2%
and related entities................
One State Farm Plaza
Bloomington, IL 61710
Wellington Management Company........ 1,529,700 Shares(7) 6.1%
75 State Street
Boston, MA 02109
</TABLE>
- --------
(1) The number of shares indicated includes 6,790 shares owned by Louise K.
Barrett, Mr. Barrett's wife, 230,000 shares owned by the Barrett Family
L.L.L.P., a Colorado limited partnership for which Mr. Barrett and his
wife are general partners and owners of an aggregate of 77.21462 percent
of the partnership interests, and 49,998 shares underlying options that
currently are exercisable or become exercisable within the next 60 days.
Pursuant to Rule 161-1(a)(4) under the Securities Exchange Act of 1934
(the "1934 Act"), Mr. Barrett disclaims ownership of all but 177,594
shares held by the Barrett Family L.L.L.P., which constitutes Mr. and Mrs.
Barrett's proportionate shares of the shares held by the Barrett Family
L.L.L.P.
(2) C. Robert Buford is considered the beneficial owner of the 604,830 shares
of which Zenith Drilling Corporation ("Zenith") is the record owner. Mr.
Buford owns approximately 89 percent of the outstanding common stock of
Zenith. The number of shares indicated for Mr. Buford also includes 10,000
shares that are owned by Aguilla Corporation, which is owned by Mr.
Buford's wife and adult children. Mr. Buford disclaims beneficial
ownership of the shares held by Aguilla Corporation pursuant to Rule 16a-
1(a)(4) under the 1934 Act. The number of shares indicated also includes
8,000 shares underlying options currently exercisable at $10.375 per
share.
(3) The number of shares indicated consists of or includes the following
number of shares underlying options that currently are exercisable or that
become exercisable within the next 60 days that are held by each of the
following persons: Derrill Cody, 9,300; James M. Fitzgibbons, 6,500;
Hennie L.J.M. Gieskes, 7,000; William W. Grant, III, 12,900; J. Frank
Keller, 22,350; Paul M. Rady, 26,500; James T. Rodgers, 8,500; Philippe
S.E. Schreiber, 6,500; William F. Wallace, 99,030; and Harry S. Welch,
14,200. Mr. Wallace resigned as an executive officers of the Company
effective January 11, 1996 and as an employee of the Company effective
March 6, 1996.
(4) Less than one percent of the Common Stock outstanding.
(5) The number of shares indicated includes 12,500 shares owned by Mary C.
Reed, Mr. Reed's wife and 35,800 shares underlying options currently are
exercisable or that become exercisable within the next 60 days.
(6) The number of shares indicated includes the shares owned by Zenith that
are beneficially owned by Mr. Buford as described in note (2), and the
aggregate of 306,578 shares underlying the options described in notes (1),
(2), (3) and (5), an aggregate of 27,127 shares owned by four executive
officers not named in the above table, an aggregate of 745 shares the
beneficial ownership of which is disclaimed by the four executive officers
not named in the above table, and an aggregate of 74,109 shares underlying
options that currently are exercisable or that are exercisable within 60
days that are held by those four executive officers.
(7) Wellington Management company, in its capacity as investment adviser, may
be deemed the beneficial owner of these shares which are owned by numerous
investment counseling clients.
30
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 1995, Zenith, which owns a working
interest in many of the leases for which the Company is the operator, paid to
the Company, as operator, approximately $1,062,000 as Zenith's portion of the
lease operating expenses and development costs for those leases. Also, as a
result of its working interest in those leases, Zenith received approximately
$942,000 as its share of revenues. Zenith owns working interests ranging from
three to 50 percent in leases of which the Company is the operator. All terms
and arrangements between Zenith and the Company with respect to these working
interests are the same as those between the Company and the other working
interest owners in the leases. Zenith is 89 percent owned by Mr. Buford.
Mr. Buford also is the President of Grand Valley Corporation ("GVC"), which
owns approximately a 10 percent interest in the pipeline gathering system and
related facilities on the Company's Grand Valley Field. Ten percent of GVC is
owned by Mr. Buford, and 90 percent of GVC is owned by Mr. Buford's three
adult children. During the year ended December 31, 1995, GVC's proportionate
share of the pipeline gathering system's expenses, not including depreciation,
was approximately $148,000, and its share of the pipeline gathering system's
revenues was approximately $909,000. All terms and arrangements between GVC
and the Company with respect to this gathering system are the same as those
between the Company and the other owners of the gathering system.
PART IV
ITEM 14. EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) and (a)(2) Financial Statements And Financial Statement Schedules
31
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
Report Of Independent Public Accountants................................. F-1
Consolidated Balance Sheets at December 31, 1995 and 1994................ F-2
Consolidated Statements of Income for each of the three years in the
period ended December 31, 1995.......................................... F-3
Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended December 31, 1995............................. F-4
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1995.......................................... F-5
Notes to the Consolidated Financial Statements........................... F-6
Supplemental Oil And Gas Information..................................... F-20
</TABLE>
All other schedules are omitted because the required information is not
present in amounts sufficient to require submission of the schedule or because
the information required is included in the Consolidated Financial Statements
and Notes thereto.
(a)(3) Exhibits
See "EXHIBIT INDEX" on page 33.
(b) Reports On Form 8-K. No reports on Form 8-K were filed during the fourth
quarter of the year ended December 31, 1995.
32
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
EXHIBIT
2.1 Agreement And Plan of Merger, dated as of May 2, 1995, among Barrett
Resources Corporation ("Barrett" or "Registrant"), Barrett Energy Inc.
(formerly known as Vanilla Corporation), and Plains Petroleum Company
("Plains") is incorporated by reference from Annex I to the Joint
Proxy Statement/Prospectus of Barrett and Plains dated June 13, 1995.
3.1 Restated Certificate Of Incorporation of Barrett Resources
Corporation, a Delaware corporation, is incorporated herein by
reference from Exhibit 3.2 of Registrant's Registration Statement on
Form S-4 dated June 9, 1995.
3.6 Bylaws of Barrett, as amended, are incorporated herein by reference
from Exhibit 3.3 of Registrant's Registration Statement on Form S-4
dated June 9, 1995.
10.1 Non-Qualified Stock Option Plan Of Barrett Resources Corporation is
incorporated by reference from Registrant's Registration Statement on
Form S-8 dated November 15, 1989.
10.2 Registrant's 1990 Stock Option Plan, as amended, is incorporated by
reference from the Registrant's Registration Statement on Form S-8
dated March 15, 1995.
10.3 Registrant's Non-Discretionary Stock Option Plan is incorporated by
reference from Registrant's Annual Report on Form 10-K for the year
ended September 30, 1991.
10.4 1994 Stock Option Plan, as amended, is incorporated by reference from
the Registrant's Registration Statement on Form S-8 dated March 15,
1995.
10.5A Gas Purchase Contract, No. P-1090, dated April 20, 1984, as amended,
between Plains and KN Energy, Inc. is incorporated by reference from
Plains Petroleum Company's Registration Statement on Form 10 dated
August 21, 1985.
10.5B Letter Agreement dated January 11, 1996, amending the Gas Purchase
Contract, No. P-1090, dated April 20, 1984, between Plains and KN
Energy, Inc.
10.6 Revolving Credit Agreement dated as of July 19, 1995 among Barrett and
Texas Commerce Bank National Association, as agent, and Texas Commerce
Bank National Association, Nations Bank of Texas, N.A., Bank of
Montreal, Houston Agency, Colorado National Bank, and The First
National Bank of Boston, as banks.
22 List of Subsidiaries.
24 Consent of Arthur Andersen LLP.
</TABLE>
33
<PAGE>
REPORT OF ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Barrett Resources Corporation
Denver, Colorado 80202
We have audited the accompanying consolidated balance sheets of Barrett
Resources Corporation (a Delaware corporation) and subsidiaries as of December
31, 1995 and 1994, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. 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 the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Barrett Resources
Corporation and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As explained in Note 8 to the financial statements, effective January 1,
1993, the Company changed its method of accounting for postretirement
benefits.
Arthur Andersen LLP
Denver, Colorado
March 1, 1996
F-1
<PAGE>
BARRETT RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 7,529 $ 12,348
Receivables, net......................................... 31,089 34,522
Inventory................................................ 554 643
Other current assets..................................... 574 1,099
-------- --------
Total current assets................................... 39,746 48,612
Net property and equipment (full cost method).............. 300,666 261,424
Other assets............................................... -- 916
-------- --------
$340,412 $310,952
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 14,369 $ 24,587
Amounts payable to oil and gas property owners........... 13,366 16,091
Accrued and other liabilities............................ 8,325 5,468
-------- --------
Total current liabilities.............................. 36,060 46,146
Long term debt............................................. 89,000 53,000
Deferred income taxes...................................... 23,524 21,726
Postretirement benefits.................................... -- 927
Other long term liabilities................................ -- 1,017
Commitments and contingencies--Note 10
Stockholders' equity:
Preferred stock, $.001 par value: 1,000,000 shares
authorized,
none outstanding........................................ -- --
Common stock, $.01 par value: 35,000,000 shares
authorized,
25,092,246 outstanding (24,694,669 at December 31,
1994)................................................... 251 247
Additional paid-in capital............................... 86,154 78,628
Retained earnings........................................ 105,890 109,304
Treasury stock, at cost.................................. (467) (43)
-------- --------
Total stockholders' equity............................. 191,828 188,136
-------- --------
$340,412 $310,952
======== ========
</TABLE>
See accompanying notes.
F-2
<PAGE>
BARRETT RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Oil and gas production.......................... $ 96,996 $ 78,794 $ 80,911
Trading revenues................................ 28,554 28,114 22,955
Revenue from gas gathering...................... 1,074 353 216
Interest income................................. 714 864 736
Other income.................................... 678 1,333 1,254
-------- -------- --------
128,016 109,458 106,072
Operating expenses:
Lease operating expenses........................ 34,525 28,223 30,383
Depreciation, depletion and amortization........ 33,480 22,760 20,185
Cost of trading................................. 27,611 27,190 21,675
General and administrative...................... 13,426 13,261 11,194
Interest expense................................ 4,631 942 725
Other expenses, net............................. 588 645 867
Merger and reorganization expense............... 14,161 -- --
-------- -------- --------
128,422 93,021 85,029
-------- -------- --------
Income (loss) before income taxes and cumulative
effect of change in method of accounting for
postretirement benefits.......................... (406) 16,437 21,043
Provision for income taxes........................ 1,834 5,138 6,721
-------- -------- --------
Income (loss) before cumulative effect of change
in method of accounting for postretirement
benefits......................................... (2,240) 11,299 14,322
Cumulative effect of change in accounting for
postretirement benefits, net of tax.............. -- -- 656
-------- -------- --------
Net income (loss)................................. $ (2,240) $ 11,299 $ 13,666
======== ======== ========
Net income (loss) per common share and common
share equivalent before change in method of
accounting for post-retirement benefits.......... (.09) $ .46 $ .58
======== ======== ========
Net income (loss) per common share and common
share equivalent-- cumulative effect............. $ -- $ -- $ (.03)
======== ======== ========
Net income (loss) per common share and common
share equivalent................................. $ (.09) $ .46 $ .55
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
BARRETT RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN TREASURY RETAINED STOCKHOLDERS'
STOCK CAPITAL STOCK EARNINGS EQUITY
------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balances, October 1, 1992
As previously reported.... $ 97 $39,651 $ -- $ 3,567 $ 43,315
Effect of change to
December 31 year end -- -- -- 1,333 1,333
Net income for the three
month period ending
December 31, 1992......
Pooling of interests with
Plains Petroleum
Company.................. 128 19,163 -- 84,144 103,435
---- ------- ----- -------- --------
Balance, December 31, 1992
as restated................ 225 58,814 -- 89,044 148,083
Exercise of stock
options.................. 1 515 (204) -- 312
Issuance of common stock.. 20 18,881 -- -- 18,901
Cash dividends--Plains
common stock............. -- -- -- (2,352) (2,352)
Net income for the year
ended December 31, 1993.. -- -- -- 13,666 13,666
---- ------- ----- -------- --------
Balance, December 31, 1993.. 246 78,210 (204) 100,358 178,610
Exercise of stock
options.................. 1 970 (313) -- 658
Purchase of treasury
stock.................... -- -- (78) -- (78)
Retirement of treasury
stock.................... -- (552) 552 -- --
Cash dividends--Plains
common stock............. -- -- -- (2,353) (2,353)
Net income for the year
ended December 31, 1994.. -- -- -- 11,299 11,299
---- ------- ----- -------- --------
Balance, December 31, 1994.. 247 78,628 (43) 109,304 188,136
Exercise of stock
options.................. 4 7,690 (588) -- 7,106
Retirement of treasury
stock.................... -- (164) 164 -- --
Cash dividends--Plains
common stock............. -- -- -- (1,174) (1,174)
Net loss for the year
ended December 31, 1995.. -- -- -- (2,240) (2,240)
---- ------- ----- -------- --------
Balance, December 31, 1995.. $251 $86,154 $(467) $105,890 $191,828
==== ======= ===== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
BARRETT RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operations:
Net income (loss).............................. $ (2,240) $ 11,299 $ 13,666
Adjustments needed to reconcile to net cash
flow provided by operations:
Depreciation, depletion and amortization..... 33,480 22,760 20,185
Unrealized (gain) loss on trading............ 1,139 58 (124)
Deferred income taxes........................ 1,798 4,788 5,975
Other........................................ (787) 70 782
-------- -------- --------
33,390 38,975 40,484
Change in current assets and liabilities:
Accounts receivables......................... 3,433 (8,436) (4,304)
Other current assets......................... 525 (148) (209)
Accounts payable............................. (524) 6,803 (1,870)
Amounts due oil and gas owners............... (2,725) 623 5,640
Accrued and other liabilities................ 1,439 (1,244) 1,839
-------- -------- --------
Net cash flow provided by operations............. 35,538 36,573 41,580
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of oil and gas properties... 504 458 16,210
Purchase of short-term investments............. -- (11,322) (5,952)
Maturity of short-term investments............. -- 15,290 1,984
Acquisition of property and equipment.......... (82,758) (95,589) (45,488)
Other.......................................... -- 146 65
-------- -------- --------
Net cash flow used in investing activities....... (82,254) (91,017) (33,181)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock......... 7,071 301 19,212
Purchase of treasury stock..................... -- (78) --
Borrowing under line of credit................. 115,000 44,000 1,300
Payments on line of credit..................... (79,000) (4,500) (7,800)
Dividends paid................................. (1,174) (2,353) (2,352)
Other.......................................... -- (147) 868
-------- -------- --------
Net cash flow provided by financing activities... 41,897 37,223 11,228
-------- -------- --------
Increase (decrease) in cash and cash
equivalents..................................... (4,819) (17,221) 19,627
Cash and cash equivalents at beginning of year... 12,348 29,569 9,942
-------- -------- --------
Cash and cash equivalents at end of year......... $ 7,529 $ 12,348 $ 29,569
======== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Barrett Resources Corporation (the "Company") is an independent natural gas
and oil exploration and production company with producing properties located
in the mid-continent states and Rocky Mountain region of the United States.
Barrett also operates gas gathering systems and related facilities in the
areas which are synergistic to the Company's production. Barrett has a gas
marketing and trading subsidiary, which allows the Company to market the
Company's natural gas production and to purchase and sell other companies'
natural gas.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. All significant
intercompany transactions have been eliminated in consolidation. Certain
reclassifications have been made to 1993 and 1994 amounts to conform to the
1995 presentation.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. There are many factors, including global events, that may influence
the production, processing, marketing, and valuation of crude oil and natural
gas. A reduction in the valuation of oil and gas properties resulting from
declining prices or production could adversely impact depletion rates and
ceiling test limitations.
Partnerships
The consolidated financial statements include the Company's proportionate
share of the assets, liabilities, revenues and expenses of its oil and gas
partnership interests.
Cash and cash equivalents
Cash in excess of daily requirements is invested in money market accounts
and commercial paper with maturities of three months or less. Such investments
are deemed to be cash equivalents for purposes of the consolidated statements
of cash flows. The carrying amount of cash equivalents approximates fair value
because of the short maturity of those instruments.
Oil and gas properties
The Company utilizes the full cost method of accounting for oil and gas
properties whereby all productive and nonproductive costs paid to third
parties that are incurred in connection with the acquisition, exploration and
development of oil and gas reserves are capitalized. No gains or losses are
recognized upon the sale, conveyance or other disposition of oil and gas
properties except in extraordinary transactions.
Capitalized costs are accumulated on a country-by-country basis subject to a
cost center ceiling and amortized using the units-of-production method. The
Company presently has only one cost center since all of its properties are
located in the United States. Amortizable costs include developmental drilling
in progress as well
F-6
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
as estimates of future development costs of proved reserves but exclude the
costs of unevaluated oil and gas properties. Accumulated depreciation and
amortization is written off as assets are retired. Depletion and amortization
equaled approximately $.55, $.52 and $.48 per Mcfe ($3.28, $3.14 and $2.87 per
BOE) during the years ended December 31, 1995, 1994 and 1993, respectively.
The Company capitalizes interest costs on amounts expended on assets during
the period in which activities are occurring to place the asset in service.
Amounts spent to develop properties included in the full cost center of oil
and gas properties are excluded from the interest capitalization computation.
The Company acquires nonproducing acreage for its exploration and
development activities. The cost of these leases is included in unevaluated
oil and gas property costs recorded at the lower of cost or fair market value.
The Company operates many of the wells in which it owns an economic
interest. The operating agreements for these activities provide for a fee
structure to allow the Company to recover a portion of its direct and overhead
charges related to its operating activities. The fees collected under the
operating agreements are recorded as a reduction of general and administrative
expenses. Any amounts collected from a sale of oil and gas interests or earned
as a result of assembling oil and gas drilling activities are applied to
reduce the book value of oil and gas properties.
Other property and equipment
Other property and equipment is recorded at cost. Renewals and betterments
which substantially extend the useful life of the assets are capitalized.
Maintenance and repairs are expensed when incurred. Depreciation is provided
using accelerated and straight-line methods over the estimated useful lives,
ranging from five to ten years, of the assets.
Amounts payable to oil and gas property owners
Amounts payable to oil and gas property owners consist of cash calls from
working interest owners to pay for development costs of properties being
currently developed, production revenue that the Company, as operator, is
collecting and distributing to revenue interest owners and production revenue
taxes that the Company, as operator, has withheld for timely payment to the
tax agencies.
Trading and hedging activities
The Company's business activities include buying and selling of natural gas.
The Company recognizes revenue and costs on gas trading transactions at the
point in time when gas is delivered to the purchaser.
The Company uses both commodity futures contracts and price swaps to hedge
the impact of price fluctuations on a portion of its production and trading
activities. The Company enters into a hedging position for specific
transactions that management deems expose the Company to an unacceptable
market price risk. Price swaps or commodities transactions without
corresponding scheduled physical transactions (scheduled physical transactions
include committed trading activities or production from producing wells) do
not qualify for hedge accounting. The Company classifies these positions as
trading positions and records these instruments at fair value. Gains and
losses are recognized as fair values fluctuate from time to time compared to
cost.
Gains or losses on hedging transactions are deferred until the physical
transaction occurs for financial reporting purposes. Deferred gains and losses
and unrealized gains and losses are evaluated in connection with
F-7
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
the physical transaction underlying the hedge position. Hedging gains or
losses significantly exceeding the price movement of the underlying physical
transaction are recorded in the consolidated statements of income in the
period in which the lack of correlation occurred. Gains or losses on hedging
activities are recorded in the consolidated statements of income as
adjustments of the revenue or cost of the underlying physical transaction.
Hedging transactions are reported as operating activities in the consolidated
statements of cash flows.
Earnings per share
Per share amounts were computed using the weighted average number of shares
of common stock and common stock equivalents outstanding during each year:
1995--24,931,000; 1994--24,967,000 and 1993--24,778,000. Options to purchase
stock are included as common stock equivalents, when dilutive, using the
treasury stock method.
Change in fiscal year
On July 18, 1995, the Company changed its fiscal year-end from September 30
to December 31. A transition report for the period October 1, 1994 through
December 31, 1994 was filed with the Securities and Exchange Commission.
During the three months ended December 31, 1994, the Company reported revenues
of $15 million and net income of $207,000.
2. MERGER
On July 18, 1995 Plains Petroleum Company ("Plains") was merged with and
into a subsidiary of the Company, resulting in Plains becoming a wholly-owned
subsidiary of the Company. Approximately 12.8 million shares of the Company's
common stock were issued in exchange for all of the outstanding common stock
of Plains. Additionally, outstanding options to acquire Plains common stock
were converted to options to acquire approximately 593,000 shares of the
Company's common stock. In connection with the merger, the Company's
authorized number of shares of common stock was increased to 35 million. The
merger was accounted for as a pooling of interests, and accordingly, the
accompanying financial statements have been restated to include the accounts
and operations of Plains for all periods prior to the merger.
Plains used the successful efforts method of accounting for its oil and gas
exploration and development activities. In conjunction with the merger, Plains
adopted the full cost method used by the Company resulting in increases of net
property and equipment due to the capitalization of exploration costs,
reversal of impairment and adjustments of depreciation, depletion and
amortization expense for periods prior to the merger. The financial statements
for 1994 and 1993 have been retroactively restated for the change in
accounting method which resulted in increased net income. Retained earnings
and deferred income taxes have been adjusted for the effect of the retroactive
application of the new method.
F-8
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
Certain reclassifications have been made to the historical consolidated
financial statements of the separate companies to conform the financial
statements to a comparable presentation. There were no intercompany
transactions between the Company and Plains. Separate results for the periods
preceding the merger, including the conversion to full cost for Plains and the
change to a December 31 year-end for the Company, were as follows (in 000's):
<TABLE>
<CAPTION>
BARRETT PLAINS(1) ADJUSTMENTS(2) COMBINED
------- --------- -------------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Six month period ended June 30,
1995
Net revenues.................. $29,277 $35,823 -- $ 65,100
Net income.................... 2,200 3,771 -- 5,971
12 month period ended 9/30/94 12/31/94 12/31/94
Net revenues.................. $41,252 $63,024 $ 5,182 $109,458
Net income.................... 4,439 7,768 (908) 11,299
12 month period ended 9/30/93 12/31/93 12/31/93
Net revenues.................. $42,686 $64,998 $(1,612) $106,072
Net income.................... 5,756 8,128 (218) 13,666
</TABLE>
- --------
(1) Restated to full cost to conform accounting policies
(2) To conform year ends
In connection with the merger, approximately $14.2 million of merger and
reorganization costs and expenses were incurred and have been charged to
expense in the Company's third and fourth quarters of fiscal 1995. These
nonrecurring costs and expenses consist of (1) investment banker and
professional fees of $7.4 million; (2) severance and employee benefit costs of
$5.6 million for approximately 38 employees, terminated through consolidation
of administrative and operational functions; (3) a non-cash credit of
approximately $.9 million associated with the termination of Plains'
postretirement benefit plans and other related benefit plans and (4) other
merger and reorganization related costs of $2.1 million.
3. RECEIVABLES
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Oil and gas revenue receivable.............................. $15,535 $13,257
Joint interest billings..................................... 7,652 14,542
Trading receivables......................................... 5,665 6,483
Other accounts receivable................................... 2,237 240
------- -------
$31,089 $34,522
======= =======
</TABLE>
The Company's accounts receivable are primarily due from medium size oil and
gas entities in the Rocky Mountain region. Collection of joint interest
billings is generally secured by future production. The Company performs
periodic credit evaluations of customers purchasing production for which no
collateral is required. Historically, the Company has not experienced
significant losses related to these extensions of credit.
As of December 31, 1995 and 1994, receivables are recorded net of allowance
for doubtful accounts of $201,000 and $224,000, respectively.
F-9
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Oil and gas properties, full cost method:
Unevaluated costs, not being amortized................. $ 10,579 $ 12,611
Evaluated costs........................................ 420,784 346,950
Gas gathering systems.................................. 8,815 8,388
Furniture, vehicles and equipment........................ 9,801 9,765
-------- --------
449,979 377,714
Less accumulated depreciation, depletion, amortization
and impairment.......................................... 149,313 116,290
-------- --------
$300,666 $261,424
======== ========
</TABLE>
The Company capitalized interest costs of $403,000 in 1995 with respect to
qualifying properties. Total interest costs incurred after recognition of the
capitalized interest amount was $4.6 million in 1995.
5. UNEVALUATED OIL AND GAS PROPERTY COSTS
Unevaluated oil and gas property costs consist of the following:
<TABLE>
<CAPTION>
COSTS INCURRED DURING
--------------------------------
1995 1994 1993 1992 TOTAL
------ ------ ----- ---- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Acquisition costs........................... $5,623 $2,130 $ -- $71 $ 7,824
Exploration costs........................... 2,659 53 32 11 2,755
------ ------ ----- --- -------
$8,282 $2,183 $ 32 $82 $10,579
====== ====== ===== === =======
</TABLE>
The unevaluated costs were incurred for projects which are being explored.
The Company anticipates that substantially all unevaluated costs will be
classified as evaluated costs within the next three years.
6. LONG-TERM DEBT
The Company has a reserve-based line of credit with a group of banks which
provides up to $200 million for a four year period ending July 19, 1999. The
amount actually available to the Company under the line at any given time is
limited to the collateral value of proved reserves as determined by the
lenders. Based on the lenders' determination of collateral value, as of
December 31, 1995 (which was based on the March 31, 1995 and December 31, 1994
reserve reports), the Company has a borrowing limit of $160 million. In order
to reduce the commitment fees, the Company voluntarily requested that the
lenders limit the maximum borrowing to $90 million through December 31, 1995.
Subsequent to December 31, 1995, the Company increased the maximum borrowing
limit to $110 million. The lenders are currently reviewing the December 31,
1995 reserve report to determine current collateral value. The Company is
required to pay interest only during the revolving period. At its option, the
Company has elected to use the London interbank eurodollar rate (LIBOR) plus a
spread ranging from .5 percent to 1.0 percent (depending on the Company's
borrowing relative to its borrowing base) for a substantial portion of the
outstanding balance. As of December 31, 1995 the Company's outstanding balance
under the line of credit was $89 million of which $83 million was accruing
interest at an average LIBOR based rate of 6.62 percent and $6 million was
accruing interest on a prime based rate of 8.50 percent. The line of credit
agreement restricts the payment of dividends, borrowings, sale of assets,
loans to others, investment and merger
F-10
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
activity over certain limits without the prior consent of the bank and
requires the Company to maintain certain net worth and debt to equity levels.
Based on the variable borrowing rates and re-pricing terms currently available
to the Company for the line of credit, management believes the fair value of
long-term debt approximates the carrying value.
7. OPTIONS
The Company has two employee stock option plans, a 1990 Plan and a 1994
Plan, under which the Company's common stock may be granted to officers and
employees of the Company and subsidiaries. The 1990 Plan, as amended, provided
for the granting of 775,000 shares. The 1994 Plan provides for the granting of
400,000 shares of the Company's common stock. In addition, the Company has a
non-discretionary stock option plan under which options for an aggregate of
100,000 shares of the Company's common stock may be granted to non-employee
directors. In connection with the merger discussed in Note 2, the Company
assumed preexisting Plains stock option plans and converted all options then
outstanding into options to acquire shares of the Company's common stock. No
further options will be granted under the Plains' plans.
Summary of options granted, exercised and outstanding during 1994 and 1995
is as follows:
<TABLE>
<CAPTION>
NUMBER OPTION
OF SHARES OPTION PRICE VALUE
--------- ------------- --------
($000'S)
<S> <C> <C> <C>
Outstanding at December 31, 1993......... 336,500 $ 3.88-$13.38 $ 1,949
Plains outstanding options............... 592,611 $15.91-$27.50 13,962
--------- ------------- -------
Outstanding at December 31, 1993,
restated................................ 929,111 $ 3.88-$27.50 15,911
Granted.................................. 585,500 $10.38-$20.88 8,560
Exercised or canceled.................... (154,820) $ 3.88-$12.13 (712)
--------- ------------- -------
Outstanding at December 31, 1994......... 1,359,791 $ 3.88-$27.50 23,759
Granted.................................. 110,000 $13.38-$22.75 2,454
Exercised or canceled.................... (477,460) $ 3.88-$27.50 (9,443)
--------- ------------- -------
Outstanding at December 31, 1995......... 992,331 $ 5.00-$26.94 $16,770
========= ============= =======
Exercisable at December 31, 1995......... 354,883 $ 5.13-$26.94 $ 6,349
========= ============= =======
</TABLE>
8. RETIREMENT BENEFITS
The Company has a voluntary 401(k) employee savings plan. Under this plan,
the Company matches 50% of each of the participating employees' contributions,
up to a maximum of 6% of base salary. Effective April 1, 1996, the Company's
match will be increased to 100% of each of the participating employees
contributions, up to a maximum of 6% of base salary, with one-half of the
match paid in cash and one half of the match paid in the Company's common
stock. The Company's matching contributions are subject to a vesting schedule.
Company contributions were $239,000, $179,000 and $166,000 in 1995, 1994 and
1993, respectively.
Plains had several employee benefit plans described below. Pursuant to the
terms of the merger agreement between Plains and the Company, these plans were
terminated.
Plains' qualified, defined benefit retirement plan covered substantially all
of its employees. The benefits were based on a specified level of the
employee's compensation during plan participation. As of July 18, 1995, the
plan froze benefit accruals. Pursuant to the plan, all participants became
fully vested. Plan assets consist of
F-11
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
cash and equivalents, corporate stocks and bonds, U.S. treasury notes, insured
annuity contracts, and accrued interest. Contributions totaled $169,000,
$312,000 and $341,000 for the 1995, 1994 and 1993 plan years, respectively.
The following table sets forth the plan's funded status:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $2,961,000, $1,637,000 and
$1,290,000 respectively........................ $2,961 $(1,666) $(1,383)
====== ======= =======
Projected benefit obligation.................... $2,961 $(2,396) $(2,321)
Plan assets at fair value....................... 2,709 2,205 1,977
------ ------- -------
Projected benefit obligation in excess of plan
assets......................................... (252) (191) (344)
Unrecognized net (gain) loss.................... -- (141) 16
Prior service cost not yet recognized in net
periodic pension costs......................... -- 93 64
Unrecognized net obligation being recognized
over 9.5 and 10.5 years in 1994 and 1993,
respectively................................... -- 132 146
------ ------- -------
Accrued pension cost............................ $ (252) $ (107) $ (118)
====== ======= =======
Net pension cost included the following
components:
Service cost--benefits earned................... $ 140 $ 290 $ 346
Interest cost on projected benefit obligation... 160 157 150
Actual loss (return) on plan assets............. (369) 70 (145)
Net amortization of unrecognized obligation and
deferral....................................... 347 (216) 28
Curtailment gain................................ (735) -- --
------ ------- -------
Net periodic pension cost (benefit)............... $ (457) $ 301 $ 379
====== ======= =======
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 4.5% (termination rates). The
rate of increase used for compensation levels was nil in 1995 and 5% in 1994
and 1993, respectively. The expected long-term rate of return on assets was
8.5%.
Plains also contributed the lesser of 10% of its net earnings or 10% of
employee compensation to a profit sharing plan of Plains. No contributions were
made for 1995. Plains contributed $334,000 and $188,000 for 1994 and 1993,
respectively.
Through June 30, 1995 and during 1994, Plains matched 401(k) plan deferrals
with contributions equal to 50% of each deferral up to 6% of current salary.
This matching contribution was invested in Plains stock and were subject to a
vesting schedule. Participants became fully vested with the merger with and
into Barrett. Contributions were approximately $112,000, $192,000 and $250,000
for 1995, 1994 and 1993, respectively.
The above described profit-sharing and 401(k) plans were terminated July 1,
1995; the pension plans were terminated September 18, 1995. Internal Revenue
Service approval for termination of these plans was received in January 1996.
Final distribution of plan assets will be made to participants in the second
quarter of 1996.
Plains' executive deferred compensation plan and directors' deferred plan
permitted the deferral of current salary or directors' fees for the purpose of
providing funds at retirement or death for employees, directors and
F-12
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
their beneficiaries. These plans were terminated effective June 30, 1995 and
will be disbursed to the participants by the trustee of the assets over a
period ending January 1, 1997. Total accrued liability under these plans at
December 31, 1995 and 1994 was $36,000 and $1,006,000, respectively.
Concurrently with the effective date of the merger, Plains' postretirement
healthcare benefit and salary continuation plans were terminated. Participants
in the salary continuation plan received (1) a lump sum benefit equal to the
present value of the remaining monthly payments if receiving Death Benefits
under the plan at the date of the termination, or (2) insurance policies, the
cost of which was limited to the cash values of the life insurance policies
owned by Plains. Benefits associated with the postretirement healthcare benefit
plan were terminated and, accordingly, accrued postretirement benefit costs
were relieved.
Effective January 1, 1993, Plains adopted Statement No. 106 (FAS 106) issued
by the Financial Accounting Standards Board on accounting for postretirement
benefits other than pensions. In accordance with this statement, Plains elected
to recognize the accumulated postretirement benefit liability as of the
effective date, totaling approximately $800,000 (pretax). With the termination
of these plans in 1995, all future obligations were settled and ceased to
exist.
Obligations for previous periods were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1994
--------------
(IN THOUSANDS)
<S> <C>
Accumulated postretirement benefit obligation:
Active plan participants.................................. $(458)
Retirees.................................................. (302)
-----
(760)
Plan assets............................................... 0
-----
Net accumulated postretirement benefit obligation......... (760)
Unrecognized net gain from past experience different from
that assumed and from changes in assumptions............. (167)
-----
Accrued postretirement benefit cost....................... $(927)
=====
Net periodic postretirement benefit cost included the
following components:
Service cost of benefits earned........................... $ 41
Interest cost on accumulated post-retirement benefit
obligation............................................... 61
-----
Net periodic postretirement benefit cost.................. $ 102
=====
</TABLE>
9. HEDGING ACTIVITIES
The Company uses various hedging techniques to reduce the effect of price
volatility on the sales price of a portion of its oil and gas sales. The
objective of its hedging activities is to achieve more predictable revenues and
cash flows. The following is a summary of the Company's hedging transactions in
effect as of December 31, 1995.
A. The Company is the fixed price payor for hedging transactions relating
to 6,000 MMBtu of gas per day for 1996 at $1.33 per MMBtu and approximately
7,000 MMBtu of gas per day for January through May 1996 at an average price
of $2.12 per MMBtu. Under these price swap arrangements, the Company has
agreed to buy gas at a fixed price and sell gas at an index price. These
price swaps were entered to accommodate markets desiring fixed price
supplies.
F-13
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
B. The Company will receive fixed prices ranging from $1.46 to $2.12 per
MMBtu in swap transactions associated with an average of 52,000 MMBtu of
gas per day to be produced by the Company subsequent to December 31, 1995
through March 1996. The Company is required to pay an index price to its
financial counterparty. The Company sold a call option on 20,000 MMBtu per
day for April through October 1996. Under this option, the Company will
receive $1.86 per MMBtu should the option holder elect to exercise.
C. The Company's gas hedges also include a collar in which the Company
sold a call and purchased a put with respect to 10,000 MMBtu per day in
1996 with an average floor (put) price of $1.60 per MMBtu and an average
ceiling (call) price of $1.92 per MMBtu. Under this arrangement, the
Company receives a payment if the index price falls below the floor and
makes a payment to the counterparty if the index price exceeds the ceiling.
To reduce exposure to increasing index prices, the Company purchased call
options with prices averaging $2.673 per MMBtu January--March and $1.969
per MMBtu April--December, 1996.
D. The Company has entered into basis swaps to minimize different index
price fluctuations. The Company will receive a payment in the event that
the New York Mercantile Exchange ("NYMEX") price per MMBtu for a reference
period exceeds the average specified index price by more than an average of
$.29 on 10,000 MMBtu of gas per day from January through March 1996 ($.44
on 5,000 MMBtu of gas per day for April 1996). In separate basis swaps, the
Company will receive a payment in the event the specified index price
exceeds the NYMEX price net of a basis adjustment of an average of $.48 on
10,000 MMBtu of gas per day from January through October 1996. Conversely,
the Company will be required to make payments to the counterparty if the
opposite situation exists in these swaps. These swaps were entered to
offset a portion of the risk associated with the Company's long-term firm
transportation portfolio.
E. With respect to crude oil production, the Company entered into a price
swap whereby the Company will receive a fixed price of $18.00 per Bbl for
1,000 Bbls per day through March 1996. The Company is required to pay the
counterparty a NYMEX settlement price.
As of December 31, 1995, some of the Company's hedging positions described
above did not qualify for hedge accounting due to reduced correlation between
the index price and the prices to be realized for certain physical gas
deliveries. Accordingly, the Company recognized hedging losses of $1.2 million
in the fourth quarter of 1995. These losses offset hedging gains of $1.6
million realized in 1995. The net hedging gain was included in oil and gas
revenues. The Company paid and received certain premiums related to its option
contracts for future periods. The unrealized hedging losses and net deferred
premium costs have been included in other liabilities.
During 1995, the Company incurred a net cost of $2.1 million to hedge the
index based price for a portion of its gas purchased in various transactions
for gas trading activities. These payments allowed the Company to purchase gas
on a fixed price basis to satisfy fixed price sales commitments. This hedging
allowed the Company to avoid gas price fluctuations for the related
transactions so that the Company realized the gross profit margins anticipated
upon entering into the trading arrangements. This hedging cost is included in
the income statement as a component of "Cost of Trading."
F-14
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
10. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The minimum future payments under the terms of operating leases, principally
for office space, are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Year ended December 31,
1996........................ $1,012
1997........................ 988
1998........................ 1,001
1999........................ 887
2000........................ 610
2001........................ 205
------
$4,703
======
</TABLE>
The Company plans to sublet office space vacated with the consolidation and
relocation of its Denver offices and accordingly anticipates a substantial
reduction in rental expense for the years 1996 through 1999. Rent expense was
$956,000, $859,000 and $788,000 for the years ended December 31, 1995, 1994
and 1993, respectively.
Litigation
On November 2, 1994, a putative class action was filed in Delaware Chancery
Court. In that case, entitled Miller v. Cody, the plaintiff has alleged that
certain named former directors of Plains, and Plains, have, among other
things, breached their fiduciary duties and otherwise acting to entrench
themselves in office. Plaintiff seeks various forms of injunctive relief,
damages and an award of plaintiff's costs and disbursements.
On May 3, 1995, the same day Plains announced it had executed a merger
agreement with the Company, a putative class action, entitled Crandon Capital
Partners v. Miller, was filed in Delaware Chancery Court against Plains and
the then-current members of its Board of Directors. In this suit it is alleged
that, among other things, the agreement was inadequate, plaintiff seeks
various forms of declaratory and injunctive relief, damages and an award of
plaintiff's costs and disbursements.
Plains and its former directors have received a status report filed by
plaintiffs' counsel in both cases indicating a "stipulation of dismissal
without prejudice will be circulated shortly."
Except as noted above, at December 31, 1995, the Company was a party to
certain other legal proceedings which have arisen out of the ordinary course
of business. Based on the facts currently available, in management's opinion
the liability, individually or in the aggregate, if any, to the Company
resulting from such actions will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
Environmental Controls
At year end 1995, there were no known environmental or other regulatory
matters related to the Company's operations which are reasonably expected to
result in a material liability to the Company. Compliance with environmental
laws and regulations has not had, and is not expected to have, a material
adverse effect on the Company's capital expenditures, earnings or competitive
position.
F-15
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
Major Purchaser
During 1995, one purchaser accounted for 18 percent of the Company's total
revenue (24 percent of oil and gas revenues.) Sales of gas to this purchaser
represented 19 percent and 29 percent of total revenues in 1994 and 1993,
respectively.
11. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.............................................. $ 269 $ 233 $ 174
State................................................ (233) 117 416
------ ------ ------
36 350 590
Deferred:
Federal.............................................. 2,039 4,511 5,138
State................................................ (241) 277 993
------ ------ ------
1,798 4,788 6,131
------ ------ ------
$1,834 $5,138 $6,721
====== ====== ======
</TABLE>
The difference between the provision for income taxes and the amounts which
would be determined by applying the statutory federal income tax rate to
income before provision for income taxes is analyzed below:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax by applying the statutory federal income tax
rate to pretax accounting income (loss)........ $ (138) $ 5,753 $ 7,365
Increase (decrease) in tax from:
Change in valuation allowance................. 396 (2,148) (1,477)
State income taxes............................ (474) 394 1,409
Non-deductible merger costs................... 2,429 -- --
Other, net.................................... (379) 1,139 (576)
------ ------- -------
$1,834 $ 5,138 $ 6,721
====== ======= =======
</TABLE>
F-16
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
Long-term deferred tax assets (liabilities) are comprised of the following
at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for losses.................................. $ 81 $ 624
Loss carryforwards and other.......................... 26,520 30,221
-------- --------
Gross deferred tax assets........................... 26,601 30,845
Deferred tax liabilities:
Deferred revenue--partnership activities.............. (466) (1,086)
Depreciation, depletion and amortization.............. (48,460) (50,650)
Capitalized interest on other assets.................. (6) (38)
-------- --------
Gross deferred tax liabilities........................ (48,932) (51,774)
-------- --------
Net deferred tax liability.......................... (22,331) (20,929)
Valuation allowance................................. (1,193) (797)
-------- --------
$(23,524) $(21,726)
======== ========
</TABLE>
Valuation allowances of $1,193,000 and $797,000 were provided at December
31, 1995 and 1994, respectively, based on carryforward amounts which may not
be utilized before expiration and the possible effect of exploratory drilling
costs.
The Company has the following net operating loss and investment tax credit
carryforwards available:
<TABLE>
<CAPTION>
EXPIRATION NET OPERATING INVESTMENT
YEAR LOSS TAX CREDIT
---------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C>
1996........................................... $ 4,227 $172
1997........................................... 4,673 246
1998........................................... 8,090 103
1999........................................... 6,530 100
2000........................................... 4,900 25
2001........................................... 3,274 5
2002........................................... 108 --
2004........................................... 197 --
2005........................................... 685 --
2006........................................... 1,446 --
2007........................................... 37 --
2008........................................... 22,352 --
2009........................................... 6,123 --
------- ----
Total.......................................... $62,642 $651
======= ====
</TABLE>
- --------
A substantial portion of the net operating losses were acquired in conjunction
with purchased operations.
The 1990 public offering of common stock by the Company before the Plains
merger resulted in a change in the Company's ownership as defined in Section
382 of the Internal Revenue Code. The effect of this change in ownership
limits the utilization of net operating losses for income tax purposes to
approximately $3,069,000 per year which affects $13,590,000 of the net
operating losses. The 1995 merger with Plains also resulted in a
F-17
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
change in the Company's and Plains' ownership as defined by Section 382 of the
Internal Revenue Code. The change effectively limits the utilization of the
remaining net operating losses for income tax purposes to approximately
$14,000,000 for each company. Portions of the above limitations which are not
used each year may be carried forward to future years.
The Internal Revenue Service (IRS) is currently examining the federal tax
returns of Plains and subsidiaries for calendar years 1991, 1992 and 1993. The
examinations are not yet complete, but based on preliminary comments from the
IRS examiner, management anticipates that the IRS will propose adjustments to
disallow net operating loss deductions claimed by Plains thereby increasing
taxable income for the years under examination. Management is of the opinion
that the federal tax returns of Plains for years 1991 through 1993 reflect the
proper federal income tax liability as supported by relevant authority. The
Company intends to vigorously dispute any adjustments proposed by the
examining agent and furthermore believes that the Company will prevail in its
positions.
12. SUPPLEMENTAL CASH FLOW SCHEDULES AND INFORMATION
Cash paid during years
<TABLE>
<CAPTION>
1995 1994 1993
------ ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax................................................ $ 65 $338 $426
Interest.................................................. 5,129 711 792
Supplemental information of noncash investing and financing activities:
Issuance of common stock exchanged for treasury shares in
cashless option transactions............................. $ 545 $313 $204
</TABLE>
In May 1994, Plains completed a contingent provision of the 1990 McAdams,
Roux and Associates, Inc. (MRA) Agreement and Plan of Merger, as it related to
the right of the MRA shareholders to receive additional shares of Plains'
common stock and cash subject to reserves additions on certain property
interests owned by MRA prior to the merger. Under this Agreement, 31,873
shares of Plains' common stock were issued and a cash payment of $1.5 million
was paid to MRA's shareholders in settlement of this obligation.
13. RELATED PARTIES
During the years ended December 31, 1995, 1994 and 1993 Zenith Drilling
Corporation ("Zenith") was billed by the Company as operator, approximately
$1,062,000, $1,853,000 and $2,555,000, respectively, for Zenith's portion of
lease operating expenses and development costs in certain leases operated by
the Company. Also as a result of Zenith's working interest ownership, the
Company distributed oil and gas revenue of approximately $942,000, $936,000
and $1,074,000 to Zenith during 1995, 1994 and 1993, respectively. Zenith owns
its working interests subject to the same terms and arrangements that exist
for all working interest owners in the properties. Zenith owns approximately
three percent of the Company's common stock and its president is a member of
the Company's board of directors.
During 1993, the Company and Zenith both sold their respective interests in
the Wattenberg field. The Company and Zenith jointly negotiated the sale but
the purchaser independently determined the individual offer prices and entered
into separate sales agreements with each party.
Grand Valley Corporation owns approximately 10 percent of a pipeline joint
venture for gas gathering of which a subsidiary of the Company owns
approximately 29 percent. A member of the Company's board of
F-18
<PAGE>
BARRETT RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
directors owns 10 percent of the outstanding stock, and is the president of
Grand Valley Corporation. His three adult children own the remaining 90
percent of the outstanding stock of Grand Valley Corporation.
14. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------
3/31/95 6/30/95 9/30/95 12/31/95
--------- --------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1995
Net revenues...................... $ 33,060 $ 31,277 $ 27,217 $ 35,070
Gross margin...................... 8,611 8,039 6,476 7,882
Income (loss) from operations..... 4,327 3,997 (11,389) 2,659
Net income (loss)................. 3,014 2,957 (11,848) 3,637
Net income (loss) per share....... .11 .13 (.47) .14
<CAPTION>
THREE MONTHS ENDED
------------------------------------------
3/31/94 6/30/94 9/30/94 12/31/94
--------- --------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1994
Net revenues...................... $ 25,543 $ 24,420 $ 24,222 $ 33,076
Gross margin...................... 8,572 7,499 6,027 6,990
Income from operations............ 5,217 3,869 2,834 4,517
Net income........................ 3,799 2,610 2,081 2,809
Net income per share.............. .15 .12 .08 .11
<CAPTION>
THREE MONTHS ENDED
------------------------------------------
3/31/93 6/30/93 9/30/93 12/31/93
--------- --------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1993
Net revenues...................... $ 30,258 $ 26,157 $ 22,836 $ 24,831
Gross margin...................... 8,832 8,759 6,902 7,346
Income from operations............ 6,163 5,649 4,845 4,386
Income before cumulative effect of
change in method of accounting
for income taxes................. 3,828 3,492 3,934 3,068
Net income........................ 3,172 3,492 3,934 3,068
Earnings per share:
From continuing operations...... .16 .14 .16 .12
Net income...................... .13 .14 .16 .12
</TABLE>
F-19
<PAGE>
SUPPLEMENTAL OIL AND GAS INFORMATION
The following is information pertaining to the Company's oil and gas
producing activities for the years ended December 31, 1995, 1994 and 1993.
Costs incurred in oil and gas property acquisition, exploration, and
development activities:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Acquisition of evaluated properties............... $ 7,429 $35,234 $ 6,119
Acquisition of unevaluated properties............. 8,383 8,446 1,013
Exploration costs................................. 23,272 36,232 12,593
Development costs................................. 33,029 20,190 21,538
Other, principally proceeds from mineral
conveyances...................................... (426) (173) (15,680)
------- ------- --------
Total additions to oil and gas properties....... $71,687 $99,929 $ 25,583
======= ======= ========
</TABLE>
OIL AND GAS RESERVE INFORMATION (UNAUDITED):
The following reserve related information for 1995 is based on estimates
prepared by the Company. The 1995 reserve information for the Company,
exclusive of the reserves owned by its subsidiary, Plains, were reviewed by
Ryder Scott, an independent reservoir engineer. The 1995 reserve information
for Plains was reviewed by Netherland, Sewell & Associates, Inc., an
independent reservoir engineer. The Company's 1994 and 1993 reserves,
exclusive of Plains were prepared by the Company and reviewed by Ryder Scott
as of September 30, of each year. The 1994 and 1993 proved developed reserve
estimates of Plains were prepared by Netherland, Sewell & Associates, Inc.
whereas the proved undeveloped reserve estimates were prepared by Plains.
Reserve estimates are inherently imprecise and are continually subject to
revisions based on production history, results of additional exploration and
development, prices of oil and gas and other factors.
<TABLE>
<CAPTION>
1995 1994 1993
-------------------- -------------------- --------------------
OIL(MBBL) GAS (MMCF) OIL(MBBL) GAS (MMCF) OIL(MBBL) GAS (MMCF)
--------- ---------- --------- ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Proved developed and
undeveloped reserves:
Beginning of year..... 11,444 458,820 6,947 364,791 10,553 370,621
Revisions of previous
estimates............ 1,209 (3,805) 772 (5,640) (3,426) (5,418)
Purchase of minerals
in place............. 831 3,983 2,533 38,717 217 6,794
Extensions and
discoveries.......... 1,232 102,329 2,547 94,276 1,208 28,482
Production............ (1,702) (47,692) (1,293) (33,282) (1,293) (31,712)
Sale of minerals in
place................ (47) (104) (62) (42) (312) (3,976)
------ ------- ------ ------- ------ -------
End of year........... 12,967 513,531 11,444 458,820 6,947 364,791
====== ======= ====== ======= ====== =======
Proved developed
reserves:
Beginning of year..... 7,848 393,051 5,548 342,287 7,398 350,131
====== ======= ====== ======= ====== =======
End of year........... 11,669 419,672 7,848 393,051 5,548 342,287
====== ======= ====== ======= ====== =======
</TABLE>
F-20
<PAGE>
The following is the standardized measure of discounted future net cash
flows relating to proved oil and gas reserves in which the Company has an
interest.
<TABLE>
<CAPTION>
1995 1994 1993
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Future cash inflows......................... $1,132,711 $ 931,404 $ 789,693
Future production costs..................... (355,756) (310,485) (266,920)
Future development costs.................... (46,888) (41,972) (22,349)
Future income tax expenses.................. (207,922) (152,890) (135,165)
---------- --------- ---------
Future net cash flows..................... 522,145 426,057 365,259
10% annual discount for estimated timing of
cash flows................................. (212,271) (183,436) (162,173)
---------- --------- ---------
Standardized measure of discounted future
net cash flows............................. $ 309,874 $ 242,621 $ 203,086
========== ========= =========
</TABLE>
The future income tax expenses have been computed considering the tax basis
of the oil and gas properties, and net operating and other loss carryforwards.
The following are the principal sources of changes in the standardized
measure of discounted future net cash flows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net change in sales price and production costs.. $ 24,558 $(22,409) $ 12,283
Changes in estimated future development costs... 10,301 14,492 11,160
Sales and transfers of oil and gas produced, net
of production costs............................ (62,294) (50,571) (53,594)
Net change due to extensions and discoveries.... 85,524 60,613 20,739
Net change due to purchases and sales of
minerals in place.............................. 7,424 32,726 (1,210)
Net change due to revisions in quantities....... (1,393) (588) (18,272)
Net change in income taxes...................... (33,172) (10,202) (4,711)
Accretion of discount........................... 23,112 27,589 26,965
Other, principally revisions in estimates of
timing of production........................... 13,193 (12,115) 5,859
-------- -------- --------
Net changes..................................... 67,253 39,535 (781)
Balance, beginning of year...................... 242,621 203,086 203,867
-------- -------- --------
Balance, end of year............................ $309,874 $242,621 $203,086
======== ======== ========
</TABLE>
F-21
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Barrett Resources Corporation
/s/ William J. Barrett
Date: March 5, 1996 By: _________________________________
WILLIAM J. BARRETT, CHIEF
EXECUTIVE OFFICER
Date: March 5, 1996 /s/ John F. Keller
By: _________________________________
JOHN F. KELLER,
CHIEF FINANCIAL OFFICER,
SECRETARY, AND PRINCIPAL
FINANCIAL AND ACCOUNTING OFFICER
SIGNATURE TITLE DATE
/s/ William J. Barrett Director March 5, 1996
- -------------------------------------
WILLIAM J. BARRETT
/s/ C. Robert Buford Director March 5, 1996
- -------------------------------------
C. ROBERT BUFORD
/s/ Derrill Cody Director March 5, 1996
- -------------------------------------
DERRILL CODY
/s/ James M. Fitzgibbons Director March 5, 1996
- -------------------------------------
JAMES M. FITZGIBBONS
/s/ Hennie L.J.M. Gieskes Director March 5, 1996
- -------------------------------------
HENNIE L.J.M. GIESKES
/s/ William W. Grant, III Director March 5, 1996
- -------------------------------------
WILLIAM W. GRANT, III
/s/ John F. Keller Director March 5, 1996
- -------------------------------------
JOHN F. KELLER
/s/ Paul M. Rady Director March 5, 1996
- -------------------------------------
PAUL M. RADY
/s/ A. Ralph Reed Director March 5, 1996
- -------------------------------------
A. RALPH REED
/s/ James T. Rodgers Director March 5, 1996
- -------------------------------------
JAMES T. RODGERS
/s/ Philippe S.E. Schreiber Director March 5, 1996
- -------------------------------------
PHILIPPE S.E. SCHREIBER
/s/ Harry S. Welch Director March 5, 1996
- -------------------------------------
HARRY S. WELCH
II-1
<PAGE>
January 11, 1996
Plains Petroleum Operating Company
1515 Arapahoe Street
Tower III
Suite 1000
Denver, Colorado 80202
Attn: Mr. Frank Keller
Executive Vice President
RE: Gas Purchase Contract
Dated April 20, 1984, As Amended
(Contract No. P-1090)
Dear Mr. Keller:
Plains Petroleum Operating Company ("Plains") and KN Gas Supply Services, Inc.,
as the successor-in-interest to KN Energy, Inc. ("KNGSS") are parties to that
certain Gas Purchase Contract, dated April 20, 1984, as amended, hereinafter
referred to as "Contract P-1090". The purpose of this Letter Agreement is to
set forth the agreement reached between Plains and KNGSS with respect to the
quantity of gas to be purchased and the price to be paid for gas by KNGSS under
Contract P-1090, as well as the release of gas thereunder, during calendar year
1996.
The agreement is as follows:
A. (1) During calendar year 1996 only, the take-or-pay provisions of
Contract P-1090 are hereby suspended and both parties are hereby relieved of the
obligations to account for and track take-or-pay status during that period.
KNGSS, subject to an event of force majeure, will use good faith efforts to
purchase under Contract P-1090 all of the gas tendered and physically made
available by Plains to KNGSS at the Delivery Points during the period commencing
January 1, 1996 and ending December 31, 1996.
(2) Plains will nominate to KNGSS by the fifteenth (15th) business day
prior to a month, the quantity of gas Plains will make available for purchase by
KNGSS the following month,
<PAGE>
Plains Petroleum Operating Company Letter
January 11, 1996
Page 2
including any forecasted mid-month adjustments. Once Plains' monthly nomination
is submitted to KNGSS actual mid-month corrections will only be made by mutual
agreement of the parties. Plains and KNGSS will use good faith efforts to
maintain, on a monthly basis, a balance between Plains' monthly nominations and
the actual receipt and delivery of gas during a month. Any imbalance between the
quantity of gas nominated for purchase by Plains for a month and the quantity
actually received by KNGSS shall be corrected as soon as possible in a manner
mutually agreed to by the parties. If at the end of a month, Plains delivers, or
causes to be delivered for Plains' account, a quantity of gas that is greater or
less than that nominated and scheduled for receipt and delivery, and such
deliveries cause Plains or KNGSS to incur a penalty, cashout, or other charge
levied by the gatherer and/or transporter, Plains agrees to bear and pay, or if
required to reimburse KNGSS, for such penalty, cashout, or charge. If at the end
of a month, KNGSS receives, or causes to be received for KNGSS' account a
quantity of gas that is greater or less than that nominated and scheduled for
receipt and delivery, and such receipts cause Plains or KNGSS to incur a
penalty, cashout, or charge as levied by the gatherer and/or transporter, KNGSS
agrees to bear and pay, or if required to reimburse Plains, for such penalty,
cashout, or charge. Plains and KNGSS agree to provide one another all
information necessary to determine what event, or which party caused the
imbalance.
B. (1) The price to be paid under Contract P-1090 for each MMBtu of gas
purchased during calendar year 1996 will be a price equal to the average of the
first of the month index prices as published by McGraw-Hill in the first of each
month's publication of Inside F.E.R.C.'s Gas Market Report under "Prices of Spot
-----------------------------------
Gas Delivered to Pipelines" for Williams Natural Gas Company (Texas, Oklahoma,
Kansas), Panhandle Eastern Pipe Line Company (Texas, Oklahoma), Northern Natural
Gas Company (Texas, Oklahoma, Kansas) and Natural Gas Pipeline Company of
America (Oklahoma), hereinafter referred to as the "Average Index Price", less
Fifteen Cents ($0.15) per MMBtu, hereinafter referred to as the "subtrahend",
less one percent (1%) fuel to be provided in-kind by Plains. The price is a full
price inclusive of any and all costs and reimbursements.
<PAGE>
Plains Petroleum Operating Company Letter
January 11, 1996
Page 3
(2) In calculating the monthly price to be paid for gas, as provided
for in Paragraph B (1) above, the subtrahend will be subject to adjustment,
either upward or downward, depending on the actual calculated Average Index
price as follows:
<PAGE>
Plains Petroleum Operating Company Letter
January 11, 1996
Page 4
<TABLE>
<CAPTION>
If the Average Index Price is: then the Subtrahend is:
- ------------------------------ -----------------------
<S> <C>
less than $0.75 $0.11
$0.75 up to $1.04 $0.13
$1.05 up to $1.95 $0.15
$1.96 up to $2.25 $0.18
$2.26 or higher $0.20
</TABLE>
C. During calendar year 1996, gas which flows south through the valve
identified below to the Panhandle Eastern Pipe Line Company ("Panhandle"), Grant
County No. 2 Interconnect, not to exceed a total quantity of 3 Bcf, is hereby
temporarily released from Contract P-1090, on a month-to-month basis; provided,
however, if KNGSS can flow at least ninety percent (90%) of the quantity
released during a month, then KNGSS shall have the preferential right to recall,
also on a monthly basis, all gas released during a month for purchase under
Contract P-1090 at the price provided for in this Letter Agreement. If KNGSS
intends to recall released gas it shall be required to recall all the gas
released for the particular month. KNGSS, at least ten (10) business days before
the succeeding month, will notify Plains of the recall of the released gas for
purchase by KNGSS the succeeding month.
D. During calendar year 1996 only, KNGSS agrees not to exercise its right
under Article IV, Section 8 of Contract P-1090 to market out.
E. Except as specifically provided for herein, all other terms and
conditions of Contract P-1090 shall remain in full force and effect.
<PAGE>
Plains Petroleum Operating Company Letter
January 11, 1996
Page 5
If the foregoing reflects Plains' understanding of the agreement reached between
Plains and KNGSS, please so indicate by having Plains properly execute both
copies of this Letter Agreement in the space provided for below and return one
executed original to my attention.
Very truly yours,
KN Gas Supply Services, Inc.
S. Wesley Haun
Vice President
ACCEPTED AND AGREED to this ____ day of January, 1996 by Plains Petroleum
Operating Company.
By: ___________________________
Frank Keller
Executive Vice President
<PAGE>
- --------------------------------------------------------------------------------
REVOLVING CREDIT AGREEMENT
Dated as of July 19, 1995
AMONG
BARRETT RESOURCES CORPORATION
AND
TEXAS COMMERCE BANK NATIONAL ASSOCIATION, AS AGENT
AND
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
NATIONSBANK OF TEXAS, N.A.
BANK OF MONTREAL, HOUSTON AGENCY
COLORADO NATIONAL BANK
THE FIRST NATIONAL BANK OF BOSTON
AS BANKS
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS..................... 1
SECTION 1.01. Certain Defined Terms................................... 1
SECTION 1.02. Accounting Terms........................................ 21
SECTION 1.03. Interpretation.......................................... 21
ARTICLE II
LOANS.................................. 22
SECTION 2.01. Revolving Loans......................................... 22
SECTION 2.02. Borrowing Base.......................................... 23
SECTION 2.03. Borrowing Procedure for Loans........................... 24
SECTION 2.04. Minimum Amount and Maximum Number of LIBOR Borrowings... 26
SECTION 2.05. Issuing the Letters of Credit........................... 26
SECTION 2.06. Conversions or Continuation of Borrowings............... 28
SECTION 2.07. Fees.................................................... 29
SECTION 2.08. Notes................................................... 30
SECTION 2.09. Interest on Loans and Payment Dates..................... 30
SECTION 2.10. Interest on Overdue Amounts............................. 31
SECTION 2.11. Voluntary Termination and Reduction of the Total
Commitment.............................................. 31
SECTION 2.12. Voluntary Prepayment of Loans........................... 31
SECTION 2.13. Mandatory Payments on Loans............................. 32
SECTION 2.14. Alternate Rate of Interest.............................. 33
SECTION 2.15. Change in Circumstances................................. 33
SECTION 2.16. Change in Legality...................................... 34
SECTION 2.17. Funding Losses.......................................... 35
SECTION 2.18. Method of Payments Pro Rata Treatment................... 36
SECTION 2.19. Taxes................................................... 36
SECTION 2.20. Sharing of Payments and Setoffs......................... 38
SECTION 2.21. Limitation on Reimbursement; Mitigation................. 38
SECTION 2.22. Replacement of Banks.................................... 38
SECTION 2.23. Use of Proceeds......................................... 39
SECTION 2.24. Extension of Maturity Date.............................. 39
ARTICLE III
CONDITIONS PRECEDENT........................... 40
SECTION 3.01. Conditions Precedent to the Loans....................... 40
SECTION 3.02. Additional Conditions Precedent......................... 42
SECTION 3.03. General................................................. 43
-i-
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES...................... 43
SECTION 4.01. Organization; Corporate Powers.......................... 43
SECTION 4.02. Authority............................................... 43
SECTION 4.03. Use of Proceeds......................................... 44
SECTION 4.04. No Conflict............................................. 44
SECTION 4.05. Gas Balancing Agreements and Advance Payment Contracts.. 44
SECTION 4.06. Oil and Gas Interests................................... 44
SECTION 4.07. Ownership of Properties Generally....................... 45
SECTION 4.08. No Defaults............................................. 45
SECTION 4.09. Financial Position; No Material Adverse Change.......... 45
SECTION 4.10. Litigation; Adverse Effects............................. 46
SECTION 4.11. ERISA................................................... 46
SECTION 4.12. Payment of Taxes........................................ 46
SECTION 4.13. Environmental Matters................................... 47
SECTION 4.14. Governmental Regulation................................. 48
SECTION 4.15. Disclosure.............................................. 48
SECTION 4.16. Subsidiaries............................................ 48
SECTION 4.17. Solvency................................................ 48
SECTION 4.18. Business................................................ 48
SECTION 4.19. Material Contracts...................................... 49
SECTION 4.20. Licenses, Permits, Etc.................................. 49
SECTION 4.21. Fiscal Year............................................. 49
SECTION 4.22. Merger.................................................. 49
ARTICLE V
AFFIRMATIVE COVENANTS...................... 49
SECTION 5.01. Information............................................. 49
SECTION 5.02. Business of Borrower.................................... 52
SECTION 5.03. Corporate Existence..................................... 52
SECTION 5.04. Right of Inspection..................................... 52
SECTION 5.05. Maintenance of Insurance................................ 52
SECTION 5.06. Payment of Taxes and Claims............................. 52
SECTION 5.07. Compliance with Laws and Documents...................... 52
SECTION 5.08. Operation of Properties and Equipment................... 53
SECTION 5.09. Environmental Indemnity................................. 53
SECTION 5.10. ERISA Reporting Requirements............................ 53
SECTION 5.11. Subsidiary Guaranty..................................... 54
SECTION 5.12. Additional Documents.................................... 54
ARTICLE VI
NEGATIVE COVENANTS............................ 55
-ii-
<PAGE>
SECTION 6.01. Indebtedness and Accommodation Obligations.............. 55
SECTION 6.02. Restrictions on Distributions........................... 55
SECTION 6.03. Negative Pledge......................................... 56
SECTION 6.04. Consolidation, Mergers and Acquisitions; Fundamental
Changes................................................. 56
SECTION 6.05. Investments............................................. 56
SECTION 6.06. Transactions with Affiliates............................ 57
SECTION 6.07. Agreements.............................................. 57
SECTION 6.08. Sales of Assets......................................... 57
SECTION 6.09. ERISA Compliance........................................ 57
SECTION 6.10. Sales and Leasebacks.................................... 58
SECTION 6.11. Margin Regulation....................................... 58
SECTION 6.12. Amendment to Organizational Documents................... 58
SECTION 6.13. Fiscal Year; Fiscal Quarter............................. 58
SECTION 6.14. Hedge Transactions...................................... 58
SECTION 6.15. Financial Covenants..................................... 59
ARTICLE VII
EVENTS OF DEFAULT............................ 59
SECTION 7.01. Events of Default....................................... 59
SECTION 7.02. Remedies................................................ 61
SECTION 7.03. Indemnity............................................... 62
ARTICLE VIII
THE AGENT................................ 62
SECTION 8.01. Authorization and Action................................ 62
SECTION 8.02. Agent's Reliance; Exculpatory Provisions, Etc........... 63
SECTION 8.03. The Agent in its Individual Capacity and Affiliates..... 63
SECTION 8.04. Bank Credit Decision.................................... 64
SECTION 8.05. Indemnification and Reimbursement....................... 64
SECTION 8.06. Successor Agent......................................... 64
SECTION 8.07. Notice of Default....................................... 65
SECTION 8.08. Delegation of Duties.................................... 65
ARTICLE IX
MISCELLANEOUS.............................. 65
SECTION 9.01. Amendments and Waivers.................................. 65
SECTION 9.02. Notices, Etc............................................ 66
SECTION 9.03. No Waiver; Remedies Cumulative.......................... 67
SECTION 9.04. Costs, Expenses and Taxes............................... 67
SECTION 9.05. Right of Setoff......................................... 68
SECTION 9.06. Governing Law........................................... 68
SECTION 9.07. Interest................................................ 69
SECTION 9.08. Survival of Representations and Warranties.............. 69
SECTION 9.09. Binding Effect.......................................... 69
-iii-
<PAGE>
SECTION 9.10. Successors and Assigns; Participations.................. 70
SECTION 9.11. Separability............................................ 72
SECTION 9.12. Confidentiality......................................... 73
SECTION 9.13. Marshalling; Recapture.................................. 73
SECTION 9.14. Representation by the Banks............................. 73
SECTION 9.15. No Third Party Beneficiaries............................ 74
SECTION 9.16. Execution in Counterparts............................... 74
SECTION 9.17. Jurisdiction; Consent to Service of Process............. 74
SECTION 9.18. Credit Agreement Governs Conflicts...................... 74
SECTION 9.19. FINAL AGREEMENT OF THE PARTIES.......................... 74
Schedules ************
*
- --------- *
*
3.01(f) List of Wells in Descending Order of Value *
Covered by the Initial Reserve Reports *
4.10 Existing Litigation *
4.11 List of Benefit Plans Under ERISA *
4.13 Environmental Matters *
4.16 List of Subsidiaries *
4.19 Material Contracts *
6.01 Existing Indebtedness *
6.05 Existing Investments *
6.06 Transactions with Affiliates * These Schedules
* and Exhibits
* are not
Exhibits * included in
- -------- * this 10-K
*
2.03 Form of Borrowing Request *
2.06 Form of Notice of Conversion\Continuation *
2.08 Form of Revolving Note *
3.01(a)(vi)-A Form of Opinion of Counsel to Borrower *
3.01(a)(vi)-B Form of Opinion of Counsel to Plains *
5.11 Form of Subsidiary Guaranty *
9.10-1 Form of Assignment and Acceptance *
9.10-2 Form of Confidentiality Agreement *
**********
-iv-
<PAGE>
REVOLVING CREDIT AGREEMENT
REVOLVING CREDIT AGREEMENT dated as of July 19, 1995, among BARRETT
RESOURCES CORPORATION, a Delaware corporation ("Borrower"), the Banks (as
--------
hereinafter defined), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national
banking association ("TCB") acting in its capacity as agent for the Banks (in
---
such capacity, the "Agent").
-----
PRELIMINARY STATEMENTS
WHEREAS, Borrower and its Subsidiaries have requested that the Banks
make available to Borrower, on the terms and subject to the conditions stated
herein, a revolving credit facility, the proceeds of which will be used to
refinance existing indebtedness of Borrower and its Subsidiaries and to fund
general business and corporate requirements of Borrower and its Subsidiaries;
WHEREAS, Borrower, Barrett Energy Inc., a Delaware corporation ("BEI")
and Plains Petroleum Company, a Delaware corporation ("Plains") are parties to
that certain Agreement and Plan of Merger dated as of May 2, 1995, providing for
the Merger, as hereinafter defined;
WHEREAS, upon consummation of the Merger, Borrower will own, directly
or indirectly, one hundred percent (100%) of the issued and outstanding capital
stock of each of its Subsidiaries including, without limitation, Plains.
WHEREAS, the Banks are willing, upon and subject to the terms and
conditions stated herein, to make such revolving credit facility available to
Borrower and its Subsidiaries; and
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Credit Agreement,
---------------------
the following terms shall have the following meanings:
"Accommodation Obligation," as applied to Borrower or any of its
------------------------
Subsidiaries, shall mean any Contractual Obligation, contingent or otherwise, of
Borrower or such Subsidiary of Borrower with respect to any Indebtedness or
other obligation or liability of another, including, without limitation, any
such Indebtedness, obligation or liability directly or indirectly guarantied,
endorsed (otherwise than for collection or deposit in the ordinary course of
business), co-made or discounted or sold with recourse by Borrower or such
Subsidiary of Borrower, or in respect of which Borrower or such Subsidiary of
Borrower is otherwise directly or indirectly liable, including Contractual
Obligations (contingent or otherwise) arising through any agreement to purchase,
repurchase, or otherwise acquire such Indebtedness, obligation or liability or
any security therefor, or to provide funds for the payment or discharge thereof
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise), or to maintain solvency, assets, level of income, or other
financial condition, or any "keep
<PAGE>
well," "take-or-pay," "throughput" or other similar arrangement or to make
payment other than for value received.
"Advance Payment Contract" shall mean any contract (other than a Hedge
------------------------
Transaction) whereby Borrower or any of its Subsidiaries either (a) receives or
becomes entitled to receive (either directly or indirectly) any payment (an
"Advance Payment") to be applied toward payment of the purchase price of
Hydrocarbons produced or to be produced from Oil and Gas Interests owned by
Borrower or any of its Subsidiaries and which Advance Payment is paid or to be
paid in advance of actual delivery of such production to or for the account of
the purchaser regardless of such production, or (b) grants an option or right of
refusal to the purchaser to take delivery of such production in lieu of payment,
and, in either of the foregoing instances, the Advance Payment is, or is to be,
applied as payment in full for such production when sold and delivered or is, or
is to be, applied as payment for a portion only of the purchase price thereof or
of a percentage or share of such production; provided that inclusion of the
-------- ----
standard provisions in any gas sales or purchase contract or any similar
contract shall not, in and of itself, constitute such contract as an Advance
Payment Contract for the purposes hereof.
"Affected Bank" shall have the meaning specified in Section 2.22 hereof.
------------- ------------
"Affiliate" shall mean, when used with respect to any Person, each other
---------
Person that directly or indirectly controls or is controlled by or is under
common control with such Person. As used in this definition, "control" means
the possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise) and shall
include, without limitation, any Person who beneficially owns more than fifty
percent (50%) of the equity of the other Person and, as to any general or
limited partnership, any general partner thereof.
"Agent" shall have the meaning assigned to that term in the introduction to
-----
this Credit Agreement and shall include any successor agent appointed in
accordance with Section 8.06 of this Credit Agreement.
------------
"Alternate Base Borrowing" shall mean a Borrowing comprised of Alternate
------------------------
Base Loans.
"Alternate Base Loan" shall mean any Loan bearing interest at a rate
-------------------
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
----------
"Alternate Base Rate" shall mean, for any day, a rate per annum (rounded
-------------------
upwards, if necessary, to the next /1/100/ of 1%) equal to the greater of
(a) the Prime Rate in effect on such day and (b) the Federal Funds Effective
Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate"
---- ----------
shall mean, as of a particular date, the prime rate of interest per annum most
recently announced by the Agent and thereafter entered in the minutes of the
Agent's Loan and Discount Committee, automatically fluctuating upward or
downward with and at the time specified in each such announcement without notice
to Borrower or any other Person; each change in the Prime Rate shall be
effective on the date such change is announced; which Prime Rate may not
necessarily represent the Agent's lowest or best rate actually charged to a
customer; "Federal Funds Effective Rate" shall mean, for any day, the weighted
----------------------------
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published by the
Federal Reserve Bank of New York for such day on the next succeeding Business
Day or, if such rate is not so published for any day
-2-
<PAGE>
which is a Business Day, the average of the quotations for the day of such
transactions received by the Agent from three federal funds brokers of
recognized standing selected by it. If for any reason the Agent shall have
determined (which determination shall be conclusive absent manifest error) that
it is unable to ascertain the Federal Funds Effective Rate for any reason,
including, without limitation, the inability of the Agent to obtain sufficient
quotations in accordance with the terms hereof, the Alternate Base Rate shall be
determined without regard to clause (b) of the first sentence of this
definition, as appropriate, until the circumstances giving rise to such
inability no longer exist. Any change in the Alternate Base Rate due to a change
in the Prime Rate or the Federal Funds Effective Rate shall be effective on the
effective date of such change in the Prime Rate or the Federal Funds Effective
Rate, respectively.
"Applicable LIBOR Margin" shall mean, with respect to each LIBOR Borrowing:
-----------------------
(a) on each day on which the Utilized Percentage of Borrowing Base is less
than or equal to twenty-five percent (25%), one-half of one percent
(0.50%) per annum;
(b) on each day on which the Utilized Percentage of Borrowing Base is
greater than twenty-five percent (25%) and less than or equal to fifty
percent (50%), five-eighths of one percent (0.625%) per annum;
(c) on each day of which the Utilized Percentage of Borrowing Base is
greater than fifty percent (50%) but less than or equal to seventy-
five percent (75%), three-quarters of one percent (.75%) per annum;
(d) on each day of which the Utilized Percentage of Borrowing Base is
greater than seventy-five percent (75%), one percent (1%) per annum.
"Assignment and Acceptance" shall mean an assignment and acceptance entered
-------------------------
into by a Bank and an Eligible Assignee, and accepted by the Agent,
substantially in the form of Exhibit 9.10-1 attached hereto.
--------------
"Available Commitment" shall mean, at any time, the lesser of (a)
--------------------
$200,000,000 or (b) the Borrowing Base at that time.
"BEI" shall mean Barrett Energy Inc., a Delaware corporation and a wholly
---
owned Subsidiary of Borrower.
"Bank" shall mean each of the financial institutions whose name appears on
----
the signature pages to this Credit Agreement and the Persons which from time to
time become a party hereto in accordance with Section 9.10.
------------
"Bankruptcy Code" shall mean the Bankruptcy Reform Act of 1978 as codified
---------------
under 11 U.S.C. (S)101, et seq.
"Benefit Plan" shall mean any employee benefit plan subject to Title IV of
------------
ERISA maintained by Borrower or any ERISA Affiliate with respect to which
Borrower or such ERISA Affiliate has a fixed or contingent liability.
-3-
<PAGE>
"Board" shall mean the Board of Governors of the Federal Reserve System of
-----
the United States.
"Borrower" shall have the meaning specified in the introduction to this
--------
Credit Agreement.
"Borrowing" shall mean a borrowing comprised of a group of Loans of the
---------
same Type made to Borrower on the same date by the Banks (or resulting from
conversions or continuations on a given date pursuant to Section 2.06), having,
------------
in the case of LIBOR Loans, the same LIBOR Interest Period.
"Borrowing Base" shall mean, at the particular time in question, the amount
--------------
determined by the Agent and the Required Banks in accordance with the provisions
of Section 2.02, provided, however, that in no event shall the Borrowing Base
------------
exceed the Total Commitment.
"Borrowing Base Notice" shall mean a written notice sent to Borrower by the
---------------------
Agent notifying Borrower of the Borrowing Base determined by the Banks for the
upcoming Borrowing Base Period.
"Borrowing Base Period" shall mean (a) initially, the period from the
---------------------
Effective Date through April 30, 1996; and (b) thereafter, each six month period
beginning on November 1 or May 1 of each year.
"Borrowing Base Quarter" shall mean the period from the Effective Date
----------------------
through July 31, 1995, and each subsequent three-month period beginning with the
first day of August, November, February or May during the term of this Credit
Agreement.
"Borrowing Date" shall mean, with respect to each Borrowing, the Business
--------------
Day upon which the proceeds of such Borrowing are made available to Borrower by
the Banks.
"Borrowing Request" shall mean, with respect to each Borrowing, a request
-----------------
made pursuant to Section 2.03 which request shall be in the form of Exhibit
------------ -------
2.03.
"Business Day" shall mean any day (other than a day which is a Saturday,
------------
Sunday or legal holiday in the State of Texas on which banks are open for
business in Houston, Texas; provided, however, that, when used in connection
-------- -------
with a LIBOR Loan, the term "Business Day" shall also exclude any day on which
banks are not open for dealings in dollar deposits in the interbank eurodollar
market.
"Capital Lease" shall mean, when used with respect to any Person, any lease
-------------
in respect of which the obligations of such Person constitute Capitalized Lease
Obligations.
"Capitalized Lease Obligations" shall mean, when used with respect to any
-----------------------------
Person, without duplication, all obligations of such Person to pay rent or other
amounts under any lease of (or other arrangement conveying the right to use)
real or personal property, or a combination thereof, which obligations shall
have been or should be, in accordance with GAAP, capitalized on the books of
such Person.
"Cash Equivalents" shall mean, when used in connection with Borrower or any
----------------
Subsidiary of Borrower, such Borrower's or such Subsidiary's Investments in:
(a) Government Securities due within one year from the date of
acquisition thereof;
-4-
<PAGE>
(b) Readily marketable direct obligations of any State of the United
States or any political subdivision of any such State given on
the date of such investment a credit rating of at least A2 by
Moody's Investors Service, Inc. or A by S&P, in each case due
within one year from the date of acquisition thereof;
(c) Certificates of deposit issued by, money market deposit accounts
with, eurodollar deposits through, bankers' acceptances of, and
repurchase and reverse repurchase agreements covering Government
Securities executed by a Bank or any other bank doing business in
and incorporated under the laws of the United States or any state
thereof whose deposits are insured through the FDIC, or any
successor thereto, and having (either itself or its holding
company) on the date of such Investment combined capital, surplus
and undivided profits of at least $250,000,000, or any offshore
branch of such bank, in each case maturing within one year from
the date of acquisition thereof;
(d) Readily marketable commercial paper of a Bank or such Bank's
holding company or of any other bank or bank holding company
given on the date of such Investment a credit rating of at least
P-1 by Moody's Investors Service, Inc. or A-1 by S&P, or of
corporations doing business in and incorporated under the laws of
the United States or any state thereof given on the date of such
Investment a credit rating of at least P-1 by Moody's Investors
Service, Inc. or A-1 by S&P, in each case, maturing within one
year from the date of acquisition thereof; and
(e) "Money-market mutual funds" investing solely in instruments of
the types described in subparagraphs (a) through (d) above.
"CNB" shall have the meaning specified in Section 2.23 hereof.
--- ------------
"Code" shall mean Internal Revenue Code of 1986, as amended from time to
----
time, and the regulations promulgated thereunder.
"Commitment" shall mean, when used with reference to any Bank at the time
----------
any determination thereof is to be made, the amount of such Bank's Commitment
hereunder to extend credit to Borrower by means of Loans, which, subject to
Sections 2.11 and 7.01, shall be an amount equal to the least of (i) the amount
- ------------- ----
set forth opposite the name of such Bank under the heading "Amount of
Commitment" on the signature pages to this Credit Agreement, (ii) such Bank's
Commitment Percentage of the Borrowing Base at that time or (iii) such Bank's
Commitment Percentage of the Designated Borrowing Base.
"Commitment Fee Rate" shall have the meaning specified in Section 2.07(a)
------------------- ---------------
hereof.
"Commitment Percentage" shall mean, as to any Bank, a fraction (expressed
---------------------
as a percentage), the numerator of which shall be the amount of such Bank's
Commitment set forth on the signature pages hereto, and the denominator of which
shall be the Total Commitment.
"Communications" shall have the meaning specified in Section 9.02.
-------------- ------------
-5-
<PAGE>
"Consolidated" shall refer to the consolidation of any Person, in
------------
accordance with GAAP, with its properly Consolidated Affiliates. Reference to a
Person's Consolidated financial statements, financial position, financial
condition, liabilities, etc. refer to the Consolidated financial statements,
financial position, financial condition, liabilities, etc. of such Person and
its properly Consolidated Affiliates.
"Consolidated Assets" shall mean, when used with respect to Borrower, all
-------------------
items which should be classified as assets on the Consolidated financial
statements of Borrower delivered to the Agent pursuant to Section 5.01, all as
------------
determined in conformity with GAAP.
"Consolidated Capitalization" shall mean, when used with respect to
---------------------------
Borrower an amount equal to the sum of (i) Consolidated Equity plus (ii) Funded
----
Debt.
"Consolidated Equity" shall mean, with respect to Borrower, at anytime, the
-------------------
Consolidated Assets of Borrower less the Consolidated Liabilities of Borrower.
----
"Consolidated Liabilities" shall mean, when used with respect to Borrower,
------------------------
all items which should be classified as liabilities on the Consolidated
financial statements of Borrower delivered to the Agent pursuant to Section
-------
5.01, all as determined in conformity with GAAP.
"Consolidated Net Income" shall mean, for any period, the net earnings (or
-----------------------
loss) after taxes of Borrower and its Subsidiaries on a Consolidated basis for
such period determined in conformity with GAAP.
"Consolidated Tangible Net Worth" shall mean, with respect to Borrower, at
-------------------------------
any time, the Consolidated Equity of Borrower, at such time, less the
Consolidated Intangible Assets of Borrower at such time. For purposes of this
definition, "Intangible Assets" shall mean the amount (to the extent reflected
in determining Consolidated Equity) of all unamortized debt discount and
expense, unamortized deferred charges, goodwill, patents, trademarks, service
marks, tradenames, copyrights and organization expenses.
"Contractual Obligation" as applied to any Person, shall mean any provision
----------------------
of any stock or other securities issued by that Person or any indenture,
mortgage, deed of trust, contract, undertaking, document, instrument or other
agreement or instrument to which that Person is a party or by which it or any of
its properties is bound, or to which it or any of its properties is subject
(including, without limitation, any restrictive covenant affecting such Person
or any of its properties).
"Credit Agreement" shall mean this Revolving Credit Agreement dated as of
----------------
July 19, 1995, among Borrower, the Agent and the each of the Banks, as said
agreement may be amended, modified, supplemented, and/or extended from time to
time.
"Credit Exposure" shall have the meaning specified in Section 9.10(b)
--------------- ---------------
hereof.
"Debtor Relief Laws" shall mean the Bankruptcy Code and all other
------------------
applicable dissolution, liquidation, conservatorship, bankruptcy, moratorium,
readjustment of debt, compromise, rearrangement, receivership, insolvency,
reorganization, or similar debtor relief laws from time to time in effect
affecting the rights of creditors generally.
-6-
<PAGE>
"Default" shall mean any Event of Default or the occurrence of any event or
-------
condition which would with the giving of any requisite notice and/or the passage
of time or both constitute an Event of Default.
"Default Rate" shall mean the interest rate described in Section 2.10.
------------ ------------
"Designated Borrowing Base" shall mean an amount determined by Borrower for
-------------------------
each Borrowing Base Quarter, of which Borrower gives notice to the Agent within
five (5) Business Days (i) after Borrower's receipt of a Borrowing Base Notice,
or (ii) prior to the beginning of the next subsequent Borrowing Base Quarter
during a Borrowing Base Period; which amount shall be equal to or greater than
the Designated Borrowing Base Floor Amount, but less than 100 percent (100%) of
the Borrowing Base for the then current Borrowing Base Period; provided, that
--------
the Designated Borrowing Base may be adjusted from time to time pursuant to the
terms and provisions of Sections 2.02 and 2.11 of this Credit Agreement, and
----------------------
provided, further that Borrower may decrease the Designated Borrowing Base only
- -------- -------
(i) at the beginning of each Borrowing Base Quarter to an amount equal to or
greater than the Designated Borrowing Base Floor Amount or (ii) in accordance
with the provisions of Section 2.11 hereof. The initial Designated Borrowing
------------
Base for the first Borrowing Base Quarter is $80,000,000.
"Designated Borrowing Base Floor Amount" shall mean $75,000,000 or such
--------------------------------------
other amount as is mutually determined by the Agent, the Required Banks and
Borrower pursuant to Section 2.11 hereof.
------------
"Distribution" shall mean any dividend payable in cash or property with
------------
respect to any shares of capital stock of Borrower or any Subsidiary of Borrower
(other than dividends payable in shares of the same class of common, preferred
or other capital stock as the shares upon which the dividend is being paid), any
other distribution made with respect to any shares of capital stock of Borrower
or any Subsidiary of Borrower, or any purchase, redemption or retirement of, or
other payment with respect to, any shares of capital stock of Borrower or and
Subsidiary of Borrower.
"Dollars" and the symbol "$" shall mean the lawful currency of the United
-------
States.
"Effective Date" shall mean the date on which all of the conditions
--------------
precedent to the making of the Loans set forth in Section 3.01 are first
------------
satisfied or waived by the Banks and the initial Loans are made.
"Eligible Assignee" shall mean any of (i) a Bank or any Affiliate of a
-----------------
Bank; (ii) a commercial bank organized under the laws of the United States, or
any state thereof having total assets in excess of $1,000,000,000; (iii) a
commercial bank organized under the laws of any other country which is a member
of the OECD, or a political subdivision of any such country having total assets
in excess of $1,000,000,000, provided that such bank is acting through its main
--------
office or a branch or agency located in the country in which it is organized or
another country which is also a member of the OECD having total assets in excess
of $1,000,000,000; (iv) the central bank of any country which is a member of the
OECD or (v) a finance company, insurance company or other financial institution
or fund having total assets in excess of $1,000,000,000, provided that a holder,
--------
either directly or indirectly, of capital stock or of any right to acquire
capital stock of Borrower or any Affiliate of Borrower shall not be an Eligible
Assignee.
-7-
<PAGE>
"Environmental Laws" shall mean any federal, state or local statute, code,
------------------
ordinance, rule, regulation, permit, consent, approval, license, judgment,
order, writ, judicial decision, decree, injunction or other authorization or
requirement whenever promulgated, issued, or modified, including the requirement
to register underground storage tanks, well plugging and abandonment
requirements, and oil and gas waste disposal requirements relating to:
(i) emissions, discharges, spills, migration, movement, releases or
threatened releases of pollutants, contaminants, Hazardous
Substances, or hazardous or toxic materials or wastes into or
onto soil, land, ambient air, surface water, ground water,
watercourses, publicly owned treatment works, drains, sewer
systems, wetlands or septic systems;
(ii) the use, treatment, storage, disposal, handling, manufacturing,
transportation, or shipment of Hazardous Substances or hazardous
and/or toxic wastes, material, products or by-products containing
Hazardous Substances (or of equipment or apparatus containing
Hazardous Substances); or
(iii) otherwise relating to pollution or the protection of human
health or the environment.
"Environmental Liabilities" shall mean, with respect to any Person, any and
-------------------------
all liabilities, responsibilities, losses, sums paid in settlement of claims,
obligations, charges, actions (formal or informal), claims (including, without
limitation, claims for personal injury or for real or personal property damage),
liens, administrative proceedings, damages (including, without limitation, loss
or damage resulting from the occurrence of an Event of Default), punitive
damages, consequential damages, treble damages, penalties, fines, monetary
sanctions, interest, court costs, response and remediation costs, stabilization
costs, encapsulation costs, treatment, storage, or disposal costs, groundwater
monitoring or environmental sampling costs, other causes of action and any other
costs and expenses (including, without limitation, reasonable attorneys',
experts', and consultants' fees, costs of investigation and feasibility studies
and disbursements in connection with any investigative, administrative or
judicial proceeding) , whether direct or indirect, known or unknown, absolute or
contingent, past, present or future arising under, pursuant to or in connection
with any Environmental Law, or any other binding obligation of such Person
requiring abatement of pollution or protection of human health and the
environment.
"Environmental Lien" shall mean a Lien in favor of any Governmental
------------------
Authority for (i) any liability under Environmental Laws or (ii) damages arising
from, or costs incurred by such Governmental Authority in response to, a Release
or threatened Release of a Hazardous Substance into the environment.
"ERISA" shall mean the United States Employee Retirement Income Security
-----
Act of 1974, as amended from time to time, together with all rules and
regulations promulgated with respect thereto.
"ERISA Affiliate" shall mean any (i) corporation which is a member of the
---------------
same controlled group of corporations (within the meaning of Section 414(b) of
the Code) as Borrower, (ii) partnership or other trade or business (whether or
not incorporated) under common control (within the meaning of Section 414(c) of
the Code) with Borrower, (iii) member of the same affiliated service group
(within the
-8-
<PAGE>
meaning of Section 414(m) of the Code) as Borrower or (iv) other Person required
to be aggregated with Borrower or an ERISA Affiliate thereof, as defined above,
pursuant to Section 414(o) of the Code.
"Eurocurrency Liabilities" shall have the meaning assigned to that term in
------------------------
Regulation D.
"Event of Default" shall have the meaning specified in Section 7.01.
---------------- ------------
"Existing Bank Debt" shall have the meaning specified in Section 2.23
------------------ ------------
hereof.
"Existing Litigation" shall mean all actions, suits, proceedings,
-------------------
governmental investigations or arbitrations disclosed in Schedule 4.10 hereto.
-------------
"FDIC" shall mean the Federal Deposit Insurance Corporation (or any
----
successor).
"Federal Funds Effective Rate" shall have the meaning specified in the
----------------------------
definition of the term "Alternate Base Rate".
-------------------
"Fiscal Quarter" shall mean a three-month period ending on the last day of
--------------
December, March, June or September of any year.
"Fiscal Year" shall mean a twelve-month period ending on December 31 of any
-----------
year.
"Funded Debt" of any Person shall mean, without duplication, Indebtedness
-----------
in any of the following categories:
(a) Indebtedness for borrowed money, including the Obligations;
(b) Indebtedness constituting an obligation to pay the deferred purchase
price of property;
(c) Indebtedness evidenced by a bond, debenture, note or similar
instrument; and
(d) Indebtedness owing under direct or indirect guaranties of Funded Debt
of any other Person (without duplication if such Person is Borrower or
any Subsidiary of Borrower and such guaranteed Funded Debt is
described in clauses (a), (b) or (c) above) or constituting
obligations to purchase or acquire or to otherwise protect or insure a
creditor against loss in respect of Funded Debt of any other Person
(such as obligations under working capital maintenance agreements,
agreements to keep-well, or agreements to purchase Funded Debt,
assets, goods, securities or services), but excluding (i) endorsements
in the ordinary course of business of negotiable instruments in the
course of collection and (ii) bonds in favor of the United States of
America or any state securing obligations to plug abandoned wells and
to clean up and restore the land on which such wells are located;
provided, however, that the "Funded Debt" of any Person shall not include
- -------- -------
Indebtedness that was incurred by such Person on ordinary trade terms to
vendors, suppliers, or other Persons providing goods and services for use by
such Person in the ordinary course of its business.
-9-
<PAGE>
"Funding Banks" shall have the meaning specified in Section 2.03(d)
------------- ---------------
hereof.
"GAAP" shall mean generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are consistent with those applied in the preparation of the
financial statements of Borrower referred to in Section 4.09(a).
---------------
"Gas Balancing Agreement" shall mean any agreement or arrangement whereby
-----------------------
Borrower or any of its Subsidiaries or any other party having an interest in any
Hydrocarbons to be produced from Oil and Gas Interests in which Borrower or any
of its Subsidiaries have a right to take more than its proportionate share of
production therefrom.
"Government Securities" shall mean readily marketable direct full faith and
---------------------
credit obligations of the United States or obligations unconditionally
guaranteed by the full faith and credit of the United States (or by any agency
thereof to the extent such obligations are backed by the full faith and credit
of the United States).
"Governmental Approval" shall mean any authorization, consent, approval,
---------------------
license, lease, ruling, permit, certification, exemption, filing for, or
registration by or with any Governmental Authority required of or by Borrower or
any Subsidiary of Borrower in connection with (i) the execution, delivery and
performance of the Loan Documents by any of such Persons and the borrowing of
any funds under this Credit Agreement, (ii) the validity or enforceability of
the Loan Documents and the exercise by the Agent or any Bank of its rights and
remedies thereunder, (iii) the acquisition, maintenance, ownership and operation
of the Oil and Gas Interests and (iv) the consummation of the Merger.
"Governmental Authority" shall mean any nation or government, any federal,
----------------------
state, province, city, town, municipality, county, local or other political
subdivision thereof or thereto and any department, commission, board, bureau,
instrumentality, agency or other entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Hazardous Substances" shall mean (1) hazardous materials, hazardous
--------------------
wastes, and hazardous substances including, but not limited to, those
substances, materials and wastes listed in the United States Department of
Transportation Hazardous Materials Table, 49 C.F.R.. (S)172.101, as amended, or
listed by the federal Environmental Protection Agency as hazardous substances
under or pursuant to 40 C.F.R. Part 302, as amended, or substances, materials,
contaminants or wastes which are or become regulated under any Environmental
Law, including without limitation, those substances, materials, contaminants or
wastes as defined in the following statutes and their implementing regulations:
the Hazardous Materials Transportation Act, 49 U.S.C. (S)1801 et seq., as
amended, the Resource Conservation and Recovery Act, 42 U.S.C. (S)6901 et seq.,
as amended, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. (S)9601 et seq., as amended; the Toxic Substances Control Act, 15
U.S.C. (S)2601 et seq., as amended; the Clean Air Act, 42 U.S.C. (S)7401 et
seq., as amended, the federal Water Pollution Control Act, 33 U.S.C. (S)1251 et
seq., as amended, the Occupational Safety and Health Act, 2 U.S.C. (S)651 et
seq., as amended, the Safe Drinking Water Act, 42 U.S.C. (S)300f et seq., as
amended and the Natural Gas Pipeline Safety Act of 1968, 49 U.S.C. (S)1671 et
seq., as amended; (2) all substances, materials, contaminants or wastes listed
in all comparable statutes of the States of Texas, Colorado, Kansas, Wyoming,
New Mexico, Oklahoma or Louisiana and in comparable local governmental
regulations in such states; (3) acid gas, sour water streams or sour water vapor
streams
-10-
<PAGE>
containing hydrogen sulfide or other forms of sulphur, sodium hydrosulfide and
ammonia; (4) Hydrocarbons; (5) natural gas, synthetic gas, and any mixtures
thereof; (6) asbestos and/or any material which contains 1% or more, by weight,
of any hydrated mineral silicate, including but not limited to chrysotile,
amosite, crocidolite, tremolite, anthophylite and/or actinolite, whether friable
or non-friable; (7) PCB's, or PCB containing materials or fluids; (8) radon; (9)
naturally occurring radioactive material, radioactive substances or waste; (10)
salt water and other oil and gas wastes and (11) any other hazardous or noxious
substance, material, pollutant, emission, or solid, liquid or gaseous waste.
"Hedge Transaction" shall mean a transaction pursuant to which Borrower or
-----------------
any of its Subsidiaries hedge the price to be received by them for future
production of Hydrocarbons, including price swap agreements under which Borrower
or its Subsidiaries agree to pay a price for a specified amount of Hydrocarbons
determined by reference to a recognized market on a specified future date and
the contracting counterparty agrees to pay Borrower or its Subsidiaries a fixed
price for the same or similar amount of Hydrocarbons; provided, that "Hedge
Transaction" shall not include the purchase by Borrower or any of its
Subsidiaries of any "floor" or similar transactions by means of which such
Person protects itself from declining prices for its production without fixing
any ceiling price for such production.
"Highest Lawful Rate" shall mean, as of a particular date and as to any
-------------------
Bank, the maximum nonusurious interest rate that may under applicable law then
be contracted for, charged or received by such Bank in connection with its
Loans.
"Hostile Acquisition" shall mean any transaction in which Borrower or its
-------------------
Subsidiaries, directly or indirectly, purchases or offers to purchase or
acquire, in any transaction or series of transactions, an aggregate of 5% or
more of the equity securities or controlling interest of any Person, for any
type of consideration, without the prior written consent of such Person's
management and Board of Directors or controlling body.
"Hydrocarbons" shall mean oil, gas, casinghead gas, condensate, distillate,
------------
liquid hydrocarbons, gaseous hydrocarbons and all products separated, settled
and dehydrated therefrom and all products refined therefrom, including, without
limitation, kerosene, liquified petroleum gas, refined lubricating oils, diesel
fuel, drip gasoline, natural gasoline, helium, sulphur and all other minerals.
"Immaterial Mineral Interests" shall have the meaning assigned to that term
----------------------------
in Section 4.06 hereof.
------------
"Indebtedness" shall mean as to Borrower or any Subsidiary of Borrower, all
------------
obligations and liabilities of Borrower or such Subsidiary of Borrower to any
other Person including, without limitation, all debts, claims and indebtedness,
heretofore, now and/or from time to time hereafter owing, due or payable,
however evidenced, created, incurred, acquired or owing and however arising,
whether under written or oral agreement, operation of law, or otherwise.
Indebtedness includes, without limiting the foregoing, (i) indebtedness for
borrowed money (including without duplication obligations to reimburse the
issuer of any letter of credit or any guarantor or surety), (ii) indebtedness
for the deferred purchase price of property or services, except trade accounts
payable within 90 days and arising in the ordinary course of business, (iii)
indebtedness evidenced by bonds, debentures, notes or other similar instruments
(but shall not include any Indebtedness guaranteed, or bonds posted to state
and/or federal agencies incurred in the ordinary course of business in
conjunction with Borrower's oil and gas operations but
-11-
<PAGE>
shall include Environmental Liabilities or liabilities to the PBGC), (iv)
obligations and liabilities secured by a Lien upon property owned by Borrower or
a Subsidiary of Borrower, whether or not such Borrower or Subsidiary of Borrower
has assumed such obligations and liabilities and the amount of which
Indebtedness shall not exceed the fair market value of the property subject to
such Lien if Borrower or Subsidiary of Borrower has not assumed such obligations
and liabilities, (v) obligations or liabilities created or arising under any
Capital Lease, (vi) all net payments or amounts owing by Borrower or Subsidiary
of Borrower in respect of interest rate protection agreements, foreign currency
exchange agreements, commodity swap agreements or other interest, exchange rate
or commodity hedging arrangements and (vii) liabilities in respect of unfunded
vested benefits under Benefit Plans. The Indebtedness of Borrower or Subsidiary
of Borrower shall include the Indebtedness of any partnership or joint venture
in which Borrower or Subsidiary of Borrower is a general or venture partner. The
Indebtedness of Borrower or any Subsidiary of Borrower shall not include trade
---
payables and expense accruals incurred or assumed in the ordinary course of
Borrower's or such Subsidiary's business (including trade payables and expense
accruals of any partnership or joint venture in which Borrower or any Subsidiary
of Borrower is a general or venture partner), provided, such payables have not
--------
remained unpaid for a period of ninety (90) days after the same became due
unless Borrower or such Subsidiary is diligently contesting same in good faith.
"Initial Reserve Reports" shall mean the reports covering the material Oil
-----------------------
and Gas Interests (i) of Borrower dated March 31,1995, prepared by Borrower and
reviewed by Ryder Scott (the "Barrett Reserve Report"), (ii) of Plains and
Plains Operating prepared as of December 31, 1994 by Netherland, Sewell &
Associates (the "Plains Reserve Report"), and (iii) of Plains and Plains
Operating with respect to Proved Undeveloped Hydrocarbon Reserves as of December
31, 1994 prepared by Plains (the "Plains PUD Report"), true and correct copies
of which have been furnished by Borrower to the Banks.
"Initial Financial Statements" shall mean collectively (i) the audited
----------------------------
annual Consolidated financial statements of Borrower dated as of September 30,
1994, and the quarterly Consolidated financial statements of Borrower dated as
of December 31, 1994 and March 31, 1995, and (ii) the audited annual
Consolidated financial statements of Plains dated as of December 31, 1994, and
the Quarterly Consolidated financial statement of Plains dated as of March 31,
1995, copies of which Initial Financial Statements have heretofore been
delivered by Borrower to the Banks.
"Interest Payment Date" shall mean any date interest is due pursuant to the
---------------------
provisions of Section 2.09(b) hereof.
---------------
"Investment" shall mean, as applied to Borrower or a Subsidiary of
----------
Borrower, any direct or indirect purchase or other acquisition by Borrower or
such Subsidiary of stock, partnership interest or other equity interest, or of a
beneficial interest therein, of any other Person, and any direct or indirect
loan, advance (other than deposits with financial institutions available for
withdrawal on demand, prepaid expenses, advances to employees and similar items
made or incurred in the ordinary course of business), or capital contribution by
Borrower or such Subsidiary to any other Person, including all Indebtedness and
accounts owed by that other Person which are not current assets or did not arise
from sales of goods or services to Borrower or such Subsidiary in the ordinary
course of business. The amount of any Investment shall be determined in
conformity with GAAP.
"IRS" shall mean the Internal Revenue Service or any successor agency.
---
-12-
<PAGE>
"Issuing Bank(s)" shall mean any Bank hereunder designated as the Issuing
---------------
Bank(s) by Borrower.
"Lending Office" shall mean, with respect to each Bank, the branch or
--------------
branches (or Affiliate or Affiliates) from which such Bank's LIBOR Loans or
Alternate Base Loans, as the case may be, are made or maintained and for the
account of which payments of principal of, and interest on, such Bank's LIBOR
Loans or Alternate Base Loans are made.
"Letter of Credit Application" shall mean the application to the Issuing
----------------------------
Bank(s) by Borrower for the issuance of a Standby Letter of Credit.
"Letter of Credit" shall mean a Standby Letter of Credit requested to be
----------------
issued under the Commitment.
"Letter of Credit Commitment" shall mean with respect to each Bank, the
---------------------------
lesser of (a) such Bank's Commitment Percentage of $25,000,000 and (b) such
Bank's Commitment.
"LIBOR Borrowing" shall mean a Borrowing comprised of LIBOR Loans.
---------------
"LIBOR Interest Period" shall mean, with respect to each LIBOR Borrowing, a
---------------------
period of one, two, three or six months, as specified in the Borrowing Request
submitted pursuant to Section 2.03 with respect thereto, beginning on and
------------
including the date specified in such Borrowing Request (which must be a Business
Day) and ending on the date which corresponds numerically to such beginning date
one, two, three or six months thereafter (or if such month has no numerically
corresponding date, on the last Business Day of such month); provided that each
LIBOR Interest Period which would otherwise end on a day which is not a Business
Day shall end on the next succeeding Business Day unless such next succeeding
Business Day is the first Business Day of a calendar month, in which case such
LIBOR Interest Period shall end on the Business Day next preceding such
numerically corresponding day. No LIBOR Interest Period may be elected which
would end after the Maturity Date.
"LIBOR Loan" shall mean any Loan bearing interest at a rate determined by
----------
reference to the LIBOR Rate in accordance with the provisions of Article II.
----------
"LIBOR Rate" shall mean, with respect to each LIBOR Borrowing and with
----------
respect to the related LIBOR Interest Period, the rate of interest per annum
(rounded upward to the nearest 1/16 of one percent) determined pursuant to the
following formula:
LIBOR (Unadjusted)
-------------------------------
LIBOR Rate = 1.00 - LIBOR Reserve Percentage
"LIBOR Reserve Percentage" of any Bank with respect to any LIBOR Interest
------------------------
Period for any LIBOR Loan of such Bank shall mean the reserve percentage
(expressed as a decimal) equal to the maximum aggregate reserve requirements
(including all basic, emergency, supplemental, marginal and other reserves and
taking into account any transitional adjustments or other scheduled changes in
reserve requirements) specified under regulations issued from time to time by
the Board of Governors of the Federal Reserve System and then applicable to
assets or liabilities consisting of and including Eurocurrency Liabilities
having a term approximately equal or comparable to such LIBOR Interest Period.
-13-
<PAGE>
"LIBOR (Unadjusted)" shall mean, with respect to each LIBOR Borrowing and
------------------
the related LIBOR Interest Period, the rate of interest per annum (rounded
upward to the nearest 1/16 of one percent) quoted by the Agent, in accordance
with its customary practices, to be representative of the rates at which
deposits of U.S. dollars are offered to the Agent at or about 11:00 am., London
time, two Business Days prior to the first day of such LIBOR Interest Period (by
prime banks in the London interbank eurocurrency market which have been selected
by the Agent in accordance with its customary practices) for delivery on the
first day of such LIBOR Interest Period in an amount equal or comparable to the
amount of the Agent's Commitment Percentage of such LIBOR Borrowing and for a
period of time equal or comparable to the length of such LIBOR Interest Period.
LIBOR (Unadjusted), as determined by the Agent with respect to a particular
LIBOR Borrowing, shall be fixed at such rate for the duration of the associated
LIBOR Interest Period.
"Lien" shall mean, with respect to any asset, (a) any mortgage, deed of
----
trust, production payment, deposit, lien, charge, pledge, security interest,
claim or encumbrance of any kind (whether voluntary or involuntary, affirmative
or negative, and whether imposed or created by operation of law or otherwise)
upon such asset, (b) the interest of a vendor or a lessor under any conditional
sale agreement, capital lease or other title retention agreement relating to
such asset and (c) in the case of securities, any purchase option, call or
similar right of a third party with respect to such securities but excluding any
right of offset which arises without agreement in the ordinary course of
business.
"Loan Documents" shall mean this Credit Agreement, each of the Notes, the
--------------
Subsidiary Guaranty the Letters of Credit, the Letter of Credit Applications and
reimbursement agreements executed in connection therewith, each compliance
certificate, each Notice of Conversion or Continuance, each Borrowing Request,
all Reserve Reports, all legal opinions and when executed and delivered by the
parties thereto, all other agreements, certificates, instruments and documents
executed in connection with the Credit Agreement or any of the other foregoing
documents, as the same may be amended, modified, supplemented or extended from
time to time.
"Loan(s)" shall have the meaning provided in Section 2.01.
------- ------------
"Margin Stock" shall have the meaning given to such term under Regulation
------------
U.
"Material Adverse Effect" shall mean (a) a material adverse effect on the
-----------------------
business, assets, operations or condition (financial or otherwise) or prospects
of Borrower and its Subsidiaries taken as a whole, (b) material impairment of
the ability of Borrower or any of its Subsidiaries to perform timely any of its
respective Obligations under any Loan Document to which it is or will be a
party, or (c) material impairment of the rights of or benefits available to the
Banks under any Loan Document.
"Material Contract" shall mean any contract, agreement or instrument to
-----------------
which Borrower or any of its Subsidiaries is a party (i) which calls for
payments to or from Borrower or any Subsidiary of Borrower of an amount in
excess of $5,000,000 during any twelve month period or (ii) pursuant to which
Borrower or any Subsidiary of Borrower acquires any right to an interest in real
or personal property or a right to obtain services if Borrower or such
Subsidiary's inability to obtain any such right could reasonably be expected to
result in a Material Adverse Effect.
-14-
<PAGE>
"Maturity Date" shall mean July 19, 1999 or the earlier date of termination
-------------
in whole of the Commitments or as extended pursuant to the provisions contained
in Section 2.24 hereof.
------------
"Maximum Permissible Rate" shall have the meaning specified in Section 9.07
------------------------ ------------
hereof.
"Merger" shall mean the Merger of BEI into Plains as contemplated by the
------
Merger Agreement.
"Merger Agreement" shall mean that certain Agreement and Plan of Merger
----------------
dated as of May 2, 1995 among Borrower, BEI and Plains, as the same may be
amended on or before the Merger Date.
"Merger Date" shall mean the date on which the Merger shall become
-----------
effective.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
------------------
Section 4001(a)(3) of ERISA to which Borrower or any ERISA Affiliate is making
or accruing an obligation to make contributions, or has within any of the
preceding five (5) plan years made or accrued an obligation to make
contributions.
"NationsBank" shall have the meaning specified in Section 2.23 hereof.
----------- ------------
"Non-Funding Bank" shall have the meaning specified in Section 2.03(d)
---------------- ---------------
hereof.
"Note" shall mean a promissory note of Borrower dated July 19, 1995,
----
substantially in the form of Exhibit 2.08.
------------
"Notice of Conversion or Continuation" shall mean a Notice of Conversion or
------------------------------------
Continuation in the form of Exhibit 2.06 signed by a Responsible Officer of
------------
Borrower.
"Obligations" shall mean all obligations, liabilities and indebtedness of
-----------
every nature of Borrower and its Subsidiaries from time to time owing to any
Bank under any Loan Document to which Borrower or such Subsidiary is a party,
including, without limitation, (a) the due and punctual payment of (x) the
principal of and interest on the Loans, Letters of Credit and reimbursement
obligations under Letter of Credit Applications, when and as due, whether at
maturity, by acceleration, upon one or more dates set for prepayment or
otherwise, including, to the extent permitted by applicable law, interest that
accrues after the commencement of any proceeding by or against Borrower or any
of its Subsidiaries under the Bankruptcy Code and all other applicable Debtor
Relief Laws and (y) all other monetary obligations of Borrower and its
Subsidiaries to any Bank under this Credit Agreement and each of the other Loan
Documents to which Borrower or such Subsidiary is a party, including any and all
fees, costs, expenses and indemnities and (b) the due and punctual performance
of all other obligations of Borrower and its Subsidiaries under this Credit
Agreement and each other Loan Document to which Borrower or such Subsidiary is a
party. "Obligation" shall mean any part of the Obligations.
"Oil and Gas Interests" shall mean any and all rights, estates, titles and
---------------------
interests in any oil and gas wells, oil, gas, sulphur and other mineral
leaseholds and fee interests, all overriding royalty interests, mineral
interests, royalty interests, net profits interests, oil payments, production
payments, carried interests and any and all other interests in Hydrocarbons,
whether any of the same be real or personal, now owned or hereafter acquired by
Borrower or its Subsidiaries, directly or indirectly together with rights,
titles and interests created by or arising under the terms of any unitization,
-15-
<PAGE>
communitization, and pooling agreements or arrangements, and all properties,
rights and interests covered thereby, whether arising by contract, by order, or
by operation of laws, which now or hereafter include all or any part of the
foregoing.
"Opinion of Borrower's Counsel" shall mean (i) with respect to Borrower and
-----------------------------
its Subsidiaries other than Plains, the written legal opinion of Bearman
Talesnick & Clowdus Professional Corporation, legal counsel to Borrower and its
Subsidiaries, dated as of July 19, 1995, substantially in the form attached
hereto as Exhibit 3.01(a)(vi)-A and (ii) with respect to Plains, the written
---------------------
legal opinion of Eugene A. Lang, Jr., Esquire, in-house counsel to Plains, dated
as of July 19, 1995 substantially in the form attached hereto as Exhibit
-------
3.01(a)(vi)-B, each to be delivered to the Agent pursuant to Section 3.01(a)(vi)
- ------------- -------------------
of the Credit Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
----
succeeding to all or any of its functions under ERISA.
"Permitted Liens" shall mean with respect to Borrower or any Subsidiary of
---------------
Borrower:
(a) Liens (if any) securing the Notes in favor of the Banks;
(b) Inchoate Liens securing obligations for labor, services, materials and
supplies with respect to the Oil and Gas Interests in the ordinary
course of business which are not delinquent or for which adequate
reserves with respect thereto are maintained on its books in accordance
with GAAP and which are being diligently contested in good faith by
appropriate proceedings and have not proceeded to judgment, provided
--------
that, by reason of nonpayment of the obligations secured by such Liens,
no such property is subject to a risk of loss or forfeiture prior to
judgment which could reasonably be expected to result in a Material
Adverse Effect;
(c) Liens for taxes and assessments on real property which are not yet
past due, or Liens for taxes and assessments on real property for
which adequate reserves with respect thereto are maintained on its
books in accordance with GAAP and which taxes and assessments are
being diligently contested in good faith by appropriate proceedings
and have not proceeded to judgment, provided that, by reason of
--------
nonpayment of the obligations secured by such Liens, no such property
is subject to a risk of loss or forfeiture prior to judgment which
could reasonably be expected to result in a Material Adverse Effect;
(d) Imperfections and irregularities in title to any property which in the
aggregate do not materially impair the marketability or use of such
property for the purposes for which it is or may reasonably be
expected to be held;
(e) Easements, exceptions, reservations, or other agreements for the
purpose of pipelines, conduits, cables, wire communication lines,
power lines and substations, streets, trails, walkways, drainage,
irrigation, water, and sewerage purposes, dikes, canals, ditches, the
removal of oil, gas, coal, or other minerals, and other like purposes
affecting real property which in the aggregate do not materially
burden or impair the marketability or use of such real property for
the purposes for which it is or may reasonably be expected to be held;
-16-
<PAGE>
(f) Non-consensual Liens imposed by Law, including carrier's, mechanics',
---------
landlord's, warehousemen's or other similar Liens, other than those
----------
described in clauses (b) or (c) above, arising in the ordinary course
of business with respect to obligations which are not delinquent or
are being diligently contested in good faith by appropriate
proceedings, provided that, if delinquent, adequate reserves with
--------
respect thereto are maintained on its books in accordance with GAAP
and, by reason of nonpayment, no property is subject to a material
risk of loss or forfeiture prior to judgment;
(g) Liens consisting of pledges or deposits made in the ordinary course of
business in compliance with workers' compensation, unemployment
insurance and other social security laws or regulations;
(h) Liens consisting of deposits of property to secure the performance of
bids, trade contracts (other than for Indebtedness or Hedge
Transactions), leases (other than Capitalized Lease Obligations),
statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature incurred in the ordinary course of
business;
(i) Lease burdens payable to third parties which are either (i) deducted
in the calculation of discounted present value in the Reserve Reports
including, without limitation, any royalty, overriding royalty, net
profit interests, production payment, carried interest or reversionary
working interest which has been disclosed to the Agent in writing, or
(ii) which burden properties which are not included in the Reserve
Reports;
(j) Dedication of net acreage to satisfy third party contractual
obligations of Borrower or any Subsidiary of Borrower with respect to
the purchase and sale of Hydrocarbons of a scope and nature customary
in the oil and gas industry (excluding production payments unless
permitted pursuant to Section 6.08 hereof and Hedge Transactions).
------------
(k) Liens arising under operating, pooling or unitization agreements of a
scope and nature customary in the oil and gas industry.
(l) Purchase money Liens upon or in any property acquired by Borrower or
any of its Subsidiaries in the ordinary course of business to secure
the deferred portion of the purchase price of such property or any
indebtedness incurred to finance the acquisition of such property
provided, however, that (i) no such Lien shall be extended to cover
-------- -------
property other than the property being acquired (ii) the Indebtedness
secured thereby is permitted pursuant to Section 6.01(g).
---------------
(m) Liens arising under, in connection with or related to farm-out, farm-
in, joint operating or area of mutual interest agreements or other
similar or customary arrangements, agreements or interests, incurred
in the ordinary course of business and to the extent such Liens are
limited in recourse to (x) the properties subject to such interests or
agreements, (y) the Hydrocarbons produced from such properties and (z)
the proceeds of such Hydrocarbons.
-17-
<PAGE>
(n) All other non-consensual Liens arising in the ordinary course of
Borrower's or such Subsidiaries' business or incidental to the
ownership of their properties;
provided that no Permitted Lien referred to above shall (i) secure Indebtedness
- --------
except for Indebtedness permitted under Section 6.01 (a) or (g) hereof or (ii)
-----------------------
in the aggregate materially detract from the marketability of the material Oil
and Gas Interests covered by the Reserve Reports or materially impair the use
thereof in the operation of the business of Borrower or such Subsidiary.
"Person" shall mean an individual, partnership, corporation (including a
------
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a foreign state or political subdivision thereof or
any agency of such state or subdivision.
"Plains" shall mean Plains Petroleum Company, a Delaware corporation and
------
after the Merger, a wholly-owned subsidiary of Barrett.
"Plains Operating" shall mean Plains Petroleum Operating Company, a
----------------
Delaware corporation and a wholly owned Subsidiary of Plains.
"Prime Rate" shall have the meaning specified in the definition of the term
----------
"Alternate Base Rate."
"Proved Developed Behind Pipe Hydrocarbon Reserves" shall mean Proved
-------------------------------------------------
Hydrocarbon Reserves which are recoverable from zones behind casing in existing
wells, which will require additional completion work or a future recompletion
prior to the start of production.
"Proved Developed Non-Producing Hydrocarbon Reserves" shall mean the
---------------------------------------------------
summation of Proved Developed Behind Pipe Hydrocarbon Reserves and Proved
Developed Shut-in Hydrocarbon Reserves.
"Proved Developed Producing Hydrocarbon Reserves" shall mean those Proved
-----------------------------------------------
Hydrocarbon Reserves which are recoverable from completion intervals currently
open and producing to market. Improved recovery reserves are considered to be
producing only after an improved recovery project has been installed and is in
operation.
"Proved Developed Shut-in Hydrocarbon Reserves" shall mean Proved
---------------------------------------------
Hydrocarbon Reserves that are recoverable from completion intervals open as of
the date of estimation, but which are not producing as of such date.
"Proved Hydrocarbon Reserves" shall mean those recoverable Hydrocarbons
---------------------------
which have been proved to a high degree of certainty by reason of existing
production, adequate testing, or in certain cases by adequate core data and
other engineering and geologic information on zones which are present in
existing wells or in known reservoirs. Reserves that can be produced
economically through the application of established improved recovery techniques
are included in the proved classification when (a) successful testing by a pilot
project or the operation of any installed program in that reservoir or one in
the immediate area with similar rock and fluid properties provides support for
the engineering analysis on which the project or program was based, and (b) it
is reasonably certain the project will proceed. Reserves to be recovered by
improved recovery techniques that have yet to be established through repeated
economically successful applications are included in the proved category only
after successful
-18-
<PAGE>
testing by a pilot project or after the operation of an installed program in the
reservoir provides support for the engineering analysis on which the project or
program was based. Improved recovery includes all methods for supplement natural
reservoir including (1) pressure maintenance, (2) cycling and (3) secondary
recovery in its original sense. Improved recovery also includes the enhanced
recovery methods of thermal, chemical flooding, and the use of miscible and
immiscible displacement fluids.
"Proved Reserves" shall mean the meaning assigned to that term in Section
--------------- -------
2.02.2(a) hereof.
- ---------
"Proved Undeveloped Hydrocarbon Reserves" shall mean Proved Hydrocarbon
---------------------------------------
Reserves that are recoverable (i) by new wells on undrilled acreage, (ii) by
replacement wells on previously drilled and producing acreage or (iii) from
existing wells where a relatively large expenditure is required for recompletion
and from acreage where the application of an improved recovery technique is
planned and the costs required to place the project in operation are relatively
large. Proved Undeveloped Hydrocarbon Reserves on undrilled acreage shall be
limited to those drilling units offsetting productive units that are reasonably
certain of production when drilled. Proved Hydrocarbon Reserves for other
undrilled units are Proved Undeveloped Hydrocarbon Reserves only where it can be
demonstrated with certainty that there is continuity of production from the
existing productive formation.
"Redetermination Date" shall have the meaning specified in Section
-------------------- -------
2.02.2(b) hereof.
- ---------
"Register" shall have the meaning specified in Section 9.10(f) hereof.
-------- ---------------
"Regulation D" shall mean Regulation D of the Board (respecting reserve
------------
requirements), as the same is from time to time in effect, and all official
rulings and interpretations thereunder or thereof.
"Regulation G" shall mean Regulation G of the Board (respecting margin
------------
credit extended by Persons other than banks, brokers and dealers), as the same
is from time to time in effect, and all official rulings and interpretations
thereunder or thereof.
"Regulation U" shall mean Regulation U of the Board (respecting margin
------------
credit extended by banks), as the same is from time to time in effect, and all
official rulings and interpretations thereunder or thereof.
"Regulation X" shall mean Regulation X of the Board (respecting borrowers
------------
who obtain margin credit), as the same is from time to time in effect, and all
official rulings and interpretations thereunder or thereof.
"Release" shall mean any release, spill, emission, leak, injection,
-------
deposit, disposal, discharge, dispersal, leaching or migration of any Hazardous
Substance into the environment or into or out of any real property of Borrower
or any Subsidiary of Borrower, including the movement of Hazardous Substances
through or in the air, soil, surface water, groundwater and/or land which could
reasonably be expected to form the basis of an Environmental Liability against
Borrower or any Subsidiary of Borrower.
"Remedial Action" shall mean actions to (i) clean up, remove, treat or in
---------------
any other way address Hazardous Substances in the environment, (ii) prevent the
Release or threat of Release or minimize the further Release of Hazardous
Substances so they do not migrate or endanger or threaten to endanger
-19-
<PAGE>
public health or welfare or the environment or (iii) perform pre-remedial
studies and investigations and post-remedial monitoring and care.
"Replacement Bank" shall mean, in any circumstance where a Bank is to be
----------------
replaced pursuant to Section 2.22, (i) any other Bank or (ii) any Eligible
------------
Assignee.
"Reportable Event" shall mean any of the events described in Section 4043
----------------
or Section 4068(f) of ERISA for which the thirty (30) day notice requirement of
29 C.F.R. (S) 2615.3 has not been waived.
"Required Banks" shall mean Banks holding more than 66 2/3% of the
--------------
principal amount of all Loans outstanding, or, if no Loans are outstanding, more
than 66 2/3% of the Total Commitment.
"Requirements of Law" shall mean any federal, state or local law, rule or
-------------------
regulation, permit or other binding determination of any Governmental Authority
applicable to Borrower or any of its Subsidiaries or any of their respective
properties or assets.
"Reserve Report" shall have the meaning given to that term in Section
-------------- -------
2.02.2(a).
- ---------
"Responsible Officer" shall mean, as to any Person, the President, any
-------------------
Executive Vice President, any Senior Vice President or Secretary of such Person.
"Revolving Credit Outstandings" shall mean, at any time, without
-----------------------------
duplication, the sum of (i) the aggregate principal amount then outstanding on
Loans, (ii) the aggregate face amount of Letters of Credit then outstanding and
(iii) the aggregate amount of payments theretofore made by the Issuing Bank(s)
in respect to Letters of Credit and not theretofore reimbursed by Borrower to
the Issuing Bank(s) or deemed a Loan pursuant to Section 2.05(d).
---------------
"S&P" shall mean Standard & Poor's Corporation.
---
"Sharing Percentage" shall mean, as to any Bank, a fraction (expressed as a
------------------
percentage), the numerator of which shall be the sum of such Bank's (i)
aggregate outstanding principal balance of all Loans to Borrower held by such
Bank at such time plus (ii) aggregate participation in the unfunded portion of
----
Letters of Credit then outstanding plus (iii) aggregate participation in
----
payments made by the Issuing Bank(s) in respect of Letters of Credit and not
theretofore reimbursed by Borrower or deemed a Loan pursuant to Section 2.05(d),
---------------
and the denominator of which shall be the Revolving Credit Outstandings.
"Standby Letter of Credit" shall mean a Letter of Credit which represents
------------------------
an obligation to the beneficiary on the part of the Issuing Bank(s) (a) to repay
money borrowed by or advanced to or for the account of Borrower or any of its
Subsidiaries or (b) to make payment on account of any indebtedness undertaken by
Borrower or any of its Subsidiaries or (c) to make payment on account of any
default by Borrower or any of its Subsidiaries in the performance of an
obligation.
"Subsidiary" shall mean as of any date of determination and with respect to
----------
any Person, any corporation, partnership, joint venture or other entity whether
now existing or hereafter organized or acquired of which the securities,
partnership units or other ownership interests having ordinary voting power, in
the absence of contingencies, to elect a majority of the board of directors or
other persons
-20-
<PAGE>
performing similar functions are at the time directly or indirectly owned by
such Person and/or one or more Subsidiaries of such Person.
"Subsidiary Guaranty" shall mean the guaranty of the Obligations executed
-------------------
by each Subsidiary of Borrower in favor of the Agent for the benefit of the
Banks to secure the Obligations substantially in the form of Exhibit 5.11,
------------
either as originally executed or as the same may from time to time be
supplemented, modified, amended, renewed, extended or supplanted.
"TCB" shall mean Texas Commerce Bank National Association, a national
---
banking association.
"Termination Event" shall mean (i) a Reportable Event with respect to any
-----------------
Benefit Plan (other than a "reportable event" that is not subject to the
provision for 30 days notice to the PBGC); (ii) the withdrawal of Borrower from
a Benefit Plan during a plan year in which Borrower was a "substantial employer"
as defined in Section 4001(a)(2) of ERISA; (iii) the imposition of an obligation
on Borrower under Section 4041 of ERISA to provide affected parties written
notice of intent to terminate a Benefit Plan in a distress termination described
in Section 4041(c) of ERISA; (iv) the institution by the PBGC of proceedings to
terminate a Benefit Plan; (v) any other event or condition which would
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Benefit Plan; or (vi) the occurrence
of an event described in Section 4068(f) of ERISA with respect to a Benefit
Plan.
"Total Commitment" shall mean $200,000,000 as the same may be reduced from
----------------
time to time pursuant to Section 2.11 or Section 2.22.
------------ ------------
"Type," when used in respect to any Loan or Borrowing, refers to the Rate
----
by reference to which interest on such Loan or on the Loans comprising such
Borrowing is determined. For purposes hereof, "Rate" shall include the LIBOR
Rate and the Alternate Base Rate.
"UCP" shall have the meaning specified in Section 2.05(b) hereof.
--- ---------------
"Unfunded Portion" shall have the meaning specified in Section 2.03(d)
---------------- ---------------
hereof.
"United States" and "U.S." each shall mean United States of America.
------------- ----
"Utilized Percentage of Borrowing Base" shall mean on any date the
-------------------------------------
Revolving Credit Outstandings on such day divided by the Available Commitment on
such day.
"Withholding Taxes" shall have the meaning provided in Section 2.19(a).
----------------- ---------------
SECTION 1.02. Accounting Terms. All terms of an accounting or financial
----------------
nature shall be construed in accordance with GAAP, as in effect from time to
time; provided, however, that, for purposes of determining compliance with any
-------- -------
covenant set forth in Article VI, such terms shall be construed in accordance
----------
with GAAP as in effect on the date of this Credit Agreement, applied on a basis
consistent with the application used in the audited financial statements
referred to in Section 4.09(a).
---------------
SECTION 1.03. Interpretation.
--------------
-21-
<PAGE>
(a) In this Credit Agreement, unless a clear contrary intention appears:
(i) the singular number includes the plural number and vice versa;
(ii) reference to any gender includes each other gender;
(iii) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Credit Agreement as a whole and
not to any particular Article, Section or other subdivision;
(iv) reference to any Person includes such Person's successors and
assigns but, if applicable, only if such successors and assigns
are permitted by this Credit Agreement, and reference to a
Person in a particular capacity excludes such Person in any
other capacity or individually, provided that nothing in this
--------
clause (iv) is intended to authorize any assignment not
otherwise permitted by this Credit Agreement;
(v) reference to any agreement, document or instrument means such
agreement, document or instrument as amended, supplemented or
modified and in effect from time to time in accordance with the
terms thereof and, if applicable, the terms hereof, and
reference to any Note includes any Note issued pursuant hereto
in extension or renewal thereof and in substitution or
replacement therefor;
(vi) unless the context indicates otherwise, reference to any
Article, Section, Schedule or Exhibit means such Article or
Section hereof or such Schedule or Exhibit hereto;
(vii) the words "including" (and with correlative meaning "include")
means including, without limiting the generality of any
description preceding such term;
(viii) with respect to the determination of any period of time, the
word "from" means "from and including" and the word "to" means
"to but excluding;" and
(ix) reference to any law means such as amended, modified, codified
or reenacted, in whole or in part, and in effect from time to
time.
(b) The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction of this Credit
Agreement.
(c) No provision of this Credit Agreement shall be interpreted or construed
against any Person solely because that Person or its legal representative
drafted such provision.
ARTICLE II
LOANS
-22-
<PAGE>
SECTION 2.01. Revolving Loans.
---------------
(a) Subject to the terms and conditions and relying upon the
representations and warranties set forth herein and in the other Loan Documents,
each Bank agrees, severally and not jointly, to make its Commitment Percentage
of loans (collectively, "Loans") to Borrower, at any time and from time to time
-----
on and after the Effective Date and up to, but excluding, the Maturity Date,
provided, a Bank's Commitment Percentage of the aggregate amount of all
- --------
Revolving Credit Outstandings at any one time shall not exceed such Bank's
Commitment and provided further that the sum of the aggregate amount of
Revolving Credit Outstandings shall at no time exceed the Available Commitment.
Except as otherwise provided in this Credit Agreement, Loans shall mature and be
due and payable in full on the Maturity Date. Within the limitation of the
Available Commitment and subject to the other terms and provisions hereof,
Borrower may borrow, repay and reborrow hereunder. Each Borrowing comprised of
Loans shall be made in accordance with the procedures set forth in Section 2.03
------------
and shall be in an aggregate principal amount which is an integral multiple of
$1,000,000 and not less than $1,000,000 (or an aggregate principal amount equal
----
to the amount available under the Available Commitment).
(b) Subject to the terms and conditions and relying upon the
representations and warranties herein set forth, the Issuing Bank(s) agrees to
issue Letters of Credit upon the request of Borrower for the account of Borrower
or any Subsidiary of Borrower at any time and from time to time on and after the
Effective Date and up to, but excluding, the earlier of the Maturity Date and
the termination of the Letter of Credit Commitments in accordance with the terms
hereof. Each Bank (other than the Issuing Bank) severally agrees, on the terms
and conditions hereinafter set forth, to purchase participations in the Letters
of Credit issued by the Issuing Bank pursuant to Section 2.05 in an aggregate
------------
amount not to exceed such Bank's Letter of Credit Commitment. Notwithstanding
the foregoing, the aggregate undrawn face amount of all Letters of Credit at any
time outstanding shall not exceed the aggregate Letter of Credit Commitments,
and no Letter of Credit will be issued if immediately after such issuance the
Revolving Credit Outstandings would exceed the Available Commitment then in
effect. On each day during the period commencing with the issuance by the
Issuing Bank of any Letter of Credit and until such Letter of Credit shall have
expired or been terminated, and, irrespective of whether such Letter of Credit
has expired or terminated, if same has been drawn upon and the amount so drawn
has not been reimbursed to the Issuing Bank, the Commitment of each Bank shall
be deemed to be utilized for all purposes hereof in an amount equal to such
Bank's Commitment Percentage of the undrawn face amount of such Letter of
Credit, plus the aggregate amount of all unreimbursed drawings.
----
SECTION 2.02. Borrowing Base.
--------------
2.02.1 Initial Borrowing Base. During the period from the Effective Date
----------------------
to the first Redetermination Date, the Borrowing Base shall be $160,000,000.
2.02.2 Subsequent Determinations of the Borrowing Base. (a) Prior to
-----------------------------------------------
March 1 and September 1 of each year, commencing September 1, 1995, Borrower
shall furnish to each Bank a report (herein called a "Reserve Report") in form
--------------
and substance reasonably satisfactory to each Bank, which Reserve Report shall
be dated as of the next preceding December 31 or June 30, as the case may be,
and shall review at least 80% of the Proved Reserves attributable to the Oil and
Gas Interests of Borrower and its Subsidiaries, shall set forth the Proved
Developed Producing Hydrocarbon Reserves, Proved Developed Behind Pipe
Hydrocarbon Reserves, Proved Developed Shut-In Hydrocarbon Reserves and Proved
Undeveloped Hydrocarbon Reserves (the "Proved Reserves") attributable to the Oil
---------------
and Gas Interests
-23-
<PAGE>
and a projection of the rate of production and net income with respect to the
Proved Reserves as of the date of such Reserve Report, all in accordance with
the guidelines published by the Securities and Exchange Commission. Each Reserve
Report to be submitted prior to March 1 in each such year shall be prepared by
the Company and reviewed by Ryder Scott or such other independent petroleum
engineer acceptable to the Required Banks. Each Reserve Report to be submitted
prior to September 1 in each year may be limited to information prepared by
personnel of Borrower which shall provide the current status of the information
set forth in the immediately preceding Reserve Report.
(b) The "Borrowing Base" from time to time in effect hereunder shall be the
--------------
maximum aggregate amount of credit which the Banks have determined to be
available pursuant to the Total Commitment. The determination of such maximum
aggregate amount of credit shall be made in good faith by all the Banks, in the
exercise of their sole discretion and in accordance with their respective
customary practices and standards for oil and gas loans, which may include
varying (from Bank to Bank) (A) assumptions regarding appropriate existing and
projected pricing, (B) assumptions modifying projected rates of future
production and/or quantities of future production, (C) considerations related to
the projected cash requirements of Borrower and its Subsidiaries assumed to be
provided from production of the Oil and Gas Interests including present and
future debt service of Borrower and/or Subsidiaries of Borrower, general and
administrative expenses and distributions in respect of equity, and (D) such
other considerations as each Bank deems appropriate, it being recognized that
the ultimate determination to be reached is more predicated upon the aggregate
amount of credit available hereunder which, at the time of the determination,
each Bank determines should be available as reasonably expected to be repayable
by Borrower, considering all then existing and projected other items which are
expected to be payable or repayable, without undue risk of failure to timely
repay. In connection with the redetermination of the Borrowing Base and upon
receipt of each Reserve Report the Agent shall submit to the Banks in writing on
or before April 5 or October 5, as the case may be, the Agent's recommendation
as to the maximum aggregate amount of credit which the Agent has determined
should be available to Borrower pursuant to the Total Commitment as of the next
succeeding May 1 or November 1, as the case may be (each such date being a
"Redetermination Date"). Each Bank shall submit to the Agent in writing on or
--------------------
before April 15 or October 15, as the case may be, such Bank's approval or
disapproval of the Agent's recommended Borrowing Base and any such disapproval
shall state the maximum Borrowing Base acceptable to such Bank. If the Agent has
not received such notice from a Bank on or before the close of business on April
15 or October 15, as the case may be, such Bank shall be deemed to have approved
the Agent's recommended Borrowing Base. If by any Redetermination Date the Agent
has not received the approval of the Required Banks, then until the next
Redetermination Date, the Borrowing Base shall be the lowest determination
agreed to by the Required Banks. The Agent shall advise Borrower of the
determination of the Borrowing Base by the Banks by providing Borrower a
Borrowing Base Notice by April 25 and October 25 of each year; provided that if,
due to any failure by Borrower to submit in a timely manner any Reserve Report
or other information required to be submitted by Borrower hereunder or, if
requested in writing by the Agent, any additional information or data needed in
connection with a re-determination of the Borrowing Base or due to any other
reason beyond the control of the Agent, the Agent does not provide a Borrowing
Base Notice at the time described above, then, unless the Agent gives notice to
Borrower of a new Borrowing Base, the Borrowing Base from the previous period
shall be carried over into the new period until a Borrowing Base Notice is sent
to Borrower by the Agent; which Borrowing Base Notice shall be sent to Borrower
by the Agent within thirty (30) days after the cessation or cure of the
circumstances causing the Borrowing Base Notice to not be previously delivered
in a timely manner, and the remainder of the procedures described in this
Section 2.02 have been completed. Borrower shall have the right, by giving
- ------------
notice to the Agent (i) within five Business Days after its receipt of a
Borrowing Base Notice for a
-24-
<PAGE>
Borrowing Base Period or (ii) five (5) Business Days prior to the first day of
the second Borrowing Base Quarter during any Borrowing Base Period, to elect to
have a Designated Borrowing Base take effect for such Borrowing Base Quarter;
provided that if Borrower has elected a Designated Borrowing Base for a
Borrowing Base Quarter, Borrower may, at any time prior to the end of such
Borrowing Base Quarter, by giving five Business Days' prior written notice to
the Agent, elect to increase the Designated Borrowing Base for that Borrowing
Base Quarter to an amount not greater than the amount originally included by the
Agent in the Borrowing Base Notice for such Borrowing Base Period; provided
further that if Borrower so elects to increase the Designated Borrowing Base,
then all commitment fees payable pursuant to Section 2.07 below with respect to
------------
the Borrowing Base Quarter in which such increase took place shall be calculated
as if the increased Designated Borrowing Base had been in effect for the entire
Borrowing Base Quarter.
SECTION 2.03. Borrowing Procedure for Loans. (a) In order to effect a
-----------------------------
Borrowing(s), Borrower shall submit a Borrowing Request in writing or by
telecopy (or telephone notice promptly confirmed in writing or by telecopy) to
the Agent, (i) in the case of a LIBOR Borrowing, not later than 11:00 a.m.,
Houston, Texas time, three (3) Business Days before the Borrowing Date specified
in the Borrowing Request for such proposed LIBOR Borrowing(s) and (ii) in the
case of an Alternate Base Borrowing, not later than 12:00 noon, Houston, Texas
time, on the Borrowing Date specified in the Borrowing Request for such proposed
Alternate Base Borrowing. Such Borrowing Request shall be irrevocable and shall
in each case refer to this Credit Agreement and specify (w) whether the
Borrowing(s) then being requested are to be LIBOR Borrowing(s), or Alternate
Base Borrowing(s), or a combination thereof, (x) the Borrowing Date of such
Borrowing(s) (which shall be a Business Day), (y) the aggregate principal amount
of such Borrowing(s) and (z) in the case of LIBOR Borrowings, the LIBOR Interest
Periods with respect thereto. If no LIBOR Interest Period with respect to any
LIBOR Borrowing(s) is specified in any such Borrowing Request, then Borrower
shall be deemed to have selected a LIBOR Interest Period of one (1) month's
duration. The Agent shall promptly advise the Banks of any Borrowing Request
given pursuant to this Section 2.03 and of each Bank's Commitment Percentage of
------------
the requested Borrowing(s) by telecopy (or telephone notice promptly confirmed
in writing or by telecopy).
(b) Each Bank may at its option make any LIBOR Loan by causing any Lending
Office of such Bank to make such LIBOR Loan; provided, however, that any
-------- -------
exercise of such option shall not affect the obligation of Borrower to repay
such LIBOR Loan in accordance with the terms of this Credit Agreement and the
applicable Notes.
(c) No later than 2:00 p.m., Houston, Texas time, on the Borrowing Date
specified in each Borrowing Request, each Bank will make available to the Agent
its Commitment Percentage of the Loans comprising the Borrowing(s) requested to
be made on such date, in Dollars and immediately available funds. Upon
fulfillment of the applicable conditions set forth in Article III, the Agent
-----------
will make the proceeds of each Borrowing so requested available to Borrower by
crediting the amounts so received to a general deposit account maintained by
Borrower with Texas Commerce Bank National Association, on the Borrowing Date
or, if a Borrowing shall not occur on such Borrowing Date because any condition
precedent specified in Article III to this Credit Agreement shall not have been
met, the Agent will return the amounts so received to the respective Banks as
soon as practicable. All Borrowings shall be made by the Banks pro rata in
accordance with such Bank's Commitment Percentage of the Loans comprising such
Borrowing. Unless the Agent shall have received notice from a Bank prior to the
date of any proposed Borrowing Date that such Bank will not make available to
the Agent such Bank's Commitment Percentage of such Borrowing, the Agent may
assume that such Bank
-25-
<PAGE>
has made its Commitment Percentage available to the Agent on such Borrowing Date
in accordance with this paragraph (c) and the Agent, in reliance upon such
assumption, may, (but under no circumstances shall the Agent be obligated to)
make available to Borrower on such Borrowing Date a corresponding amount. If and
to the extent that such Bank shall not have made its Commitment Percentage of
such Borrowing available to the Agent, such Bank agrees to repay to the Agent
forthwith on demand such corresponding amount together with interest thereon,
for each day from the date such amount is made available to Borrower until the
date such amount is repaid to the Agent at the Federal Funds Effective Rate.
Upon such Bank's repayment to the Agent of such corresponding amount, such
amount shall constitute such Bank's Commitment Percentage of such Borrowing for
purposes of this Credit Agreement.
(d) If and to the extent that a Bank (the "Non-funding Bank") has not made
----------------
its Commitment Percentage of the Loans comprising a Borrowing (the "Unfunded
--------
Portion") available to the Agent by the close of business on the specified
- -------
Borrowing Date (whether or not the Agent has made available to the Borrower on
the specified Borrowing Date a corresponding amount pursuant to Section 2.03 (c)
----------------
above), the Agent shall notify Borrower of such event no later than 10:00 a.m.,
Houston time, the next succeeding Business Day. Provided that each of the Banks
other than the Non-funding Bank (the "Funding Banks") have availability under
-------------
their respective Available Commitments and no Default or Event of Default has
occurred and is continuing, Borrower may submit a Borrowing Request by 12:00
noon, Houston time, to the Agent requesting a same day Borrowing comprised of
Alternate Base Loans in an amount equal to the Unfunded Portion. The Agent shall
promptly notify the Funding Banks of the Borrowing Request. No later than 2:00
p.m., Houston time, each Funding Bank shall make available to the Agent its pro
rata share (expressed as a percentage and determined by dividing the amount of
such Funding Bank's Commitment by an amount equal to the Total Commitment minus
-----
the amount of the Non-funding Bank's Commitment) of the Unfunded Portion, in
Dollars and in immediately available funds. If the Agent did not make available
to the Borrower the Unfunded Portion pursuant to Section 2.03(c), then the Agent
---------------
shall make the proceeds of said Borrowing available to the Borrower by crediting
the amounts so received to a general deposit account maintained by Borrower with
the Agent. If the Agent did make available to Borrower the Unfunded Portion
pursuant to Section 2.03(c), then the Agent shall apply the amounts so received
---------------
to the repayment of the Unfunded Portion advanced by the Agent. The Commitment
Percentages of the Funding Banks with respect to the affected Borrowing and to
the Borrowing requested under this Section 2.03(d) shall be adjusted to reflect
---------------
the amounts so advanced by the Funding Banks. Notwithstanding anything contained
herein, if Borrower requests a funding under this Section 2.03(d), then Borrower
---------------
shall exercise one of the two options given to Borrower in Section 2.22 within
------------
sixty (60) days from the date Borrower requests a funding under this Section
-------
2.03(d); and provided, further, that if the Agent has made available to Borrower
- -------
the Unfunded Portion pursuant to Section 2.03(c) and Borrower does not request a
---------------
funding under this Section 2.03(d), then Borrower shall pay forthwith upon
---------------
demand such Unfunded Portion together with interest thereon, for each day from
the date the Unfunded Portion is made available to Borrower until the date such
Unfunded Portion is repaid to the Agent at the interest rate applicable to
funded portion Loans comprising the affected Borrowing.
SECTION 2.04. Minimum Amount and Maximum Number of LIBOR Borrowings. All
-----------------------------------------------------
borrowings, conversions, continuations, payments, prepayments and selections of
LIBOR Interest Periods under this Credit Agreement shall be made or selected so
that, immediately after giving effect thereto, (i) the aggregate principal
amount of all Loans comprising a single LIBOR Borrowing shall not be less than
----
$1,000,000 and (ii) there shall be no more than eight (8) LIBOR Borrowings
outstanding at any time.
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<PAGE>
SECTION 2.05. Issuing the Letters of Credit. (a) In order to effect the
-----------------------------
issuance of a Letter of Credit, Borrower shall submit a Borrowing Request and a
Letter of Credit Application in writing by telecopy to the Agent (who shall
promptly notify the Issuing Bank) not later than 12:00 noon, Houston, Texas
time, two (2) Business Days before the date of issuance of such Letter of
Credit. Each such Borrowing Request and Letter of Credit Application shall (i)
be signed by Borrower, (ii) specify the Business Day on which such Letter of
Credit is to be issued, (iii) specify the Issuing Bank, and (iv) specify the
availability for Letters of Credit under the Letter of Credit Commitment and the
Total Commitment as of the date of issuance of such Letter of Credit and the
expiration date thereof which shall not be later than the earlier of (A) twelve
(12) months from the date of issuance of such Letter of Credit and (B) the
Maturity Date; provided, however, that Borrower may request evergreen Letters of
-------- -------
Credit that automatically renew for additional one year periods so long as the
final expiry date thereof is on or before the Maturity Date.
(b) Upon satisfaction of the applicable terms and conditions set forth in
Article III, the Issuing Bank shall issue such Letter of Credit to the specified
- -----------
beneficiary not later than the close of business, Houston, Texas time, on the
date so specified. The Agent shall provide Borrower and each Bank with a copy
of each Letter of Credit so issued. Each such Letter of Credit shall (i)
provide for the payment of drafts, presented for honor thereunder by the
beneficiary in accordance with the terms thereon, at sight when accompanied by
the documents described therein and (ii) be subject to the Uniform Customs and
Practice for Documentary Credits (1993 Revision), International Chamber of
Commerce Publication No. 500, (and any subsequent revisions thereof approved by
a Congress of the International Chamber of Commerce) (the "UCP") and shall, as
to matters not governed by the UCP, be governed by, and construed and
interpreted in accordance with, the laws of the State of Texas.
(c) Upon the issuance date of each Letter of Credit, the Issuing Bank shall
be deemed, without further action by any party hereto, to have sold to each
other Bank, and each other Bank shall be deemed, without further action by any
party hereto, to have purchased from the Issuing Bank, a participation, to the
extent of such Bank's Commitment Percentage, in such Letter of Credit, the
obligations thereunder and in the reimbursement obligations of Borrower due in
respect of drawings made under such Letter of Credit. If requested by the
Issuing Bank, the other Banks will execute any other documents reasonably
requested by the Issuing Bank to evidence the purchase of such participation.
(d) Upon the presentment of any draft for honor under any Letter of Credit
by the beneficiary thereof which the Issuing Bank determines is in compliance
with the conditions for payment thereunder, the Issuing Bank shall promptly
notify Borrower, the Agent and each Bank of the intended date of honor of such
draft and Borrower hereby promises and agrees, at Borrower's option, to either
(i) pay to the Agent for the account of the Issuing Bank, by 1:00 p.m., Houston,
Texas time, on the date payment is due as specified in such notice, the full
amount of such draft in immediately available funds or (ii) request a Loan
pursuant to the provisions of Sections 2.01 and 2.03 of this Credit Agreement in
----------------------
the full amount of such draft, which request shall specify that the Borrowing
Date is to be the date payment is due under the Letter of Credit as specified in
the Issuing Bank's notice. If Borrower fails timely to make such payment
because a Loan cannot be made pursuant to Sections 2.01(a) and 3.02, each Bank
-------------------------
shall, notwithstanding any other provision of this Credit Agreement (including
the occurrence and continuance of a Default or an Event of Default), make
available to the Agent for the benefit of the Issuing Bank an amount equal to
its Commitment Percentage of the presented draft on the day the Issuing
-27-
<PAGE>
Bank is required to honor such draft. If such amount is not in fact made
available to the Agent by such Bank on such date, such Bank shall pay to the
Agent for the account of the Issuing Bank, on demand made by the Issuing Bank,
in addition to such amount, an amount equal to the product of (i) the average
daily Federal Funds Effective Rate per annum during the period referred to in
clause (iii) of this sentence times (ii) the amount of such Bank's Commitment
Percentage of the presented draft times (iii) the number of days that elapse
from the day the Issuing Bank honors such draft to the date on which the amount
equal to such Bank's Commitment Percentage of the presented draft becomes
immediately available to the Issuing Bank divided (iv) by 360. In the event that
a Loan cannot be made pursuant to the provisions of Sections 2.01(a) or 3.02,
and Borrower fails to pay directly the amount of the draft, then upon receipt by
the Agent from the Banks of the full amount of such draft, notwithstanding any
other provision of this Credit Agreement (including the occurrence and
continuance of a Default or an Event of Default) the full amount of such draft
shall automatically and without any action by Borrower, be deemed to have been
an Alternate Base Borrowing as of the date of payment of such draft. Nothing in
this paragraph (d) or elsewhere in this Credit Agreement shall diminish
Borrower's obligation under this Credit Agreement to provide the funds for the
payment of any draft presented to, and duly honored by, the Issuing Bank under
any Letter of Credit by either obtaining a Loan pursuant to the provisions of
Sections 2.01(a) and 3.02 or paying directly to the Agent for the benefit of the
- -------------------------
Issuing Bank and the other Banks the amount of the draft, and the automatic
funding of a Loan as provided in the immediately preceding sentence shall not
constitute a cure or waiver of the Event of Default for failure to timely
provide such funds as in this paragraph agreed.
(e) In order to induce the issuance of Letters of Credit by the Issuing
Bank(s) and the purchase of participations therein by the other Banks, Borrower
agrees with the Agent, the Issuing Bank(s) and the other Banks that neither the
Agent nor any Bank (including the Issuing Bank(s)) shall be responsible or
liable (except as provided in the following sentence) for, and Borrower's
unconditional obligation to reimburse the Issuing Bank(s) through the Agent for
amounts paid by the Issuing Bank(s), as provided in Section 2.05(d), on account
----------------
of drafts so honored under the Revolving Credit Letters of Credit shall not be
affected by, any circumstance, act or omission whatsoever (whether or not known
to the Agent or any Bank (including the Issuing Bank(s)) other than a
circumstance, act or omission resulting from the gross negligence or willful
misconduct of the Agent or any Bank). Borrower agrees that any action taken or
omitted to be taken by the Agent or any Bank (including the Issuing Bank(s))
under or in connection with any Letter of Credit or any related draft, document
or property shall be binding on Borrower and shall not put the Agent or any Bank
(including the Issuing Bank(s)) under any resulting liability to Borrower,
unless such action or omission is the result of the gross negligence or willful
misconduct of the Agent or any such Bank. Borrower hereby waives presentment for
payment (except the presentment required by the terms of any Letter of Credit)
and notice of dishonor, protest and notice of protest with respect to drafts
honored under the Letters of Credit. The Issuing Bank agrees promptly to notify
Borrower whenever a draft is presented under any Letter of Credit, but failure
to so notify Borrower shall not in any way affect Borrower's obligations
hereunder. Subject to Section 2.21 and 2.22, if while any Letter of Credit is
------------ ----
outstanding, any law, executive order or regulation is enforced, adopted or
interpreted by any public body, governmental agency or court of competent
jurisdiction so as to affect any of Borrower's obligations or the compensation
to any Bank in respect of the Letters of Credit or the cost to such Bank of
establishing and/or maintaining the Letters of Credit (or any participation
therein), such Bank shall promptly notify Borrower thereof in writing in
accordance with Section 2.15(c) or 2.19, and within ten (10) Business Days after
--------------- ----
receipt by Borrower of such Bank's request (through the Agent) for reimbursement
or indemnification or within thirty (30) days after receipt of a notice in
respect of Withholding Taxes under Section 2.19 hereof, accompanied by a
------------
certificate from such Bank setting forth the basis for such reimbursement or
indemnification and the calculation thereof in
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<PAGE>
accordance with Section 2.15(c) or 2.19, Borrower shall reimburse or indemnify
--------------- ----
such Bank, as the case may be, with respect thereto so that such Bank shall be
in the same position as if there had been no such enforcement, adoption or
interpretation, unless Borrower notifies the Agent of its good faith contest to,
and dispute of, the requested amount and such Bank's basis therefor and/or
calculation thereof. The foregoing agreement of Borrower to reimburse or
indemnify the Banks shall apply in (but shall not be limited to) the following
situations: an imposition of or change in reserve, capital maintenance or other
similar requirements or in excise or similar taxes or monetary restraints,
except a change in franchise taxes imposed on such Bank or in tax on the net
income of such Bank.
(f) In the event that any provision of a Letter of Credit Application is
inconsistent with, or in conflict of, any provision of this Credit Agreement,
including provisions for the rate of interest applicable to drawings thereunder
or rights of setoff or any representations, warranties, covenants or any events
of default set forth therein, the provisions of this Credit Agreement shall
govern.
SECTION 2.06. Conversions or Continuation of Borrowings.(a) Subject to
-----------------------------------------
the other provisions of this Credit Agreement, Borrower may elect from time to
time to convert (i) all or any part of LIBOR Loans which comprise part of the
same LIBOR Borrowing to a Borrowing comprised of Alternate Base Loans and (ii)
all or any part of Alternate Base Loans which comprise part of the same
Borrowing to a Borrowing comprised of LIBOR Loans, provided, however, in each
-------- -------
case that any such conversion of Loans comprising a LIBOR Borrowing shall,
subject to the second following sentence, only be made on the last day of a
LIBOR Interest Period with respect thereto. All or any part of a Borrowing may
be converted as provided herein, provided that no Borrowing may be converted
--------
into a LIBOR Borrowing when any Default or Event of Default has occurred and is
continuing.
(b) Any LIBOR Borrowing may be continued as such effective upon the
expiration of the LIBOR Interest Period with respect thereto; provided, that no
--------
LIBOR Borrowing may be continued as such when any Default or Event of Default
has occurred and is continuing, but in such event shall be automatically
converted to an Alternate Base Borrowing on the last day of the then current
LIBOR Interest Period with respect thereto.
(c) In order to elect to convert or continue a Borrowing, or any portion
thereof, under this Section 2.06, Borrower shall deliver an irrevocable Notice
------------
of Conversion or Continuation to the Agent not later than 1:00 p.m., Houston,
Texas time, (i) at least three (3) Business Days in advance of the proposed
conversion or continuation date in the case of a conversion to, or continuation
of, a LIBOR Borrowing and (ii) at least one (1) Business Day in advance of the
proposed conversion date in the case of a conversion to an Alternate Base
Borrowing. Each such Notice of Conversion or Continuation shall be by telecopy
(confirmed thereafter by a delivery of the original of such Notice of Conversion
or Continuation by United States mail or a reputable courier) and shall specify
(v) the date of the requested conversion or continuation (which shall be a
Business Day), (w) the amount and the Borrowing to be converted or continued,
(y) whether a conversion or continuation is requested, and, if a conversion,
into what Type of Borrowing and (z) in the case of a conversion to, or a
continuation of, an LIBOR Borrowing, the requested LIBOR Interest Period.
Promptly after receipt of a Notice of Conversion or Continuation under this
Section 2.06, the Agent shall provide each Bank with a copy thereof.
- ------------
(d) No Borrowing, or any portion thereof, may be converted into an LIBOR
Borrowing if, after giving effect to such conversion, there would be more than
eight (8) LIBOR Borrowings outstanding at such time.
-29-
<PAGE>
(e) If Borrower shall fail to deliver a timely Notice of Conversion or
Continuation with respect to any LIBOR Borrowing, Borrower shall be deemed to
have elected to convert such LIBOR Borrowing to an Alternate Base Borrowing on
the last day of the LIBOR Interest Period with respect to such LIBOR Borrowing.
(f) For purposes of this Section 2.06, Borrowings having different LIBOR
------------
Interest Periods, regardless of whether they commence on the same date or are of
the same Type shall be considered Borrowings of different Types.
SECTION 2.07. Fees. (a) In consideration of each Bank's commitment to
----
make Loans, Borrower will pay to Agent for the account of each Bank a commitment
fee determined on a daily basis by applying the applicable Commitment Fee Rate
to such Bank's Sharing Percentage of the unused portion of the Borrowing Base,
or Designated Borrowing Base, as the case may be, on each day from the Effective
Date to but excluding the Maturity Date. The commitment fee shall be determined
for each such day by deducting from the amount of the lesser of (i) Borrowing
Base and (ii) the Designated Borrowing Base, as the case may be, at the end of
such day the Revolving Credit Outstandings at the end of such day. This
commitment fee shall be due and payable in arrears on or before the fifteenth
day of the next succeeding Fiscal Quarter, on the date of each reduction in the
Total Commitment and at Maturity (by acceleration or otherwise). The applicable
"Commitment Fee Rate" shall be based on the Utilized Percentage of Borrowing
-------------------
Base in effect on each such day and calculated pursuant to the following table:
Utilized Percentage of Borrowing Base Applicable Commitment Fee Rate
------------------------------------- ------------------------------
Less than or equal to fifty percent (50%) one-fifth of one percent (0.20%)
per annum
Greater than fifty percent (50%), but one-quarter of one percent (0.25%)
less than or equal to seventy-five per annum
percent (75%)
Greater than seventy-five percent (75%) seven-twentieths of one percent
(0.35%) per annum
(b) Borrower agrees to pay (A) to the Agent for the account of the Banks a
Letter of Credit fee for the issuance and maintenance of each Letter of Credit,
in an amount equal to the greater of (i) $500.00 and (ii) five-eighths of one
percent (.625%) per annum of the face amount of each Letter of Credit from the
date of issuance thereof to the date on which such Letter of Credit expires or
is terminated and (B) to the Issuing Bank as a fronting fee for the issuance of
each Letter of Credit, in an amount equal to one-eighth of one percent (.125%)
per annum of the face amount of each Letter of Credit from the date of issuance
thereof to the date on which such Letter of Credit expires or is terminated.
All such Letter of Credit fees shall be payable in full in advance of the
issuance of such Letter of Credit and Borrower shall receive a refund of any
unearned fees resulting from the termination of any Letter of Credit prior to
its stated expiration date, which refund shall be payable to Borrower on or
before thirty (30) days after such earlier termination. The Agent shall pay to
each Bank its Sharing Percentage of such Letter of Credit fee.
(c) Borrower shall pay when due to the Agent such other fees as shall have
been separately agreed by the Agent and Borrower in writing.
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<PAGE>
(d) All computations of fees hereunder shall be calculated on the basis of
a year of 360 days and the actual number of days elapsed.
SECTION 2.08. Notes. (a) The Loans made by each Bank shall be evidenced
-----
by a single Note duly executed and delivered by Borrower, dated July 19, 1995,
with the blanks appropriately completed, payable by Borrower to the order of
such Bank in a principal amount equal to such Bank's commitment as set forth in
the signature pages to this Credit Agreement.
(b) Each Bank is hereby authorized by Borrower, at its option, to endorse
on the schedule attached to its Note (or on a continuation of such schedule
attached to its Note and made a part thereof) or in its internal records
relating to its Note an appropriate notation evidencing the date and amount of
each Loan evidenced thereby, the date and amount of each payment of principal or
interest in respect thereof and such other information provided for on such
schedule. The failure of any Bank to make such a notation or any error therein
shall not in any manner affect the obligation of Borrower to repay the Loans
made by such Bank in accordance with the terms of its Note and this Credit
Agreement.
SECTION 2.09. Interest on Loans and Payment Dates. (a) Subject to the
-----------------------------------
provisions of Section 2.10, the Loans shall bear interest as follows:
------------
(i) The Loans comprising each LIBOR Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over a
year of 360 days) at a rate per annum equal to the lesser of (i) the
Highest Lawful Rate and (ii) the LIBOR Rate for the LIBOR Interest
Period in effect for such Borrowing plus the Applicable LIBOR Margin
----
with respect to such LIBOR Loans.
(ii) The Loans comprising each Alternate Base Borrowing shall bear interest
at a rate per annum equal to the lesser of (i) the Highest Lawful Rate
and (ii) the Alternate Base Rate (if the Alternate Base Rate is based
on the Prime Rate, computed on the basis of the actual number of days
elapsed over a year of 365 or 366 days, as the case may be; if the
Alternate Base Rate is based on the Federal Funds Effective Rate,
computed on the basis of the actual number of days elapsed over a year
of 360 days).
(b) Interest on each Loan shall be payable by Borrower (i) in respect of
each Loan comprising part of an Alternate Base Borrowing, quarterly in arrears
on the last Business Day of each calendar quarter, (ii) in respect of each Loan
comprising part of a LIBOR Borrowing, on the last day of the LIBOR Interest
Period applicable to such LIBOR Borrowing, and, in the case of a LIBOR Interest
Period for LIBOR Borrowings of six (6) months, on the date occurring three (3)
months from the first day of such LIBOR Interest Period and on the last day of
such LIBOR Interest Period, (iii) in respect of each Loan accruing interest at
the Default Rate, on demand and (iv) in respect of all Loans, on any prepayment
or conversion (on the amount prepaid or converted), at maturity (whether by
acceleration or otherwise) and, after maturity, on demand.
(c) Interest in respect of the unpaid principal amount of each Loan shall
accrue from (and including) the date of the making of such Loan to (but not
including) the date on which such Loan shall be paid in full.
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<PAGE>
(d) The Agent shall, upon determining a LIBOR Rate for any LIBOR Interest
Period, promptly notify Borrower and the Banks thereof.
SECTION 2.10. Interest on Overdue Amounts. If Borrower shall fail to pay
---------------------------
the principal of or interest on any Loan or any other amount when due hereunder,
Borrower shall on demand from time to time pay interest, to the extent permitted
by law, on such defaulted amount from the date of such Event of Default up to
(but not including) the date of actual payment (after as well as before
judgment) at a rate per annum (the "Default Rate") equal to the lesser of (i)
------------
the Highest Lawful Rate and (ii) the Alternate Base Rate, in the case of
Alternate Base Borrowings, and the applicable LIBOR Rate in the case of LIBOR
Borrowings, plus two percent (2%) per annum computed on the basis of the actual
----
number of days elapsed over a year of 365 or 366 days, as the case may be.
SECTION 2.11. Voluntary Termination and Reduction of the Total Commitment.
------------------------------------------------------------
(a) Subject to Section 2.13, Borrower may permanently terminate, or from time
------------
to time in part permanently reduce, the Total Commitment upon at least five (5)
Business Days' prior irrevocable written or telecopy notice (or telephone notice
promptly confirmed in writing) to the Agent (which notice the Agent shall
promptly transmit to each of the Banks). Such notice shall specify the date and
the amount of the termination or reduction of the Total Commitment. Each partial
reduction of the Total Commitment shall be in a minimum aggregate principal
amount of $5,000,000 and in integral multiples of $1,000,000 (or a lesser amount
equal to the excess of the Total Commitment over the sum of the aggregate
principal amount of all Loans outstanding).
(b) Simultaneously with any termination or reduction of the Total
Commitment pursuant to this Section 2.11, Borrower shall pay to the Agent for
------------
the account of each Bank the commitment fees on the amount of the Total
Commitment so terminated or reduced, accrued through the date of such
termination or reduction. After a reduction of the Total Commitment hereunder,
the commitment fees with respect of the Total Commitment shall thereafter be
calculated on the Total Commitment as so reduced.
(c) At each such time as the Total Commitment is reduced pursuant to this
Section 2.11, the Designated Borrowing Base Floor Amount shall be redetermined
- ------------
by the Required Banks and Borrower and shall be mutually agreeable to the
Required Banks and the Borrower. If no mutually agreeable Designated Borrowing
Base Floor Amount can be determined, the Designated Borrowing Base Floor Amount
shall remain $75,000,000.
SECTION 2.12. Voluntary Prepayment of Loans. (a) Borrower shall have the
-----------------------------
right at any time and from time to time to prepay the Loans, in whole or in
part, (i) in the case of LIBOR Loans upon at least three (3) Business Days'
prior written or telecopy notice (or telephone notice promptly confirmed in
writing) to the Agent, provided, however, that in the event Borrower prepays
-------- -------
LIBOR Borrowing in whole or in part on a day which is not the last day of the
LIBOR Interest Period applicable thereto, the provisions of Section 2.17 shall
------------
apply or (ii) in the case of an Alternate Base Loan, upon at least one (1)
Business Day's prior written or telecopy notice or telephone notice promptly
confirmed in writing) to the Agent; provided, however, that each such partial
-------- -------
prepayment shall be in a minimum principal amount of $1,000,000 and in integral
multiples of $1,000,000 (or a lesser amount equal to the sum of the aggregate
principal amount of all Loans outstanding).
(b) Each notice of prepayment under subsection (a) above shall (i) specify
the prepayment date, the principal amount of such prepayment, which Loans are to
be prepaid, and in the case of Loans
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<PAGE>
comprising LIBOR Borrowings, the specific Borrowing(s) pursuant to which such
Loans were made and the LIBOR Interest Period applicable thereto, (ii) be
irrevocable and (iii) commit Borrower to prepay such Loan(s) by the amount
stated therein on the date stated therein. All prepayments under this Section
-------
2.12 shall be subject to Section 2.17 (as to prepayments of LIBOR Loans), but
- ---- ------------
otherwise without premium or penalty. All prepayments of LIBOR Loans under this
Section 2.12 shall be accompanied by accrued interest on the principal amount
- ------------
being prepaid to the date of payment.
SECTION 2.13. Mandatory Payments on Loans. (a) In the event that the
---------------------------
Revolving Credit Outstandings hereunder ever exceeds the Available Commitment as
then in effect, Borrower shall, at its election, either (1) make mandatory
prepayments (commencing no later than sixty (60) days after the applicable
Redetermination Date) of principal on the Loans on a pro rata basis on or before
the last day of each 60 day period, in an amount equal to one-third (_) of such
excess (together with accrued interest on the principal amount of the Loans so
prepaid to the date of prepayment) or (2) prepay (no later than sixty (60) days
after the applicable Redetermination Date) the principal of the Loans on a pro
rata basis in an aggregate amount equal to such excess (together with accrued
interest on the principal amount of the Loans so prepaid to the date of
prepayment), or (3) add to the Oil and Gas Interests covered by the Reserve
Reports, additional Oil and Gas Interests of a value, as reasonably determined
by the Agent, equal to or exceeding such excess, or (4) if such condition
arises, in part or in whole, by reason of a Designated Borrowing Base being in
effect, increase the Designated Borrowing Base by an amount equal to the lesser
of (i) such excess or (ii) the difference between the Borrowing Base and the
Designated Borrowing Base or (5) any combination of (1) through (4) or any other
solution acceptable to Required Banks and Borrower. Borrower shall give prompt
written notice to the Agent of each election made by it pursuant to this Section
-------
2.13(a). If Borrower shall fail to give notice to the Agent as aforesaid,
- -------
Borrower shall be deemed to have elected to prepay the Loans in accordance with
clause (1) of the first sentence of Section 2.13(a).
---------------
(b) With respect to each payment of principal required to be made pursuant
to this Section 2.13, Borrower may designate, by written notice to the Agent on
------------
or before the date of such payment, the Types of Loans which are to be paid and,
in the case of LIBOR Loans, the specific LIBOR Borrowing(s) pursuant to which
made and the LIBOR Interest Periods applicable thereto, provided that (i)
--------
payments of LIBOR Loans may only be made on the last day of a LIBOR Interest
Period applicable thereto unless all Alternate Base Loans have been paid in
full; and (ii) if any payment of LIBOR Loans made pursuant to a single LIBOR
Borrowing shall reduce the outstanding Loans made pursuant to such LIBOR
Borrowing to an amount less than $1,000,000, such LIBOR Borrowing shall
immediately be converted into Alternate Base Loans. In the absence of a
designation by Borrower as described in the preceding sentence, the Agent shall
apply the amount of such payment first to the payment of all outstanding
-----
Alternate Base Loans and second to the payment of the outstanding LIBOR Loans.
------
SECTION 2.14. Alternate Rate of Interest. In the event, and on each
--------------------------
occasion, that on the day three (3) Business Days prior to the commencement of
any LIBOR Interest Period for a LIBOR Borrowing, the Agent shall have reasonably
determined (which determination shall be final and binding upon Borrower) that
(i) Dollar deposits in the principal amounts of the relevant LIBOR Loans
comprising such LIBOR Borrowing are not generally available in the London
interbank eurodollar market, or (ii) by reason of any changes arising after the
date of this Credit Agreement affecting the London interbank eurodollar market,
adequate and fair means do not exist for ascertaining such LIBOR Rate on the
basis provided for in the definition of the LIBOR Rate, or (iii) by reason of
any other circumstance affecting a Bank or the London interbank eurodollar
market or the position of such Bank in such market, the LIBOR Rate will not
adequately and fairly reflect the cost to any Bank of making or
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<PAGE>
maintaining its LIBOR Loan during such LIBOR Interest Period and such
unreflected cost is not paid by Borrower pursuant to Section 2.15(a), the Agent
---------------
shall, as soon as practicable thereafter, give written notice of such
determination to Borrower and the Banks. In the event of any such determination,
any request by Borrower for a LIBOR Borrowing pursuant to Sections 2.03 or 2.06
------------- ----
shall, until the circumstances giving rise to such notice no longer exist, be
deemed to be a request for a Borrowing comprised of Alternate Base Loans. Upon
making such determination, the Banks shall use their reasonable good faith
efforts to obtain sources of funds from which to make Loans on terms reasonably
similar to those of the LIBOR Loans, such as Dollar deposits in other eurodollar
markets, and will negotiate with Borrower in good faith to provide Loans from
alternate sources.
SECTION 2.15. Change in Circumstances. (a) Notwithstanding any other
-----------------------
provision herein but subject to Section 2.21, if after the Effective Date the
------------
introduction of any applicable law or regulation or any change in applicable law
or regulation or in the interpretation or administration thereof by any
Governmental Authority charged with the interpretation or administration
thereof, or compliance by the Banks with any applicable guideline or request
from any central bank or Governmental Authority (whether or not having the force
of law) (i) shall change the basis of taxation of payments to any Bank of the
principal of or interest on any Loan made by such Bank or shall change the basis
of taxation of any other fees or amounts payable hereunder (other than changes
in the rate of tax imposed on the overall net income of, including penalties and
interest in respect thereof, or franchise taxes based on the net income of, such
Bank or its Lending Office), (ii) shall impose, modify or deem applicable any
reserve, special deposit or similar requirement against assets of, deposits with
or for the account of, or credit extended by, any Bank or (iii) shall impose on
any Bank or the London interbank eurodollar market any other condition affecting
this Credit Agreement or any LIBOR Loan made by such Bank, and the result of any
of the foregoing shall be to increase the cost to such Bank of making,
continuing, converting, or maintaining any LIBOR Loan or to reduce the amount of
any sum received or receivable by such Bank hereunder (whether of principal,
interest or otherwise) in respect thereof by an amount deemed in good faith by
such Bank to be material (provided that the foregoing shall not apply to
increases resulting from general increases in interest rates or general
increases in such Bank's administrative expenses or overhead), then Borrower
shall pay to such Bank such additional amount or amounts as will compensate
such Bank for such additional costs incurred or reductions suffered in
accordance with paragraph (c) below. Notwithstanding the foregoing, in no event
shall any Bank be permitted to receive any compensation hereunder constituting
interest in excess of the Highest Lawful Rate.
(b) If any Bank shall have determined that the applicability of any law,
rule, regulation or guideline adopted pursuant to or arising out of the July
1988 report of the Basle Committee on Banking Regulations and Supervisory
Practices entitled "International Convergence of Capital Measurement and Capital
Standards" or the adoption or effectiveness after the date hereof of any law,
rule, regulation or guideline regarding capital adequacy, or any change in any
of the foregoing, or any change in the interpretation or administration in any
of the foregoing by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by such Bank (or its Lending Office) or such Bank's holding company with any
request or directive regarding capital adequacy (whether or not having the force
of law) of any such Governmental Authority, central bank or comparable agency,
has or would have the effect of reducing the rate of return on such Bank's
capital or on the capital of such Bank's holding company, as a consequence of
its obligations under this Credit Agreement to a level below that which such
Bank or such Bank's holding company could have achieved but for such adoption,
change or compliance (taking into consideration such Bank's policies and the
policies of such Bank's holding company with respect to capital adequacy) by an
amount deemed in good faith by such Bank to be material, then such Bank shall
promptly notify Borrower in writing of the
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<PAGE>
occurrence of any such event, such notice to state in reasonable detail the
reasons therefor and the additional amount required to compensate such Bank for
the reduction in its rate of return and Borrower and such Bank or (as the case
may be) the Agent shall thereafter attempt to negotiate in good faith, within
thirty (30) days of the day on which Borrower receives such notice, an
adjustment payable hereunder that will adequately compensate such Bank or the
Agent in light of these circumstances. If Borrower and such Bank or the Agent
are unable to agree to such adjustment within thirty (30) days of the date on
which Borrower receives such notice, then Borrower shall pay, subject to Section
-------
2.21, to such Bank or the Agent, as the case may be, an amount that will, in
- ----
such Bank's or the Agent's reasonable determination, provide adequate
compensation to such Bank or such Bank's holding company (or the Agent or the
Agent's holding company, as the case may be) for any such reduction in
accordance with paragraph (c) below. Notwithstanding the foregoing, in no event
shall any Bank be permitted to receive any compensation hereunder constituting
interest in excess of the Highest Lawful Rate.
(c) Any Bank requesting compensation pursuant to Section 2.15(a) or (b)
--------------- ---
hereof shall deliver to Borrower a certificate of such Bank setting forth such
amount or amounts as shall be necessary to compensate such Bank or its holding
company as specified in paragraphs (a) or (b) above, as the case may be, such
certificate to state, in reasonable detail, the reasons therefor, and such
certificate shall, in the absence of manifest error, be conclusive and binding
on Borrower. In preparing such certificate, such Bank may employ such
assumptions and allocations of costs and expenses as it shall in good faith deem
reasonable and may be determined by any reasonable averaging and attribution
method. Borrower shall pay to such Bank the amount shown as due on any such
certificate within thirty (30) Business Days after Borrower's receipt of the
same. Any decision by a Bank not to require payment of any interest, cost or
other amount payable under this Section 2.15 or to calculate any amount payable
------------
by a particular method, on one occasion, shall in no way limit or be deemed a
waiver of such Bank's right to require full payment of any interest, cost or
other amount payable hereunder, or to calculate any amount payable by another
method, on any other or subsequent occasion.
SECTION 2.16. Change in Legality. (a) Notwithstanding any other
------------------
provision herein contained to the contrary, if (x) any change in any law or
regulation or in the interpretation thereof by any Governmental Authority
charged with the administration or interpretation thereof shall make it unlawful
for any Bank or its Lending Office to make or maintain its Commitment Percentage
of any LIBOR Borrowing or to give effect to its obligations as contemplated
hereby with respect to its Commitment Percentage of any LIBOR Borrowing or (y)
at any time the Required Banks reasonably determine the making or continuance of
any Bank's Loans comprising a portion of any LIBOR Borrowing has become
impracticable as a result of a contingency occurring after the date hereof which
adversely affects the London interbank eurodollar market, then, and in any such
event, such Bank shall, promptly after making such determination, give written
or telecopy notice (or by telephone promptly confirmed in writing) to Borrower
and the Agent of such determination (which notice the Agent shall promptly
transmit to each of the other Banks); provided, however, that before giving any
-------- -------
such notice, such Bank shall use reasonable good faith efforts to designate a
different Lending Office to make or maintain its LIBOR Loans if such designation
will avoid the need to suspend such Bank's obligations to make or maintain LIBOR
Loans and will not be otherwise disadvantageous to such Bank. Thereafter each
such affected Bank may (i) declare that such affected Bank will no longer make
LIBOR Loans (subject to paragraph (b) below) whereupon any request by Borrower
for a LIBOR Borrowing shall, as to such Bank only, be deemed a request for an
Alternate Base Loan; and (ii) require that all outstanding LIBOR Loans made by
such affected Bank(s) be converted into Alternate Base Loans at the end of the
applicable LIBOR Interest Period or such earlier time as may be required by
applicable Requirements of Law, in each case by giving the Agent written or
telecopy notice (or by telephone promptly confirmed in
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<PAGE>
writing) thereof (which notice, in the case of subclause (ii) above shall
specify which affected LIBOR Loans are to be converted); provided, however, that
-------- -------
all Banks whose LIBOR Loans are affected by the circumstances described above
shall be treated in the same manner.
(b) In the event any Bank shall exercise its rights under (a) above, all
payments of principal which would otherwise have been applied to repay the LIBOR
Loans that would have been made, converted or continued by such Bank or the
converted LIBOR Loans of such Bank shall instead be applied to repay the
Alternate Base Loans made by the Bank in lieu of, or resulting from the
conversion of, such affected LIBOR Loans.
SECTION 2.17. Funding Losses. Without duplication of other provisions
--------------
contained herein, Borrower shall indemnify each Bank against any loss or
reasonable expense which such Bank may sustain or incur as a consequence of (i)
any failure by Borrower to fulfill on the Borrowing Date for any Borrowing
hereunder the applicable conditions set forth in Article III, (ii) any failure
-----------
by Borrower to borrow hereunder after a Borrowing Request pursuant to this
Article II has been given, (iii) any failure by Borrower to convert or continue
- ----------
a Borrowing hereunder after a Notice of Conversion or Continuation pursuant to
this Article II has been given, (iv) any payment, prepayment, continuance or
----------
conversion of a LIBOR Borrowing required or permitted by any other provision of
this Credit Agreement including, without limitation, payments made due to the
acceleration of the maturity of the Notes pursuant to Section 7.01, or otherwise
------------
made on a date other than the last day of the applicable LIBOR Interest Period,
(v) any default in the payment or prepayment of the principal amount of any
LIBOR Borrowing or any part thereof or interest accrued thereon, as and when due
and payable (at the due date thereof, by notice of prepayment or otherwise)
including, but not limited to, any loss or reasonable expense sustained or
incurred or to be sustained or incurred in liquidating or employing deposits
from third parties acquired to effect or maintain such Bank's Commitment
Percentage of any LIBOR Borrowing or any part thereof as a LIBOR Borrowing.
Such loss or reasonable expense shall include, without limitation, an amount
equal to the excess, if any, as reasonably determined by such Bank of (i) its
cost of obtaining the funds for its Commitment Percentage of the LIBOR Borrowing
being paid, prepaid or converted or not borrowed (based on the LIBOR Rate
applicable thereto) for the period from the date of such payment,
prepayment, continuance or conversion or failure to borrow to the last day of
the LIBOR Interest Period for such LIBOR Loan (or, in the case of a failure to
borrow, the LIBOR Interest Period for the LIBOR Loan which would have commenced
on the date of such failure to borrow) over (ii) the amount of interest (as
reasonably determined by such Bank) that would be realized by such Bank in
reemploying the funds so paid, prepaid, continued or converted or not borrowed
for such period or LIBOR Interest Period, as the case may be, provided that such
Bank will use its best efforts to reemploy funds in investments of similar
quality. A certificate of such Bank signed by an officer setting forth in
reasonable detail any amount or amounts which such Bank is entitled to receive
pursuant to this Section 2.17 shall be delivered to Borrower. Borrower shall
------------
pay to such Bank the amount shown as due on any certificate within thirty (30)
Business Days after its receipt of the same. Notwithstanding the foregoing, in
no event shall any Bank be permitted to receive any compensation hereunder
constituting interest in excess of the Highest Lawful Rate. Without prejudice
to the survival of any other obligations of Borrower hereunder, the obligations
of Borrower under this Section 2.17 shall survive the date of termination of
------------
this Credit Agreement and the payment in full of the Obligations for a period of
sixty (60) days.
SECTION 2.18. Method of Payments Pro Rata Treatment. (a) Borrower shall
-------------------------------------
make each payment hereunder and under the Notes delivered hereunder not later
than 1:00 p.m., Houston, Texas time, on the day when due in lawful money of the
United States (in freely transferable Dollars) to the
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<PAGE>
Agent for the account of the Banks entitled thereto at the Agent's address
referred to in Section 9.02 in immediately available funds and any funds
------------
received by the Agent after such time shall, for all purposes hereof (including
the following sentence), be deemed to have been paid on the next succeeding
Business Day. Except as otherwise specifically provided herein, the Agent shall
thereafter cause to be distributed on the date of receipt thereof to each Bank
in like funds its Sharing Percentage (or, if the Loan of such Bank with respect
to which such payment is being made is not of the same Type as the Loans of the
other Banks with respect to which such payment is being made, such Bank's
appropriate share) of the payments so received for the account of such Bank's
Lending Office for the Loan in respect of which such payment is made.
(b) Except as otherwise provided herein, (i) each Borrowing hereunder shall
be obtained from the Banks, each payment of fees shall be paid for the account
of the Banks and each partial reduction of the Total Commitment under Section
-------
2.11 shall be applied to the Commitments of the Banks, in each case
- ----
simultaneously and pro rata in accordance with each Bank's Sharing Percentage,
--- ----
(ii) each conversion of a Borrowing comprised of Loans of a particular type
shall be made pro rata among the Banks according to their respective Sharing
--- -----
Percentage of such Borrowing and (iii) each payment and prepayment of principal
of or interest on any Loans will be made to the Agent for the account of each of
the Banks simultaneously and pro rata in accordance with their respective
--- ----
Sharing Percentage of unpaid principal amounts of such Loans made by the Banks.
(c) Whenever any payment hereunder or under the Notes (including principal
of or interest on any Loan or any fees or other amounts), shall be stated to be
due 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 in such case be
included in the computation of payment of interest, fee or other amount, as the
case may be; provided, however, if such extension would cause payment of
-------- -------
interest on or principal of a LIBOR Loan to be made in the next following
calendar month, such payment shall be made on the next preceding Business Day.
SECTION 2.19. Taxes. (a) All payments of principal, interest,
-----
expenses, reimbursements, compensation, commitment, arrangement or
administration fees and any other amount from time to time due hereunder, under
the Notes or any other Loan Document made by Borrower shall be made free and
clear of and without deduction for any present or future tax, levy, impost or
any other charge, if any, of any nature whatsoever now or hereafter imposed by
any Governmental Authority, excluding, however, in the case of the Agent and
each Bank, any such taxes, levies, costs or charges imposed on or measured by
the gross receipts, capital or overall net income of the Agent or such Bank or
such Bank's Lending Office by any jurisdiction in which the Agent or such Bank
or such Bank's Lending Office is located (all such non-excluded taxes, levies,
costs, imposts, deductions, charges or withholdings being herein called
"Withholding Taxes"). If any Withholding Taxes are required to be withheld from
- -------------------
any amounts payable to the Agent or any Bank hereunder or under the Notes, and
if such withholding does not result from the breach by such Bank of its
agreement set forth in subsection (b) below or would not be required if such
Bank's representation and warranty set forth in subsection (c) below were true,
then to the extent that any such Withholding Taxes are a liability of, or
credited to, the account of Borrower, Borrower shall pay to the Agent or such
Bank, on the date of each such payment, such additional amounts as may be
necessary in order that the net amounts received by the Bank after such
deduction or withholding shall equal the amounts which would have been received
if such deduction or withholding were not required; provided, however, that all
-------- -------
amounts payable under this Section 2.19 which constitute interest under
------------
applicable law shall not exceed an amount which would result in the payment of
interest at a rate in excess of the Highest Lawful Rate. Whenever any
Withholding Taxes
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<PAGE>
are withheld by Borrower as aforesaid, as promptly as possible thereafter,
Borrower shall send to the Agent for its own account or for the account of such
Bank, as the case may be, a certified copy of an original official receipt
received by Borrower showing payment thereof. If Borrower fails to pay any
Withholding Taxes so withheld by it when due to the appropriate taxing authority
or fails to remit to the Agent the required receipts or other required
documentary evidence, Borrower shall indemnify the Agent and the Banks for any
incremental taxes, interest or penalties that may become payable by the Agent or
any Bank as a result of any such failure. The agreements in this Section 2.19
------------
shall survive the termination of this Credit Agreement and the payment of the
Notes and all other Obligations for a period of sixty (60) days.
(b) Each Bank that is not incorporated under the laws of the United States
of America or a state thereof (including each Eligible Assignee that becomes a
party to this Credit Agreement pursuant to Section 9.10) that is entitled to
------------
receive payments under this Credit Agreement and the Notes without deduction or
withholding of any United States federal income taxes or is entitled to an
exemption from backup withholding tax agrees that, prior to the first date on
which any payment is due to it hereunder, it will deliver to Borrower and the
Agent, as the case may be, (i) two duly completed copies of United States IRS
Forms 1001 or 4224 or successor applicable form, as the case may be, certifying
in each case that such Bank is entitled to receive payments under this Credit
Agreement and the Notes payable to it, without deduction or withholding of any
United States federal income taxes, and (ii) an IRS Forms W-8 or W-9 or
successor applicable form, as the case may be, to establish an exemption from
United States backup withholding tax. Each Bank which delivers to Borrower and
the Agent a Forms 1001 or 4224 and Forms W-8 or W-9 pursuant to the preceding
sentence further undertakes to deliver to Borrower and the Agent two further
copies of the said Forms 1001 or 4224 and Forms W-8 or W-9, or successor
applicable forms, or other manner of certification, as the case may be, on or
before the date that any such form expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent form previously
delivered by it to Borrower, and such extensions or renewals thereof as may
reasonably be requested by Borrower, certifying in the case of a Forms 1001 or
4224 that such Bank is entitled to receive payments under this Credit Agreement
without deduction or withholding of any United States federal income taxes,
unless in any such case an event (including, without limitation, any change in
any Requirement of Law) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Bank from duly completing and delivering any such
form with respect to it and such Bank advises Borrower that it is not capable of
receiving payments without any deduction or withholding of United States federal
income tax, and in the case of a Forms W-8 or W-9, establishing an exemption
from United States backup withholding tax.
(c) Each Bank (including each Eligible Assignee that becomes a party to
this Credit Agreement pursuant to Section 9.10) represents and warrants to
------------
Borrower that each Lending Office of such Bank hereunder will be entitled to
receive payments of principal of, and interest on, the Loans made by such Bank
from such Lending Office without withholding or deduction for or on account of
any United States federal income taxes.
SECTION 2.20. Sharing of Payments and Setoffs. Each Bank agrees that if
-------------------------------
it shall, through the exercise of a right of banker's lien, setoff to the extent
not prohibited under Section 9.05, or counterclaim against Borrower, including,
------------
but not limited to, a secured claim under Section 506 of Title 11 of the United
States Code or other security or interest arising from, or in lieu of, such
secured claim, received by such Bank under any applicable bankruptcy, insolvency
or other similar law or otherwise, or by similar means, obtain payment
(voluntary or involuntary) in respect of any Loan or Loans (other than
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<PAGE>
pursuant to Sections 2.15, 2.17 or 2.19) as a result of which the unpaid
------------- ---- ----
principal portion of its Loans shall be proportionately less than the unpaid
principal portion of the Loans of any other Bank, it shall simultaneously
purchase from such other Banks at face value a participation in the Loans of
such other Banks, so that the aggregate unpaid principal amount of Loans and
participations in Loans held by each Bank shall be in the same proportion to the
aggregate unpaid principal amount of all Loans then outstanding as the principal
amount of its Loans prior to such exercise of banker's lien, setoff,
counterclaim or other event was to the principal amount of all Loans outstanding
prior to such exercise of banker's lien, setoff pursuant to Section 9.05,
------------
counterclaim or other event; provided, however, that if any such purchase or
-------- -------
purchases or adjustments shall be made pursuant to this Section 2.20 and the
------------
payment giving rise thereto shall thereafter be recovered, such purchase or
purchases or adjustments shall be rescinded to the extent of such recovery and
the purchase price or prices or adjustment restored without interest. Borrower
expressly consents to the foregoing arrangements and agrees that any Bank
holding a participation in a Note deemed to have been so purchased may exercise
any and all rights of banker's lien, setoff or counterclaim with respect to any
and all moneys owing by Borrower to such Bank as fully as if such Bank had made
a Loan directly to such Borrower in the amount of such participation.
SECTION 2.21. Limitation on Reimbursement; Mitigation. (a)
---------------------------------------
Notwithstanding the provisions of Sections 2.15 if any Bank fails to give notice
-------------
to Borrower of any event that would obligate Borrower to pay any amount owing
pursuant to Section 2.15 within thirty (30) days after such Bank obtains
------------
knowledge of such event, and subsequently gives notice to Borrower of such
event, Borrower shall pay only such amounts for costs incurred for the ninety-
day period immediately prior to such notice.
(b) Any Bank claiming any additional amounts payable pursuant to Sections
--------
2.15 or 2.19 or any Bank subject to Sections 2.14 or 2.16 shall use reasonable
- ---- ---- ------------- ----
efforts (consistent with its internal policy and legal and regulatory
restrictions) to change the jurisdiction of its lending office for the Loans, if
the making of such a change would avoid the need for, or reduce the amount of,
any such additional amounts which may thereafter accrue under Sections 2.15 or
-------------
2.19 or would avoid the unavailability of LIBOR Loans under Sections 2.14 or
- ---- -------------
2.16 and would not, in any such case, in the judgment of such Bank, be otherwise
- ----
disadvantageous.
SECTION 2.22. Replacement of Banks. If any Bank (an "Affected Bank")
-------------------- -------------
shall have (i) failed to fund any Loan that such Bank is obligated to fund
hereunder and such failure has not been cured, (ii) requested compensation from
Borrower under Sections 2.15 or 2.19 to recover costs or taxes incurred by such
------------- ----
Bank which are not being incurred generally by the other Banks, (iii) given
notice pursuant to Sections 2.14 or 2.16 that such Bank has suspended Borrower's
------------- ----
right to elect LIBOR Loans from such Bank for reasons not generally applicable
to the other Banks or (iv) failed to approve the recommended Borrowing Base of
the Required Banks, then, in any such case and in addition to any other rights
or remedies available to Borrower, Borrower may give written notice to such
Affected Bank of the occurrence of an event set forth in subsections (i), (ii),
(iii) or (iv) of this Section 2.22, and during the sixty (60) day period
------------
following such notice, Borrower may make written demand on such Affected Bank
(with a copy to Agent and each other Bank), for such Affected Bank to assign to
one or more financial institutions (a "Replacement Bank"), all of such Affected
----------------
Bank's rights and obligations under this Agreement and the other Loan Documents
(including such Affected Bank's Commitment and all Loans owing to such Affected
Bank), provided, such assignment shall be consummated in accordance with and
--------
shall be subject to the terms of Section 9.10). Pursuant to Section 9.10, upon
------------ ------------
any such assignment, such Affected Bank shall cease to be a party hereto,
provided, however, such Affected Bank shall continue to
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<PAGE>
be entitled to the benefits of Sections 2.15, 2.17, 2.19 and 7.03 accruing with
----------------------------------
respect to such Affected Bank prior to such assignment, as well as any fees
accrued for its account and not yet paid. If an Eligible Assignee cannot be
obtained within the sixty (60) day period following said notice to the Affected
Bank, to assume the Commitment of such Affected Bank, and provided that no
Default or Event of Default shall have occurred and be continuing, then Borrower
may prepay immediately all Loans of such Affected Bank and terminate such
Affected Bank's entire Commitment hereunder provided, however, that in the event
-------- -------
Borrower makes any prepayment pursuant to this sentence, then on the date of
such prepayment, the Total Commitment of the Banks shall be permanently reduced
by the amount of such Affected Bank's Commitments and the Commitment Percentage
of each other Bank shall be redetermined based upon the amount each such other
Bank's Commitment is of the Total Commitment as so reduced.
SECTION 2.23. Use of Proceeds. (a) The initial Borrowing shall be an
---------------
amount at least equal to the aggregate principal amount of, and accrued interest
on, the existing debt of Borrower and its Subsidiaries owed to Colorado National
Bank, successor-in-interest to Central Bank/Best Western National Association
("CNB") and NationsBank of Texas, N.A. ("NationsBank") and shall be used to
- ----- -----------
repay said debt (the "Existing Bank Debt") in full. The proceeds of all other
------------------
Loans and Letters of Credit may be used for general business and corporate
requirements of Borrower and its Subsidiaries.
(b) No portion of the proceeds of any Loan under this Credit Agreement
shall be used by Borrower in any manner that might cause the borrowing or the
application of such proceeds to violate Regulation G, Regulation U, Regulation
T, or Regulation X or any other regulation of the Board or to violate the
Securities Exchange Act of 1934, in each case as in effect on the date or dates
of such borrowing and such use of proceeds.
(c) No portion of the proceeds of any Loan under this Credit Agreement
shall be used by Borrower, directly or indirectly, for a Hostile Acquisition.
SECTION 2.24. Extension of Maturity Date. (a) The Total Commitment shall
--------------------------
terminate on the Maturity Date, and any Loans then outstanding (together with
accrued and unpaid interest thereon) shall be due and payable on such date.
(b) At any time after February 1 but on or before April 1 of each calendar
year, commencing with the calendar year 1996, Borrower may request that the
Banks extend the Maturity Date for successive periods of one year. The Banks,
in their sole discretion may agree to extend or decline to extend the Maturity
Date; however, if the Banks have not responded to such request in writing by May
1 of the year of Borrower's request such request shall be deemed to have been
denied. In the event the Banks agree to such request, Borrower, the Agent and
the Banks shall execute a written amendment and extension agreement in form
reasonably acceptable to Borrower, the Agent and the Banks evidencing such
extension and the agreed upon terms and conditions of such extension together
with such other documents as the Agent and the Banks shall reasonably request.
ARTICLE III
CONDITIONS PRECEDENT
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<PAGE>
SECTION 3.01. Conditions Precedent to the Loans. The obligation of each
---------------------------------
Bank to make its initial Loan or for the Issuing Bank(s) to issue its initial
Letter of Credit hereunder is subject to the satisfaction of the following
conditions precedent:
(a) The Agent shall have received, duly authorized, executed and
delivered by each Person that is a party thereto, in form and substance
reasonably satisfactory to the Banks, each of the following:
(i) each of the following Loan Documents (together with all exhibits
thereto) dated on or as of the Effective Date:
(aa) this Credit Agreement;
(bb) each of the Notes; and
(cc) the Subsidiary Guaranty;
(ii) a certificate of the Secretary or Assistant Secretary of Borrower,
dated the Effective Date, certifying as to (aa) the adoption and
continuing effect of resolutions of the board of directors of
Borrower authorizing the transactions contemplated hereby and by the
other Loan Documents; (bb) the Certificate of Incorporation of
Borrower, (cc) the Bylaws of Borrower and all amendments thereto,
and (dd) the incumbency of all officers of Borrower who will execute
or have executed any document or instrument required to be delivered
hereunder, containing the signature of same;
(iii) a certificate of the Secretary or Assistant Secretary of each
Subsidiary, dated the Effective Date and certifying as to (aa) the
adoption and continuing effect of resolutions of the board of
directors of such Subsidiary authorizing the transactions
contemplated hereby and by the other Loan Documents; (bb) the
Certificate of Incorporation of such Subsidiary and all amendments
thereto, (cc) the Bylaws of the such Subsidiary and all amendments
thereto, and (dd) the incumbency of all officers of such Subsidiary
who will execute or have executed any document or instrument
required to be delivered hereunder, containing the signature of
same;
(iv) (aa) with respect to Borrower, a certificate of good standing from
the Secretary of State of the State of Delaware dated no more than 5
days prior to the Effective Date and certificates of authorization
to do business and good standing in the States of Colorado, Kansas,
Texas, Oklahoma, Arkansas, Wyoming, and Utah; (bb) with respect to
Plains Operating, certificates of authorization to do business and
good standing in the States of Colorado, Nevada, Kansas, Texas,
Oklahoma, Louisiana, Wyoming, New Mexico, Montana and Utah; (cc)
with respect to Plains, certificates of authorization to do business
and good standing in the States of Colorado, Kansas, Texas, and
Montana; (dd) with respect to Barrett Fuels Corporation, certificate
of authorization to do business and good standing in the State of
Colorado; (ee) with respect to Barrett Energy Inc., certificate of
authorization to do business and good standing in the State of
Colorado; (ff) with respect to BGP Inc., certificate of
authorization to do business and good standing in the State of
Colorado and (gg) with respect to Plains Petroleum Gathering
Company, certificate of authorization to do business and good
standing in the State of Colorado.
(v) with respect to each Subsidiary (other than Bargath Inc.), a
certificate of good standing from the Secretary of State of the
State of Delaware dated no more than 5 days prior to the Effective
Date and with respect Bargath Inc., a certificate of existence and
good standing from the Secretary of State of the State of Colorado
dated no more than 5 days prior to the Effective Date;
(vi) the Opinion of Borrower's Counsel;
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(vii) a certificate of insurance coverage evidencing that all insurance
required to be obtained and/or maintained by Borrower and its
Subsidiaries as of the Effective Date pursuant to any of the Loan
Documents is in full force and effect;
(viii) (aa) audited Consolidated financial statements for each of Borrower
and Plains for the most recently completed Fiscal Year of such
Person, (bb) unaudited Consolidated financial statements for each of
Borrower and Plains for the most recently completed fiscal period of
such Person for which such statements are available and (cc) such
other financial information, regarding Borrower, Plains or their
respective Subsidiaries as the Agent or any Bank may reasonably
request. All of such financial statements and financial information
shall be satisfactory to the Banks;
(ix) for its account and for the account of each Bank, as applicable, all
fees and expenses due and payable hereunder on or before the
Effective Date and invoiced to Borrower in writing prior to the
Effective Date;
(x) such other certificates, opinions, documents and instruments
relating to the transactions contemplated hereby as may have been
reasonably requested by the Agent or any Bank.
(b) (i) the representation and warranties of Borrower contained in
Article IV hereof and, in all material respects, in each of the other Loan
- ----------
Documents to which Borrower is a party shall be true and correct on the
Effective Date both before and after giving effect to the making of the initial
Loans; (ii) the representations and warranties of each Subsidiary contained in
any Loan Document to which such Subsidiary is a party are true and correct in
all material respects on the Effective Date both before and after giving effect
to the initial Loans; (iii) no Default or Event of Default shall have occurred
and be continuing on the Effective Date either before or after giving effect to
the making of the initial Loans and (iv)(aa) no events or state of affairs which
could reasonably be expected to result (or has resulted) in a Material Adverse
Effect on Borrower and its Subsidiaries shall have occurred since September 30,
1994, and (bb) no events or state of affairs which could reasonably be expected
to result (or has resulted) in a Material Adverse Effect on Plains and its
Subsidiaries shall have occurred since December 31,1994;
(c) A search, made no more than 30 days prior to the Effective Date, of
the Uniform Commercial Code filing offices in each relevant jurisdiction shall
have revealed no filings or recordings with respect to the material Oil and Gas
Interests (except Permitted Liens and Liens in favor of CNB securing Existing
Bank Debt) in favor of any Person. The Agent shall have received fully executed
releases effectuating the termination of any and all Liens (other than Permitted
Liens) pertaining to any of the Oil and Gas Interests including the Liens in
favor of CNB;
(d) All necessary consents for the consummation of the Merger and the
execution, delivery and performance of the Loan Documents shall have been
obtained and shall be in full force and effect and final. Borrower shall have
delivered to the Agent a true, correct and complete copy of all necessary
consents.
(e) The transactions contemplated by the Merger Agreement shall have
been consummated pursuant to the terms thereof in a manner reasonably
satisfactory to the Agent, including the prior approval of the Agent to any
waiver of any condition precedent to the closing under the Merger
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Agreement. The conversion of all the Common Stock of Plains (other than Common
Stock owned by Plains or Borrower) into Common Stock of Borrower in accordance
with the terms of the Merger Agreement has taken place and the Merger has become
effective. The representations of each of Borrower and Plains contained in
Articles II and III of the Merger Agreement shall be true, complete and correct
as of the date of the initial Loans hereunder.
(f) Title evidence reasonably satisfactory to the Agent showing acceptable
title in Borrower and its Subsidiaries to at least eighty percent 80% by value
of those Oil and Gas Interests set forth on Schedule 3.01(f) hereto; which title
----------------
evidence shall not reflect that any of the representations and warranties
contained in Sections 4.06 and 4.07 are inaccurate in any respect.
----------------------
(g) A review of prior environmental site assessments for Borrower's Oil
and Gas Interests or such other reviews or further assessments as may be
required by the Agent, in its reasonable discretion, to assess existence of any
Environmental Liabilities which could reasonably be expected to result in a
Material Adverse Effect.
(h) (i) Evidence satisfactory to the Agent that (i) all commitments to
make loans to, or issue letters of credit for the account of, Borrower and its
Subsidiaries pursuant to the Existing Bank Debt have been terminated, (ii)
Borrower has authorized the disbursement of funds under this Credit Agreement to
CNB and NationsBank to repay in full the Existing Bank Debt, and (iii) all liens
and encumbrances securing such indebtedness have been released, and (iv) all
other Liens which are not Permitted Liens, if any, have been released.
(i) The Banks shall have received the Initial Reserve Reports.
(j) Such other conditions precedent which the Agent may reasonably have
requested or required.
SECTION 3.02. Additional Conditions Precedent. No Bank has any obligation
-------------------------------
to make any Loan (including its initial Loan) and the Issuing Bank(s) has no
obligation to issue any Letter of Credit (including the initial Letter of
Credit) unless the following conditions precedent have been satisfied:
(a) The Agent shall have received, in form and substance satisfactory to
the Agent, a certificate of Borrower and of each Subsidiary signed by a
Responsible Officer of Borrower and of each Subsidiary, dated as of the
Borrowing Date, certifying that (aa) the representations and warranties of
Borrower and each Subsidiary contained in Article IV hereof and, in all material
----------
respects, in each of the other Loan Documents to which Borrower or such
Subsidiary is a party, are true and correct (both before and after giving effect
to the making of such Loan or the issuing of such Letter of Credit) on and as of
the Borrowing Date as if made on and as of such date (or, if stated to have been
made solely as of an earlier date, were true and correct as of such earlier
date); (bb) no event or state of affairs which could reasonably be expected to
result in a Material Adverse Effect has occurred since September 30, 1994;
(cc) no Default or Event of Default then exists either before or after giving
effect to the making of such
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Loan or the issuing of such Letter of Credit; and (dd) no new material
litigation (other than Existing Litigation) is pending or, to the best knowledge
of Borrower after due inquiry, threatened against Borrower or any Subsidiary and
no material adverse development has occurred in any Existing Litigation.
(b) Borrower shall have complied with the provisions of Section 2.03
------------
and/or 2.05;
----
(c) The Maturity Date shall not have occurred;
(d) The sum of the amount of the requested Borrowing and/or the face amount
of the requested Letter of Credit plus the Revolving Credit Outstandings shall
not exceed the lesser of (i) the Available Commitment then in effect and (ii)
the Designated Borrowing Base then in effect.
(e) The making of such Loans or the issuance of such Letters of Credit
shall be permitted by Requirements of Law.
SECTION 3.03. General. All of the agreements, instruments, reports,
-------
opinions and other documents and papers referred to in this Article III (except
-----------
for the Notes and the Letters of Credit), unless otherwise expressly specified,
shall be delivered to the Agent in sufficient counterparts for each of the
Banks. As soon as practicable after receipt of such documents the Agent shall
deliver such documents to each of the Banks.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and each Bank to enter into this Credit
Agreement and to make the Loans, Borrower represents and warrants as to itself
and each of its Subsidiaries, to the Agent and each Bank that the following
statements are true, correct and complete.
SECTION 4.01. Organization; Corporate Powers. Each of Borrower and each of
------------------------------
its Subsidiaries (a) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization, (b) is duly qualified to do business as a foreign corporation and
is in good standing in each other jurisdiction in which such qualification and
good standing are necessary in order for it to conduct its business and own its
properties as conducted and owned (except only for jurisdictions in which the
failure to be so qualified or in good standing would not, individually or in the
aggregate, result in a Material Adverse Effect) and (c) has all requisite power
and authority to own its property and assets and to carry on its business as now
conducted and as proposed to be conducted.
SECTION 4.02. Authority. Each of Borrower and each of its Subsidiaries
---------
has the corporate power and authority and legal right to execute, deliver and
perform each of the Loan Documents executed by, or to be executed by, Borrower
or such Subsidiary and each other agreement or instrument contemplated thereby
to which it is or will be a party and, with respect to Borrower, to borrow
hereunder. The execution, delivery and performance of each of the Loan
Documents to which Borrower or any of its Subsidiaries is or will be a party and
the consummation of the transactions contemplated thereby, and, with respect to
Borrower, the borrowing of funds under this Credit Agreement, have been
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<PAGE>
duly approved by the board of directors of each such Person and no other
corporate proceedings on the part of such Person are necessary to consummate
such transactions. This Credit Agreement constitutes, and each of the other Loan
Documents to which Borrower or any of its Subsidiaries is a party when executed
and delivered by such Person, will constitute the legal, valid and binding
obligation of such Person, enforceable against such Person in accordance with
its terms, except as enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, fraudulent transfer, moratorium or other similar
laws relating to creditors' rights generally and by general principles of equity
which may limit the right to obtain equitable remedies (regardless of whether
such enforceability is considered in a proceeding in equity or at law).
SECTION 4.03. Use of Proceeds. Borrower's uses of the proceeds of the
---------------
Loans shall be as set forth in Section 2.23.
------------
SECTION 4.04. No Conflict. The execution, delivery and performance by
-----------
Borrower and each Subsidiary of Borrower of the Loan Documents to which Borrower
or such Subsidiary of Borrower is a party, the compliance by Borrower or such
Subsidiary of Borrower with the terms and provisions thereof and the
consummation of each of the transactions contemplated thereby, do not and will
not (i) require any consent or approval of the stockholders of Borrower or any
of its Subsidiaries, or any authorization, consent or approval by any
Governmental Authority or (ii) by the lapse of time, the giving of notice or
otherwise, (a) constitute a violation of any Requirement of Law binding on
Borrower or such Subsidiary of Borrower or a breach of any provision contained
in the articles or certificate of incorporation or bylaws of Borrower or such
Subsidiary of Borrower, (b) constitute a breach of any material provision
contained in any Material Contract to which Borrower or such Subsidiary of
Borrower is a party or by which Borrower or such Subsidiary of Borrower is bound
other than breaches under the Existing Bank Debt with respect to the Merger for
which Borrower has obtained waivers from CNB and NationsBank, or (c) result in
or require the creation or imposition of any Lien whatsoever upon any of the
properties or assets of Borrower or such Subsidiary of Borrower (other than
Permitted Liens and the Liens in favor of CNB which are being released
concurrently with the closing of this Credit Agreement).
SECTION 4.05. Gas Balancing Agreements and Advance Payment Contracts. On
------------------------------------------------------
the date of this Credit Agreement but after giving effect to the Merger, (a) the
net gas imbalance to Borrower and its Subsidiaries (considered in the aggregate)
under all Gas Balancing Agreements to which Borrower or any of its Subsidiaries
is a party or by which any Oil and Gas Interests owned by Borrower or any of its
Subsidiaries is bound, is not in excess of $5,000,000, and (b) the aggregate
amount of all Advanced Payments received by Borrower or any of its Subsidiaries
under Advance Payment Contracts which have not been satisfied by delivery of
production does not exceed $5,000,000.
SECTION 4.06. Oil and Gas Interests. Borrower has good and defensible
---------------------
title to all Oil and Gas Interests described in the Initial Reserve Reports
other than Immaterial Mineral Interests, free and clear of all Liens except
Permitted Liens. With the exception of Immaterial Mineral Interests, all such
Oil and Gas Interests are valid, subsisting, and in full force and effect, and
all rentals, royalties, and other amounts due and payable in respect thereof
have been duly paid. Except with respect to Immaterial Mineral Interests, but
without regard to any consent or non-consent provisions of any joint operating
agreement covering any of the Proved Reserves of Borrower and its Subsidiaries,
Borrower's (and its Subsidiaries') share of (a) the costs for such Proved
Reserves described in Initial Reserve Reports is not greater than the decimal
fraction set forth in the Initial Reserve Reports, before and after payout, as
the case may be, and described therein by the respective designations "working
interests",
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<PAGE>
"WI", "gross working interest", "GWI", or similar terms, and (b) production
from, allocated to, or attributed to each such Proved Reserves is not less than
the decimal fraction set forth in the Initial Reserve Reports, before and after
payout, as the case may be, and described therein by the designations net
revenue interest, NRI, or similar terms. Except with respect to Immaterial
Mineral Interests, each well drilled in respect of each Proved Developed
Producing Hydrocarbon Reserves described in the Initial Reserve Reports (y) is
capable of, and is presently, producing Hydrocarbons in commercial quantities,
and Borrower is currently receiving payments for its share of production, with
no funds in respect of any thereof being presently held in suspense, other than
any such funds being held in suspense pending delivery of appropriate division
orders, and (z) has been drilled, bottomed, completed, and operated in
compliance with all applicable Requirements of Law and no such well which is
currently producing Hydrocarbons is subject to any penalty in production by
reason of such well having produced in excess of its allowable production. For
purposes of this Section 4.06, "Immaterial Mineral Interests" means Oil and Gas
------------ ----------------------------
Interests which, in the aggregate, do not represent more than five percent (5%)
of the discounted present value of all Oil and Gas Interests as set forth in the
Initial Reserve Reports.
SECTION 4.07. Ownership of Properties Generally. With respect to all
---------------------------------
other properties and assets of Borrower and its Subsidiaries not covered by
Section 4.06 above, Borrower and each of its Subsidiaries have good and valid
- ------------
fee simple or leasehold title to all material properties and assets purported to
be owned by them, including, without limitation, all assets reflected in the
balance sheets referred to in Section 4.09 (a) and all assets which are used by
----------------
Borrower and its Subsidiaries in the operation of their respective businesses,
and none of such properties or assets is subject to any Lien other than
Permitted Liens.
SECTION 4.08. No Defaults.
-----------
(a) Neither Borrower nor any Subsidiary of Borrower is a party to any
Contractual Obligation that has resulted or is likely to result in a Material
Adverse Effect.
(b) (i) No Default or Event of Default exists and (ii) neither Borrower
nor any Subsidiary of Borrower is in default with respect to any Material
Contract.
SECTION 4.09. Financial Position; No Material Adverse Change.
----------------------------------------------
(a) (i) Borrower has heretofore furnished to the Agent and the Banks its
Consolidated balance sheet, and the related Consolidated
statements of income, cash flows and stockholders' equity of
Borrower and its Subsidiaries (x) as of and for the fiscal year
ended September 30, 1994, audited by and accompanied by the
opinion of Arthur Andersen, L.L.P., independent certified public
accountants, and (y) as of and for the Fiscal Quarters ended
December 31, 1994 and March 31, 1995, certified by a Responsible
Officer of Borrower. Such financial statements present fairly the
financial condition and results of operations of Borrower and its
Subsidiaries as of such dates and for such periods. Such
financial statements were prepared in accordance with GAAP
applied on a consistent basis.
(ii) Borrower has heretofore furnished to the Agent and the Banks the
Consolidated balance sheet, and the related Consolidated
statements of income, cash flows and stockholders' equity of
Plains and its Subsidiaries (x) as of and for the year ended
December 31, 1994, audited by and accompanied by the opinion of
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<PAGE>
Arthur Andersen, L.L.P., independent certified public
accountants, and (y) as of and for the Fiscal Quarter ended March
31, 1995, certified by a Responsible Officer of Plains. Such
financial statements present fairly the financial condition and
results of operations of Plains as of such dates and for such
periods. Such financial statements were prepared in accordance
with GAAP applied on a consistent basis.
(iii) Neither Borrower nor any Subsidiary of Borrower has any material
contingent liabilities, material liabilities for taxes, unusual
and material forward or long-term commitments or material
unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for
in the Consolidated balance sheets of (i) Borrower or (ii) Plains
or as otherwise disclosed to the Banks in writing.
(b) Borrower has disclosed to the Banks in writing any and all facts (other
than matters concerning the general economy) which, in the reasonable good faith
judgment of Borrower, could result in a Material Adverse Effect.
SECTION 4.10. Litigation; Adverse Effects.
---------------------------
(a) Except as set forth in Schedule 4.10, there are no actions, suits,
-------------
proceedings, governmental investigations or arbitrations, at law or in equity,
before or by any Governmental Authority, pending or, to the best knowledge of
Borrower, probable of assertion against Borrower or any Subsidiary of Borrower
or any property of Borrower or any Subsidiary of Borrower which could reasonably
be expected to result in a Material Adverse Effect.
(b) None of the business, properties, or operations of Borrower or any
Subsidiary of Borrower are affected by any fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act
of God, or of the public enemy or other casualty (whether or not covered by
insurance) which could reasonably be expected to result in a Material Adverse
Effect.
SECTION 4.11. ERISA. All currently existing Benefit Plans are listed on
-----
Schedule 4.11 hereto. Except as set forth on Schedule 4.11, Borrower and each of
- ------------- -------------
its Subsidiaries is in compliance in all material respects with the applicable
provisions of ERISA and the regulations and published interpretations thereunder
with respect to each such Benefit Plan. No Reportable Event has occurred as to
which Borrower or any Subsidiary of Borrower was required to file a report with
the PBGC, and the present value of all benefit liabilities under each Benefit
Plan (based on those assumptions used to fund such Benefit Plan) did not, as of
the last annual valuation date applicable thereto, exceed the value of the
assets of such Benefit Plans. Neither Borrower nor any Subsidiary of Borrower
has any ERISA Affiliates (other than Borrower and its Subsidiaries) or
Multiemployer Plans.
SECTION 4.12. Payment of Taxes. Borrower has filed, and has caused each
----------------
of its Subsidiaries to file, all federal, state and local tax returns and other
reports required by Requirements of Law to have been filed by Borrower or such
Subsidiary of Borrower and has paid (prior to delinquency) all taxes and other
similar charges and assessments that are due and payable including extensions,
except taxes, charges and assessments which are being diligently contested in
good faith by appropriate proceedings and any Lien arising thereunder
constitutes a Permitted Lien. No Responsible Officer of Borrower or
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<PAGE>
any Subsidiary of Borrower has knowledge of any proposed tax assessment against
Borrower or any Subsidiary of Borrower that is likely to result in a Material
Adverse Effect.
SECTION 4.13. Environmental Matters. Except as disclosed on Schedule 4.13
--------------------- -------------
or as could not reasonably be expected to result in a Material Adverse Effect:
(a) Borrower and each of its Subsidiaries is in compliance with all
applicable Environmental Laws;
(b) Borrower and each of its Subsidiaries has obtained all consents and
permits required under all applicable Environmental Laws to operate its business
as presently conducted or as proposed to be conducted and all such consents and
permits are in full force and effect and Borrower and its Subsidiaries are in
compliance with all terms and conditions of such approvals;
(c) Neither Borrower nor any Subsidiary of Borrower nor any of the present
property or operations or the past property or operations of Borrower or any
Subsidiary of Borrower (including Plains and its Subsidiaries) is subject to any
order from or agreement with any Governmental Authority or private party
respecting (i) failure to comply with any Environmental Law or any Remedial
Action or (ii) any Environmental Liabilities arising from the Release or
threatened Release except those orders and agreements with which Borrower or
such Subsidiary of Borrower has complied;
(d) None of the operations of Borrower or any Subsidiary of Borrower is
subject to any judicial or administrative proceeding alleging a violation of, or
liability under, any Environmental Law;
(e) To the best knowledge and belief of Borrower after due inquiry with
respect thereto, none of the operations of Borrower or any Subsidiary of
Borrower (including Plains and its Subsidiaries) is the subject of any
investigation by any Governmental Authority evaluating whether any Remedial
Action is needed to respond to a Release or threatened Release;
(f) Neither Borrower nor any Subsidiary of Borrower has been required to
file any notice under any Environmental Law indicating past or present
treatment, storage or disposal of a hazardous waste as defined by 40 CFR Part
261 or any state or local equivalent;
(g) Neither Borrower nor any Subsidiary of Borrower has been required to
file any notice under any applicable Environmental Law reporting a Release
(other than minor or de minimis Releases);
-- -------
(h) There is not now, nor, to the best knowledge and belief of Borrower has
there ever been, on or in any property of Borrower or of any Subsidiary of
Borrower:
(i) any unauthorized generation, treatment, recycling, storage or
disposal of any hazardous waste as defined by 40 CFR Part 261 or any
state or local equivalent,
(ii) any underground storage tanks or surface impoundments without proper
permits,
(iii) any asbestos-containing material, or
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<PAGE>
(iv) any polychlorinated biphenyls (PCBs) used in hydraulic oils,
electrical transformers or other equipment;
(i) There have been no written commitments or agreements involving
Borrower or any Subsidiary of Borrower from or with any Governmental Authority
or any private entity (including, without limitation, the owner of the property
or any portion thereof) relating to the generation, storage, treatment,
presence, Release, or threatened Release on or into any of the properties of
Borrower or any Subsidiary of Borrower (including Plains and its Subsidiaries)
or the environment (including off-site disposal of Hazardous Substances) or any
Remedial Action with respect thereto;
(j) Neither Borrower nor any Subsidiary of Borrower has received any
written notice or claim to the effect that it is or may be liable to any Person
as a result of the Release or threatened Release;
(k) Neither Borrower nor any Subsidiary of Borrower has any known
liability in connection with any material Release or material threatened
Release; and
(l) After due inquiry, no Environmental Lien has attached to any
properties of Borrower or any Subsidiary of Borrower.
SECTION 4.14. Governmental Regulation. Neither Borrower nor any
-----------------------
Subsidiary of Borrower is subject to regulation under the Interstate Commerce
Act, the Investment Company Act of 1940, the Public Utility Holding Company Act
of 1935, the Federal Power Act or any other Requirements of Law such that its
ability to incur indebtedness is limited or its ability to consummate the
transactions contemplated by this Credit Agreement and the other Loan Documents
or any document executed in connection therewith is impaired.
SECTION 4.15. Disclosure. All information contained in any financial
----------
statements, certificates, exhibits, schedules, operating statements and any
other written statements and written information (excluding estimates and
forecasts) furnished by or on behalf of Borrower or any Subsidiary of Borrower
to the Banks and the Agent, (taken as a whole) in connection with any
transaction contemplated hereby or by any other Loan Document on or prior to the
date this representation is made or deemed made, were, and will be, true and
correct in all material respects and do not, and will not, contain any material
misstatement of fact or omit to state a material fact necessary in order to make
the statements contained therein, in light of the circumstances under which they
were made, not misleading.
SECTION 4.16. Subsidiaries. As of the Effective Date, Schedule 4.16
------------ -------------
contains a complete and accurate (a) list of all Subsidiaries of Borrower, (b)
description of the issued and outstanding capital stock of each Subsidiary of
Borrower and (c) the record owners of such capital stock.
SECTION 4.17. Solvency. Neither Borrower nor any Subsidiary of Borrower
--------
(i) is "insolvent" (within the meaning of Section 101(32) of the Bankruptcy
Code, Section 2 of the Uniform Fraudulent Conveyance Act or Section 2 of the
Uniform Fraudulent Transfer Act) or will become insolvent as a result of the
incurrence of any obligation under any Loan Document to which it is a party;
(ii) has unreasonably small capital (after giving effect to the transactions
contemplated in any Loan Document to which it is a party) for the conduct of its
existing and contemplated business and (iii) is unable to perform its contingent
obligations and other commitments as they mature in the normal course of
business.
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SECTION 4.18. Business. Borrower has not conducted and is not conducting
--------
any business other than business relating to the exploration, development,
financing, acquisition, ownership, operation, maintenance, storage, trading,
transporting and marketing of the Oil and Gas Interests as currently conducted.
SECTION 4.19. Material Contracts. Schedule 4.19 lists all Material
------------------ -------------
Contracts to which Borrower or any of its Subsidiaries is a party or by which it
or its properties is bound (including, without limitation, all amendments,
supplements, waivers and other agreements amending, supplementing or otherwise
modifying or clarifying such agreements) but excluding (a) the Loan Documents,
(b) agreements, documents and instruments giving rise to Oil and Gas Interests
owned by Borrower and its Subsidiaries, (c) farmout agreements and agreements
for the sale, purchase, processing, transportation or marketing of oil, gas or
other minerals entered into in the ordinary course of business, (d) operating
and joint operating agreements related to such Oil and Gas Interests, (e)
agreements and plans relating to employee benefits, and (f) the Merger Agreement
and each Material Contract which is expressly referenced in the Merger Agreement
and the Schedules and Exhibits described thereto. Borrower and each of its
Subsidiaries have complied in all material respects with all obligations
required to be performed by them under all Material Contracts, except to the
extent a failure to comply could not result in a Material Adverse Effect.
Borrower is not aware of any default by any other party to any Material
Contract. True, correct and complete copies of all Material Contracts listed on
Schedule 4.19 have been delivered to the Agent.
- -------------
SECTION 4.20. Licenses, Permits, Etc. Borrower and each of its
----------------------
Subsidiaries possess such valid franchises, certificates of convenience and
necessity, operating rights, licenses, permits, consents, authorizations,
exemptions and orders of Governmental Authorities, as are necessary to carry on
their respective businesses as now conducted and as proposed to be conducted,
except to the extent a failure to obtain any such item would not result in a
Material Adverse Effect.
SECTION 4.21. Fiscal Year. Borrower's Fiscal Year is January 1 through
-----------
December 31.
SECTION 4.22. Merger Agreement. Borrower has delivered to the Banks a
----------------
complete and correct copy of the Merger Agreement, and such document has not
been amended, supplemented or modified since the date of execution thereof. The
Merger Agreement has been duly executed and delivered by the parties thereto and
is in full force and effect. The representations and warranties of Plains
contained in Article III of the Merger Agreement and those of Borrower contained
in Article II of the Merger Agreement (in each case, including the schedules
referred to therein) are hereby incorporated by reference into this Credit
Agreement and shall be deemed to have been made jointly and severally by
Borrower to the Agent and the Banks on and as of the date hereof in order to
induce the Banks to enter into this Credit Agreement.
ARTICLE V
AFFIRMATIVE COVENANTS
So long as this Credit Agreement shall remain in effect or the
principal of or interest on any Loan, or any Letter of Credit, or any
reimbursement obligation with respect to any Letter of Credit, or any commitment
or other fee, expense, compensation or any other amount payable under any Loan
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Document shall remain unpaid or outstanding or the Banks shall have any
Commitments hereunder, unless the Required Banks shall otherwise consent in
writing, Borrower covenants and agrees that:
SECTION 5.01. Information. Borrower shall deliver, or cause to be
-----------
delivered, to the Banks at Borrower's sole expense:
(a) As soon as practicable, and in any event within forty-five (45) days
after the end of each Fiscal Quarter (or fifty (50) days after the end of each
Fiscal Quarter upon Borrower's timely filing with the Securities and Exchange
Commission of a Notification of Late Filing on Form 12b-25 with respect to
Borrower's Form 10-Q for that Fiscal Quarter), but within ninety (90) days after
the end of the last Fiscal Quarter (or one hundred five (105) days after the end
of the last Fiscal Quarter upon Borrower's timely filing of a Form 12b-25 with
respect to Borrower's Form 10-K for that Fiscal Year) in each Fiscal Year of
Borrower, the unaudited Consolidated balance sheet of Borrower and its
Subsidiaries as at the end of such quarterly period and year to date period then
ended, and the related unaudited Consolidated statements of income and cash
flows for such quarterly period and for the portion of the Fiscal Year ended
with the last day of such quarterly period, and shareholders' equity for the
Fiscal Year, and in each case setting forth comparative figures for the related
periods in the prior Fiscal Year, all in reasonable detail prepared in a manner
satisfactory to the Agent and the Required Banks, and certified by a Responsible
Officer of Borrower responsible for the administration of the finances and
accounting practices of Borrower that such financial statements fairly present
the Consolidated financial condition and results of operations of, respectively,
Borrower and its Subsidiaries in accordance with GAAP for the fiscal Quarter and
year to date period then ended, subject to changes resulting from normal
year-end audit adjustments.
(b) Within ninety (90) days after the close of each Fiscal Year of
Borrower, the audited Consolidated balance sheet of Borrower as of the end of
such Fiscal Year and the related audited Consolidated statements of income, cash
flows and shareholders' equity of Borrower for such Fiscal Year, setting forth
the comparative figures for the preceding Fiscal Year and audited by Arthur
Andersen or other independent certified public accountants of recognized
national standing satisfactory to the Required Banks.
(c) Together with the delivery of statements referred to in paragraphs (a)
and (b) above, a Compliance Certificate, in form and substance satisfactory to
the Agent, signed by a Responsible Officer of Borrower responsible for the
administration of the finances and accounting practices of Borrower, stating
that the signer has reviewed the terms of this Credit Agreement and the other
Loan Documents and that in the course of the performance of his duties, he would
normally have knowledge of any condition or event which would constitute an
Event of Default or Default and stating whether or not he has knowledge of any
such condition or event and, if so, specifying each such condition or event of
which he has knowledge and the nature thereof and any corrective action taken or
proposed to be taken with respect thereto. Such Compliance Certificate shall
set forth the calculations required to establish the Consolidated Tangible Net
Worth, the Funded Debt to Capitalization Ratio of Borrower and its Subsidiaries
on a Consolidated basis for the fiscal period covered by such financial
statements.
(d) Promptly and in any event within three (3) Business Days after any
Responsible Officer of Borrower obtains knowledge thereof, notice of (i) the
institution of or threat in writing of, any action, suit, proceeding,
governmental investigation or arbitration against or affecting Borrower or any
Subsidiary of Borrower not previously disclosed in writing to the Banks or any
material adverse development in any action, suit, proceeding, governmental
investigation or arbitration already disclosed
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to the Banks which could reasonably be expected to result in a Material Adverse
Effect, or (ii) the occurrence of any event which constitutes a Default or Event
of Default, such notice to specify the nature and period of existence of such
Default or Event of Default, and what action Borrower has taken, are taking or
propose to take with respect thereto.
(e) promptly upon the mailing thereof to the stockholders of Borrower
generally, copies of all financial statements, reports and proxy statements so
mailed;
(f) promptly upon the filing thereof, copies of all final registration
statements, post effective amendments thereto and annual, quarterly or special
reports which Borrower shall have filed with the Securities and Exchange
Commission; provided, that Borrower must deliver, or cause to be delivered, any
-------- ----
annual reports which Borrower shall have filed with the Securities and Exchange
Commission, within one hundred five (105) days after the end of each Fiscal Year
of Borrower, and any quarterly reports which Borrower shall have filed with the
Securities and Exchange Commission, within fifty (50) days after the end of each
of the first three (3) quarters of each Fiscal Year of Borrower;
(g) promptly upon request therefor by the Agent, such title opinions and
other information in either Borrower's possession or control regarding title to
the Oil and Gas Interests owned by Borrower or its Subsidiaries as are
appropriate to determine the status thereof;
(h) promptly upon receipt of same, any notice or other information received
by Borrower or any Subsidiary of Borrower indicating any potential, actual or
alleged (i) non-compliance with or violation of the requirements of any
Environmental Law which could result in liability to Borrower or any Subsidiary
for fines, clean up or any other remediation obligations or any other liability
in excess of $5,000,000 in the aggregate; (ii) Release or threatened Release
which Release would impose on Borrower or any Subsidiary of Borrower a duty to
report to a Governmental Authority or to pay cleanup costs or to take Remedial
Action which could result in liability to Borrower or any Subsidiary of Borrower
for fines, clean up and other remediation obligations or any other liability in
excess of $5,000,000 in the aggregate; or (iii) the existence of any Lien
arising under any Environmental Law securing any obligation to pay fines, clean
up or other remediation costs or any other liability in excess of $5,000,000 in
the aggregate. Without limiting the foregoing, Borrower shall provide to Agent,
promptly upon request, copies of all environmental consultants, employees or
engineers reports received by Borrower or any Subsidiary of Borrower which
reflect the existence of any circumstance or condition which would require
delivery of a notice or other information to the Banks pursuant to this
Section 5.01(h).
- ---------------
(i) In the event any notification is provided by Borrower to any Bank or the
Agent pursuant to Section 5.01(h) hereof or the Agent or any Bank otherwise
---------------
learns of any event or condition under which any such notice would be required,
then, upon request of Required Banks, Borrower shall, within ninety (90) days of
such request, cause to be furnished to each Bank a report by an environmental
consulting firm or employee of Borrower in charge of compliance with
Environmental Laws reasonably acceptable to Agent and Banks, stating that a
review of such event, condition or circumstance has been undertaken (the scope
of which shall be acceptable to Agent and Banks) and detailing the findings,
conclusions, and recommendations of such consultant or employee of Borrower in
charge of compliance with Environmental Laws. Borrower shall bear all expenses
and costs associated with such review and updates thereof, as well as, upon the
reasonable request of the Required Banks, part or all remediation or curative
action recommended by any such environmental consultant or employee;
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(j) Promptly (but in all events within three (3) Domestic Business Days)
after any Responsible Officer becomes aware of the occurrence of any Default, a
certificate of a Responsible Officer setting forth the details thereof and the
action which Borrower is taking or proposes to take with respect thereto;
(k) Promptly notify the Banks of any material adverse change in the
business, financial condition, operations or prospects of Borrower and its
Subsidiaries taken as a whole; and
(l) From time to time such additional information regarding the financial
position or business of Borrower and its Subsidiaries as the Agent, at the
request of any Bank, may reasonably request.
SECTION 5.02. Business of Borrower. The primary business of Borrower and
--------------------
its Subsidiaries on a Consolidated basis is and will continue to be the
acquisition, exploration for, development, production, transportation,
processing, trading, and marketing of Hydrocarbons and accompanying elements.
SECTION 5.03. Corporate Existence. Borrower shall, and shall cause each of
-------------------
its Subsidiaries to, maintain its (i) existence and good standing in the
jurisdiction of its organization or incorporation and (ii) qualification and
good standing in all jurisdictions in which such qualification and good standing
are necessary in order for Borrower or such Subsidiary to conduct its business
and own its property as conducted and owned in such jurisdiction except where
the failure to be so qualified or in good standing would not, individually or in
the aggregate, result in a Material Adverse Effect.
SECTION 5.04. Right of Inspection. Borrower will permit, and will cause
-------------------
each Subsidiary of Borrower to permit, any officer, employee or agent of the
Agent or any of the Banks to visit and inspect any of the assets of Borrower and
its Subsidiaries, examine Borrower's and its Subsidiaries' books of record and
accounts, take copies and extracts therefrom, and discuss the affairs, finances
and accounts of Borrower and its Subsidiaries with Borrower's and its
Subsidiaries' officers, accountants and auditors, all at such reasonable times
and as often as the Agent or any of the Banks reasonably may desire.
SECTION 5.05. Maintenance of Insurance. Borrower will maintain or cause to
------------------------
be maintained, and will cause each Subsidiary of Borrower to maintain or cause
to be maintained (and will use its reasonable best efforts to cause all
operators of Oil and Gas Interests owned by Borrower and any of its Subsidiaries
to maintain or cause to be maintained) at all times, insurance covering such
risks as are customarily carried by businesses similarly situated.
SECTION 5.06. Payment of Taxes and Claims. Borrower will pay, and will
---------------------------
cause each of its Subsidiaries to pay, (a) all taxes imposed upon it or any of
its assets or with respect to any of its franchises, business, income or profits
before any material penalty or interest accrues thereon and (b) all material
claims (including, without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
might become a Lien (other than a Permitted Lien) on any of its assets;
provided, however, no payment of taxes or claims shall be required if (i) the
amount, applicability or validity thereof is currently being contested in good
faith by appropriate action promptly initiated and diligently conducted in
accordance with good business practices and any Lien arising thereunder
constitutes a Permitted Lien, (ii) Borrower as and to the extent required in
accordance with GAAP, shall have set aside on its books reserves (segregated to
the extent required by GAAP) deemed by it to be adequate with respect thereto,
and (iii) to the extent the amount of the
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contested taxes or claims are in excess of $5,000,000 (in the aggregate),
Borrower has notified the Agent of such circumstances, in detail satisfactory to
the Agent.
SECTION 5.07. Compliance with Laws and Documents. Borrower will comply,
----------------------------------
and will cause each of its Subsidiaries to comply, with all Requirements of Law,
their respective certificates (or articles) of incorporation, bylaws and similar
charter documents and all Material Contracts to which Borrower or any of its
Subsidiaries is a party, if a violation, alone or when combined with all other
such violations, could result in a Material Adverse Effect.
SECTION 5.08. Operation of Properties and Equipment. (a) Borrower will
-------------------------------------
maintain and operate, and will cause each of its Subsidiaries to maintain and
operate, their respective Oil and Gas Interests in a good and workmanlike
manner, and observe and comply with all of the terms and provisions, express or
implied, of all oil and gas leases relating to such Oil and Gas Interests so
long as such Oil and Gas Interests are capable of producing Hydrocarbons and
accompanying elements in paying quantities.
(b) Borrower will comply, and will cause each of its Subsidiaries to comply,
in all respects with all contracts and agreements applicable to or relating to
their respective Oil and Gas Interests or the production and sale of
Hydrocarbons and accompanying elements therefrom, except to the extent a failure
to so comply could not reasonably be expected to result in a Material Adverse
Effect.
(c) Borrower will maintain, preserve and keep, and will cause each of its
Subsidiaries to maintain, preserve and keep, at all times, all operating
equipment used with respect to their respective Oil and Gas Interests in proper
repair, working order and condition, and make all necessary or appropriate
repairs, renewals, replacements, additions and improvements thereto so that the
efficiency of such operating equipment shall at all times be properly preserved
and maintained; provided that no item of operating equipment need be so
repaired, renewed, replaced, added to or improved, if Borrower shall in good
faith determine that such action is not necessary or desirable for the continued
efficient and profitable operation of the business of Borrower and its
Subsidiaries.
SECTION 5.09. Environmental Indemnity. Except to the extent a failure to
-----------------------
comply would not result in a Material Adverse Effect, Borrower will comply, and
will cause each of its Subsidiaries to comply, with all Environmental Laws,
including, without limitation: (a) all licensing, permitting, notification and
similar requirements of Environmental Laws, and (b) all provisions of all
Environmental Laws regarding generation, storage, discharge, release,
transportation, treatment and disposal of Hazardous Substances. Borrower will
promptly pay and discharge when due, and will cause each of its Subsidiaries to
promptly pay and discharge when due, all debts, claims, liabilities and
obligations with respect to any clean-up or remediation measures necessary to
comply with Environmental Laws. Borrower hereby agrees to indemnify, defend and
hold harmless the Banks, the Agent and their respective agents, affiliates,
officers, directors, and employees from and against any and all claims, losses,
demands, actions, causes of action, and liabilities whatsoever (including
without limitation reasonable attorney's fees and expenses, and costs and
expenses reasonably incurred in investigating, preparing or defending against
any litigation or claim, action, suit, proceeding or demand of any kind or
character) arising out of or resulting from noncompliance with Environmental
Laws or a Release or threatened Release.
SECTION 5.10. ERISA Reporting Requirements. Borrower shall furnish or
----------------------------
cause to be furnished to Agent:
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(a) Promptly and in any event (i) within fifteen (15) days after Borrower or
any ERISA Affiliate knows or has reason to know that any ERISA Event described
in clause (a) of the definition of ERISA Event or any event described in section
4063(a) of ERISA with respect to any Benefit Plan of Borrower or any ERISA
Affiliate has occurred, and (ii) within ten (10) days after Borrower or any
ERISA Affiliate knows or has reason to know that any other ERISA Event with
respect to any Benefit Plan of Borrower or any ERISA Affiliate has occurred or a
request for minimum funding waiver under section 412 of the Code with respect to
any Benefit Plan of Borrower or any ERISA Affiliate has been made, a written
notice describing such event and describing what action is being taken or is
proposed to be taken with respect thereto, together with a copy of any notice of
event that is given to the PBGC;
(b) Promptly and in any event within two (2) Business Days after receipt
thereof by Borrower or any ERISA Affiliate from the PBGC, copies of each notice
received by Borrower or any ERISA Affiliate of the PBGC's intention to terminate
any Plan or to have a trustee appointed to administer any Benefit Plan;
(c) Promptly and in any event within fifteen (15) days after the receipt by
Borrower of a request therefor by a Bank, copies of any annual and other report
(including Schedule B thereto) with respect to a Benefit Plan filed by Borrower
or any ERISA Affiliate with the United States Department of Labor, the IRS or
the PBGC;
(d) Promptly, and in any event within ten (10) Business Days after receipt
thereof, a copy of any correspondence Borrower or any ERISA Affiliate receives
from the Plan Sponsor (as defined by section 4001(a)(10) of ERISA) of any
Benefit Plan asserting withdrawal liability pursuant to section 4219 or 4202 of
ERISA upon Borrower or any ERISA Affiliate, and a statement from a Responsible
Officer of Borrower or such ERISA Affiliate setting forth details as to the
events giving rise to such withdrawal liability and the action which Borrower or
such ERISA Affiliate is taking or proposes to take with respect thereto;
(e) Notification within three (3) Business Days after Borrower or any ERISA
Affiliate knows or has reason to know that Borrower or any such ERISA Affiliate
has or intends to file a notice of intent to terminate any Benefit Plan under a
distress termination within the meaning of section 4041(c) of ERISA and a copy
of such notice; and
(f) Promptly after receipt of written notice of commencement thereof, notice
of all (i) claims made by participants or beneficiaries with respect to any
Benefit Plan and (ii) actions, suits and proceedings before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, affecting Borrower or any ERISA Affiliate with respect to
any Benefit Plan, except those which, in the aggregate, if adversely determined
could not result in a Material Adverse Effect.
SECTION 5.11. Subsidiary Guaranty. Borrower will cause each of its
-------------------
Subsidiaries hereafter formed or acquired to execute and deliver a joinder of
the Subsidiary Guaranty promptly following such formation or acquisition.
SECTION 5.12. Additional Documents. Borrower will cure promptly, and will
--------------------
cause each of its Subsidiaries to cure promptly, any defects in the creation and
issuance of each Note, and the execution
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and delivery of this Credit Agreement and the other Loan Documents and, at
Borrower's expense, Borrower shall promptly and duly execute and deliver, and
cause each Subsidiary of Borrower to promptly execute and deliver, to each Bank,
upon reasonable request, all such other and further documents, agreements and
instruments in compliance with or accomplishment of the covenants and agreements
of each Borrower and each Subsidiary of Borrower in this Credit Agreement and
the other Loan Documents as may be reasonably necessary or appropriate in
connection therewith.
ARTICLE VI
NEGATIVE COVENANTS
So long as this Credit Agreement shall remain in effect or the principal
of or interest on any Loan, or any Letter of Credit, or any reimbursement
obligation with respect to any Letter of Credit, or any commitment or other fee,
expense, compensation or any other amount payable under any Loan Document shall
remain unpaid or outstanding or the Banks shall have any Commitments hereunder,
unless the Required Banks shall otherwise consent in writing, Borrower covenants
and agrees that:
SECTION 6.01. Indebtedness and Accommodation Obligations. Borrower shall
------------------------------------------
not, and shall not permit any of its Subsidiaries to, create, incur, assume or
otherwise become or remain liable with respect to, any Indebtedness or
Accommodation Obligations, except for:
(a) Indebtedness and Accommodation Obligations arising hereunder and under
the other Loan Documents;
(b) Unsecured Indebtedness and Accommodation Obligations outstanding on the
date hereof described in Schedule 6.01, in each case in a principal amount at
-------------
any one time outstanding not to exceed the amount set forth on Schedule 6.01
-------------
hereof;
(c) Endorsements of negotiable instruments for collection in the ordinary
course of business;
(d) Current liabilities (exclusive of Indebtedness) for accounts payable and
expense accruals incurred or assumed in the ordinary course of business,
provided such accounts payable have not remained unpaid for a period of ninety
- --------
(90) days after the same became due unless currently being contested in good
faith or by appropriate proceedings;
(e) Liabilities for taxes, assessments, governmental charges or levies to
the extent such liabilities are permitted pursuant to Section 5.06 hereof; and
------------
(f) Unsecured liabilities incurred under Hedge Transactions permitted
pursuant to Section 6.14 hereof.
------------
(g) Purchase money Indebtedness in respect of property acquired by Borrower
and its Subsidiaries in the ordinary course of business provided, however, that
-------- -------
the aggregate amount of all Indebtedness incurred by Borrower and its
Subsidiaries pursuant to this Section 6.01(g) and Section 6.01(h) shall not
--------------- ---------------
exceed $15,000,000 at any one time outstanding; and
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(h) Additional unsecured Indebtedness not permitted by subclauses (a)
through (f), provided, however, that the aggregate amount of all Indebtedness
-------- -------
incurred by Borrower and its Subsidiaries pursuant to this Section 6.01(h) and
---------------
Section 6.01(g) shall not exceed $15,000,000 at any one time outstanding.
- ---------------
SECTION 6.02. Restrictions on Distributions. Borrower will not directly or
-----------------------------
indirectly declare or make or incur any liability to make, and Borrower will not
permit any of its Subsidiaries to directly or indirectly declare or make, or
incur any liability to make, Distributions in any Fiscal Quarter in excess
of an amount equal to fifty percent (50%) of an amount equal to (i) the sum of
the Consolidated Net Income for each of the four immediately preceding Fiscal
Quarters divided by (ii) four, determined as of the last day of the immediately
-------
preceding Fiscal Quarter. Notwithstanding the foregoing, any Subsidiary of
Borrower may make Distributions to Borrower, and any wholly owned Subsidiary of
Borrower may make Distributions to any other wholly owned Subsidiary of Borrower
provided such Subsidiary has duly executed and delivered a Subsidiary Guaranty
in favor of the Agent. Borrower will not enter into or become subject to, and
Borrower will not permit any of its Subsidiaries to enter into, or become
subject to, any agreement or order of any Governmental Authority which prohibits
or restricts in any way the right of any of Borrower's Subsidiaries to make
Distributions to Borrower.
SECTION 6.03. Negative Pledge. Borrower will not create, incur, assume or
---------------
suffer to exist, and Borrower will not permit any Subsidiary of Borrower to
create, incur, assume or suffer to exist, any Lien on any asset (other than
Margin Stock) of Borrower or any of its Subsidiaries other than Permitted Liens.
Borrower will not enter into or become subject to, and Borrower will not permit
any Subsidiary of Borrower to enter into or become subject to, any agreement
(other than this Credit Agreement) that prohibits or otherwise restricts the
right of Borrower or any of its Subsidiaries to create, incur, assume or suffer
to exist any Lien in favor of Agent for the benefit of the Banks on any of
Borrower's or any of its Subsidiaries' assets.
SECTION 6.04. Consolidation, Mergers and Acquisitions; Fundamental Changes.
------------------------------------------------------------
Borrower shall not, and shall not permit any of its Subsidiaries to, merge or
consolidate with or acquire substantially all of the outstanding capital stock
or assets of any other Person or liquidate, wind up or dissolve (or suffer any
liquidation or dissolution), or convey, lease, sell, transfer or otherwise
dispose of, in one transaction or series of transactions, all or any substantial
part of its business, property or assets, whether now or hereafter acquired
except for transactions in the nature of a consolidation and/or merger in which
Borrower or a wholly owned Subsidiary is the surviving entity, subject in each
case to the condition that immediately after such merger or consolidation and
after giving effect and pro forma effect thereto for the immediately preceding
--- -----
twelve-month period, no Event of Default or Default shall have occurred, exist
or be continuing. Borrower shall not, and shall not permit any of its
Subsidiaries to purchase, redeem, retire or otherwise acquire for value any of
its capital stock now or hereafter outstandings, except for odd-lot repurchases
of shares, repurchase of shares for use in Borrower's employee benefit plans,
and the acceptance of stock as payment for the exercise of stock options.
SECTION 6.05. Investments. Borrower shall not, and shall not permit any of
-----------
its Subsidiaries to, make, directly or indirectly, any Investments, except:
(a) Investments existing on the date hereof and disclosed on Schedule 6.05;
-------------
(b) Investments consisting of Cash Equivalents;
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(c) Accounts receivable from customers in the ordinary course of business;
(d) Investments by Borrower in wholly owned Subsidiaries provided such
Subsidiaries have executed and delivered a Subsidiary Guaranty in favor of the
Agent;
(e) Margin deposits in connection with any Hedge Transaction permitted
pursuant to Section 6.14;
------------
(f) An Investment in capital stock issued by a United States corporation
provided such Investment is not a Hostile Acquisition and subject in each case
to the condition that immediately after such Investment and after giving effect
and pro forma effect thereto for the next succeeding twelve-month period, no
--- -----
Event of Default or Default shall have occurred, exist or be continuing;
(g) Acquisitions permitted under Section 6.04 hereof;
------------
(h) Investments in connection with or related to farm-out, farm-in, joint
operating, joint venture or area of mutual interest agreements, gathering
systems, pipelines or other similar or customary arrangements entered into in
the ordinary course of business; and
(i) Investments not otherwise permitted hereunder in an aggregate principal
amount not to exceed $10,000,000.
SECTION 6.06. Transactions with Affiliates. Borrower shall not, and shall
----------------------------
not permit any of its Subsidiaries to, enter into, or be a party to any
transaction with any of such Person's Affiliates, officers, directors, partners,
employees or stockholders who have filed a Form 13-D with the Securities and
Exchange Commission, except for (i) the transactions provided for in the Loan
Documents, (ii) transactions disclosed in Schedule 6.06 or (iii) transactions
-------------
entered into in the ordinary course of business and pursuant to the reasonable
requirements of such Person's business and upon such fair and reasonable terms
as could reasonably be obtained in an arm's length transaction with an
unaffiliated Person in accordance with prevailing industry customs and
practices.
SECTION 6.07. Agreements. Borrower shall not, and shall not permit any of
----------
its Subsidiaries to, enter into any contract, agreement or transaction which at
the time such contract, agreement or transaction was entered into materially and
adversely affects (i) the business, property, assets, operations, condition
(financial or otherwise) of Borrower or any Subsidiary of Borrower, (ii) ability
of Borrower or any Subsidiary of Borrower to perform timely its obligations
under this Credit Agreement and the other Loan Documents to which it is a party
or (iii) a Subsidiary's ability to perform timely its material covenants and
obligations under any Subsidiary Guaranty to which it is a party.
SECTION 6.08. Sales of Assets. Borrower shall not, and shall not permit
---------------
any of its Subsidiaries to, sell, assign, transfer, lease, convey or otherwise
dispose of any of its assets or properties, whether now owned or hereafter
acquired, or any income or profits therefrom, or enter into any agreement to do
so, except for (i) sales of inventory in the ordinary course of its business,
(ii) sales or dispositions of worn out or obsolete tools or equipment no longer
used or useful in the business of Borrower or such Subsidiary of Borrower or
(iii) sales of assets for fair market value on an arm's length basis in an
aggregate amount for Borrower and its Subsidiaries not to exceed $5,000,000
during any six month period between Redetermination Dates.
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SECTION 6.09. ERISA Compliance. Borrower shall not, and shall not permit
----------------
any of its Subsidiaries to, engage in a "prohibited transaction", as defined in
Section 406 of ERISA or Section 4975 of the Code, with respect to any Benefit
Plan or knowingly consent to any other "interested party" or any "disqualified
person", as such terms are defined in Section 3(14) of ERISA and Section
4975(e)(2) of the Code, respectively, engaging in any "prohibited transaction",
with respect to any Benefit Plan maintained by Borrower or such Subsidiary of
Borrower, or permit any Benefit Plan maintained by Borrower or such Subsidiary
of Borrower to incur any "accumulated funding deficiency", as defined in Section
302 of ERISA or Section 412 of the Code, unless such incurrence shall have been
waived in advance by the IRS; or terminate any Benefit Plan in a manner which
could result in the imposition of a Lien on any property of Borrower or such
Subsidiary of Borrower pursuant to Section 4068 of ERISA; or breach any
fiduciary responsibility imposed under Title I of ERISA with respect to any
Benefit Plan; engage in any transaction which would result in the incurrence of
a liability under Section 4069 of ERISA; or fail to make contributions to a
Benefit Plan which results in the imposition of a Lien on any property of
Borrower or such Subsidiary of Borrower pursuant to Section 302(f) of ERISA or
Section 412(n) of the Code, if the occurrence of any of the foregoing events
would constitute a Material Adverse Effect. Borrower shall not, and shall not
permit any of its Subsidiaries to (nor will any trade or business, whether or
not incorporated, that is a member of a group of which Borrower or such
Subsidiary of Borrower is a member and which is treated as a single employer
under Section 414 of the Code) sponsor, maintain or contribute to any
Multiemployer Plan(s). Borrower shall not, and shall not permit any of its
Subsidiaries to, become a member of any other group which is treated as a single
employer under Section 414 of the Code.
SECTION 6.10. Sales and Leasebacks. Borrower shall not, and shall not
--------------------
permit any of its Subsidiaries to, become liable, directly or by way of
Accommodation Obligation, with respect to any lease or any property (whether
real or personal or mixed) whether now owned or hereafter acquired, (i) which
Borrower or such Subsidiary of Borrower has sold or transferred or is to sell or
transfer to any other Person or (ii) which Borrower or such Subsidiary of
Borrower intends to use for substantially the same purposes as any other
property which has been or is to be sold or transferred by Borrower or such
Subsidiary of Borrower to any other Person in connection with such lease.
SECTION 6.11. Margin Regulation. Borrower shall not use or permit any
-----------------
other Person to use any portion of the proceeds of any credit extended under
this Credit Agreement in any manner which might cause the extension of credit or
the application of such proceeds to violate the Securities Act of 1933 or
Securities Exchange Act of 1934 (each as amended to the date hereof and from
time to time hereafter, and any successor statute) or to violate Regulation G,
Regulation U, or Regulation X, or any other regulation of the Federal Reserve
Board, in each case as in effect on the date or dates of such extension of
credit and such use of proceeds.
SECTION 6.12. Amendment to Organizational Documents. Borrower will not
-------------------------------------
enter into or permit, and Borrower will not permit any of its Subsidiaries to
enter into or permit, any modification or amendment of, or waive any material
right or obligation of any Person under its certificate or articles of
incorporation, bylaws or other charter documents other than such modifications,
amendments or waivers which would not, singly or in the aggregate, result in a
Material Adverse Effect.
SECTION 6.13. Fiscal Year; Fiscal Quarter. Borrower shall not, and shall
---------------------------
not permit any of its Subsidiaries to, change its Fiscal Year or any of its
Fiscal Quarters.
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SECTION 6.14. Hedge Transactions. Borrower will not enter into, and
------------------
Borrower will not permit any of its Subsidiaries to enter into, any Hedge
Transactions which would cause the amount of Hydrocarbons which are the subject
of Hedge Transactions in existence at such time to exceed (a) in the case of
production from Oil and Gas Interests owned by Borrower or any of its
Subsidiaries (i) one hundred percent (100%) of Borrower's and its Subsidiaries
anticipated production from Proved Developed Producing Hydrocarbon Reserves
during any calendar month, or (ii) eighty percent (80%) of Borrower's and its
Subsidiaries anticipated production from Proved Developed Producing Hydrocarbon
Reserves during any Fiscal Year and, (b) in the case of trading activities of
production from properties not owned by Borrower or any of its Subsidiaries one
hundred percent (100%) of the Hydrocarbons purchased or sold pursuant to third
party contracts concerning the purchase and sale of Hydrocarbons by Borrower and
its Subsidiaries.
SECTION 6.15. Financial Covenants. From and after the Effective Date,
-------------------
Borrower on a Consolidated basis shall not:
(a) Permit its Consolidated Tangible Net Worth at any time to be less than
----
the sum of (i) $160,000,000 plus, if positive (i) fifty percent (50%) of
----
Consolidated Net Income for the period from the Effective Date plus, if any,
----
(ii) seventy-five percent (75%) of the net proceeds from the sale of equity
securities of Borrower and its Subsidiaries for the period from the Effective
Date, on a Consolidated basis; or
(b) Permit its Funded Debt to exceed fifty percent (50%) of its
Consolidated Capitalization at any time.
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01. Events of Default. Each of the following events, acts,
-----------------
occurrences or conditions constitutes an "Event of Default" under this Credit
----------------
Agreement:
(a) Borrower shall fail to pay when due any payment of any principal of
the Loans; or
(b) (i) Borrower shall fail to pay when due the payment of any accrued
interest on the Loans and such failure shall continue for five (5) Business
Days; or (ii) Borrower shall fail to pay when due the payment of any fee,
expense, compensation, reimbursement or other amount when due under this Credit
Agreement, the Notes or any other Loan Document or other agreement or document
contemplated by or delivered pursuant to or in connection with this Credit
Agreement or such Loan Document or any material document executed in connection
therewith and, in any event, such failure shall continue for five (5) Business
Days after the earlier of (x) notice thereof from the Agent or any Bank to
Borrower and (y) discovery thereof by Borrower; or
(c) Borrower or any Subsidiary of Borrower shall fail to perform or
observe any term, covenant or agreement contained in Sections 5.01(d)(ii),
---------------------
6.01(a) through (e), 6.02, 6.03, 6.04, 6.06, 6.08, 6.09, 6.10, 6.11, 6.12, and
- ------------------------------------------------------------------------------
6.15 of this Credit Agreement; or
- ----
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(d) Borrower or any Subsidiary of Borrower shall fail to perform or
observe any term, covenant or agreement contained in Sections 5.01(c), 5.11,
-----------------------
6.01(f), (g), or (h), 6.05, 6.07, 6.13, and 6.14 of this Credit Agreement and
- ------------------------------------------------
such failure shall not have been remedied within five (5) calendar days after
the earlier of (i) notice thereof from the Agent to Borrower and (ii) discovery
thereof by a Responsible Officer of Borrower or such Subsidiary of Borrower; or
(e) Borrower or any Subsidiary of Borrower shall fail to perform any term,
covenant or agreement contained in this Credit Agreement other than those
referenced in subsections (a), (b) or (c) of this Section 7.01 or in any other
------------
Loan Document to which it is a party and, in the case of any such failure that
is capable of being remedied, such failure shall not have been remedied within
thirty (30) days after the earlier of (i) notice thereof from the Agent to
Borrower and (ii) discovery thereof by a Responsible Officer of Borrower or such
Subsidiary of Borrower; or
(f) Any Subsidiary shall fail to perform any term, covenant or agreement
contained in the Subsidiary Guaranty and, in the case of any such failure that
is capable of being remedied, such failure shall not have been remedied within
thirty (30) days after the earlier of (i) notice thereof from the Agent to such
Subsidiary and (ii) discovery thereof by a Responsible Officer of such
Subsidiary; or
(g) Any Termination Event occurs which would subject Borrower or any
Subsidiary of Borrower, to a liability in excess of $5,000,000, or the plan
administrator of any Benefit Plan applies under Section 412(d) of the Code for
a waiver of the minimum funding standards of Section 412(a) of the Code which
would subject Borrower or any Subsidiary of Borrower, to a liability in excess
of $5,000,000; or
(h) Any representation or warranty made or incorporated by Borrower or any
Subsidiary of Borrower in any Loan Document to which such Person is a party or
in any certificate, agreement or instrument delivered in connection with, any
Loan Document shall prove to have been incorrect or misleading in any material
respect when made or deemed made; or
(i) Borrower or any Subsidiary of Borrower, shall (i) fail to pay any
Indebtedness having a principal amount in excess of $15,000,000 (other than the
amounts referred to in subsections (a) and (b) of this Section 7.01) owing by
------------
such Person, or any interest or premium thereon, when due (or, if permitted by
the terms of the relevant document, within any applicable grace period), whether
such Indebtedness shall become due by scheduled maturity, by required
prepayment, by acceleration, by demand or otherwise unless effectively waived or
consented to in accordance with the documents evidencing such Indebtedness or
(ii) fail to observe or perform any material term, covenant or condition on its
respective part to be performed under any agreement or instrument evidencing,
securing or relating to any such Indebtedness, when required to be performed,
and such failure shall continue after the applicable grace period, if any,
specified in such agreement or instrument if the effect of any failure is to
cause, or to permit the holder or holders of such Indebtedness or a trustee on
its or their behalf (with or without the giving of notice, the lapse of time, or
both), to cause such Indebtedness to become due prior to its stated maturity; or
(j) Any Loan Document shall, at any time after its execution and delivery
and for any reason, cease to be in full force and effect or shall be declared to
be null and void, or the validity or enforceability thereof shall be contested
by any Person party thereto (other than the Agent or any Bank)
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<PAGE>
or any such Person party thereto (other than the Agent or any Bank) shall deny
that it has any or further liability or obligation thereunder, or the
Obligations shall be subordinated for any reason; or
(k) Borrower or any Subsidiary of Borrower shall be adjudicated insolvent,
or shall generally not pay, or admit in writing its inability to pay, its debts
as they mature, or make a general assignment for the benefit of creditors, or
any proceeding shall be instituted by any such Person seeking to adjudicate it
insolvent, seeking liquidation, dissolution, winding-up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its debts
under any Debtor Relief Law, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, or other similar official for it or for
any substantial part of its property, or any such Person shall take any
corporate action in furtherance of any of the actions set forth above in this
Section 7.01(k); or
- ---------------
(l) Any proceeding of the type referred to in Section 7.01(k) is filed, or
---------------
any such proceeding is commenced against Borrower or any Subsidiary of Borrower
and such proceeding remains in effect for sixty (60) days, or any such Person by
any act indicates its approval thereof, consent thereto or acquiescence therein,
or an order for relief is entered in an involuntary case under the bankruptcy
law of the United States, or an order, judgment or decree is entered appointing
a trustee, receiver, custodian, liquidator or similar official or adjudicating
any such Person insolvent, or approving the petition in any such proceedings,
and such order, judgment or decree remains in effect for sixty (60) days; or
(m) A final judgment or order for the payment of money in excess of
$15,000,000 and not covered by insurance shall be rendered against Borrower or
any Subsidiary of Borrower and the same shall not be discharged (or provision
shall not be made for such discharge), or a stay of execution thereof shall not
be procured, within thirty (30) days from the date of entry thereof, or Borrower
or any Subsidiary of Borrower shall not, within said period of thirty (30) days
or such longer period during which execution of the same shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during such
appeal; or
(n) (i) Any Environmental Liability shall have been asserted against
Borrower or any Subsidiary of Borrower which could reasonably be expected to
have a Material Adverse Effect or (ii) any Release shall have occurred, and such
event could form the basis of an Environmental Liability against Borrower or any
Subsidiary of Borrower which could reasonably be expected to result in a
Material Adverse Effect.
THEN, (x) upon the occurrence of any Event of Default described in
Section 7.01(k) or Section 7.01(l) with respect to Borrower or any Subsidiary of
- --------------- ---------------
Borrower (i) all of the Commitments shall automatically terminate, and Borrower
shall deposit with the Agent cash equal to the aggregate face amount of all
outstanding Letters of Credit issued hereunder and (ii) the entire unpaid amount
of all Obligations shall automatically become immediately due and payable,
without presentment for payment, demand, protest, notice of intent to
accelerate, notice of acceleration or further notice of any kind, all of which
are hereby expressly waived by Borrower and each of its Subsidiaries and the
obligation of each Bank to make any Loan, and of the Issuing Bank(s) to issue
any Letters of Credit, hereunder shall thereupon terminate and (y) upon the
occurrence of any other Event of Default, the Agent shall at the request, or may
with the consent, of the Required Banks, (i) by written notice to Borrower
declare all of the Commitments to be terminated, whereupon all of the
Commitments and the obligations of each Bank to make any Loan hereunder, and of
the Issuing Bank(s) to issue any Letter of Credit, shall forthwith terminate,
and Borrower shall deposit with the Agent cash equal to the aggregate face
amount of all outstanding Letters
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<PAGE>
of Credit issued hereunder and (ii) by written notice to Borrower declare the
entire unpaid amount of all Obligations to be forthwith due and payable,
whereupon all Obligations shall become and be forthwith due and payable, without
presentment for payment, demand, protest, notice of intent to accelerate, notice
of acceleration or further notice of any kind, all of which are hereby expressly
waived by Borrower and each Subsidiary of Borrower. Borrower hereby grants to
the Agent for the ratable benefit of the Banks a security interest in, and Lien
on, any Dollars delivered to the Agent pursuant to this Section 7.01, as
------------
security for the Obligations.
SECTION 7.02. Remedies. If any Default or Event of Default shall occur and
--------
be continuing, the obligations of the Banks to make Loans, and of the Issuing
Bank(s) to issue Letters of Credit, under this Credit Agreement shall terminate
immediately. If any Event of Default shall occur, the Agent for the ratable
benefit of the Banks, may (and upon the request of the Required Banks shall)
protect and enforce the Banks' rights and remedies under the Loan Documents by
any appropriate proceedings, including proceedings for specific performance of
any covenant or agreement contained in any Loan Document, and the Banks may
enforce the payment of any Obligations due or enforce any other legal or
equitable right. All rights and remedies and powers conferred upon the Agent
and/or the Banks under the Loan Documents shall be deemed cumulative and not
exclusive of any other rights, remedies or powers available under the Loan
Documents or at law or in equity.
SECTION 7.03. Indemnity. Borrower shall indemnify the Agent and each Bank
---------
and each Affiliate thereof and their respective directors, officers, employees,
shareholders and agents (each an "Indemnitee") from, and hold each of them
----------
harmless against, any and all losses, liabilities, claims, damages, expenses,
penalties, actions, judgments, suits, costs or disbursements of any kind or
nature whatsoever that are asserted against an Indemnitee by any Person if such
losses, liabilities, claims, damages, expenses, penalties, actions, judgments,
suits, costs or disbursements arise out of or result from (i) any use by
Borrower of the proceeds of any extension of credit by the Banks hereunder or
(ii) any investigation, litigation or other proceeding (including any threatened
investigation or proceeding) relating to the foregoing or arising out of or
based upon any Loan Document or any of the transactions contemplated by any Loan
Document, and Borrower shall reimburse such Indemnitee, within ten (10) Business
Days after receipt of a composite statement of account for any reasonable
expenses (including reasonable legal fees) incurred in connection with any such
investigation or proceeding; but excluding any such losses, liabilities, claims,
damages, expenses, penalties, actions, judgments, suits, costs or disbursements
which are proximately caused by such Indemnitee. Without prejudice to the
survival of any other Obligations of Borrower hereunder and the other Loan
Documents, the Obligations of Borrower under this Section 7.03 shall survive the
------------
termination of this Credit Agreement, the payment in full of the Obligations
and/or assignment of the Notes.
ARTICLE VIII
THE AGENT
SECTION 8.01. Authorization and Action. (a) The general administration of
------------------------
the Loan Documents and any other documents contemplated by this Credit Agreement
shall be by the Agent or its designees. Each of the Banks authorizes the Agent
to take such actions on its behalf and to exercise such powers and to perform
such duties as are expressly delegated to the Agent by the terms of this Credit
Agreement and the other Loan Documents, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Credit Agreement, the Agent
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shall not have any duties or responsibilities, except those expressly set forth
herein, or any fiduciary relationship with any Bank, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities on the part of
the Agent shall be read into this Credit Agreement or otherwise exist against
the Agent.
(b) Except with respect to the Borrower pursuant to Section 8.06, the
------------
provisions of this Article VIII are solely for the benefit of the Agent and the
------------
Banks, and neither Borrower nor any Subsidiary of Borrower shall have any rights
as a third party beneficiary or otherwise under, or be bound by, the provisions
of this Article VIII.
(c) In performing its functions and duties hereunder and under the other
Loan Documents, the Agent shall act solely as the agent of the Banks and the
Agent does not assume nor shall it be deemed to have assumed any obligation or
relationship of trust or agency with or for Borrower, any Subsidiary of Borrower
or any of their respective successors and assigns.
SECTION 8.02. Agent's Reliance; Exculpatory Provisions, Etc. (a) Neither
---------------------------------------------
the Agent nor any of its directors, officers, agents or employees shall be
liable to any Bank for any action taken or omitted to be taken by it or them
under or in connection with this Credit Agreement or the other Loan Documents
(i) with the consent or at the request of the Required Banks or if required
under Section 9.01, all of the Banks or (ii) in the absence of its or their
------------
own gross negligence or willful misconduct (it being the express intention of
the Agent and the Banks that the Agent and its directors, officers, agents and
employees shall have no liability for actions and omissions under this
Section 8.02 resulting from their sole ordinary or contributory negligence).
- ------------
Without limitation of the generality of the foregoing, the Agent: (i) may treat
the payee of each Note as the holder thereof until the Agent receives an
Assignment and Acceptance from such payee in accordance with the terms of
Section 9.10; (ii) may consult with legal counsel (including counsel to
- ------------
Borrower), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel, accountants or experts;
(iii) makes no warranty or representation to any Bank and shall not be
responsible to any Bank for any statements, warranties or representations made
in or in connection with this Credit Agreement or the other Loan Documents;
(iv) except as otherwise expressly provided herein, shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the terms,
covenants or conditions of this Credit Agreement or the other Loan Documents or
to inspect the property (including the books and records) of Borrower or its
Subsidiaries; (v) shall not be responsible to any Bank for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Credit Agreement or the other Loan Documents or any other instrument or document
furnished pursuant hereto or thereto; (vi) shall incur no liability under or in
respect of this Credit Agreement or the other Loan Documents by acting upon any
notice, consent, certificate or other instrument or writing (which may be by
telegram, telecopier, cable or telex) reasonably believed by it to be genuine
and signed or sent by the proper party or parties, (vii) shall incur no
liability to any Bank or the Issuing Bank(s) as a result of any act or failure
to act in respect of a Letter of Credit that would not form the basis for
liability against the Agent acting either as the Agent or the Issuing Bank(s)
with respect to such Letter of Credit, in an action between the Agent, in either
such capacity, and either the customer arranging for such Letter of Credit, the
beneficiary thereof or the holder of the draft drawn thereunder and (viii) the
provisions of this Section 8.02 shall survive the termination of this Credit
------------
Agreement and/or the payment or assignment of any of the Obligations. The Agent
shall be fully justified in failing or refusing to take any action under this
Credit Agreement or any other Loan Document unless it shall first receive such
advice or concurrence of the Required Banks (or if required under Section 9.01,
------------
all of the Banks) as it deems appropriate or it shall first be indemnified to
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its satisfaction by the Banks against any and all liability and expense (other
than that resulting from its own gross negligence or willful misconduct) which
may be incurred by it by reason of taking or continuing to take any such action.
The Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Credit Agreement and the other Loan Documents in accordance
with a request of the Required Banks or all of the Banks, as the case may be,
and such request and any action taken or failure to act pursuant thereto shall
be binding upon all of the Banks and all future holders of the Notes.
(b) Neither the Agent nor any of its directors, officers, employees, or
agents shall have any responsibility to the Banks on account of the failure or
delay in performance or breach by any of the other Banks or Borrower or any
Subsidiary of Borrower or any of their respective Obligations under this Credit
Agreement, the Notes, the Loan Documents or any related agreement or document or
in connection herewith or therewith.
SECTION 8.03. The Agent in its Individual Capacity and Affiliates. With
---------------------------------------------------
respect to its Commitment, any of the Loans made by it and/or the Note issued to
it as a Bank, TCB shall have the same rights and powers under this Credit
Agreement or the other Loan Documents as any other Bank and may exercise the
same as though it were not the Agent. The terms "Bank" or "Banks" shall, unless
---- -----
otherwise expressly indicated, include the Agent in its individual capacity. TCB
and its Affiliates may accept deposits from, lend money, act as trustee under
indentures of, and generally engage in any kind of business with, Borrower, its
Subsidiaries and/or any Person who may do business with or own securities of
Borrower or any Subsidiary of Borrower, all as if it were not the Agent and
without any duty to account therefor to the other Banks.
SECTION 8.04. Bank Credit Decision. Each Bank acknowledges and agrees that
--------------------
it has, independently and without reliance upon the Agent or any other Bank and
based on the financial statements referred to in Section 4.09 and such other
------------
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Credit Agreement. Each Bank also
acknowledges and agrees that it will, independently and without reliance upon
the Agent or any other Bank and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Credit Agreement and the other Loan
Documents.
SECTION 8.05. Indemnification and Reimbursement. The Agent shall not be
---------------------------------
required to take any action hereunder or to prosecute or defend any suit in
respect of this Credit Agreement or the other Loan Documents unless indemnified
to the Agent's satisfaction by the Banks against loss, cost, liability and
expense. If any indemnity furnished to the Agent shall become impaired, it may
call for additional indemnity and cease to do the acts indemnified against until
such additional indemnity is given. In addition, the Banks agree to indemnify
the Agent (to the extent not reimbursed by Borrower), ratably according to the
respective principal amounts of the Notes then held by each of them (or if no
Notes are at the time outstanding, ratably according to either (i) the
respective amounts of their Commitments, or if no Commitments are outstanding,
the respective amounts of the Commitments immediately prior to the time the
Commitments ceased to be outstanding), from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against the Agent in any way relating to or arising
out of this Credit Agreement or any action taken or omitted by the Agent under
this Credit Agreement or the other Loan Documents (including, without
limitation, any action taken or omitted under Article II of this Credit
----------
Agreement); provided, that no Bank shall be liable for any portion
--------
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of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the Agent's
gross negligence or willful misconduct. Each Bank agrees, however, that it
expressly intends, under this Section 8.05, to indemnify the Agent ratably as
------------
aforesaid for all such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements arising out of or
resulting from the Agent's ordinary or contributory negligence. Without
limitation of the foregoing, each Bank agrees to reimburse the Agent promptly
upon demand for its ratable share of any out-of-pocket expenses (including
reasonable counsel fees) incurred by the Agent in connection with the
preparation, execution, administration, or enforcement of, or legal advice in
respect of rights or responsibilities under, this Credit Agreement and the other
Loan Documents to the extent that the Agent is not reimbursed for such expenses
by Borrower. The provisions of this Section 8.05 shall survive the termination
------------
of Credit Agreement and/or the payment or assignment of any of the Obligations.
SECTION 8.06. Successor Agent. The Agent may resign at any time by giving
---------------
written notice thereof to the Banks and Borrower and may be removed as Agent at
any time for cause by (i) the Required Banks or (ii) at the request of Borrower
with the concurrence of the Required Banks. Upon any such resignation or
removal, the Required Banks shall have the right to appoint from among the Banks
a successor Agent (with the consent of Borrower which shall not be unreasonably
withheld or delayed, provided that if an Event of Default shall have occurred
and be continuing the consent of Borrower need not be obtained). If no successor
Agent shall have been so appointed by the Required Banks, and shall have
accepted such appointment, within 30 calendar days after the retiring Agent's
giving of notice of resignation or the Required Banks' removal of the retiring
Agent, then the retiring Agent may, on behalf of the Banks and with the
concurrence of Borrower, appoint a successor Agent, which shall be an Eligible
Assignee. Upon the acceptance of any appointment as Agent hereunder and under
the other Loan Documents by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations as Agent under this Credit Agreement and the
other Loan Documents. After any retiring Agent's resignation or removal as Agent
hereunder and under the other Loan Documents, the provisions of this
Article VIII shall inure to its benefit as to any actions taken or omitted to be
- ------------
taken by it while it was Agent under this Credit Agreement and the other Loan
Documents.
SECTION 8.07. Notice of Default. The Agent shall not be deemed to have
-----------------
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent shall have received notice from a Bank or Borrower
referring to this Credit Agreement, describing such Default or Event of Default
and stating that such notice is a "notice of default." If the Agent receives
such a notice, the Agent shall promptly give notice thereof to the Banks;
provided, however, if such notice is received from a Bank, the Agent also shall
- -------- -------
give notice thereof to Borrower. The Agent shall be entitled to take action or
refrain from taking action with respect to such Default or Event of Default as
provided in Section 8.01 and Section 8.02.
------------ ------------
SECTION 8.08. Delegation of Duties. The Agent may execute any of its
--------------------
duties under this Loan Agreement or the other Operative Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible to the Banks for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
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ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Amendments and Waivers. Neither this Credit Agreement or any
----------------------
other Loan Document to which Borrower or any Subsidiary is a party nor any terms
hereof or thereof may be amended, supplemented, waived or otherwise modified
except in accordance with the provisions of this subsection. Any provision of
this Credit Agreement or any other Loan Document may be amended, supplemented,
waived, or otherwise modified if and only if such amendment, supplement, waiver
or other modification (x) is in writing, (y) is signed by each other party
thereto except that in the case of a waiver, the party whose performance is
being waived need not be a signatory, and (z) with respect to the Banks, is
signed by the Required Banks (if the Banks are a party thereto) or by the Agent
with the consent of the Required Banks (if the Agent is a party thereto and the
Banks are not); provided no such amendment, supplement, waiver or other
--------
modification shall do any of the following unless signed by all of the Banks (if
the Banks are a party thereto) and by the Agent with the consent of all of the
Banks (if the Agent is a party thereto and the Banks are not):
(i) extend the Maturity Date, the date of payment of any principal,
interest or fees, or the date of payment of any required principal
prepayment;
(ii) reduce the amount of any principal, interest or fees, the rate of
interest paid with respect to any unpaid principal, interest or fees,
or the amount of any fee payable to the Banks hereunder;
(iii) change the amount of any Commitment of any Bank;
(iv) amend, modify, or waive any of the conditions set forth in Article III
-----------
(other than any condition which refers therein to the Required Banks);
(v) amend, modify or waive any provision which calls for the consent of,
the approval of, or direction from all of the Banks;
(vi) amend, modify or waive any provision of this Section 9.01 or the
------------
definition of Required Banks;
(vii) consent to or permit the assignment or transfer by Borrower of any of
its rights and obligations under this Credit Agreement or any other
Loan Document; or
(viii) release any Subsidiary Guarantor from its obligations under the
Subsidiary Guaranty;
and provided, further, without the prior written consent of the Agent, no such
-------- -------
amendment, supplement, waiver or modification shall amend, supplement, waive or
otherwise modify any provision of Article VIII or any other provision of any
------------
Loan Document if the effect thereof is to affect the rights or duties of the
Agent; and provided, further, that no amendment, waiver or consent shall, unless
-------- -------
in writing and signed by the Issuing Bank(s) in addition to the Banks required
above to take such action, affect the rights and duties of the Issuing Bank(s)
with respect to the Letters of Credit and the Letter of Credit
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Applications, if any, outstanding under this Credit Agreement. Any such
amendment, supplement, modification or waiver shall apply to each of the Banks
equally and shall be binding upon the Banks, the Agent, all future holders of
the Notes and Obligations, and all parties to the Loan Document so amended,
supplemented, waived or otherwise modified.
SECTION 9.02. Notices, Etc. Notices, consents, requests, approvals,
------------
demands and other communications (collectively "Communications") provided for
--------------
herein shall be in writing (including telecopy, telegraphic, telex or cable
communications) and mailed, telecopied, telegraphed, telexed, cabled or
delivered:
If to Borrower or any of its Subsidiaries, to it at:
Barrett Resources Corporation
1125 Seventeenth Street, Suite 2400
Denver, Colorado 80202
Telephone Number: (303) 297-3900
Telecopy Number: (303) 297-0807
Attention: Mr. R. W. Howard
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<PAGE>
If to the Agent, to it at:
Texas Commerce Banks National Association
712 Main Street, 5 TCB N
Houston, Texas 77002
Telephone Number: (713) 236-4332
Telecopy Number: (713) 236-4227
Attention: Lori H. Vetters,
Energy Group, Vice President
If to any Bank, as specified on the signature pages hereto or in the
appropriate Assignment and Acceptance pursuant to Section 9.10.
------------
All Communications, except as otherwise expressly provided in the Loan
Documents, must be in writing and must be mailed, telecopied or delivered, to
the appropriate party at the address set forth herein or other applicable Loan
Document or, as to any party to any Loan Document, at any other address as may
be designated by it in a written notice sent to all other parties to such Loan
Document in accordance with this Section 9.02 and (b) any notice, request,
------------
demand, direction, or other communication given by telecopier must be confirmed
within 48 hours by letter mailed or delivered to the appropriate party at
its respective address. Except as otherwise expressly provided in any
Loan Document, any notice, request, demand, direction, or other communication
required or permitted by any Loan Document given in compliance with this
Section 9.02 shall be effective when received or delivered. When used in any
- ------------
Loan Document, the term "telecopy" or "telecopied" shall include a transmission
by electronic mail or facsimile machine.
SECTION 9.03. No Waiver; Remedies Cumulative. No failure on the part of
------------------------------
the Agent or any Bank or any holder of a Note to exercise, and no delay in
exercising, any right, power or privilege hereunder or under any other Loan
Document and no course of dealing between Borrower, its Subsidiaries, or any of
them and the Agent or any Bank or any holder of any Note shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right,
power or privilege, or any abandonment or discontinuance of any steps to enforce
such right, power or privilege, preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. No notice to or demand
on Borrower in any case shall entitle Borrower to any other or further notice or
demand in similar or other circumstances. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
SECTION 9.04. Costs, Expenses and Taxes. (a) Borrower agrees to pay within
-------------------------
ten (10) Business Days after presentation of a composite statement of account:
all reasonable out-of-pocket costs and expenses of the Agent in connection with
(i) the negotiation, preparation, distribution, execution and delivery of this
Credit Agreement, the Notes and the other Loan Documents and the documents and
instruments referred to therein, (ii) the syndication, management and agenting
of the Loans, (iii) the Agent's review and due diligence (including, without
limitation, the review of the material Oil and Gas Interests) and (iv) the
negotiation, preparation, distribution, execution and delivery of any amendment,
supplement, modification, waiver or consent relating to any of the Loan
Documents to which Borrower or any Subsidiary of Borrower is a party (including,
without limitation, as to each of the foregoing, the reasonable fees and
disbursements of legal counsel).
(b) Borrower shall pay all reasonable out-of-pocket costs and expenses of
the Agent and each Bank in connection with (i) the preservation of their rights
under, and enforcement of, the Loan
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<PAGE>
Documents to which Borrower or any Subsidiary of Borrower is a party and the
documents and instruments referred to therein (including, without limitation,
the reasonable fees and disbursements of legal counsel), and (ii) any workout,
restructuring or rescheduling of the Obligations or any proceeding under any
Debtor Relief Law with respect to Borrower or any Subsidiary of Borrower
(including, without limitation, the reasonable fees and disbursements of counsel
for the Agent and the Banks and allocated costs of internal counsel).
(c) Borrower shall pay, and hold the Agent and each of the Banks harmless
from and against, any and all present and future stamp, excise, and other
similar taxes and fees with respect to the foregoing matters and hold the Agent
and each Bank harmless from and against any and all liabilities with respect to
or resulting from any delay or omission (other than to the extent attributable
to the Agent or such Bank) to pay such taxes.
(d) Without prejudice to the survival of any other obligations of Borrower
hereunder, under the other Loan Documents, the obligations of Borrower under
this Section 9.04 shall survive the termination of this Credit Agreement and the
------------
payment in full of the Obligations for a period of six (6) months.
SECTION 9.05. Right of Setoff. In addition to any rights now or hereafter
---------------
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of any Event of
Default, each Bank is hereby authorized at any time or from time to time, to the
fullest extent permitted by law and without presentment, demand, protest or
other notice of any kind to Borrower or to any other Person, any such notice
being hereby expressly waived, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held, and
other Indebtedness at any time owing, by such Bank (including, without
limitation, by Affiliates, branches or agencies of such Bank wherever located)
to or for the credit or the account of Borrower against any of and all the
Obligations, including, without limitation, all interests in Obligations
purchased by such Bank pursuant to Section 2.20, and all other claims of any
------------
nature or description arising out of or in connection with this Credit Agreement
or any other Loan Document, irrespective of whether or not such Bank shall have
made any demand under this Credit Agreement or the Notes or other Loan Documents
and although such Obligations, liabilities or claims, or any of them, shall be
contingent or unmatured. Such Bank agrees promptly to notify Borrower after any
such setoff and application made by such Bank, but the failure to give such
notice shall not affect the validity of such setoff and application. The rights
of the Banks under this Section 9.05 are in addition to other rights and
------------
remedies (including, without limitation, other rights of setoff) which the Banks
may have. Notwithstanding any other provisions of this Credit Agreement, the
provisions of this Section 9.05 (except for the provisions of this sentence)
------------
will not apply to any amounts held by Borrower or any Subsidiary of Borrower for
the benefit of working interest owners and/or royalty owners for the purpose of
paying ad valorem taxes, development costs and/or operating costs or for the
purpose of making distributions to the revenue interest owners of revenues from
various Oil and Gas Interests.
SECTION 9.06. Governing Law. This Credit Agreement, the Notes and, unless
-------------
otherwise specified therein, all other Loan Documents and all other documents
executed in connection herewith or therewith, shall be deemed to be contracts
and agreements executed by Borrower, the Agent and the Banks under the laws of
the State of Texas and of the United States and for all purposes shall be
construed in accordance with, and governed by, the laws of said State and of the
United States. Without limitation of the foregoing, nothing in this Credit
Agreement, the Notes or any other Loan Document shall be deemed to constitute a
waiver of any rights which any Bank may have under applicable federal
legislation relating to the amount of interest which such Bank may contract for,
take, receive or charge
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in respect of any Loans, including any right to take, receive, reserve and
charge interest at the rate allowed by the law of the state where such Bank is
located. The Agent, the Banks and Borrower further agree that insofar as the
provisions of Article 1.04, Subtitle 1, Title 79, of the Revised Civil Statutes
of Texas, 1925, as amended, are applicable to the determination of the Highest
Lawful Rate with respect to the Notes, the indicated rate ceiling computed from
time to time pursuant to Section (a) of such Article shall apply to the Notes;
provided, however, that to the extent permitted by such Article, the Agent may
- -------- -------
from time to time by notice from the Agent to Borrower revise the election of
such interest rate ceiling as such ceiling affects the then current or future
balances of the Loans outstanding under the Notes. The provisions of Chapter 15
of Subtitle 3 of the said Title 79 do not apply to this Credit Agreement or the
Notes issued hereunder.
SECTION 9.07. Interest. Each provision in this Credit Agreement and each
--------
other Loan Document is expressly limited so that in no event whatsoever shall
the amount paid, or otherwise agreed to be paid, to the Agent or any Bank for
the use, forbearance or detention of the money to be loaned under this Credit
Agreement or any Loan Document or otherwise (including any sums paid as required
by any covenant or obligation contained herein or in any other Loan Document
which is for the use, forbearance or detention of such money), exceed that
amount of money which would cause the effective rate of interest to exceed the
Highest Lawful Rate, and all amounts owed under this Credit Agreement and each
other Loan Document shall be held to be subject to reduction to the effect that
such amounts so paid or agreed to be paid which are for the use, forbearance or
detention of money under this Credit Agreement or such Loan Document shall in no
event exceed that amount of money which would cause the effective rate of
interest to exceed the Highest Lawful Rate. Anything in this Credit Agreement,
any Note or any other Loan Document to the contrary notwithstanding, with
respect to each Note Borrower shall never be required to pay unearned interest
on such Note or ever be required to pay interest on such Note at a rate in
excess of the Highest Lawful Rate, and if the effective rate of interest which
would otherwise be payable with respect to such Note would exceed the Highest
Lawful Rate, or if the holder of such Note shall receive any unearned interest
or shall receive monies that are deemed to constitute interest which would
increase the effective rate of interest payable by Borrower with respect to such
Note to a rate in excess of the Highest Lawful Rate, then (i) the amount of
interest which would otherwise be payable by Borrower with respect to such Note
shall be reduced to the amount allowed under applicable law and (ii) any
unearned interest paid by Borrower or any interest paid by Borrower in excess of
the Highest Lawful Rate shall be in the first instance credited on the principal
of such Notes with the excess thereof, if any, refunded to Borrower. It is
further agreed that, without limitation of the foregoing, all calculations of
the rate of interest contracted for, charged or received by any Bank under the
Note held by it, or under this Credit Agreement or the other Loan Documents,
are made for the purpose of determining whether such rate exceeds the Highest
Lawful Rate applicable to such Bank (such Highest Lawful Rate being the Bank's
"Maximum Permissible Rate"), shall be made, to the extent permitted by usury
- --------------------------
laws applicable to such Bank (now or hereafter enacted), by (a) characterizing
any non-principal payment as an expense, fee or premium rather than as interest
and (b) amortizing, prorating and spreading in equal parts during the period of
the full stated term of the Loans evidenced by said Note all interest at any
time contracted for, charged or received by such Bank in connection therewith.
SECTION 9.08. Survival of Representations and Warranties. All
------------------------------------------
representations, warranties and covenants contained or incorporated herein or
made in writing by Borrower or any Subsidiary of Borrower in connection herewith
shall survive the execution and delivery of this Credit Agreement, the Notes and
the other Loan Documents.
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<PAGE>
SECTION 9.09. Binding Effect. This Credit Agreement shall become effective
--------------
when it shall have been executed by Borrower, the Agent and each of the Banks
and shall be binding upon and inure to the benefit of Borrower and the Banks and
their respective successors and assigns, whether so expressed or not, provided,
--------
that the undertaking of the Banks to make Loans to Borrower shall not inure to
the benefit of any successor or assign of Borrower.
SECTION 9.10. Successors and Assigns; Participations. (a) Whenever in this
--------------------------------------
Credit Agreement any of the parties hereto is referred to, such reference shall
be deemed to include the successors and permitted assigns of such party; and all
covenants, promises and agreements by or on behalf of Borrower, the Agent or the
Banks that are contained in this Credit Agreement shall bind and inure to the
benefit of their respective successors and permitted assigns. Borrower may not
assign or transfer any of its rights or obligations hereunder without the
written consent of all of the Banks.
(b) Each of the Banks may, without the consent of Borrower or the Agent,
sell participation to one or more banks or other financial institutions in all
or a portion of its rights and obligations under this Credit Agreement and the
other Loan Documents, including, without limitation, all or a portion of its
Commitment, the Loans owing to it, and the Note held by it (in respect of any
such Bank, the "Credit Exposure"); provided, however, that (i) such Bank's
--------------- -------- -------
obligations under this Credit Agreement and the other Loan Documents shall
remain unchanged, (ii) such Bank shall remain solely responsible to the other
parties hereto for the performance of such obligations, (iii) Borrower, the
Agent and the other Banks shall continue to deal solely and directly with such
Bank in connection with such Bank's rights and obligations under this Credit
Agreement and the other Loan Documents; provided, however, that such Bank shall
-------- -------
retain the sole right and responsibility to enforce the obligations of Borrower
relating to the Loans including, without limitation, the right to approve any
amendment, modification or waiver of any provision of this Credit Agreement or
any other Loan Document; and provided, further, such Bank may grant participant
-------- -------
rights, as between such Bank and its participant(s), with respect to amendments,
modifications or waivers with respect of any fees payable hereunder (including,
without limitation, the amount and the dates fixed for the payment of any such
fees) or the amount of principal, or the rate of interest payable on, or the
dates fixed for any payment of principal of or interest on the Loans or the
release of any Subsidiary under the Subsidiary Guaranty and (iv) such Bank shall
disclose in writing to the Agent the number of participating banks or other
entities and the dollar amount of each such participation. Each Bank also
agrees that it shall retain the right (but shall have no obligation) to buy back
any participating interest sold by it from the holder thereof if such holder
refuses to consent to any proposed amendment, modification, supplement or waiver
of this Credit Agreement or any other Loan Document.
(c) With the prior written consent of the Agent and Borrower, which consents
shall not be unreasonably withheld, each of the Banks may assign to one or more
Eligible Assignees, and without the consent of the Agent and Borrower, each of
the Banks may assign to a Bank, all or a portion of its Credit Exposure;
provided, however, that (i) each such assignment shall be of a constant, and not
- -------- -------
a varying, percentage of the assigning Bank's Credit Exposure, i.e., any such
assignment shall include a constant percentage of, inter alia the rights and
----- ----
obligations of such assigning Bank with respect to the Commitment, the Loans,
(ii) the parties to each such assignment shall execute and deliver to the Agent
for its acceptance and recording in the Register, an Assignment and Acceptance,
together with the Note subject to such assignment, (iii) the amount of each such
assignment (determined as of the date the Assignment and Acceptance with respect
to such assignment is delivered to the Agent) shall be in a minimum principal
amount of $10,000,000 and (iv) if the assigning Bank has retained any Commitment
hereunder, such assigning Bank's remaining Commitment shall be at least
$10,000,000 after giving
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<PAGE>
effect to such assignment. Upon (i) the execution and delivery to the Agent of
such Assignment and Acceptance by the assigning Bank, the purchasing bank or
other entity and Borrower, (ii) the payment by the assigning Bank or the
purchasing bank or other entity of a processing and recordation fee of $2,500
and (iii) the acceptance and recording of such Assignment and Acceptance in the
Register by the Agent, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be (unless otherwise
agreed among the Agent, the assigning Bank and the purchasing Bank or entity) at
least five Business Days after the date of acceptance and recording by the
Agent, (x) the Eligible Assignee thereunder shall be a party hereto and, to the
extent provided in such Assignment and Acceptance have the rights and
obligations of a Bank hereunder and (y) the assigning Bank thereunder shall, to
the extent provided in such Assignment and Acceptance, be released from its
obligations under this Credit Agreement and the other Loan Documents (and, in
the case of an assignment covering all of the remaining portion of an assigning
Bank's rights and obligations under this Credit Agreement and the other Loan
Documents, such assigning Bank shall cease to be a party hereto).
(d) Any Bank may, in the ordinary course of its business and in accordance
with applicable law, at any time assign to any Bank or any Affiliate (provided
that such Affiliate meets the definition of Eligible Assignee) thereof, all or
any part of its Credit Exposure. Borrower, the Agent and the Banks agree that
to the extent of any assignment the assignee Bank shall be deemed to have the
same rights and benefits under the Loan Documents and the same rights of setoff
and obligation to share pursuant to Section 2.20 as it would have had if it were
------------
a Bank hereunder; provided that Borrower and the Agent shall be entitled to
--------
continue to deal solely and directly with the assignor Bank in connection with
the interests so assigned to the assignee Bank unless and until such assignee
Bank becomes a purchasing Bank pursuant to clause (c) above.
(e) By executing and delivering an Assignment and Acceptance, the
assigning Bank thereunder and the Eligible Assignee thereunder shall be deemed
to confirm to and agree with each other and the other parties hereto as follows:
(i) other than the representation and warranty that it is the legal and
beneficial owner of the interest being assigned thereby free and clear of any
adverse claim known to such assigning Bank, such assigning Bank makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Credit Agreement and the other Loan Documents of the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Credit
Agreement or any other instrument or document furnished pursuant hereto or
thereto; (ii) such assigning Bank makes no representation or warranty and
assumes no responsibility with respect to the financial condition of Borrower or
any Subsidiary of Borrower, the performance or observance of their respective
obligations under this Credit Agreement, any Loan Document, any other instrument
or document furnished pursuant hereto or thereto; (iii) such Eligible Assignee
confirms that it has received a copy of this Credit Agreement together with
copies of the most recent financial statements delivered pursuant to Section
-------
4.09 or Section 5.01 and such other documents and information as it has deemed
- ---- ------------
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such Eligible Assignee will, independently and
without reliance upon the Agent, such assigning Bank or any other Bank and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Credit Agreement and the other Loan Documents; (v) such Eligible Assignee
appoints and authorizes the Agent to take such action on behalf of such Eligible
Assignee and to exercise such powers under this Credit Agreement and the other
Loan Documents as are delegated to the Agent by the terms hereof, together with
such powers as are reasonably incidental thereto; (vi) such Eligible Assignee
agrees that it will perform in accordance with their terms all of the
obligations which
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<PAGE>
by the terms of this Credit Agreement and the other Loan Documents are required
to be performed by it as a Bank and (vii) such Eligible Assignee confirms that
it is an Eligible Assignee as defined herein.
(f) The Agent shall maintain at its office a copy of each Assignment and
Acceptance delivered to it and a register for the recordation of the names and
addresses of the Banks and the Commitments of, and principal amount of the Loans
owing to, each Bank pursuant to the terms hereof from time to time (the
"Register"). The entries in the Register shall be conclusive, in the absence of
- ---------
manifest error, and Borrower, the Agent and the Banks may treat each Person
whose name is recorded in the Register as a Bank hereunder for all purposes of
this Credit Agreement. The Register shall be available for inspection by
Borrower or any Bank at any reasonable time and from time to time upon
reasonable prior notice.
(g) Upon its receipt of an Assignment and Acceptance executed by an
assigning Bank and an Eligible Assignee together with any Note subject to such
Assignment and Acceptance, the Agent shall (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Banks and Borrower. Within five (5)
Business Days after receipt of such notice, Borrower, the Assigning Bank and the
Agent shall make the appropriate arrangements for the execution and delivery by
Borrower to the Agent in exchange for the surrendered Note, a replacement Note
payable to the order of such Eligible Assignee in an aggregate amount equal to
the Commitment assumed by it pursuant to such Assignment and Acceptance and, if
the assigning Bank has retained any of its Commitment hereunder, a replacement
Note payable to the order of the assigning Bank in an aggregate amount equal to
the Commitment retained by it. Such replacement Note shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
Note and shall be dated the date of the surrendered Note which they replace and
shall otherwise be in substantially the form of Exhibit 2.08 hereto, as
------------
appropriate and shall contain specific language stating that such replacement
Note is given in exchange for and substitution of the surrendered Note and that
the Indebtedness evidenced by the surrendered Note constitutes the same
indebtedness evidenced by the replacement Note. Canceled Notes shall be
returned as soon as practical to Borrower marked "Replaced."
(h) Notwithstanding any other language in this Credit Agreement, any Bank
may at any time assign all or any portion of its rights under this Credit
Agreement and the Notes to a Federal Reserve Bank as collateral in accordance
with Regulation A and the applicable operating circular of such Federal Reserve
Bank.
(i) Notwithstanding any other provision herein, any Bank may, in connection
with any assignment or participation or proposed assignment or participation
pursuant to this Section 9.10 disclose to the assignee or participant or
------------
proposed assignee or participant, any information relating to Borrower or any
Subsidiary of Borrower furnished to such Bank by or on behalf of Borrower or by
or on behalf of Borrower or any Subsidiary of Borrower; provided, that prior to
--------
any such disclosure, each such assignee or participant or proposed assignee or
participant shall agree to preserve the confidentiality of any confidential
information relating to Borrower or any Subsidiary of Borrower received from
such Bank and shall execute and deliver a Confidentiality Agreement
substantially in the form of Exhibit 9.10-2 attached hereto.
--------------
SECTION 9.11. Separability. Should any clause, sentence, paragraph or
------------
section of this Credit Agreement or any other Loan Document be judicially
declared to be invalid, unenforceable or void, such decision will not have the
effect of invalidating or voiding the remainder of this Credit Agreement or
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such other Loan Document, as the case may be, and the parties hereto agree that
the part or parts of this Credit Agreement or such Loan Document so held to be
invalid, unenforceable or void will be deemed to have been stricken here from or
therefrom and the remainder will have the same force and effectiveness as if
such part or parts had never been included herein or therein.
SECTION 9.12. Confidentiality. Each Bank and the Agent acknowledge that
---------------
any information furnished to it directly by Borrower is and shall be
confidential unless designated otherwise by Borrower (however, such Bank or the
Agent may disclose or furnish any or all of such information to its employees,
officers, board members, auditors, counsel, agents and Affiliates after
informing them of the confidential nature of such information), and each Bank
and the Agent agrees that (i) it will maintain, and direct its employees,
officers, board members, auditors, counsel, agents and Affiliates to maintain,
the confidentiality of such information, (ii) it will not disclose, and will
direct its employees, officers, board members, auditors, counsel, agents and
Affiliates not to disclose, in any event such information to any third party
(except as herein set forth) and (iii) it will not use, and will direct its
employees, officers, board members, auditors, counsel, agents or Affiliates not
to use such information for any purposes other than as contemplated by this
Credit Agreement; provided, however, that such Bank or the Agent or its
-------- -------
employees, officers, board members, auditors, counsel, agents or Affiliates may
disclose any such information that is (i) in the public domain or that becomes
part of the public domain after the execution hereof, as a result of filing or
recording with any Governmental Authority or for any other reason other than as
a result of any action of a Bank or the Agent or their respective employees,
officers, board members, auditors, counsel, agents or Affiliates, (ii) in the
possession of such Bank or the Agent as a result of disclosure by a third party,
except to the extent that the Person making such disclosure is aware that such
third party is bound by a confidentiality obligation to Borrower, (iii) required
in such Bank's or the Agent's good faith judgment to be disclosed in order to
comply with any applicable Requirement of Law, in order to comply with legal
process, or in order to comply with the request of any Governmental Authority
having authority or purported authority to regulate the Agent or such Bank, (iv)
permitted to be disclosed to an Eligible Assignee or prospective Eligible
Assignee pursuant to Section 9.10(i) or (v) disclosed in connection with any
---------------
suit or other proceeding brought by the Agent or such Bank against Borrower or
any Subsidiary of Borrower or by Borrower or any Subsidiary of Borrower against
the Agent or such Bank. Each Bank and the Agent agrees that if it is required
pursuant to this Section 9.12(iii) to disclose any confidential information,
-----------------
such Bank or the Agent will notify Borrower of the applicable Requirement of Law
and the date on which a response to the same is due from it, as soon as
practical upon the Agent's becoming aware that disclosure of previously
confidential information is a significant possibility, provided that this
--------
sentence shall not apply to any disclosure the Agent or any Bank is required by
applicable Requirements of Law to make to any Governmental Authority having
authority to regulate the Agent or such Bank.
SECTION 9.13. Marshalling; Recapture. Neither the Agent nor any Bank shall
----------------------
be under any obligation to marshal any assets in favor of Borrower or any other
Person or against or in payment of any or all of the Obligations. To the extent
any Bank receives any payment by or on behalf of Borrower, which payment or any
part thereof is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to Borrower or its estate,
trustee, receiver, custodian or any other party under any Debtor Relief Law,
state or federal law, common law or equitable cause, then to the extent of such
payment or repayment, the obligation or part thereof which has been paid,
reduced or satisfied by the amount so repaid shall be reinstated by the amount
so repaid and shall be included within the liabilities of Borrower to such Bank
as of the date such initial payment, reduction or satisfaction occurred.
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SECTION 9.14. Representation by the Banks. Each of the Banks represents
---------------------------
that it is the present intention of such Bank to acquire its Note for its own
account or for the account of its Affiliates and not with a view to the
distribution or sale thereof, subject, nevertheless to the necessity that such
Bank remain in control at all times of the disposition of property held by it
for its own account; it being understood that the foregoing representations
shall not affect the characterization of the Loans as commercial lending
transactions.
SECTION 9.15. No Third Party Beneficiaries. The agreement of each Bank to
----------------------------
make its Loans on the terms and conditions set forth in this Credit Agreement,
is solely for the benefit of Borrower and its Subsidiaries, and no other Person
(including any obligor, contractor, subcontractor, supplier or materialman
furnishing supplies, goods or services to or for the benefit of Borrower) shall
have any rights hereunder, as against the Agent or any Bank, under any other
Loan Document, or with respect to the Loans or the proceeds thereof.
SECTION 9.16. Execution in Counterparts. This Credit Agreement may be
-------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
SECTION 9.17. Jurisdiction; Consent to Service of Process. (a) Borrower
-------------------------------------------
hereby irrevocably and unconditionally submits, for itself and its property, to
the nonexclusive jurisdiction of any Texas State court or Federal court of the
United States of America sitting in Harris County, Texas, in any action or
proceeding arising out of or relating to this Credit Agreement or the Loan
Documents, or for recognition or enforcement of any order or judgment, and each
of the parties hereto hereby irrevocably and unconditionally agrees that all
claims in respect of any such action or proceeding may be heard and determined
in such Texas State court, or to the extent permitted by law, in such Federal
court in Harris County, Texas. Each party to this Credit Agreement irrevocably
consents to the service of process out of any Texas State court or Federal court
of the United States of America sitting in Harris County, Texas in any such
action or proceeding by the mailing of copies thereof by registered or certified
mail, postage prepaid, to such party at its address referred to in Section 9.02.
------------
Borrower agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law subject to applicable appeal rights.
Nothing in this Credit Agreement shall affect any right that the Agent or any
Bank may otherwise have to bring any action or proceeding relating to this
Credit Agreement or the Loan Documents against Borrower or any Subsidiary of
Borrower or its respective properties in the courts of any other jurisdiction.
(b) Borrower hereby irrevocably and unconditionally waives, to the fullest
extent it may legally and effectively do so, any objection which it may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Credit Agreement or the Loan Documents in any Texas
State or Federal court sitting in Harris County, Texas. Borrower hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
SECTION 9.18. Credit Agreement Governs Conflicts. To the fullest extent
----------------------------------
possible, the terms and provisions of the Loan Documents shall be read together
with the terms and provisions of this Credit Agreement so that the terms and
provisions thereof do not conflict with the terms and provisions of this Credit
Agreement; provided, however, notwithstanding the foregoing, in the event that
-----------------
any of the terms of provisions of the Loan Documents conflict with any terms or
provisions of this Credit Agreement, the
-76-
<PAGE>
terms or provisions of this Credit Agreement shall govern and control for all
purposes, provided that the inclusion of additional terms and provisions,
supplemental rights or remedies in favor of the Agent in any Loan Document shall
not be deemed to be a conflict with this Credit Agreement.
SECTION 9.19. FINAL AGREEMENT OF THE PARTIES. THIS CREDIT AGREEMENT
------------------------------
(INCLUDING THE EXHIBITS HERETO), THE NOTES AND THE OTHER LOAN DOCUMENTS TO WHICH
BORROWER OR ANY OF ITS SUBSIDIARIES IS A PARTY CONSTITUTE A "LOAN AGREEMENT" AS
DEFINED IN SECTION 26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND
REPRESENT 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 ORAL AGREEMENTS BETWEEN THE PARTIES.
-77-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement
to be executed by their respective officers thereunto duly authorized, as of the
date first above written.
BORROWER
BARRETT RESOURCES CORPORATION
By: /s/ John F. Keller
Name: John F. Keller
Title: Executive Vice President
AGENT
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION,
In its capacity as Agent for the Banks
By: /s/ Lori H. Vetters
Name: Lori H. Vetters
Title: Vice President
COMMITMENTS BANKS
$50,000,000 TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
By: /s/ Lori H. Vetters
Name: Lori H. Vetters
Title: Vice President
$45,000,000 NATIONSBANK OF TEXAS, N.A.
By: /s/ Michele L. Jones
Name: Michele L. Jones
Title: Vice President
-78-
<PAGE>
$45,000,000 BANK OF MONTREAL, HOUSTON AGENCY
By: /s/ Michael P. Stuckey
Name: Michael P. Stuckey
Title: Director, U.S. Corporate Banking
$30,000,000 THE FIRST NATIONAL BANK OF BOSTON
By: /s/ George W. Passela
Name: George W. Passela
Title: Managing Director
$30,000,000 COLORADO NATIONAL BANK
By: /s/ Charles S. Searle
Name: Charles S. Searle
Title: Vice President
-79-
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1995 JAN-01-1994
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