<PAGE>
______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
Commission File Number 0-4597
FOREST OIL CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 25-0484900
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1600 Broadway, Suite 2200
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 812-1400
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
----- -----
Number of Shares
Outstanding
Title of Class of Common Stock October 31, 1995
- ------------------------------ -----------------
Common Stock, Par Value $.10 Per Share 48,551,725
______________________________________________________________________________
<PAGE>
PART I. FINANCIAL INFORMATION
FOREST OIL CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,417 2,869
Accounts receivable 15,299 20,418
Other current assets 3,499 2,231
---------- ---------
Total current assets 22,215 25,518
Property and equipment, at cost:
Oil and gas properties - full cost accounting method 1,189,665 1,171,887
Buildings, transportation and other equipment 12,782 12,649
---------- ---------
1,202,447 1,184,536
Less accumulated depreciation, depletion and valuation allowance 941,701 907,927
---------- ---------
Net property and equipment 260,746 276,609
Investment in and advances to affiliate 11,452 11,652
Other assets 10,330 11,053
---------- ---------
$ 304,743 324,832
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 1,739 4,445
Current portion of long-term debt 89 1,636
Current portion of gas balancing liability 5,000 5,735
Accounts payable 20,396 26,557
Retirement benefits payable to executives and directors 672 630
Accrued expenses and other liabilities:
Interest 1,970 4,318
Other 1,108 4,297
---------- ---------
Total current liabilities 30,974 47,618
Long-term debt 181,959 207,054
Gas balancing liability 5,926 8,525
Retirement benefits payable to executives and directors 2,951 3,505
Other liabilities 20,045 16,136
Deferred revenue 18,501 35,908
Shareholders' equity:
Preferred stock 24,356 15,845
Common stock 4,775 2,829
Capital surplus 230,756 190,074
Accumulated deficit (214,032) (199,499)
Foreign currency translation (1,468) (1,337)
Treasury stock, at cost - (1,826)
---------- ---------
Total shareholders' equity 44,387 6,086
---------- ---------
$ 304,743 324,832
========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-1-
<PAGE>
FOREST OIL CORPORATION
Condensed Consolidated Statements of Production and Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
------------- ------------ ------------ -------------
(In Thousands Except Production and Per Share Amounts)
<S> <C> <C> <C> <C>
PRODUCTION
Gas (MMCF) 7,807 11,957 25,744 38,432
======== ======= ======= =======
Oil and condensate (thousand barrels) 275 365 926 1,152
======== ======= ======= =======
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenue:
Oil and gas sales:
Gas $ 13,139 21,874 45,141 74,323
Oil and condensate 4,236 5,830 14,764 16,825
Products and other 81 66 249 280
-------- ------- ------- -------
17,456 27,770 60,154 91,428
Miscellaneous, net 161 437 374 2,299
-------- ------- ------- -------
Total revenue 17,617 28,207 60,528 93,727
Expenses:
Oil and gas production 5,379 5,419 16,576 16,647
General and administrative 1,900 2,964 5,761 7,553
Interest 6,679 6,602 19,100 20,077
Depreciation and depletion 10,233 16,150 33,631 52,323
Provision for impairment of oil and gas properties - 30,000 - 30,000
-------- ------- ------- -------
Total expenses 24,191 61,135 75,068 126,600
-------- ------- ------- -------
Loss before income taxes and cumulative
effect of change in accounting principle (6,574) (32,928) (14,540) (32,873)
Income tax expense (benefit):
Current - (55) (7) 29
-------- ------- ------- -------
Loss before cumulative effect of change in
accounting principle (6,574) (32,873) (14,533) (32,902)
Cumulative effect of change in method of accounting
for oil and gas sales - - - (13,990)
-------- ------- ------- -------
Net loss $ (6,574) (32,873) (14,533) (46,892)
======== ======= ======= =======
Weighted average number of common shares
outstanding 42,312 28,135 33,057 28,072
======== ======= ======= =======
Net loss attributable to common stock $ (7,114) (33,414) (16,153) (48,513)
======== ======= ======= =======
Primary and fully diluted loss per share:
Loss before cumulative effect of change in
accounting principle $ (.17) (1.19) (.49) (1.23)
======== ======= ====== ======
Net loss $ (.17) (1.19) (.49) (1.73)
======== ======= ====== ======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-2-
<PAGE>
FOREST OIL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------
September 30, September 30,
1995 1994
-------- --------
(In Thousands)
<S> <C> <C>
Cash flows from operating activities:
Loss before cumulative effect of change in accounting principle $(14,533) (32,902)
Adjustments to reconcile loss before cumulative effect of change in
accounting principle to net cash provided (used) by operating activities:
Depreciation and depletion 33,631 52,323
Provision for impairment of oil and gas properties - 30,000
Other, net 2,596 3,230
Decrease in accounts receivable 5,119 2,339
Decrease (increase) in other current assets (1,268) 653
Decrease in accounts payable (6,854) (6,788)
Increase (decrease) in accrued expenses and other liabilities (5,537) 425
Proceeds from volumetric production payments - 4,353
Amortization of deferred revenue (17,407) (27,790)
-------- -------
Net cash provided (used) by operating activities (4,253) 25,843
Cash flows from investing activities:
Capital expenditures for property and equipment (20,405) (26,706)
Proceeds from sales of property and equipment 2,706 13,203
Decrease (increase) in other assets, net 464 (1,895)
-------- -------
Net cash used by investing activities (17,235) (15,398)
Cash flows from financing activities:
Proceeds of bank debt 61,200 12,500
Repayments of bank debt (74,400) (10,500)
Proceeds of stock and warrants issued, net of costs 41,060 -
Proceeds of nonrecourse secured loan - 1,400
Repayments of nonrecourse secured loan (1,143) -
Repayments of production payment (1,708) (2,394)
Redemptions and purchases of subordinated debentures - (7,171)
Payment of preferred stock dividends (540) (1,621)
Deferred debt costs (482) (702)
Decrease in cash overdraft (2,706) (430)
Increase (decrease) in other liabilities, net 756 (6,613)
-------- -------
Net cash provided (used) by financing activities 22,037 (15,531)
Effect of exchange rate changes on cash (1) 164
-------- -------
Net increase (decrease) in cash and cash equivalents 548 (4,922)
Cash and cash equivalents at beginning of period 2,869 6,949
-------- -------
Cash and cash equivalents at end of period $ 3,417 2,027
======== =======
Cash paid during the period for:
Interest $ 19,002 20,543
======== =======
Income taxes $ - 6
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE>
FOREST OIL CORPORATION
Notes to Condensed Consolidated Financial Statements
Nine Months Ended September 30, 1995 and 1994
(Unaudited)
(1) Basis of Presentation
The condensed consolidated financial statements included
herein are unaudited. In the opinion of management, all
adjustments, consisting of normal recurring accruals, have
been made which are necessary for a fair presentation of the
financial position of the Company at September 30, 1995 and
the results of operations for the nine month periods ended
September 30, 1995 and 1994. Quarterly results are not
necessarily indicative of expected annual results because of
the impact of fluctuations in prices received for oil and
natural gas and other factors. For a more complete
understanding of the Company's operations and financial
position, reference is made to the consolidated financial
statements of the Company, and related notes thereto, filed
with the Company's annual report on Form 10-K for the year
ended December 31, 1994, previously filed with the
Securities and Exchange Commission.
(2) Long-term Debt
The components of long-term debt are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(In Thousands)
<S> <C> <C>
Bank debt $ 19,800 33,000
Nonrecourse secured loan 46,069 57,840
Production payment obligation 16,826 18,534
11-1/4% Subordinated debentures 99,353 99,316
-------- -------
182,048 208,690
Less current portion (89) (1,636)
-------- -------
Long-term debt $181,959 207,054
======== =======
</TABLE>
On August 11, 1995 the Company and the banks executed an
amendment to the Company's credit facility pursuant to which
the ratios required by the tests were amended. At September
30, 1995 the Company was in compliance with the covenants of
its bank debt.
(3) Earnings (Loss) Per Share
Primary earnings (loss) per share is computed by dividing
net earnings (loss) attributable to common stock by the
weighted average number of common shares and common share
equivalents outstanding during each period, excluding
treasury shares. Net earnings (loss) attributable to common
stock represents net earnings (loss) less preferred stock
dividend requirements. Common share equivalents include,
when applicable, dilutive stock options using the treasury
stock method and warrants using the if converted method.
Fully diluted earnings (loss) per share assumes, in addition
to the above, (i) that convertible debentures were converted
at the beginning of each period or date of issuance, if
later, with earnings being increased for interest expense,
net of taxes, that would not have been incurred had
conversion taken place, (ii) that convertible preferred
stock was converted at the beginning of each period or date
of issuance, if later, and (iii) any additional dilutive
effect of stock options and warrants. The assumed exercises
and conversions were antidilutive for the nine month periods
ended September 30, 1995 and 1994.
-4-
<PAGE>
(4) Change in Accounting for Oil and Gas Sales
The Company changed its method of accounting for oil and gas
sales from the sales method to the entitlements method
effective January 1, 1994. Under the sales method
previously used by the Company, all proceeds from production
credited to the Company were recorded as revenue until such
time as the Company had produced its share of the related
reserves. Under the entitlements method, revenue is
recorded based upon the Company's share of volumes sold,
regardless of whether the Company has taken its
proportionate share of volumes produced.
Under the entitlements method, the Company records a
receivable or payable to the extent it receives less or more
than its proportionate share of the related revenue. The
Company believes that the entitlements method is preferable
because it allows for recognition of revenue based on the
Company's actual share of jointly owned production and
provides a better matching of revenue and related expenses.
The cumulative effect of the change for the periods through
December 31, 1993 was a charge of $13,990,000 recorded in
the first quarter of 1994. As the Company adopted this
change in the fourth quarter of 1994, previously reported
1994 information has been restated to reflect the change
effective January 1, 1994.
(5) Anschutz and JEDI Transactions
During the second and third quarters of 1995, following
receipt of shareholder approval, the Company consummated
transactions with The Anschutz Corporation (Anschutz) and
with Joint Energy Development Investments Limited
Partnership (JEDI), a Delaware limited partnership the
general partner of which is an affiliate of Enron Corp., in
each case as described below.
ANSCHUTZ TRANSACTION:
Pursuant to the Anschutz agreements, Anschutz purchased
18,800,000 shares of the Company's common stock and shares
of a new series of preferred stock that are convertible into
6,200,000 additional shares of common stock for a total
consideration of $45,000,000, or $1.80 per share. The
preferred stock has liquidation preference and receives
dividends ratably with the common stock. In addition,
Anschutz received warrants to purchase 19,444,444 shares of
the Company's common stock for $2.10 per share. The $2.10
warrants are exercisable during the first 18 months after
the second closing, subject to extension in certain
circumstances to 36 months.
The Anschutz investment was made in two closings. In the
first closing, which occurred on May 19, 1995, Anschutz
loaned the Company $9,900,000. The loan carried interest at
8% per annum. The loan was nonrecourse to the Company and
was secured by oil and gas properties owned by the Company,
the preferred stock of Archean Energy Ltd. and a cash
collateral account with an initial balance of $2,000,000.
At the second closing, which occurred on July 27, 1995, the
loan was converted into 5,500,000 shares of Forest's common
stock. Also at the second closing, Anschutz purchased an
additional 13,300,000 shares of common stock, the
convertible preferred stock and the $2.10 warrants described
above for $35,100,000. At the second closing, Anschutz also
received from JEDI an option to purchase from JEDI up to
11,250,000 shares of common stock that JEDI may acquire from
the Company upon exercise of the $2.00 warrants referred to
below. This option will terminate 36 months after the
second closing, or earlier upon the conveyance by the
Company of certain property to JEDI in satisfaction of the
restructured JEDI loan, as described below.
Pursuant to the Anschutz agreements, Anschutz agreed to
certain voting, acquisition, and transfer limitations
regarding shares of common stock for five years after the
second closing, including (a) a limit on voting, subject to
certain exceptions, that would require Anschutz to vote all
equity securities of the Company owned by Anschutz having
voting power in excess of an amount equal to 19.99% of the
aggregate voting power of the equity securities of the
Company then outstanding in the same proportion as all other
equity securities of the Company voted with respect to the
matter (other than equity securities owned by Anschutz) are
voted, (b) the number of persons associated with Anschutz
that may at any time be elected as directors of the
-5-
<PAGE>
Company is limited to three, and (c) a limit on the acquisition
of additional shares of common stock by Anschutz (whether
pursuant to the conversion of the new preferred stock, the
exercise of the $2.10 warrants or the option received from
JEDI, or otherwise), subject to certain exceptions, that
would prohibit any acquisition by Anschutz that would result
in Anschutz owning 40% or more of the shares of common stock
then issued and outstanding. While the foregoing
limitations are in effect, Anschutz will be entitled to a
minority representation on the board of directors.
JEDI TRANSACTION:
At the second closing, Forest and JEDI restructured JEDI's
existing loan which had a principal balance on July 27, 1995
of approximately $62,368,000 before unamortized discount of
$4,984,000. JEDI relinquished the net profits interest that
it held in certain Forest properties and reduced the
interest rate relating to the loan. In consideration, JEDI
received warrants to purchase 11,250,000 shares of the
Company's common stock for $2.00 per share. The $2.00
warrants will expire on the earlier of December 31, 2002 or
36 months following exercise of the Company's option to
convey properties in satisfaction of the JEDI loan (the
Conveyance Option). Also at the second closing, JEDI
granted a 36 month option to Anschutz to purchase from JEDI
up to 11,250,000 shares at a purchase price per share of
$2.00 plus an amount equal to the lesser of (a) 18% per
annum from the second closing date to the date of exercise
of the option, or (b) $3.10. JEDI will satisfy its
obligations under the option to Anschutz by exercising the
$2.00 warrants. Provided the Conveyance Option has not been
exercised, the Company may terminate the $2.00 warrants at
any time beginning 36 months after the second closing if the
average closing price of the common stock for both the 90
day and 15 day periods immediately preceding the termination
is in excess of $2.50 per share.
As a result of the loan restructuring and the issuance of
the warrants described below, the Company recorded a
reduction of the amount of the related liability to
approximately $45,493,000 and anticipates a reduction of
annual interest expense of approximately $2,000,000.
Subject to certain conditions, the Company may satisfy the
restructured JEDI loan by conveying to JEDI the properties
securing the loan during a 30-day period beginning 18 months
after the second closing or, if the $2.10 warrants have been
extended, during a 30-day period beginning 36 months after
the second closing. Any such conveyance during the first 36
months after the second closing must be approved by
Anschutz, if the option from JEDI has not then been
exercised or terminated. Prior to the exercise or
termination of the JEDI option, JEDI has agreed that it will
not assign all or any portion of the JEDI loan or the $2.00
warrants to an unaffiliated person without the approval of
the Company. The Company has agreed to not give such
approval without the consent of Anschutz.
The Company has agreed to use the proceeds from the exercise
of the $2.00 warrants and the $2.10 warrants to repay
principal and interest on the JEDI loan.
(6) Subsequent Events
On October 11, 1995, Forest and Saxon Petroleum, Inc.
(Saxon) of Calgary, Alberta entered into an agreement
pursuant to which Forest contributed capital to Saxon in
exchange for a majority interest in Saxon. The agreement is
subject to satisfaction of several conditions including
approval of Saxon's shareholders.
Under the terms of the agreement, Forest would receive from
Saxon, in two closings, an aggregate of 53,100,000 common
shares, 5,300,000 warrants and $15,500,000 CDN of
convertible preferred shares due November 15, 1998. Saxon
would receive $1,500,000 CDN cash, 5,300,000 common shares
of Forest (subject to possible adjustment for change in the
market value of Forest stock) and all of the preferred
shares owned by Forest in Archean Energy, Ltd., a privately
held oil and gas company based in Calgary.
At the completion of the transaction, Forest would own
approximately 56% of the outstanding common shares of Saxon,
including slightly less than 50% of the voting shares, and
would hold warrants and conversion rights for shares which,
if fully exercised, would constitute
-6-
<PAGE>
approximately 63% of Saxon's outstanding common stock. Pursuant
to the terms of the agreement, Forest would have the right to
name four of seven directors to a newly-constituted board. In
addition, Forest would have the right to participate in any
future equity issues undertaken by Saxon.
In the first closing, which occurred on October 26, 1995,
Forest acquired 8,800,000 shares of Saxon common stock in
exchange for 790,000 shares of Forest common stock. Forest
also purchased a newly issued preferred stock for $3,000,000
CDN which will be redeemable at the earlier of April 25,
1996, or at the second closing, which is currently scheduled
for December 20, 1995.
A special meeting of Saxon's shareholders has been scheduled
for December 18, 1995. At the second closing the following
transactions would take place: 1) the preferred stock of
Saxon issued at the first closing would be redeemed for
$1,500,000 CDN of cash and $1,500,000 CDN of common shares of
Saxon; 2) Saxon would issue 44,300,000 common shares and
5,300,000 warrants to Forest in exchange for, subject to
adjustment, 4,510,000 common shares of Forest; and 3) Saxon
would issue $15,500,000 CDN of new convertible preferred
stock to Forest in exchange for the Archean Energy Ltd.
preferred stock owned by Forest.
-7-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS FOR THE THIRD QUARTER OF 1995
NET LOSS
The net loss for the third quarter of 1995 was $6,574,000 or $.17 per
common share compared to a net loss of $32,873,000 or $1.19 per common share
in the third quarter of 1994. The 1995 loss was due primarily to decreased
oil and natural gas volumes and lower natural gas and oil prices. The 1994
loss included a $30,000,000 writedown of the book value of the Company's oil
and gas properties due to the ceiling test limitation.
REVENUE
The Company's oil and gas sales revenue decreased by 37% to $17,456,000
in the third quarter of 1995 from $27,770,000 in the third quarter of 1994.
Production volumes for natural gas and oil in the third quarter of 1995
decreased 35% and 25%, respectively, from the comparable 1994 period due
primarily to normal, anticipated production declines as well as decreased
well performance in certain fields. The average sales price for natural gas
in the third quarter of 1995 was $1.68 per thousand cubic feet of natural gas
(MCF), a decrease of $.15 per MCF or 8% compared to the average sales price
in the third quarter of the previous year. The average sales price for oil in
the third quarter of 1995 of $15.38 per barrel represented a decrease of $.57
per barrel or 4% compared to the average sales price in the same period of
1994.
EXPENSES
Oil and gas production expense decreased slightly to $5,379,000 in the
third quarter of 1995 from $5,419,000 in the comparable period of 1994. On an
MCFE basis (MCFE means thousands of cubic feet of natural gas equivalents,
using a conversion ratio of one barrel of oil to six MCF of natural gas),
production expense increased 50% in the third quarter of 1995 to $.57 per
MCFE from $.38 per MCFE in the third quarter of 1994. The increased cost per
MCFE is directly attributable to fixed components of oil and gas production
expense being allocated over a smaller production base.
General and administrative expense was $1,900,000 in the third quarter
of 1995, a decrease of 36% from $2,964,000 in the comparable period of 1994.
Total overhead costs (capitalized and expensed general and administrative
costs) of $3,070,000 in the third quarter of 1995 decreased 37% from
$4,911,000 in the comparable period of 1994. The decreases were due primarily
to a reduction in the size of the Company's workforce effective March 1, 1995.
Interest expense of $6,679,000 in the third quarter of 1995 increased
slightly from $6,602,000 in 1994 due primarily to restructuring fees
associated with the nonrecourse secured loan with Joint Energy's Development
Investments Limited Partnership (JEDI), a Delaware limited partnership, the
general partner of which is an affiliate of Enron Corporation, and interest
related to a separate nonrecourse loan, offset partially by a decrease in
interest expense on the restructured nonrecourse secured loan.
Depreciation and depletion expense decreased 37% to $10,233,000 in the
third quarter of 1995 from $16,150,000 in the third quarter of 1994 due to
the decrease in production, as well as a decrease in the depletion rate per
unit of production. The depletion rate decreased to $1.07 per MCFE in the
third quarter of 1995 from $1.13 per MCFE in the comparable 1994 period due
to writedowns of the Company's oil and gas properties taken in the third and
fourth quarters of 1994.
-8-
<PAGE>
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
NET LOSS
The net loss for the first nine months of 1995 was $14,533,000 or $.49
per common share compared to a net loss of $46,892,000 or $1.73 per common
share in the first nine months of 1994. The 1994 loss included a $30,000,000
writedown of the book value of the Company's oil and gas properties due to a
ceiling test limitation and a charge of $13,990,000 relating to the change in
the method of accounting for oil and gas sales from the sales method to the
entitlements method. See "Changes in Accounting." The 1995 loss was primarily
due to decreased oil and natural gas volumes and lower natural gas prices.
REVENUE
The Company's oil and gas sales revenue decreased by 34% to $60,154,000
in the first nine months of 1995 from $91,428,000 in the same period of 1994.
Production volumes for natural gas and oil in the first nine months of 1995
decreased 33% and 20%, respectively, from the comparable 1994 period due
primarily to normal, anticipated production declines as well as decreased
well performance in certain fields. The average sales price for natural gas
in the first nine months of 1995 was $1.75 per thousand cubic feet of natural
gas (MCF), a decrease of $.18 per MCF or 9% compared to the average sales
price in the first nine months of the previous year. The average sales price
for oil in the first nine months of 1995 of $15.94 per barrel represented an
increase of $1.34 per barrel or 9% compared to the average sales price in the
same period of 1994.
Production volumes and weighted average sales prices during the periods
were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
(In Thousands)
<S> <C> <C> <C> <C>
Natural Gas
Production under long-term fixed price
contracts (MMCF) (1) 2,306 4,048 8,001 13,057
Average contract sales price (per MCF) (1) $ 1.79 1.78 1.77 1.78
Production sold on the spot market (MMCF) 5,501 7,909 17,743 25,375
Spot sales price received (per MCF) $ 1.45 1.73 1.54 1.99
Effects of energy swaps (per MCF) (2) .19 .13 .21 .02
------ ------ ------ ------
Average spot sales price (per MCF) $ 1.64 1.86 1.75 2.01
Total production (MMCF) 7,807 11,957 25,744 38,432
Average sales price (per MCF) $ 1.68 1.83 1.75 1.93
Oil and condensate (3)
Total production (MBBLs) 275 365 926 1,152
Average sales price (per BBL) $15.38 15.95 15.94 14.60
</TABLE>
(1) Production under long-term fixed price contracts includes scheduled
deliveries under volumetric production payments, net of royalties.
See "Volumetric Production Payments" below.
(2) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuation. Hedged volumes were 2,070 MMCF and 3,458 MMCF
for the three months ended September 30, 1995 and 1994, respectively, and
were 7,562 MMCF and 8,840 MMCF for the nine months ended September 30, 1995
and 1994, respectively.
(3) Oil and condensate production is sold primarily on the spot market. An
immaterial amount of production is covered by long-term fixed price
contracts, including scheduled deliveries under volumetric production
payments.
Miscellaneous net revenue decreased to $374,000 in the first nine months
of 1995 from $2,299,000 in the comparable 1994 period. The 1994 amount
includes income from the sale of miscellaneous pipeline systems and equipment
and the reversal of an accounts receivable reserve.
-9-
<PAGE>
EXPENSES
Oil and gas production expense decreased slightly to $16,576,000 in the
first nine months of 1995 from $16,647,000 in the comparable period of 1994.
On an MCFE basis, production expense increased 43% in the first nine months
of 1995 to $.53 per MCFE from $.37 per MCFE in the first nine months of 1994.
The increased cost per MCFE is directly attributable to fixed components of
oil and gas production expense being allocated over a smaller production base.
General and administrative expense was $5,761,000 in the first nine
months of 1995, a decrease of 24% from $7,553,000 in the comparable period of
1994. Total overhead costs (capitalized and expensed general and
administrative costs) of $10,130,000 in the first nine months of 1995
decreased 23% from $13,076,000 in the comparable period of 1994. The
Company's salaried workforce was 116 at September 30, 1995 and 142 at
September 30, 1994. The decreases in total overhead costs and personnel were
due primarily to a reduction in the size of the Company's workforce effective
March 1, 1995.
The following table summarizes the total overhead costs incurred during
the periods:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
(In Thousands)
<S> <C> <C> <C> <C>
Overhead costs capitalized $1,170 1,947 4,369 5,523
General and administrative costs
expensed 1,900 2,964 5,761 7,553
------ ----- ------ ------
Total overhead costs $3,070 4,911 10,130 13,076
====== ===== ====== ======
</TABLE>
Interest expense of $19,100,000 in the first nine months of 1995
decreased 5% from $20,077,000 in 1994 due primarily to lower effective
interest rates related to the nonrecourse secured loan and the dollar
denominated production payment.
Depreciation and depletion expense decreased 36% to $33,631,000 in the
first nine months of 1995 from $52,323,000 in the first nine months of 1994
due to the decrease in production, as well as a decrease in the depletion
rate per unit of production. The depletion rate decreased to $1.06 per MCFE
in the first nine months of 1995 from $1.14 per MCFE in the comparable 1994
period due to writedowns of the Company's oil and gas properties taken in the
third and fourth quarters of 1994. At September 30, 1995, the Company had
undeveloped properties with a cost basis of approximately $31,981,000 which
were excluded from depletion, compared to $41,824,000 at September 30, 1994.
The decrease is attributable to exploration and development work, as well as
lease expirations and property sales.
The Company was not required to record a writedown of the carrying value
of its oil and gas properties in the first nine months of 1995. However, the
Company was required to record a $30,000,000 writedown of the carrying value
of its oil and gas properties in the first nine months of 1994. Writedowns of
the full cost pool may be required in the future if prices decrease,
estimated proved reserve volumes are revised downward or costs incurred in
exploration, development, or acquisition activities exceed the discounted
future net cash flows from the additional reserves, if any.
As of December 31, 1993, there were no remaining deferred tax
liabilities. No tax benefits for operating loss carryforwards have been
recorded in the first nine months of 1995 or 1994.
-10-
<PAGE>
CHANGES IN ACCOUNTING
The Company changed its method of accounting for oil and gas sales from
the sales method to the entitlements method effective January 1, 1994. Under
the sales method previously used by the Company, all proceeds from production
credited to the Company were recorded as revenue until such time as the
Company had produced its share of related reserves. Under the entitlements
method, revenue is recorded based upon the Company's share of volumes sold,
regardless of whether the Company has taken its proportionate share of
volumes produced.
Under the entitlements method, the Company records a receivable or
payable to the extent it receives less or more than its proportionate share
of the related revenue. The Company believes that the entitlements method is
preferable because it allows for recognition of revenue based on the
Company's actual share of jointly owned production and provides a better
matching of revenue and related expenses.
The cumulative effect of the change for the periods through December 31,
1993, was a charge of $13,990,000. The effect of this change on the third
quarter of 1994 was an increase in earnings from operations of $1,147,000 and
an increase in production volumes of 586,000 MCF of natural gas. The effect
of this change on the nine months ended September 30, 1994 was an increase in
earnings from operations of $3,840,000 and an increase in production volumes
of 1,804,000 MCF of natural gas. There were no related income tax effects in
1994. As the Company adopted this change in the fourth quarter of 1994,
previously reported 1994 information has been restated to reflect the change
effective January 1, 1994.
LIQUIDITY AND CAPITAL RESOURCES
RECENT DEVELOPMENTS
During the second and third quarters of 1995, following receipt of
shareholder approval, the Company consummated transactions with The Anschutz
Corporation (Anschutz) and with JEDI, in each case as described below.
ANSCHUTZ TRANSACTION:
Pursuant to the Anschutz agreements, Anschutz purchased 18,800,000
shares of the Company's common stock and shares of a new series of preferred
stock that are convertible into 6,200,000 additional shares of common stock
for a total consideration of $45,000,000, or $1.80 per share. The preferred
stock has liquidation preference and receives dividends ratably with the
common stock. In addition, Anschutz received warrants to purchase 19,444,444
shares of the Company's common stock for $2.10 per share. The $2.10 warrants
are exercisable during the first 18 months after the second closing, subject
to extension in certain circumstances to 36 months.
The Anschutz investment was made in two closings. In the first closing,
which occurred on May 19, 1995, Anschutz loaned the Company $9,900,000. The
loan carried interest at 8% per annum. The loan was nonrecourse to the
Company and was secured by oil and gas properties owned by the Company, the
preferred stock of Archean Energy Ltd. and a cash collateral account with an
initial balance of $2,000,000. At the second closing, which occurred on July
27, 1995, the loan was converted into 5,500,000 shares of Forest's common
stock. Also at the second closing, Anschutz purchased an additional
13,300,000 shares of common stock, the convertible preferred stock and the
$2.10 warrants described above for $35,100,000. At the second closing,
Anschutz also received from JEDI an option to purchase from JEDI up to
11,250,000 shares of common stock that JEDI may acquire from the Company upon
exercise of the $2.00 warrants referred to below. This option will terminate
36 months after the second closing, or earlier upon the conveyance by the
Company of certain property to JEDI in satisfaction of the restructured JEDI
loan, as described below.
Pursuant to the Anschutz agreements, Anschutz agreed to certain voting,
acquisition, and transfer limitations regarding shares of common stock for
five years after the second closing, including (a) a limit on voting, subject
to certain exceptions, that would require Anschutz to vote all equity
securities of the Company owned by Anschutz having voting power in excess of
an amount equal to
-11-
<PAGE>
19.99% of the aggregate voting power of the equity securities of the Company
then outstanding in the same proportion as all other equity securities of the
Company voted with respect to the matter (other than equity securities owned
by Anschutz) are voted, (b) the number of persons associated with Anschutz
that may at any time be elected as directors of the Company is limited to
three, and (c) a limit on the acquisition of additional shares of common
stock by Anschutz (whether pursuant to the conversion of the new preferred
stock, the exercise of the $2.10 warrants or the option received from JEDI,
or otherwise), subject to certain exceptions, that would prohibit any
acquisition by Anschutz that would result in Anschutz owning 40% or more of
the shares of common stock then issued and outstanding. While the foregoing
limitations are in effect, Anschutz will be entitled to a minority
representation on the board of directors.
JEDI TRANSACTION:
At the second closing, Forest and JEDI restructured JEDI's existing loan
which had a principal balance on July 27, 1995 of approximately $62,368,000
before unamortized discount of $4,984,000. JEDI relinquished the net profits
interest that it held in certain Forest properties and reduced the interest
rate relating to the loan. In consideration, JEDI received warrants to
purchase 11,250,000 shares of the Company's common stock for $2.00 per share.
The $2.00 warrants will expire on the earlier of December 31, 2002 or 36
months following exercise of the Company's option to convey properties in
satisfaction of the JEDI loan (the Conveyance Option). Also at the second
closing, JEDI granted a 36 month option to Anschutz to purchase from JEDI up
to 11,250,000 shares at a purchase price per share of $2.00 plus an amount
equal to the lesser of (a) 18% per annum from the second closing date to the
date of exercise of the option, or (b) $3.10. JEDI will satisfy its
obligations under the option to Anschutz by exercising the $2.00 warrants.
Provided the Conveyance Option has not been exercised, the Company may
terminate the $2.00 warrants at any time beginning 36 months after the second
closing if the average closing price of the common stock for both the 90 day
and 15 day periods immediately preceding the termination is in excess of
$2.50 per share.
As a result of the loan restructuring and the issuance of the warrants
described below, the Company recorded a reduction of the amount of the
related liability to approximately $45,493,000 and anticipates a reduction of
annual interest expense of approximately $2,000,000. Subject to certain
conditions, the Company may satisfy the restructured JEDI loan by conveying
to JEDI the properties securing the loan during a 30-day period beginning 18
months after the second closing or, if the $2.10 warrants have been extended,
during a 30-day period beginning 36 months after the second closing. Any such
conveyance during the first 36 months after the second closing must be
approved by Anschutz, if the option from JEDI has not then been exercised or
terminated. Prior to the exercise or termination of the JEDI option, JEDI has
agreed that it will not assign all or any portion of the JEDI loan or the
$2.00 warrants to an unaffiliated person without the approval of the Company.
The Company has agreed to not give such approval without the consent of
Anschutz.
The Company has agreed to use the proceeds from the exercise of the
$2.00 warrants and the $2.10 warrants to repay principal and interest on the
JEDI loan.
The Company's short-term and long-term liquidity have been significantly
improved by the conclusion of the transactions described above.
SHORT-TERM LIQUIDITY
During 1994 and the first nine months of 1995, the Company's operating
cash flows and working capital were adversely affected by a severe
industry-wide decline in the price of natural gas. The prices the Company
receives for its future oil and natural gas production will significantly
impact future operating cash flows. No prediction can be made as to the
prices the Company will receive for its future oil and gas production.
The Company has a secured credit facility (the Credit Facility) with The
Chase Manhattan Bank, NA. (Chase) as agent for a group of banks. Effective
August 31, 1995, an amended and restated credit agreement was approved by the
Company and the banks. Under the amended Credit Facility, the Company may
borrow up to $40,000,000 for acquisition or development of proved oil and gas
reserves, working capital and/or general corporate purposes, subject to
semi-annual redetermination at the banks'
-12-
<PAGE>
discretion. The amount of the maximum borrowings under the Credit Facility is
at the discretion of the banks and is subject to change at any time.
The Credit Facility is secured by a lien on, and a security interest in,
a majority of the Company's proved oil and gas properties and related assets
(subject to prior security interests granted to holders of volumetric
production payment agreements), a pledge of accounts receivable, material
contracts and the stock of material subsidiaries, and a negative pledge on
remaining assets. The amended maturity date of the Credit Facility is July 1,
1998. Under the terms of the Credit Facility, the Company is subject to
certain covenants and financial tests (which may from time to time restrict
the Company's activities), including restrictions or requirements with
respect to working capital, net cash flow, additional debt, asset sales,
mergers, cash dividends on capital stock and reporting responsibilities. At
September 30, 1995 the outstanding balance under this facility was
$19,800,000. The Company has used the facility for a $1,500,000 letter of
credit, leaving an available borrowing capacity of $21,700,000. At September
30, 1995 the Company was in compliance with the covenants of its bank debt.
Since December 31, 1994, the Company has taken steps and committed to
certain actions to address its short-term liquidity needs, including the
Anschutz and JEDI transactions described above. In addition to the Anschutz
and JEDI transactions, the Company has taken or committed to other key
short-term actions as set forth below.
The Company has reduced its budgeted general and administrative
expenditures for 1995 principally through a workforce reduction effective
March 1, 1995. Currently, total overhead for 1995 is expected to decrease by
approximately $4,700,000 compared to 1994 or by approximately 25%.
In response to current market conditions, the Company reduced its
budgeted capital expenditures during the first six months of 1995 to those
required to maintain its producing oil and gas properties as well as certain
essential development drilling and other activities. Due to the Anschutz
investment, however, the Company's capital expenditures in the third quarter
of 1995 and the projected capital expenditures in the fourth quarter of 1995
are expected to be greater than in the first six months of the year. The
Company's 1995 budgeted expenditures for exploration and development for the
fourth quarter of 1995 are approximately $5,348,000 and $3,246,000,
respectively, including capitalized overhead of $1,224,000 and $194,000,
respectively. The planned levels of capital expenditures could be reduced if
the Company experiences lower than anticipated net cash provided by
operations or other liquidity needs or could be increased if the Company
experiences increased cash flow.
On April 13, 1995 Forest sold to a bank a participation interest in
Forest's claim evidenced by that certain proof of claim dated March 16, 1992
filed by Forest on March 17, 1992 against Columbia Gas Transmission Corp.
(Transmission), a subsidiary of Columbia Gas System (CGS). The Company had
two natural gas sales contracts with Transmission. On July 31, 1991, CGS and
Transmission filed Chapter 11 bankruptcy petitions with the United States
Bankruptcy Court for the District of Delaware. Consideration received from
the bank consisted of a $4,000,000 nonrecourse loan, in exchange for which
the bank will receive, solely from the proceeds of the bankruptcy claim, an
amount equal to the loan principal plus accrued interest at 16.5% per annum
plus 25% of the excess, if any, of the proceeds over the loan principal and
interest. The Company may, under certain conditions, limit the overall cost
of financing to 23.5% per annum by exercising its option to repurchase the
bank's interest in the bankruptcy claim prior to receipt of any proceeds of
the claim. Proceeds from this financing transaction were used for working
capital needs. The Company currently intends to repay this loan in the fourth
quarter of 1995.
Pursuant to the Second Amended Plan of Reorganization (the "Plan") of
Columbia Gas Transmission Corporation, as amended, Forest expects to receive
a minimum distribution of approximately $6,800,000. A hearing to consider
confirmation of the Plan was scheduled to commence on November 13, 1995. If
the current Plan is confirmed, Forest expects to record income of
approximately $4,000,000. Net cash proceeds will be less than the settlement
amount due to payments which will be made to the bank and other third parties.
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<PAGE>
Based on the Company's actions taken to date and its plans, including
the recent developments described above, management believes the Company will
have adequate sources of short-term liquidity to meet its working capital
needs, fund capital expenditures at the levels described above, and meet its
current debt service obligations.
CASH FLOW
Historically, one of the Company's primary sources of capital has been
funds provided by operations, which has varied dramatically in prior periods,
depending upon factors such as natural gas price fluctuations and contract
settlements which are difficult to predict.
The following summary table reflects comparative cash flows for the
Company for the periods ended September 30, 1995 and 1994:
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
September 30, September 30,
1995 1994
------------- -------------
(In Thousands)
<S> <C> <C>
Funds provided by operations (A) $ 21,694 52,651
Net cash provided (used) by operating activities (4,253) 25,843
Net cash used by investing activities (17,235) (15,398)
Net cash provided (used) by financing activities 22,037 (15,531)
</TABLE>
(A) Funds provided by operations consists of net cash provided (used) by
operating activities exclusive of adjustments for working capital items,
proceeds from volumetric production payments and amortization of deferred
revenue. This information is being presented in accordance with industry
practice and is not intended to be a substitute for cash provided by
operating activities, a measure of performance prepared in accordance with
generally accepted accounting principles, and should not be relied upon as
such.
As discussed previously under "Results of Operations," the Company's
production volumes decreased significantly in the first nine months of 1995
compared to the prior year. Lower production volumes coupled with decreased
prices for natural gas resulted in a 59% decrease in funds provided by
operations to $21,694,000 in the first nine months of 1995 from $52,651,000
in the first nine months of 1994. The Company experienced a net use of cash
for operating activities of $4,253,000 in the first nine months of 1995
compared to $25,843,000 of net cash provided by operating activities in the
corresponding prior year period; this decrease is attributable to lower
production volumes and decreased prices discussed above. The Company used
$17,235,000 for investing activities in the 1995 period compared to
$15,398,000 in the prior year period due to higher direct expenditures and
lower proceeds from property sales. The increase in cash due to financing
activities of $22,037,000 in the 1995 period was the result of the net
proceeds from the issuance of stock and warrants to Anschutz and the proceeds
from the sale of the participation interest in the bankruptcy claim which
were partially offset by repayments of the Company's Credit Facility. In the
first nine months of 1994, the Company had a net use of cash for financing
activities of $15,531,000, primarily consisting of the redemption of
subordinated debentures and a decrease in other liabilities.
LONG-TERM LIQUIDITY
The Company has historically addressed its long-term liquidity needs
through the use of nonrecourse production-based financing and through
issuance of debt and common stock when market conditions permit.
Many of the factors which may affect the Company's future operating
performance and long-term liquidity are beyond the Company's control,
including, but not limited to, oil and natural gas prices, governmental
actions and taxes, the availability and attractiveness of properties for
acquisition, the adequacy and attractiveness of financing and operational
results. The Company continues to examine alternative sources of long-term
liquidity, including public and private issuances of equity, refinancing debt
with equity and sales of non-strategic assets.
-14-
<PAGE>
VOLUMETRIC PRODUCTION PAYMENTS
As of September 30, 1995, deferred revenue relating to production
payments was $18,501,000 and the annual amortization of deferred revenue and
the corresponding delivery and net sales volumes were as set forth below:
<TABLE>
<CAPTION>
Net sales volumes
Volumes required to be attributable to production
delivered to Enron payment deliveries (1)
---------------------- --------------------------
Natural Natural
Annual amortization Oil Gas Oil Gas
of deferred revenue (MBBLS) (MMCF) (MBBLS) (MMCF)
------------------- ------- -------- ------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Remainder of 1995 $ 3,365 41 1,653 34 1,375
1996 7,545 87 3,721 73 3,095
1997 2,439 - 1,410 - 1,173
1998 1,592 - 892 - 742
Thereafter 3,560 - 1,994 - 1,658
------- --- ----- --- -----
$18,501 128 9,670 107 8,043
======= === ===== === =====
</TABLE>
(1) Represents volumes required to be delivered to Enron net of estimated
royalty volumes.
NONRECOURSE SECURED LOAN AND DOLLAR-DENOMINATED PRODUCTION PAYMENT
Under the terms of the JEDI loan and the dollar-denominated production
payment, the Company is required to make payments based on the net proceeds,
as defined, from certain subject properties. The terms of the JEDI loan have
been restructured based on the terms of certain agreements described in
"Recent Developments."
The JEDI loan was initially recorded at a discounted amount to reflect
the conveyance to the lender of a 20% interest in the net profits, as
defined, of properties located in south Texas. Before restructuring, the JEDI
loan bore annual interest at the rate of 12.5%. Pursuant to the restructuring
of the JEDI loan described above in "Recent Developments," the net profits
interest has been eliminated and the required interest payments reduced.
Under the restructured loan, the Company is required to pay interest at 12.5%
per annum on $40,316,000 of the loan balance. All principal payments will be
applied to reduce this balance, as will the proceeds, if any, from the
exercise of the $2.10 warrants. The remaining loan balance, which was
$22,368,000 as of September 30, 1995, is non-interest bearing and will be
reduced by principal payments made after full repayment of the $40,316,000
balance as well as by the proceeds, if any, from the exercise of the $2.00
warrants.
At September 30, 1995, the principal amount of the loan was $62,684,000
and the recorded liability was $46,069,000. Under the terms of the JEDI loan,
additional funds may be advanced to fund a portion of the development
projects which will be undertaken by the Company on the properties pledged as
security for the loan. Payments of principal and interest under the JEDI loan
are due monthly and are equal to 90% of total net operating income from the
secured properties, reduced by 80% of allowable capital expenditures, as
defined.
The Company's current estimate under the restructured agreement, based
on expected production and prices, budgeted capital expenditure levels and
expected discount amortization, is that the recorded liability will increase
by approximately $618,000 during the remainder of 1995. The increase in the
liability is due to projected cash flows that do not cover projected interest
requirements as a result of declining production on the existing wells. New
drilling and recompletions should reverse this trend in the beginning of 1996.
The dollar-denominated production payment was entered into in 1992 to
finance property acquisitions. The original amount of the dollar-denominated
production payment was $37,550,000, which was recorded as a liability of
$28,805,000 after a discount to reflect a market rate of interest. At
September 30, 1995 the remaining principal amount was $21,155,000 and the
recorded liability was $16,826,000. Under the terms of this production
payment, the Company must make a monthly cash
-15-
<PAGE>
payment which is the greater of a base amount or 85% of the net proceeds from
the subject properties, as defined, except that the amount required to be
paid in any given month shall not exceed 100% of the net proceeds from the
subject properties. Forest retains a management fee equal to 10% of sales
from the properties, which is deducted in the calculation of net proceeds.
The Company's current estimate, based on expected production and prices,
budgeted capital expenditure levels and expected discount amortization, is
that the remaining 1995 payments will reduce the recorded liability by
approximately $559,000.
HEDGING PROGRAM
In addition to the volumes of natural gas and oil dedicated to
volumetric production payments, the Company has also used energy swaps and
other financial agreements to hedge against the effects of fluctuations in
the sales prices for oil and natural gas. In a typical swap agreement, the
Company receives the difference between a fixed price per unit of production
and a price based on an agreed upon third-party index if the index price is
lower. If the index price is higher, the Company pays the difference. The
Company's current swaps are settled on a monthly basis. At September 30,
1995, the Company had natural gas swaps and collars for an aggregate of
approximately 29.2 BBTU (billion British Thermal Units) per day of natural
gas during the remainder of 1995 at fixed prices and floors (NYMEX basis)
ranging from $1.90 to $2.41 per MMBTU (million British Thermal Units) and an
aggregate of approximately 17.5 BBTU per day of natural gas during 1996 at
fixed prices and floors ranging from $1.90 to $2.48 per MMBTU. At September
30, 1995, the Company had oil swaps for an aggregate of approximately 1,300
barrels per day of oil during the remainder of 1995 at fixed prices ranging
from $16.70 to $17.75 (NYMEX basis) and an aggregate of approximately 600
barrels per day of oil during 1996 at fixed prices ranging from $16.70 to
$17.75 per barrel.
In the third quarter of 1995, the Company sold a call at $2.00 per MMBTU
on 10,000 MMBTU per day to Enron for the period from January 1, 1996 to
December 31, 1997 for a price of $.086 per MMBTU. Enron will pay the $.086
per MMBTU price every month. The Company will pay Enron only in the event
that the average of the last three days NYMEX price exceeds $2.00 per MMBTU
for any month.
SUMMARY OF CASH FLOW CONSIDERATIONS AND EXPOSURE TO PRICE AND RESERVE RISK
Pursuant to certain of the Company's financing arrangements, significant
amounts of production are contractually dedicated to production payments and
the repayment of nonrecourse debt over the next five years (dedicated
volumes). The dedicated volumes decrease over the next five years and also
decrease as a percentage of the Company's total production during this
period. The production volumes not contractually dedicated to repayment of
nonrecourse debt (undedicated volumes) are relatively stable but increase as
a percentage of the Company's total production over the next five years. This
relative stability of undedicated volumes is due to the fact that the
decrease in dedicated volumes corresponds generally to the Company's
estimates of the decrease in its total production. In the Company's opinion,
the relative stability of undedicated volumes should provide a more constant
level of cash flow available for corporate purposes other than debt repayment.
As a result of volumetric production payments, energy swaps, and fixed
contracts, the Company currently estimates that approximately 57% of its
natural gas production and 58% of its oil production will not be subject to
price fluctuations from October 1995 through December 1995. It is estimated
that existing volumetric production payments, energy swaps, fixed contracts
and other hedging instruments currently cover approximately 56% of the
Company's natural gas production and 23% of its oil production for the year
ending December 31, 1996. Currently, it is the Company's intention to commit
no more than 75% of its anticipated total production and no more than 85% of
its anticipated undedicated production to such arrangements at any point in
time. See "Hedging Program" above.
-16-
<PAGE>
CAPITAL EXPENDITURES
The Company's expenditures for property acquisition, exploration and
development for the first nine months of 1995 and 1994, including overhead
related to these activities which was capitalized, were as follows:
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1995 1994
------- -------
(In Thousands)
<S> <C> <C>
Property acquisition costs:
Proved properties $ 199 8,835
Undeveloped properties 192 -
------- ------
391 8,835
Exploration costs:
Direct costs 7,482 5,501
Overhead capitalized 600 414
------- ------
8,082 5,915
Development costs:
Direct costs 8,032 6,693
Overhead capitalized 3,769 5,109
------- ------
11,801 11,802
------- ------
$20,274 26,552
======= ======
</TABLE>
In response to current market conditions, the Company reduced its
budgeted capital expenditures for the first six months of 1995 to those
required to maintain its producing oil and gas properties as well as certain
essential development, drilling and other activities. Due to the liquidity
provided by the Anschutz investment, however, the Company's capital
expenditures increased in the third quarter of 1995 and the projected capital
expenditures in the fourth quarter of 1995 are expected to be greater than in
the first six months of the year. The Company's 1995 estimated expenditures
for exploration and development for the fourth quarter of 1995 are
approximately $5,348,000 and $3,246,000, respectively, including capitalized
overhead of $1,224,000 and $194,000, respectively. The planned levels of
capital expenditures could be further reduced if the Company experiences
lower than anticipated net cash provided by operations or other liquidity
needs or could be increased if the Company experiences increased cash flow.
During 1995, the Company intends to continue its strategy of acquiring
reserves that meet its investment criteria; however, no assurance can be
given that the Company can locate or finance any property acquisitions. In
order to finance future acquisitions, the Company is exploring many options
including, but not limited to: a variety of debt instruments; sale of
production payments or other nonrecourse financing; the sale of equity; the
issuance of net profits interests; sales of non-strategic properties,
prospects and technical information; or joint venture financing. Availability
of these sources of capital and, therefore, the Company's ability to execute
its operating strategy will depend upon a number of factors, some of which
are beyond the control of the Company. If adequate sources of liquidity are
not available to the Company in 1995, the amount invested in exploration,
development and reserve acquisitions may be reduced due principally to the
desire of the Company to protect its capital in the event of inadequate
liquidity.
DIVIDENDS
On February 1, 1995, a cash dividend of $.1875 on its $.75 Convertible
Preferred Stock was paid to holders of record on January 10, 1995. On May 1,
1995 a stock dividend of 0.094693 shares of Common Stock was paid on each
share of its outstanding $.75 Convertible Preferred Stock to holders of
record on April 10, 1995. On August 1, 1995 a stock dividend of 0.112045
shares of Common Stock was
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<PAGE>
paid on each share of its outstanding $.75 Convertible Preferred Stock to
holders of record on July 10, 1995. On November 1, 1995 a stock dividend of
.074898 shares of Common Stock was paid on each share of its outstanding $.75
Convertible Preferred Stock to holders of record on October 10, 1995. As of
March 31, 1995 the Company was prohibited from paying cash dividends on its
$.75 Convertible Preferred Stock due to restrictions contained in the Credit
Agreement with its lending banks. The Indenture executed in connection with
the 11 1/4% Senior Subordinated Notes due 2003 and the Credit Facility
contain restrictive provisions governing dividend payments.
GAS BALANCING
It is customary in the industry for various working interest partners to
produce more or less than their entitlement share of natural gas from time to
time. The Company's net overproduced position decreased in the first nine
months of 1995 to approximately 6.7 BCF from approximately 8.4 BCF at
December 31, 1994. At September 30, 1995 the undiscounted value of this
imbalance is approximately $10,926,000, of which $5,000,000 is reflected on
the balance sheet as a short-term liability and the remaining $5,926,000 is
reflected on the balance sheet as a long-term liability. In the absence of a
gas balancing agreement, the Company is unable to determine when its partners
may choose to make up their share of production. If and when the Company's
partners do make up their share of production, the Company's deliverable
natural gas volumes could decrease, adversely affecting cash flow.
-18-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Royalty owners have filed two separate class action lawsuits against the
Company in the State District Court of Caddo County, Oklahoma. In each case
the plaintiff has alleged unjust enrichment, breach of fiduciary duty,
constructive fraud and breach of contract. The claims in both suits are based
on the allegation that the Company underpaid royalties on the consideration
received pursuant to settlement agreements with ONEOK, Inc. in 1990 and 1992.
In MODRALL V. FOREST OIL CORPORATION, Case No. CJ-95-67, filed on March 24,
1995, the Court, on September 13, 1995, certified a class comprised of the
royalty and overriding royalty owners in the three wells involved in the 1992
ONEOK, Inc. settlement. No class has been certified as yet in MERCO OF
OKLAHOMA, INC. V. FOREST OIL CORPORATION, Case No. CJ-95-230, which suit was
filed on September 27, 1995. This suit involves the 1990 ONEOK, Inc.
settlement. The plaintiffs in both suits seek actual damages in excess of
$10,000, punitive damages in excess of $10,000, an accounting, interest and
costs. There has been no specific determination of the amount in controversy
in either case.
The plaintiffs allege in both cases that they are entitled to share in all
value received by the Company under the aforesaid settlements, including
proceeds not attributable to actual gas production. The Company believes that
it was not required to pay a royalty on such proceeds, and therefore intends
to vigorously resist these claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting held on July 26, 1995, the shareholders of
the Company (a) elected two (2) Class I directors; (b) ratified the
appointment of KPMG Peat Marwick as independent auditors for the Company in
1995; (c) approved certain transactions between the Company and The Anschutz
Corporation (Anschutz) and Joint Energy Development Investments Limited
Partnerships (JEDI) and (d) amended the Company's Restated Certificate of
Incorporation.
With respect to the election of the Class I directors, votes for and withheld
with respect to each director are as follows:
William L. Dorn
For 16,584,108 votes
Withheld 1,459,088 votes
James H. Lee
For 16,573,209 votes
Withheld 1,469,987 votes
In all such cases, there were no broker non-votes.
The terms of the following directors continued after the meeting: Donald H.
Anderson, Austin M. Beutner, Robert S. Boswell, Dale F. Dorn, John C. Dorn,
Harold H. Hammar, Jeffrey W. Miller, Jack D. Riggs and Michael B. Yanney.
The shareholders voted 17,662,840 shares in favor of the transaction with
Anschutz and JEDI, while 229,843 shares were voted against and 139,530 shares
abstained from voting. Directed broker non-votes totaled 10,983.
16,915,247 votes were cast in favor of the amendment of the Restated
Certificate of Incorporation to increase the number of authorized shares of
Common stock to 200,000,000. 984,560 votes were cast against the amendment
and 143,389 votes abstained. There were no broker non-votes.
With respect to the ratification of the appointment of KPMG Peat Marwick as
independent auditors for the Company for 1995, 17,901,254 votes were cast in
favor of such ratification, 69,989 votes were cast against such ratification,
71,953 votes abstained from voting and there were no broker non-votes.
Under New York law and the Company's By-laws, abstentions and broker
non-votes have no effect on the outcome of the vote on any of the matters
considered at the Annual Meeting. A broker non-vote occurs if a broker or
other nominee does not have discretionary authority and has not received
instructions with respect to a particular item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3(i) Restated Certificate of Incorporation of Forest Oil
Corporation dated October 14, 1993, incorporated herein by reference to
Exhibit 3(i) to Form 10-Q for Forest Oil Corporation for the quarter ended
September 30, 1993 (File No. 0-4597).
Exhibit 3(i)(a) Certificate of Amendment of the Restated Certificate of
Incorporation dated as of July 20, 1995, incorporated herein by reference to
Exhibit 3(i)(a) to Form 10-Q for Forest Oil Corporation for the quarter ended
June 30, 1995.
-19-
<PAGE>
Exhibit 3(i)(b) Certificate of Amendment of the Certificate of Incorporation
dated as of July 26, 1995, incorporated herein by reference to Exhibit
3(i)(b) to Form 10-Q for Forest Oil Corporation for the quarter ended June
30, 1995.
Exhibit 3(ii) Restated By-Laws of Forest Oil Corporation as of May 9,
1990, Amendment No. 1 to By-Laws dated as of April 2, 1991, Amendment No. 2
to By-Laws dated as of May 8, 1991, Amendment No. 3 to By-Laws dated as of
July 30, 1991, Amendment No. 4 to By-Laws dated as of January 17, 1992,
Amendment No. 5 to By-Laws dated as of March 18, 1993 and Amendment No. 6 to
By-Laws dated as of September 14, 1993, incorporated herein by reference to
Exhibit 3(ii) to Form 10-Q for Forest Oil Corporation for the quarter ended
September 30, 1993 (File No. 0-4597).
Exhibit 3(ii)(a) Amendment No. 7 to By-Laws dated as of December 3, 1993,
incorporated herein by reference to Exhibit 3(ii)(a) to Form 10-K for Forest
Oil Corporation for the year ended December 31, 1993 (File No. 0-4597).
Exhibit 3(ii)(b) Amendment No. 8 to By-Laws dated as of February 24, 1994,
incorporated herein by reference to Exhibit 3(ii)(b) to Form 10-K for Forest
Oil Corporation for the year ended December 31, 1993 (File No. 0-4597).
Exhibit 3(ii)(c) Amendment No. 9 to By-Laws dated as of May 15, 1995,
incorporated herein by reference to Exhibit 3(ii)(c) to Form 10-Q for Forest
Oil Corporation for the quarter ended June 30, 1995.
Exhibit 3(ii)(d) Amendment No. 10 to By-Laws dated as of July 27, 1995,
incorporated herein by reference to Exhibit 3(ii)(d) to Form 10-Q for Forest
Oil Corporation for the quarter ended June 30, 1995.
*Exhibit 4.1 Amended and Restated Credit Agreement dated as of August 31,
1995 between Forest Oil Corporation and Subsidiaries, Borrowers and
Subsidiary Guarantors and The Chase Manhattan Bank (National Association), as
agent.
Exhibit 10.1 Description of Employee Overriding Royalty Bonuses,
incorporated herein by reference to Exhibit 10.1 to Form 10-K for Forest Oil
Corporation for the year ended December 31, 1990 (File No. 0-4597).
Exhibit 10.2 Description of Executive Life Insurance Plan, incorporated
herein by reference to Exhibit 10.2 to Form 10-K for Forest Oil Corporation
for the year ended December 31, 1991 (File No. 0-4597).
Exhibit 10.3 Form of non-qualified Executive Deferred Compensation Plan
(File No. 0-4597), incorporated herein by reference to Exhibit 10.3 to Form
10-Q for Forest Oil Corporation for the quarter ended June 30, 1994 (File No.
0-4597).
Exhibit 10.4 Form of non-qualified Supplemental Executive Retirement
Plan, incorporated herein by reference to Exhibit 10.4 to Form 10-K for
Forest Oil Corporation for the year ended December 31, 1990 (File No. 0-4597).
Exhibit 10.5 Form of Executive Retirement Agreement, incorporated herein
by reference to Exhibit 10.5 to Form 10-K for Forest Oil Corporation for the
year ended December 31, 1990 (File No. 0-4597).
Exhibit 10.6 Forest Oil Corporation 1992 Stock Option Plan and Option
Agreement, incorporated herein by reference to Exhibit 10.7 to Form 10-K for
Forest Oil Corporation for the year ended December 31, 1991 (File No. 0-4597).
Exhibit 10.7 Letter Agreement with Richard B. Dorn relating to a revision
to Exhibit 10.5 hereof, incorporated herein by reference to Exhibit 10.11 to
Form 10-K for Forest Oil Corporation for the year ended December 31, 1991
(File No. 0-4597).
Exhibit 10.8 Forest Oil Corporation Annual Incentive Plan effective as of
January 1, 1992, incorporated herein by reference to Exhibit 10.8 to Form
10-K for Forest Oil Corporation for the year ended December 31, 1992 (File
No. 0-4597).
-20-
<PAGE>
Exhibit 10.9 Form of Executive Severance Agreement, incorporated herein
by reference to Exhibit 10.9 to Form 10-K for Forest Oil Corporation for the
year ended December 31, 1993 (File No. 0-4597).
Exhibit 10.10 Form of Settlement Agreement and General Release between
John F. Dorn and Forest Oil Corporation dated March 7, 1994, incorporated
herein by reference to Exhibit 10.10 to Form 10-K for Forest Oil Corporation
for the year ended December 31, 1993 (File No. 0-4597).
*Exhibit 11 Forest Oil Corporation and Subsidiaries - Calculation of
Earnings per Share of Common Stock.
*Exhibit 27 Financial Data Schedule.
* Filed with this report.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the third
quarter of 1995.
-21-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOREST OIL CORPORATION
(Registrant)
Date: November 14, 1995 /s/ Daniel L. McNamara
-------------------------------------
Daniel L. McNamara
Corporate Counsel and Secretary
(Signed on behalf of the registrant)
/s/ David H. Keyte
-------------------------------------
David H. Keyte
Vice President and Chief
Accounting Officer
(Principal Accounting Officer)
-22-
<PAGE>
EXECUTION COUNTERPART
=================================================================
FOREST OIL CORPORATION
and
SUBSIDIARY BORROWERS
and
SUBSIDIARY GUARANTORS
_____________________________
AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of August 31, 1995
______________________________
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Agent
=================================================================
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to
which it is attached but is inserted for convenience of reference
only.
Page
Section 1. Definitions and Accounting Matters 1
1.01 Certain Defined Terms 1
1.02 Accounting Terms and Determinations 26
1.03 Borrowing Base 27
1.04 Types of Loans 29
Section 2. Commitments, Loans, Notes and Prepayments 30
2.01 Loans 30
2.02 Borrowings 31
2.03 Letters of Credit 31
2.04 Changes of Commitments 36
2.05 Commitment Fee 36
2.06 Lending Offices 36
2.07 Several Obligations; Remedies Independent 36
2.08 Notes 37
2.09 Optional Prepayments and Conversions or
Continuations of Loans 37
2.10 Mandatory Prepayments and Reductions of
Commitments 38
Section 3. Payments of Principal and Interest 40
3.01 Repayment of Loans 40
3.02 Interest 40
Section 4. Payments; Pro Rata Treatment; Computations; Etc. 41
4.01 Payments 41
4.02 Pro Rata Treatment 42
4.03 Computations 43
4.04 Minimum Amounts 43
4.05 Certain Notices 43
4.06 Non-Receipt of Funds by the Agent 44
4.07 Sharing of Payments, Etc. 45
Section 5. Yield Protection, Etc. 47
5.01 Additional Costs 47
5.02 Limitation on Types of Loans 49
5.03 Illegality 50
5.04 Treatment of Affected Loans 50
5.05 Compensation 51
5.06 Additional Costs in Respect of Letters of
Credit 52
(i)
<PAGE>
Page
Section 6. Guarantee 52
6.01 Guarantee 52
6.02 Obligations Unconditional 53
6.03 Reinstatement 54
6.04 Subrogation 54
6.05 Remedies 54
6.06 Continuing Guarantee 55
6.07 Rights of Contribution 55
6.08 Limitation on Guarantee Obligations 55
Section 7. Conditions Precedent 56
7.01 Conditions to Effectiveness 56
7.02 Initial and Subsequent Extensions of Credit 59
Section 8. Representations and Warranties 60
8.01 Corporate Existence 60
8.02 Financial Condition 60
8.03 Litigation 60
8.04 No Breach 60
8.05 Action 61
8.06 Approvals 61
8.07 Use of Credit 61
8.08 ERISA 62
8.09 Taxes 62
8.10 Investment Company Act 62
8.11 Public Utility Holding Company Act 62
8.12 Material Agreements and Liens 62
8.13 Environmental Matters 63
8.14 Subsidiaries, Etc. 65
8.15 True and Complete Disclosure 66
Section 9. Covenants of the Obligors 66
9.01 Financial Statements Etc 67
9.02 Litigation 70
9.03 Existence, Etc. 71
9.04 Insurance 71
9.05 Prohibition of Fundamental Changes 71
9.06 Limitation on Liens 73
9.07 Indebtedness 75
9.08 Investments 76
9.09 Dividend Payments 78
9.10 Debt Coverage Ratio; Interest Coverage Ratio 79
9.11 Working Capital 79
9.12 Lines of Business 79
9.13 Transactions with Affiliates 80
(ii)
<PAGE>
Page
9.14 Use of Proceeds 80
9.15 Certain Obligations Respecting Subsidiaries 80
9.16 Additional Borrowers and Subsidiary
Guarantors 81
9.17 Modifications and Payments of Subordinated
Indebtedness and Non-Recourse Indebtedness 81
9.18 Changes to Production Payments 82
9.19 Unrestricted Subsidiaries 82
9.20 Amendments to Transactions Documents 83
Section 10. Events of Default 83
Section 11. The Agent 87
11.01 Appointment, Powers and Immunities 87
11.02 Reliance by Agent 88
11.03 Defaults 88
11.04 Rights as a Bank 89
11.05 Indemnification 89
11.06 Non-Reliance on Agent and Other Banks 90
11.07 Failure to Act 90
11.08 Resignation or Removal of Agent 90
11.09 Consents under Other Basic Documents 91
11.10 Collateral Sub-Agents 91
Section 12. Miscellaneous 92
12.01 Waiver 92
12.02 Notices 92
12.03 Expenses. 92
12.04 Amendments, Etc. 93
12.05 Successors and Assigns 94
12.06 Assignments and Participations 94
12.07 Indemnification. 96
12.08 Survival 97
12.09 Captions 97
12.10 Counterparts 97
12.11 Governing Law; Submission to Jurisdiction 97
12.12 Waiver of Jury Trial 98
12.13 Treatment of Certain Information 98
(iii)
<PAGE>
SCHEDULE I - Material Agreements and Liens
SCHEDULE II - Hazardous Materials
SCHEDULE III - Subsidiaries and Investments
SCHEDULE IV - JEDI Collateral (Leases)
EXHIBIT A - Form of Note
EXHIBIT B - Form of Security Agreement
EXHIBIT C - Form of Opinion of Counsel to the Obligors
EXHIBIT D - Form of Opinion of Special Counsel to Chase
EXHIBIT E - Form of Mortgage
EXHIBIT F - Form of Pledge Agreement
EXHIBIT G - Form of Confidentiality Agreement
(iv)
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT dated as of
August 31, 1995, between: FOREST OIL CORPORATION, a corporation
duly organized and validly existing under the laws of the State
of New York (the "Company"); each of the Subsidiaries of the
Company that becomes a borrower pursuant to Section 9.16 hereof
(individually, a "Subsidiary Borrower" and, collectively with the
Company, the "Borrowers"); each of the Subsidiaries of the
Company that becomes a guarantor pursuant to Section 9.16 hereof
(individually, a "Subsidiary Guarantor" and, collectively, the
"Subsidiary Guarantors" and, together with the Borrowers, the
"Obligors"); each of the lenders that is a signatory hereto
identified under the caption "BANKS" on the signature pages
hereto or which, pursuant to Section 12.06(b) hereof, shall
become a "Bank" hereunder (individually, a "Bank" and,
collectively, the "Banks"); and THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION), a national banking association, as agent
for the Banks (in such capacity, together with its successors in
such capacity, the "Agent").
The Company, the Existing Banks (as defined below) and
the Agent are parties to a Credit Agreement dated as of December
1, 1993 (as heretofore modified and supplemented and in effect on
the date of this Agreement, (the "Original Credit Agreement")).
The parties hereto wish to amend and restate the Original Credit
Agreement in its entirety, all on the terms and conditions
hereinafter set forth.
Accordingly, the parties hereto agree to amend and
restate the Original Credit Agreement so that, amended and
restated, it reads in its entirety as provided herein.
Section 1. Definitions and Accounting Matters.
1.01 Certain Defined Terms. As used herein, the
following terms shall have the following meanings (all terms
defined in this Section 1.01 or in other provisions of this
Agreement in the singular to have the same meanings when used in
the plural and vice versa):
"Affiliate" shall mean any Person that directly or
indirectly controls, or is under common control with, or is
controlled by, the Company and, if such Person is an individual,
any member of the immediate family (including parents, spouse,
children and siblings) of such individual and any trust whose
principal beneficiary is such individual or one or more members
of such immediate family and any Person who is controlled by any
such member or trust. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and
"under common control with") shall mean possession, directly or
indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities
or partnership or other ownership interests, by contract or
otherwise), provided that, in any event, any Person that owns
directly or indirectly securities having 10% or more of the
<PAGE>
-2-
voting power for the election of directors or other governing
body of a corporation or 10% or more of the partnership or other
ownership interests of any other Person (other than as a limited
partner of such other Person) will be deemed to control such
corporation or other Person. Notwithstanding the foregoing, (a)
no individual shall be an Affiliate solely by reason of his or
her being a director, officer or employee of the Company or any
of its Subsidiaries and (b) none of the Restricted Subsidiaries
of the Company shall be, for purposes of this definition,
Affiliates of the Company.
"Amendment Fee Letter" shall mean the letter agreement
dated August 31, 1995 between the Agent and the Company.
"Anschutz" shall mean The Anschutz Corporation, a
Kansas corporation.
"Applicable Lending Office" shall mean, for each Bank
and for each Type of Loan, the "Lending Office" of such Bank (or
of an affiliate of such Bank) designated for such Type of Loan on
the signature pages hereof or such other office of such Bank (or
of an affiliate of such Bank) as such Bank may from time to time
specify to the Agent and the Company as the office by which its
Loans of such Type are to be made and maintained.
"Applicable Margin" shall mean, with respect to each
Type of Loan for any period during which the outstanding Loans
and Letters of Credit Liabilities under this Agreement are within
the range specified under the "Ratio of Aggregate Outstanding
Liabilities to then Existing Borrowing Base" in Schedule X below,
the percentage per annum set forth opposite such range under such
Type of Loan in such Schedule X, provided that the "Applicable
Margin" shall be increased or reduced, as applicable, on the date
of the borrowing of a Loan or the issuance of a Letter of Credit,
or the repayment of a Loan or expiration of a Letter of Credit,
as the case may be, which results in the outstanding Loans and
Letter of Credit Liabilities shifting from one range to another.
Schedule X
__________
Ratio of Aggregate Applicable Margin (% p.a.)
Outstanding Liabilities Base Rate Loans Eurodollar Loans
to then Existing _______________ ________________
Borrowing Base
______________
0 - .600:1.00 1/4% 1 1/2%
.601:1.00 to .800:1.00 1/2% 1 3/4%
.801:1.00 to 1.000:1.00 1% 2 1/4%
<PAGE>
-3-
"Bankruptcy Code" shall mean the Federal Bankruptcy
Code of 1978, as amended from time to time.
"Banks" shall mean (a) on the date hereof, the Banks
having Commitments as indicated on the signature pages hereof and
(b) thereafter, the Banks from time to time holding Loans and (if
the same have not expired or been terminated) Commitments after
giving effect to any assignments thereof permitted by Section
12.06 hereof.
"Base Rate" shall mean, for any day, a rate per annum
equal to the higher of (a) the Federal Funds Rate for such day
plus 1/2 of 1% and (b) the Prime Rate for such day. Each change
in any interest rate provided for herein based upon the Base Rate
resulting from a change in the Base Rate shall take effect at the
time of such change in the Base Rate.
"Base Rate Loans" shall mean Loans that bear interest
at rates based upon the Base Rate.
"Basic Documents" shall mean, collectively, this
Agreement, the Notes, the Letter of Credit Documents and the
Security Documents.
"Borrowing Base" has the meaning given to such term in
Section 1.03 hereof.
"Borrowing Base Deficiency" has the meaning given to
such term in Section 2.10(a) hereof.
"Business Day" shall mean (a) any day on which
commercial banks are not authorized or required to close in New
York City and (b) if such day relates to a borrowing of, a
payment or prepayment of principal of or interest on, a
Conversion of or into, or an Interest Period for, a Eurodollar
Loan or a notice by any of the Borrowers with respect to any such
borrowing, payment, prepayment, Conversion or Interest Period,
any day on which dealings in Dollar deposits are carried out in
the London interbank market.
"Capital Expenditures" shall mean, for any period,
expenditures (including, without limitation, the aggregate amount
of Capital Lease Obligations incurred during such period) made by
the Company or any of its Subsidiaries in connection with the
acquisition and exploitation of, or the exploration for or
development or production of, hydrocarbon reserves or to acquire
or construct fixed assets, plant and equipment (including
renewals, improvements and replacements, but excluding repairs)
during such period computed in accordance with GAAP.
"Capital Lease Obligations" shall mean, for any Person,
all obligations of such Person to pay rent or other amounts under
<PAGE>
-4-
a lease of (or other agreement conveying the right to use)
Property to the extent such obligations are required to be
classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP, and, for purposes of this
Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP.
"Capital Stock" shall mean, with respect to any Person,
any and all shares, interests, participations or other
equivalents (however designated) of corporate stock or
partnership interests and any and all warrants, options and
rights with respect thereto (whether or not currently
exercisable), including each class of common stock and preferred
stock of such Person.
"Cash Flow" shall mean, for any period, for the Company
and the Restricted Subsidiaries (determined on a consolidated
basis without duplication in accordance with GAAP), the sum of
the following: the total sales revenue from natural gas, oil and
other hydrocarbon products for such period plus cash dividend
payments, if any, by an Unrestricted Subsidiary to the Company or
a Restricted Subsidiary in an aggregate amount in excess of the
aggregate amount of the Investments in such Unrestricted
Subsidiary by the Company and the Restricted Subsidiaries during
such period plus the total Net Cash Payments (excluding the fair
market value of non-cash consideration) received by the Company
and its Restricted Subsidiaries during such period plus the total
cash proceeds received by the Company as a result of the issuance
or sale of Capital Stock of the Company (other than Disqualified
Stock of the Company) that has been utilized to repay any
Indebtedness (to the extent permitted pursuant to the terms of
this Agreement) of the Company plus the total cash proceeds
received from any Disposition, including any Disposition of
Unrestricted Properties to the extent the proceeds of such
Disposition are applied during such period in satisfaction of the
obligations described in clause (b) of this definition plus the
net proceeds received from the issuance of any Debt to the extent
such net proceeds are applied during such period in satisfaction
of the obligations described in clause (b) of this definition
minus (a) the revenue attributable to Volumetric Production
Payments for such period, (b) the interest and principal paid in
satisfaction of obligations under Non-Recourse Debt financings
for such period (other than Volumetric Production Payments), (c)
oil and gas production expenses for such period and (d) total
overhead costs paid or required to be paid in cash during such
period (whether or not capitalized, but net of credits related to
such expenses).
"Casualty Event" shall mean, with respect to any
Property of any Person, any loss of or damage to, or any
condemnation or other taking of, such Property for which such
<PAGE>
-5-
Person or any of its Subsidiaries receives insurance proceeds, or
proceeds of a condemnation award or other compensation.
"Change of Control" shall mean any event or series of
events by which: (i) any "Person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act) of 40% or more of the total voting power of the
Voting Stock of the Company; (ii) the Company consolidates with
or merges or amalgamates with or into another Person or conveys,
transfers, or leases all or substantially all of its assets to
any other Person, or any Person consolidates with, or merges or
amalgamates with or into the Company, in any such event pursuant
to a transaction in which the outstanding Voting Stock of the
Company is changed into or exchanged for cash, securities or
other property, other than any such transaction where (a) the
outstanding Voting Stock of the Company is changed into or
exchanged for Voting Stock of the surviving corporation which is
not Disqualified Stock and (b) the holders of the Voting Stock of
the Company immediately prior to such transaction own, directly
or indirectly, not less than a majority of the Voting Stock of
the surviving corporation immediately after such transaction;
(iii) the shareholders of the Company approve any plan of
liquidation or dissolution of the Company; or (iv) during any
period of 12 consecutive months, individuals who at the beginning
of such period constituted the board of directors of the Company
(or whose nomination for election by the shareholders of the
Company was approved by a vote of not less than a majority of the
directors of the Company then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the board of directors of the
Company then in office.
"Chase" shall mean The Chase Manhattan Bank (National
Association).
"Closing Date" shall mean December 1, 1993, the date
upon which the initial extension of credit was made hereunder.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Collateral Account" shall have the meaning assigned to
such term in Section 4.01 of the Security Agreement.
"Commitment" shall mean, for each Bank, the obligation
of such Bank to make Loans in an aggregate principal amount up to
but not exceeding (a) in the case of a Bank that is a party to
this Agreement as of the date hereof, the amount set opposite the
name of such Bank on the signature pages hereof under the caption
"Commitment" or (b) in the case of any other Bank, the aggregate
<PAGE>
-6-
amount of the Commitments of other Banks acquired by it pursuant
to Section 12.06(b) hereof (in each case, as the same may be
reduced from time to time pursuant to Section 2.04 hereof or
increased or reduced from time to time pursuant to said Section
12.06(b)).
"Commitment Percentage" shall mean, with respect to any
Bank, the ratio of the amount of the Commitment of such Bank to
the aggregate amount of the Commitments of all of the Banks.
"Commitment Termination Date" shall mean July 1, 1998.
"Commodity Hedging Agreement" shall mean, for any
Person, an agreement or arrangement between such Person and one
or more financial institutions or other entities providing for
the transfer or mitigation of risks of fluctuations in prices of
hydrocarbons, either generally or under specific circumstances.
"Consolidated Subsidiary" shall mean, for any Person,
each Subsidiary of such Person (whether now existing or hereafter
created or acquired) the financial statements of which are (or
should have been) consolidated with the financial statements of
such Person in accordance with GAAP.
"Continue", "Continuation" and "Continued" shall refer
to the continuation pursuant to Section 2.09 hereof of a
Eurodollar Loan from one Interest Period to the next Interest
Period.
"Convert", "Conversion" and "Converted" shall refer to
a conversion pursuant to Section 2.09 hereof of one Type of Loans
into another Type of Loans, which may be accompanied by the
transfer by a Bank (at its sole discretion) of a Loan from one
Applicable Lending Office to another.
"Debt Coverage Ratio" shall mean, for any period, the
ratio of (a) Cash Flow for such period to (b) Debt Service for
such period.
"Debt Service" shall mean, for any period, the sum, for
the Company and the Restricted Subsidiaries (determined on a
consolidated basis without duplication in accordance with GAAP),
of the following: (a) all payments of principal of Indebtedness
(other than Non-Recourse Debt) scheduled to be made during such
period plus (b) all Interest Expense for such period.
"Deficiency Notice" shall have the meaning assigned to
such term in Section 2.10 hereof.
"Default" shall mean an Event of Default or an event
that with notice or lapse of time or both would become an Event
of Default.
<PAGE>
-7-
"Determination Date" shall mean (a) each May 1 and
October 15 of each year prior to the Commitment Termination Date
and (b) 45 days after each other date, if any, on which a Reserve
Evaluation Report is delivered to the Agent as contemplated
hereby.
"Determination Period" shall mean each period
commencing on a Determination Date and ending on the day next
preceding the next succeeding Determination Date.
"Disposition" shall mean any sale, assignment, transfer
or other disposition of any Property (whether now owned or
hereafter acquired) by the Company or any of its Restricted
Subsidiaries to any Person (other than by any such Restricted
Subsidiary to the Company or any other Restricted Subsidiary, or
by the Company to a Restricted Subsidiary), excluding any sale,
assignment, transfer or other disposition of (i) any Property
sold or disposed of in the ordinary course of business and on
ordinary business terms and (ii) any Unrestricted Properties.
"Disqualified Stock" means any Capital Stock of the
Company or any Material Subsidiary of the Company which, by its
terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the
happening of any event or with the passage of time, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the Commitment Termination
Date or which is exchangeable or convertible into debt securities
of the Company or any Material Subsidiary of the Company, except
to the extent that such exchange or conversion rights cannot be
exercised prior to the Commitment Termination Date.
"Dividend Payment" shall mean dividends (in cash,
Property or obligations) on, or other payments or distributions
on account of, or the setting apart of money for a sinking or
other analogous fund for, or the purchase, redemption, retirement
or other acquisition of, any shares of any class of stock of the
Company or any of its Subsidiaries or of any warrants, options or
other rights to acquire the same (or to make any payments to any
Person, such as "phantom stock" payments, where the amount
thereof is calculated with reference to the fair market or equity
value of the Company or any of its Subsidiaries), but excluding
dividends payable solely in shares of common stock of the
Company.
"Dollar-Denominated Production Payments" shall mean
production payment obligations of the Company or any of its
Subsidiaries which are payable from a specified share of proceeds
received from production from specific Properties, together with
all undertakings and obligations in connection therewith.
<PAGE>
-8-
"Dollars" and "$" shall mean lawful money of the United
States of America.
"Environmental Claim" shall mean, with respect to any
Person, (a) any written or oral notice, claim, demand or other
communication (collectively, a "claim") by any other Person
alleging or asserting such Person's liability for investigatory
costs, cleanup costs, governmental response costs, damages to
natural resources or other Property, personal injuries, fines or
penalties arising out of, based on or resulting from (i) the
presence, or Release into the environment, of any Hazardous
Material at any location, whether or not owned by such Person, or
(ii) circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law. The term "Environmental
Claim" shall include, without limitation, any claim by any
governmental authority for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any
applicable Environmental Law, and any claim by any third party
seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from the presence of
Hazardous Materials or arising from alleged injury or threat of
injury to health, safety or the environment.
"Environmental Laws" shall mean any and all present and
future Federal, state, local and foreign laws, rules or regula
tions, and any orders or decrees, in each case as now or here
after in effect, relating to the regulation or protection of
human health, safety or the environment or to emissions, dis
charges, releases or threatened releases of pollutants, con
taminants, chemicals or toxic or hazardous substances or wastes
into the indoor or outdoor environment, including, without
limitation, ambient air, soil, surface water, ground water,
wetlands, land or subsurface strata, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants,
chemicals or toxic or hazardous substances or wastes.
"Equity Rights" shall mean, with respect to any Person,
any outstanding subscriptions, options, warrants, commitments,
preemptive rights or agreements of any kind (including, without
limitation, any stockholders' or voting trust agreements) for the
issuance, sale, registration or voting of, or outstanding
securities convertible into, any additional shares of Capital
Stock of any class, or partnership or other ownership interests
of any type in, such Person.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade
or business that is a member of any group of organizations
(a) described in Section 414(b) or (c) of the Code of which the
<PAGE>
-9-
Company is a member and (b) solely for purposes of potential lia
bility under Section 302(c)(11) of ERISA and Section 412(c)(11)
of the Code and the lien created under Section 302(f) of ERISA
and Section 412(n) of the Code, described in Section 414(m) or
(o) of the Code of which the Company is a member.
"Eurodollar Base Rate" shall mean, with respect to any
Eurodollar Loan for any Interest Period therefor, the arithmetic
mean (rounded upwards, if necessary, to the nearest 1/16 of 1%)
of the respective rates per annum quoted by the respective
Reference Banks at approximately 11:00 a.m. London time (or as
soon thereafter as practicable) on the date two Business Days
prior to the first day of such Interest Period for the offering
by the respective Reference Banks to leading banks in the London
interbank market of Dollar deposits having a term comparable to
such Interest Period and in amounts comparable to the principal
amount of the Eurodollar Loan to be made by the respective
Reference Banks for such Interest Period. If any Reference Bank
is not participating in any Eurodollar Loan during any Interest
Period therefor, the Eurodollar Base Rate for such Loan for such
Interest Period shall be determined by reference to the amount of
the Loan that such Reference Bank would have made or had out
standing had it been participating in such Loan during such
Interest Period.
"Eurodollar Loans" shall mean Loans the interest rates
on which are determined on the basis of rates referred to in the
definition of "Eurodollar Base Rate" in this Section 1.01.
"Eurodollar Rate" shall mean, for any Eurodollar Loan
for any Interest Period therefor, a rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) determined by
the Agent to be equal to the Eurodollar Base Rate for such Loan
for such Interest Period divided by 1 minus the Reserve Require
ment for such Loan for such Interest Period.
"Event of Default" shall have the meaning assigned to
such term in Section 10 hereof.
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, and the rules and regulations promulgated by
the SEC thereunder.
"Existing Banks" shall mean the financial institutions
party to the Original Credit Agreement.
"Federal Funds Rate" shall mean, for any day, the rate
per annum (rounded upwards, if necessary, to the nearest 1/100 of
1%) equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers on such day, as pub
lished by the Federal Reserve Bank of New York on the Business
<PAGE>
-10-
Day next succeeding such day, provided that (a) if the day for
which such rate is to be determined is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Business Day as so published
on the next succeeding Business Day and (b) if such rate is not
so published for any Business Day, the Federal Funds Rate for
such Business Day shall be the average rate charged to Chase on
such Business Day on such transactions as determined by the
Agent.
"First Chicago" shall mean The First National Bank of
Chicago, a national banking association.
"First Chicago Collateral" shall mean the "Claim" and
"Distributions" each as defined in the Participation Agreement as
of April 13, 1995.
"Future Net Revenues" shall mean, for any period, the
future gross revenues attributable to all or a part (as specified
herein) of Proved Reserves constituting part of the Mortgaged
Properties for such period less the sum for such period of all
projected Operating Expenses and Capital Expenditures with
respect thereto, as set forth in the related Reserve Evaluation
Report, and less (without duplication) all amounts projected to
be applied to the discharge of any Production Payment and to the
unearned balance of any advance payment received under any
contract to be performed relating to such Proved Reserves.
"GAAP" shall mean generally accepted accounting
principles applied on a basis consistent with those which, in
accordance with the last sentence of Section 1.02(a) hereof, are
to be used in making the calculations for purposes of determining
compliance with this Agreement.
"Government Authority" shall mean any federal, state,
municipal, local, territorial, or other governmental subdivision,
department, commission, board, bureau, agency, regulatory
authority, instrumentality, judicial or administrative body,
domestic or foreign.
"Guarantee" shall mean a guarantee, an endorsement, a
contingent agreement to purchase or to furnish funds for the
payment or maintenance of, or otherwise to be or become con
tingently liable under or with respect to, the Indebtedness,
other obligations, net worth, working capital or earnings of any
Person or any production or revenues generated by (or any capital
or other expenditures incurred in connection with the acquisition
and exploitation of, exploration for, development of or
production from) any hydrocarbon reserves, or a guarantee of the
payment of dividends or other distributions upon the stock or
equity interests of any Person, or an agreement to purchase, sell
or lease (as lessee or lessor) Property, products, materials,
<PAGE>
-11-
supplies or services primarily for the purpose of enabling a
debtor to make payment of such debtor's obligations or an
agreement to assure a creditor against loss, and including,
without limitation, causing a bank, surety company or other
financial institution or similar entity to issue a letter of
credit, surety bond or other similar instrument for the benefit
of another Person, but excluding endorsements for collection or
deposit in the ordinary course of business. The terms
"Guarantee" and "Guaranteed" used as a verb shall have a
correlative meaning.
"Hazardous Material" shall mean, collectively, (a) any
petroleum or petroleum products, flammable explosives, radio
active materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, and transformers or
other equipment that contain dielectric fluid containing
polychlorinated biphenyls (PCB's), (b) any chemicals or other
materials or substances which are now or hereafter become defined
as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous
wastes", "restricted hazardous wastes", "toxic substances",
"toxic pollutants", "contaminants", "pollutants" or words of
similar import under any Environmental Law and (c) any other
chemical or other material or substance, exposure to which is now
or hereafter prohibited, limited or regulated under any
Environmental Law.
"Hydrocarbon Properties" shall mean interests which one
or more of the Obligors have from time to time in hydrocarbon
reserves.
"Inactive Subsidiary" shall mean, as at any date, any
Subsidiary of the Company that, as at the end of and for the
quarterly accounting period ending on or most recently ended
prior to such date, had $1,000 or less in assets and $1,000 or
less in gross revenues.
"Indebtedness" shall mean, for any Person: (a) obliga
tions created, issued or incurred by such Person for borrowed
money (whether by loan, the issuance and sale of debt securities
or the sale of Property to another Person subject to an under
standing or agreement, contingent or otherwise, to purchase or
repurchase the same or similar Property from such Person);
(b) obligations of such Person to pay the deferred purchase or
acquisition price of Property or services, other than trade
accounts payable (other than for borrowed money) arising, and
accrued expenses incurred, in the ordinary course of business so
long as such trade accounts payable are payable within 90 days of
the date the respective goods are delivered or the respective
services are rendered; (c) obligations of others secured by a
Lien on the Property of such Person, whether or not the
respective obligations so secured has been assumed by such
Person; (d) obligations of such Person in respect of letters of
credit, surety bonds or similar instruments issued or accepted by
banks, surety companies and other financial institutions for
account of such Person; (e) Capital Lease Obligations of such
<PAGE>
-12-
Person; (f) obligations of such Person in respect of obligations
of the types specified in other clauses of this definition as a
general partner or joint venturer of any partnership or joint
venture (other than in respect of obligations incurred in the
ordinary course of business); (g) upon the failure of such Person
to perform or fulfill any warranties or guaranties of, or similar
obligations relating to, production or payment contained in any
Non-Recourse Debt, the maximum amount of the obligation of such
Person in respect of such warranties, guaranties or similar
obligations; (h) the unearned balance of any advance payment
received by such Person under any contract to be performed in
excess of $250,000 in the aggregate (other than as provided in
clause (i) below); (i) the unearned balance of any advance
payment received by such Person under any contract to be
performed in excess of $2,000,000 in the aggregate resulting from
transactions in the ordinary course of such Person's business;
and (j) Indebtedness of others Guaranteed by such Person.
"Independent Petroleum Engineer" shall mean (a) Ryder
Scott Company or (b) such other firm of independent petroleum
engineers expert in the matters required to be performed in
connection with the preparation and delivery of a Reserve
Evaluation Report and satisfactory to the Majority Banks.
"Interest Coverage Ratio" shall mean, for any period,
the ratio of (a) Cash Flow for such period to (b) Interest
Expense for such period.
"Interest Expense" shall mean, for any period, interest
expense for the Company and the Restricted Subsidiaries for such
period (determined on a consolidated basis without duplication in
accordance with GAAP) including, without limitation, the
following: all interest in respect of Indebtedness accrued or
capitalized during such period (whether or not actually paid
during such period) (other than interest paid in common stock of
the Company) and the net amounts payable (or minus the net
amounts receivable) under Interest Rate Protection Agreements
accrued during such period (whether or not actually paid or
received during such period), but excluding the non-cash
amortization of deferred debt issuance costs and original issue
discount for such period and the interest expense attributable to
Non-Recourse Debt for such period.
"Interest Period" shall mean, with respect to any
Eurodollar Loan, each period commencing on the date such
Eurodollar Loan is made or Converted from a Base Rate Loan or the
last day of the next preceding Interest Period for such Loan and
ending on the numerically corresponding day in the first, second,
<PAGE>
-13-
third or sixth calendar month thereafter, as the applicable
Borrower may select as provided in Section 4.05 hereof, except
that each Interest Period that commences on the last Business Day
of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month. Notwithstanding the
foregoing: (i) if any Interest Period would otherwise end after
the Commitment Termination Date, such Interest Period shall end
on the Commitment Termination Date; (ii) each Interest Period
that would otherwise end on a day which is not a Business Day
shall end on the next succeeding Business Day (or, if such next
succeeding Business Day falls in the next succeeding calendar
month, on the next preceding Business Day); and (iii) notwith
standing clause (i) above, no Interest Period shall have a
duration of less than one month and, if the Interest Period for
any Eurodollar Loan would otherwise be a shorter period, such
Loan shall not be available as a Eurodollar Loan hereunder for
such period.
"Interest Rate Protection Agreement" shall mean, for
any Person, an interest rate swap, cap or collar agreement or
similar arrangement between such Person and one or more financial
institutions or other entities providing for the transfer or
mitigation of interest risks, either generally or under specific
contingencies.
"Investment" shall mean, for any Person: (a) the
acquisition (whether for cash, Property, services or securities
or otherwise) of capital stock, bonds, notes, debentures,
partnership or other ownership interests or other securities of
any other Person or any agreement to make any such acquisition
(including, without limitation, any "short sale" or any sale of
any securities at a time when such securities are not owned by
the Person entering into such short sale); (b) the making of any
deposit with, or advance, loan or other extension of credit to,
any other Person (including the purchase of Property from another
Person subject to an understanding or agreement, contingent or
otherwise, to resell such Property to such Person, but excluding
any such advance, loan or extension of credit having a term not
exceeding 90 days representing the purchase price of inventory or
supplies sold by such Person in the ordinary course of business);
(c) the entering into of any Guarantee of, or other contingent
obligation with respect to, Indebtedness or other liability of
any other Person and (without duplication) any amount committed
to be advanced, lent or extended to such Person; or (d) the
entering into of any Interest Rate Protection Agreement or
Commodity Hedging Agreement.
"Issuing Bank" shall mean Chase, as the issuer of
Letters of Credit under Section 2.03 hereof, together with its
successors and assigns in such capacity.
<PAGE>
-14-
"JEDI Agreement" shall mean the Loan Agreement dated as
of December 28, 1993 between the Company and the JEDI Lender, as
the same shall be amended, modified and supplemented and in
effect from time to time.
"JEDI Collateral" shall mean "Collateral" as defined in
the JEDI Agreement as of December 28, 1993; provided, however,
that the term "Mortgaged Properties", as defined in the JEDI
Agreement, shall include the oil and gas leases, oil, gas and
mineral leases, and other mineral leases that cover lands or
interests previously covered by an expired lease that, prior to
such expiration, constituted JEDI Collateral and is described on
Schedule IV hereto.
"JEDI Investments" shall mean at any time of
determination all amounts, including without limitation cash
expended and the fair market value of Property contributed by the
Company or any of its Subsidiaries in connection with the JEDI
Mortgaged Properties, including without limitation all expenses
for Capital Operations (excluding any general, administrative or
office charges or overhead, except to the extent allocated to
such Properties in accordance with GAAP) prior to such time of
determination (on a cumulative basis) and all Operating Costs
prior to such time of determination (on a cumulative basis)
(each as defined in the JEDI Agreement as of December 28, 1993),
but excluding the purchase price of the JEDI Mortgaged Properties
acquired on or prior to December 31, 1993 minus Net Operating
Cash Flow received by or for the account of the Company prior to
such time of determination (on a cumulative basis) provided that
the calculation of the JEDI Investments shall not result in a
number less than zero.
"JEDI Lender" shall mean Joint Energy Development
Investments Limited Partnership, a Delaware Limited Partnership
and its successors and assigns.
"JEDI Mortgaged Properties" shall mean "Mortgaged
Properties" as defined in the JEDI Agreement.
"Letter of Credit" shall have the meaning assigned to
such term in Section 2.03 hereof.
"Letter of Credit Documents" shall mean, with respect
to any Letter of Credit, collectively, any application therefor
and any other agreements, instruments, guarantees or other
documents (whether general in application or applicable only to
such Letter of Credit) governing or providing for (a) the rights
and obligations of the parties concerned or at risk with respect
to such Letter of Credit or (b) any collateral security for any
of such obligations, each as the same may be modified and
supplemented and in effect from time to time.
<PAGE>
-15-
"Letter of Credit Interest" shall mean, for each Bank,
such Bank's participation interest (or, in the case of the
Issuing Bank, the Issuing Bank's retained interest) in the
Issuing Bank's liability under Letters of Credit and such Bank's
rights and interests in Reimbursement Obligations and fees,
interest and other amounts payable in connection with Letters of
Credit and Reimbursement Obligations.
"Letter of Credit Liability" shall mean, without
duplication, at any time and in respect of any Letter of Credit,
the sum of (a) the undrawn face amount of such Letter of Credit
plus (b) the aggregate unpaid principal amount of all Reimburse
ment Obligations of the Company at such time due and payable in
respect of all drawings made under such Letter of Credit. For
purposes of this Agreement, a Bank (other than the Issuing Bank)
shall be deemed to hold a Letter of Credit Liability in an amount
equal to its participation interest in the related Letter of
Credit under Section 2.03 hereof, and the Issuing Bank shall be
deemed to hold a Letter of Credit Liability in an amount equal to
its retained interest in the related Letter of Credit after
giving effect to the acquisition by the Banks other than the
Issuing Bank of their participation interests under said
Section 2.03.
"Lien" shall mean, with respect to any Property, any
mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such Property (including any Production
Payments, advance payment or similar arrangements with respect to
minerals in place). For purposes of this Agreement and the other
Basic Documents, a Person shall be deemed to own subject to a
Lien any Property that it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement
(other than an operating lease) relating to such Property.
"Loans" shall mean the loans provided for by Section
2.01(a) hereof.
"Majority Banks" shall mean Banks having at least
66-2/3% of the aggregate amount of the Commitments, or if the
Commitments shall have been terminated, Banks holding at least 66-
2/3% of the sum of the aggregate unpaid principal amount of the
Loans and the Letter of Credit Liabilities in respect of the
Commitments.
"Margin Stock" shall mean "margin stock" within the
meaning of Regulations U and X.
"Material Adverse Effect" shall mean a material adverse
effect on (a) the Property, business, operations, financial
condition, prospects, liabilities or capitalization of the
Company and its Subsidiaries taken as a whole, (b) the ability of
<PAGE>
-16-
any Obligor to perform its obligations under any of the Basic
Documents to which it is a party, (c) the validity or enforce
ability of any of the Basic Documents, (d) the rights and
remedies of the Banks and the Agent under any of the Basic
Documents or (e) the timely payment of the principal of or
interest on the Loans or the Reimbursement Obligations or other
amounts payable in connection therewith.
"Material Subsidiary" shall mean, at any time, a
Subsidiary of the Company whose assets at such time exceed 5% of
the Tangible Net Worth of the Company and its Consolidated
Subsidiaries determined on a consolidated basis in accordance
with GAAP, provided that, notwithstanding the foregoing, each
Subsidiary Guarantor and each Restricted Subsidiary shall be
deemed to be a "Material Subsidiary".
"Mortgage(s)" shall mean, collectively, one or more
Mortgages, Deeds of Trust, Assignments of Rents, Security
Agreements and Fixture Filings or similar documents executed by
the Company in favor of the Agent and Bettylou J. Robert, as
Trustee, for the benefit of the Agent and the Banks, in each case
substantially in the form of Exhibit E hereto and covering the
respective Mortgaged Properties and leasehold interest identified
in any Exhibit or Schedule thereto, as the same shall be modified
and supplemented and in effect from time to time.
"Mortgage Amendments" shall mean the amendments to the
Mortgages executed by the Company in connection with this
Agreement.
"Mortgaged Properties" shall mean Hydrocarbon
Properties which are subject to the Liens created hereunder and
under the Security Documents.
"Multiemployer Plan" shall mean a multiemployer plan
defined as such in Section 3(37) of ERISA to which contributions
have been made by the Company or any ERISA Affiliate and which is
covered by Title IV of ERISA.
"Net Available Proceeds" shall mean:
(a) in the case of any Disposition by the Company or a
Restricted Subsidiary, the amount of Net Cash Payments
received in connection with such Disposition; provided that
if 20% or less of the total value of such Net Cash Payments
consists of non-cash consideration, and if such non-cash
consideration is subjected to the Lien of the Security
Documents within 90 days after its receipt by the Company or
a Restricted Subsidiary, the amount of such Net Cash
Payments received shall be deemed to equal the amount of all
cash payments received in connection with such Disposition;
<PAGE>
-17-
(b) in the case of any Casualty Event, the aggregate
amount of proceeds of insurance, condemnation awards and
other compensation received by the Company and its
Restricted Subsidiaries in respect of such Casualty Event
net of (i) reasonable expenses incurred by the Company and
its Restricted Subsidiaries in connection therewith and
(ii) contractually required repayments of Indebtedness to
the extent secured by a Lien on such Property and any income
and transfer taxes payable by the Company or any of its
Restricted Subsidiaries in respect of such Casualty Event;
and
(c) in the case of any Equity Issuance, the aggregate
amount of all cash received by the Company and its
Restricted Subsidiaries in respect of such Equity Issuance
net of commissions, discounts and other transaction costs
incurred by the Company and its Restricted Subsidiaries in
connection therewith.
"Net Cash Payments" shall mean, with respect to any
Disposition, the aggregate amount of all cash payments, and the
fair market value of any non-cash consideration, received by the
Company and its Subsidiaries directly or indirectly in connection
with such Disposition; provided that (a) Net Cash Payments shall
be net of (i) the amount of any legal, title and recording tax
expenses, commissions and other fees and expenses paid by the
Company and its Subsidiaries in connection with such Disposition
and (ii) any Federal, state and local income or other taxes
estimated to be payable by the Company and its Subsidiaries as a
result of such Disposition (but only to the extent that (x) such
estimated taxes are in fact paid to the relevant Federal, state
or local governmental authority within three months of date of
such Disposition or placed in escrow for the payment of such
taxes or (y) the amount of such estimated taxes is less than
$2,000,000 and the payment of such taxes is being contested in
good faith and by appropriate proceedings), (b) Net Cash Payments
shall not include any cash payment (or portion thereof) received
in any fiscal year of the Company in respect of such Disposition
to the extent that such cash payment (or portion thereof),
together with all cash payments with respect to other
Dispositions theretofore received in such fiscal year, does not
exceed $1,000,000 and (c) Net Cash Payments shall be net of any
repayments by the Company or any of its Subsidiaries of Indebted
ness or Non-Recourse Debt to the extent that (i) such
Indebtedness or Non-Recourse Debt, as the case may be, is secured
by a Lien on the Property that is the subject of such Disposition
and (ii) such Indebtedness or Non Recourse Debt, as the case may
be, is to be repaid as a condition to the Disposition of such
Property.
<PAGE>
-18-
"Net Operating Cash-Flow" shall have the meaning
assigned to such term in the JEDI Agreement as of December 28,
1993.
"New Wholly-Owned Subsidiary" shall have the meaning
assigned to such term in Section 9.08 hereof.
"Non-Recourse Debt" shall mean any Indebtedness of the
Company or a Subsidiary of the Company in respect of which the
sole recourse of the holder or holders thereof (except to the
extent approved by the Majority Banks) is to specified Properties
of the Company or one of its Subsidiaries and the revenues
generated thereby or to a Subsidiary of the Company whose only
assets (except to the extent approved by the Majority Banks)
consist of such specified Properties and the revenues generated
thereby and the terms and conditions of which (including, without
limitation, the amortization and other payment provisions of
which and the interest and other compensation payable in respect
of which, the non-recourse provisions of which and the other
terms of which including, without limitation, covenants and
events of default), and the documentation for which, are
acceptable to the Majority Banks or which have been disclosed in
writing to the Banks on or prior to the date hereof; provided
that the existence in any document executed by the Company or
such Subsidiary in connection with such Non-Recourse Debt (the
"Subject Debt") of a provision which provides for recourse to the
Properties or assets of the Company or such Subsidiary generally
by reason of the gross negligence or willful misconduct of the
Company or such Subsidiary, will not cause the Subject Debt to be
excluded from the definition of "Non-Recourse Debt" prior to the
time that a claim is made against the Company or such Subsidiary,
as the case may be, alleging the gross negligence or willful
misconduct of the Company or such Subsidiary, as the case may be
(it being understood that immediately upon any such claim being
made against the Company or such Subsidiary the amount of such
claim shall cease to be Non-Recourse Debt); provided, further,
upon the failure of the Company or any such Subsidiary to perform
or fulfill any warranties or guaranties of, or similar
obligations relating to, production or payment relating to any
such Non-Recourse Debt, the maximum amount of the obligations of
the Company or such Subsidiary, as the case may be, in respect of
such warranties, guaranties or similar obligations shall cease to
be Non-Recourse Debt. Notwithstanding any provision of this
Agreement to the contrary, Production Payments shall be
considered "Non-Recourse Debt"; provided that upon the failure of
the Company or any Subsidiary of the Company to perform or
fulfill any warranties or guaranties of, or similar obligations
relating to, production or payment relating to any such
Production Payments, the maximum amount of the obligations of the
Company or such Subsidiary, as the case may be, in respect of
such warranties or guaranties or similar obligations shall cease
to be Non-Recourse Debt. Notwithstanding the forgoing,
<PAGE>
-19-
Indebtedness incurred by the Company pursuant to the JEDI
Agreement shall be considered Non-Recourse Debt, provided that if
(a) any claim or claims in the aggregate in excess of $1,000,000
is made against the Company by or through the JEDI Lender seeking
any recourse against the Company other than with respect to the
Company's interest in the JEDI Collateral or (b) the JEDI
Agreement is amended, modified or supplemented to expand the
circumstances in which the JEDI Lender may assert any of its
claims thereunder with recourse to the Company (other than with
respect to the Company's interest in the JEDI Collateral),
Indebtedness incurred pursuant to the JEDI Agreement shall cease
to be Non-Recourse Debt.
"Notes" shall mean the promissory notes provided for by
Section 2.08 hereof and all promissory notes delivered in substi
tution or exchange therefor, in each case as the same shall be
modified and supplemented and in effect from time to time.
"Operating Expenses" shall mean, for any period, the
sum of the following for the Company and its Consolidated
Subsidiaries (determined on a consolidated basis in accordance
with GAAP) to the extent accrued or paid during such period
(without duplication): (i) lease operating expenses; (ii) Taxes;
(iii) general and administrative and other overhead expenditures;
and (iv) all other expenses paid or accrued.
"Original Fee Letter" shall mean the letter agreement
dated December 1, 1993 between the Agent and the Company.
"Original Notes" shall mean the promissory notes
delivered pursuant to the Original Credit Agreement.
"Participation Agreement" shall mean the Participation
Agreement dated as of April 13, 1995 between the Company and
First Chicago, as the same shall be amended, modified and
supplemented and in effect from time to time.
"PBGC" shall mean the Pension Benefit Guaranty
Corporation or any entity succeeding to any or all of its
functions under ERISA.
"Permitted Investments" shall mean: (a) direct
obligations of the United States of America, or of any agency
thereof, or obligations guaranteed as to principal and interest
by the United States of America, or of any agency thereof, in
either case maturing not more than 90 days from the date of
acquisition thereof; (b) certificates of deposit issued by any
bank or trust company organized under the laws of the United
States of America or any state thereof and having capital,
surplus and undivided profits of at least $500,000,000, maturing
not more than 90 days from the date of acquisition thereof;
(c) commercial paper rated A-1 or better or P-1 by Standard &
<PAGE>
-20-
Poor's Rating Group or Moody's Investors Services, Inc.,
respectively, maturing not more than 90 days from the date of
acquisition thereof; and (d) commercial paper rated A-2 or better
(but less than A-1) or P-2 or better (but less than P-1) by
Standard and Poor's Rating Group or Moody's Investors Services,
Inc. respectively, maturing not more than 30 days from the date
of acquisition thereof.
"Person" shall mean any individual, corporation,
company, voluntary association, partnership, joint venture,
trust, unincorporated organization or government (or any agency,
instrumentality or political subdivision thereof).
"Plan" shall mean an employee benefit or other plan
established or maintained by the Company or any ERISA Affiliate
and that is covered by Title IV of ERISA, other than a
Multiemployer Plan.
"Pledge Agreement" shall mean the Pledge Agreement
substantially in the form of Exhibit F hereto between any Obligor
required to execute a Pledge Agreement at any time after the date
hereof and the Agent, as the same shall be modified and
supplemented and in effect from time to time.
"Post-Default Rate" shall mean, in respect of any
principal of any Loan, any Reimbursement Obligation or any other
amount under this Agreement, any Note or any other Basic Document
that is not paid when due (whether at stated maturity, by
acceleration, by optional or mandatory prepayment or otherwise),
a rate per annum during the period from and including the due
date to but excluding the date on which such amount is paid in
full equal to 2% plus the Base Rate as in effect from time to
time plus the Applicable Margin for Base Rate Loans (provided
that, if the amount so in default is principal of a Eurodollar
Loan and the due date thereof is a day other than the last day of
the Interest Period therefor, the "Post-Default Rate" for such
principal shall be, for the period from and including such due
date to but excluding the last day of the Interest Period, 2%
plus the interest rate for such Loan as provided in Section
3.02(b) hereof and, thereafter, the rate provided for above in
this definition).
"Present Value of Reserves" shall mean, on any date,
estimated net cash flow expressed in Dollars (after development
expenses and production taxes) in respect of Proved Reserves
attributable to Hydrocarbon Properties calculated in accordance
with the Agent's risk factors and product pricing models in
effect from time to time and discounted to present value at a
discount rate acceptable to the Majority Banks from time to time
for Proved Reserves.
<PAGE>
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"Prime Rate" shall mean the rate of interest from time
to time announced by Chase at the Principal Office as its prime
commercial lending rate.
"Principal Office" shall mean the principal office of
Chase, located on the date hereof at 1 Chase Manhattan Plaza, New
York, New York 10081.
"Production Payments" shall mean, collectively, Dollar-
Denominated Production Payments and Volumetric Production
Payments.
"Property" shall mean any right or interest in or to
property of any kind whatsoever, whether real, personal or mixed
and whether tangible or intangible.
"Proved Reserves" shall mean reserves (to the extent of
the net interest of the Company and its Subsidiaries therein)
comprised of quantities of hydrocarbons that geologic and
engineering data demonstrate with reasonable certainty to be
recoverable in the future from known reservoirs under existing
conditions, provided that such reserves are recoverable from
(a) existing wells, whether from completion intervals currently
open and producing to market, or completion intervals currently
open but not currently producing or zones behind casing of
existing wells, or (b) new wells on undrilled acreage. Proved
Reserves on undrilled acreage shall be limited to those drilling
units offsetting productive units that are reasonably certain to
be productive when drilled. Other undrilled units may also be
credited with Proved Reserves where continuity of production from
existing productive formations can be demonstrated with reason
able certainty. For purposes of determining whether any
Hydrocarbon Properties of any Obligor (other than Hydrocarbon
Properties that have been acquired by such Obligor since the date
of the most recent Reserve Evaluation Report or other internal
reserve reports prepared by the Company, all of which shall be
considered Proved Reserves) contain Proved Reserves, the Banks
and the Obligors agree that the most recent Reserve Evaluation
Report or other internal reserve reports prepared by the Company
shall be determinative.
"Purchase Agreement" shall mean the Purchase Agreement
dated as of May 15, 1995 between Anschutz and the Company, as the
same shall be amended, modified and supplemented and in effect
from time to time.
"Quarterly Dates" shall mean the last day of March,
June, September and December in each year, the first of which
shall be the first such day after the date of this Agreement;
provided that if any such day is not a Business Day, then such
Quarterly Date shall be the next preceding Business Day.
<PAGE>
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"Reference Banks" shall mean Chase and such other Banks
as are agreed to from time to time by the Agent (with the consent
of the Majority Banks) and the Company (or their respective
Applicable Lending Offices, as the case may be).
"Regulation A", "Regulation D", "Regulation U" and
Regulation X" shall mean, respectively, Regulations A, D, U and X
of the Board of Governors of the Federal Reserve System (or any
successor), as the same may be modified and supplemented and in
effect from time to time.
"Regulatory Change" shall mean, with respect to any
Bank, any change after the date of this Agreement in Federal,
state or foreign law or regulations (including, without
limitation, Regulation D) or the adoption or making after such
date of any interpretation, directive or request applying to a
class of banks including such Bank of or under any Federal, state
or foreign law or regulations (whether or not having the force of
law and whether or not failure to comply therewith would be
unlawful) by any court or governmental or monetary authority
charged with the interpretation or administration thereof.
"Reimbursement Obligations" shall mean, at any time,
the obligations of the Borrowers then outstanding, or which may
thereafter arise in respect of all Letters of Credit then
outstanding, to reimburse amounts paid by the Issuing Bank in
respect of any drawings under a Letter of Credit.
"Release" shall mean any release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge,
dispersal, leaching or migration into the indoor or outdoor
environment, including, without limitation, the movement of
Hazardous Materials through ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata.
"Report Delivery Date" shall mean, with respect to any
Reserve Evaluation Report, 45 days prior to the applicable
Determination Date.
"Reserve Evaluation Report" shall mean an unsuperceded
report that (a) is (i) prepared, in the case of the report
required to be delivered by the Company pursuant to Section
9.01(f) hereof in connection with the Determination Date
occurring on May 1 of each year, by the Independent Petroleum
Engineer on the basis of assumptions and projections which the
Company believes in good faith to be reasonable or, in the case
of the report required to be delivered by the Company pursuant to
Section 9.01(f) hereof in connection with each other Determi
nation Date, by the Company, and (ii) satisfactory in form and
substance to the Majority Banks (including as to assumptions) and
(b)(x) is prepared on the basis of findings and material data as
of a date not more than 60 days prior to the effective date of
<PAGE>
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such report, in the case of a report prepared by the Company and
(y) not more than 90 days prior to the effective date of such
report, in the case of a report prepared by the Independent
Petroleum Engineer, (i) identifies the Hydrocarbon Properties
covered thereby, (ii) identifies (in the case of any report
prepared by the Company) the Mortgaged Properties, (iii) as to
each of the Hydrocarbon Properties, sets forth (A) the Proved
Reserves attributable to such Hydrocarbon Property, (B) the total
amount of such Proved Reserves attributable to such Hydrocarbon
Property that, in the opinion of the preparer of such report, the
Company and its Subsidiaries have the right to produce for their
own account in the current and each succeeding calendar year, (C)
a projection of the rate of production and the Future Net
Revenues of the Company and its Subsidiaries (including as
additional information the data and assumptions used to determine
such Future Net Revenues) from such Proved Reserves for the
current and each succeeding calendar year, (D) the quantity and
type of hydrocarbons recoverable from such Proved Reserves in the
current and each succeeding calendar year, (E) an estimate of the
projected revenues and expenses attributable to such Proved
Reserves in the current and each succeeding calendar year, and
(F) any reports or evaluations prepared by the Company regarding
the expediency of any change in methods of treatment or operation
of all or any wells drilled to produce any of such Proved
Reserves that are producing or capable of producing hydrocarbons,
any new drilling or development, any method of secondary recovery
by repressuring or otherwise, or any other action with respect to
such Proved Reserves, the decision as to which may increase or
reduce the quantity of hydrocarbons ultimately recoverable, or
the rate of production thereof and (c) reconciles (i) the total
amount of Proved Reserves attributable to each Hydrocarbon
Property and (ii) any material changes in Operating Expenses or
Capital Expenditures contained in such Reserve Evaluation Report
with the information contained in the immediately preceding
Reserve Evaluation Report, if any.
"Reserve Requirement" shall mean, for any Interest
Period for any Eurodollar Loan, the average maximum rate at which
reserves (including, without limitation, any marginal, supple
mental or emergency reserves) are required to be maintained
during such Interest Period under Regulation D by member banks of
the Federal Reserve System in New York City with deposits
exceeding one billion Dollars against "Eurocurrency liabilities"
(as such term is used in Regulation D). Without limiting the
effect of the foregoing, the Reserve Requirement shall include
any other reserves required to be maintained by such member banks
by reason of any Regulatory Change with respect to (i) any
category of liabilities that includes deposits by reference to
which the Eurodollar Base Rate is to be determined as provided in
the definition of "Eurodollar Base Rate" in this Section 1.01 or
(ii) any category of extensions of credit or other assets that
includes Eurodollar Loans.
<PAGE>
-24-
"Restricted Subsidiary" shall mean any Subsidiary of
the Company other than an Unrestricted Subsidiary.
"Security Agreement" shall mean an Amended and Restated
Security Agreement substantially in the form of Exhibit B hereto
between the Borrowers and the Agent, as the same shall be
modified and supplemented and in effect from time to time.
"Security Documents" shall mean, collectively, the
Security Agreement, the Pledge Agreement, the Mortgages and all
Uniform Commercial Code financing statements required by this
Agreement, the Security Agreement, the Pledge Agreement or the
Mortgages to be filed with respect to the security interests in
personal Property and fixtures created pursuant to the Security
Agreement, the Pledge Agreement or the Mortgages.
"Senior Subordinated Debt" shall mean the Indebtedness
of the Company in respect of the 11 1/4% Senior Subordinated
Notes of the Company due September 1, 2003 issued pursuant to the
Senior Subordinated Debt Documents.
"Senior Subordinated Debt Documents" shall mean all
documents and agreements executed and delivered in connection
with the original issuance of the Senior Subordinated Debt,
including the Indenture dated as of September 8, 1993 between the
Company and Shawmut Bank Connecticut, National Association, as
trustee, as the same shall, subject to Section 9.17 hereof, be
modified and supplemented and in effect from time to time.
"Subordinated Indebtedness" shall mean, collectively,
(a) the Senior Subordinated Debt, and (b) any other Indebtedness
of any of the Obligors outstanding on the date hereof (i) for
which any Obligor is directly and primarily liable, (ii) in
respect of which none of the Company's other Subsidiaries is
contingently or otherwise obligated and (iii) which is subordi
nated to the obligations of the respective Obligors to pay
principal of and interest on the Loans, Reimbursement Obligations
and Notes hereunder, and any extensions on renewals thereof, but
excluding any increases in the outstanding amount thereof, on
terms, and pursuant to documentation containing other terms
(including interest, amortization, covenants and events of
default), in form and substance satisfactory to the Majority
Banks.
"Subsidiary" shall mean, for any Person, any corpora
tion, partnership or other entity of which at least a majority of
the securities or other ownership interests having by the terms
thereof ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions of such
corporation, partnership or other entity (irrespective of whether
or not at the time securities or other ownership interests of any
other class or classes of such corporation, partnership or other
<PAGE>
-25-
entity shall have or might have voting power by reason of the
happening of any contingency) is at the time directly or
indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person or by such Person and one or more
Subsidiaries of such Person. "Wholly Owned Subsidiary" shall
mean any such corporation, partnership or other entity of which
all of the equity securities or other ownership interests (other
than, in the case of a corporation, directors' qualifying shares)
are so owned or controlled.
"Tangible Net Worth" shall mean, as at any date for any
Person, the sum for such Person and its Subsidiaries (determined
on a consolidated basis without duplication in accordance with
GAAP), of the following:
(a) the amount of capital stock, plus
(b) the amount of surplus and retained earnings (or,
in the case of a surplus or retained earnings deficit, minus
the amount of such deficit), minus
(c) the sum of the following: cost of treasury shares
and the book value of all assets which should be classified
as intangibles (without duplication of deductions in respect
of items already deducted in arriving at surplus and
retained earnings) but in any event including goodwill,
minority interests, research and development costs, trade
marks, trade names, copyrights, patents and franchises,
unamortized debt discount and expense, all accounting
reserves.
"Taxes" shall mean all taxes, levies, imposts, stamp
taxes, duties, charges to tax, fees, deductions, withholdings,
royalties, charges, compulsory loans or restrictions or
conditions resulting in a charge which are imposed, levied,
collected, withheld or assessed by any political subdivision or
taxing authority as of the date of this Agreement or at any time
in the future together with interest thereon and penalties with
respect thereto, if any, and any payments of principal, interest,
charges, fees or other amounts made on or in respect thereof,
including without limitation production and severance taxes and
windfall profit taxes, and "Tax" and "Taxation" shall be
construed accordingly provided that "Taxes" shall exclude taxes
imposed on or measured by the overall net income of a Person.
"Type" shall have the meaning assigned to such term in
Section 1.04 hereof.
"Unrestricted Properties" shall mean the Hydrocarbon
Properties of the Company and its Restricted Subsidiaries that
are not Mortgaged Properties and that do not contain Proved
Reserves.
<PAGE>
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"Unrestricted Subsidiary" shall mean such Subsidiaries
of the Company (other than Subsidiary Borrowers) as may be
designated by the Company as "Unrestricted Subsidiaries" as
provided in Section 1.05 hereof.
"Volumetric Production Payments" shall mean production
payment obligations of the Company or any of its Subsidiaries
which are payable from a specified share of production from
specific Properties, together with all undertakings and
obligations in connection therewith.
"Voting Stock" means, with respect to any Person,
securities of any class or classes of Capital Stock in such
Person entitling the holders thereof (whether at all times or
only so long as no senior class of stock has voting power by
reason of any contingency) to vote in the election of members of
the Board of Directors or other governing body of such Person.
1.02 Accounting Terms and Determinations.
(a) Except as otherwise expressly provided herein, all
accounting terms used herein shall be interpreted, and all
financial statements and certificates and reports as to financial
matters required to be delivered to the Banks hereunder shall
(unless otherwise disclosed to the Banks in writing at the time
of delivery thereof in the manner described in subsection (b)
below) be prepared, in accordance with GAAP applied on a basis
consistent with those used in the preparation of the latest
financial statements furnished to the Banks hereunder (which,
prior to the delivery of the first financial statements under
Section 9.01 hereof, shall mean the audited financial statements
as at December 31, 1994 referred to in Section 8.02 hereof). All
calculations made for the purposes of determining compliance with
this Agreement shall (except as otherwise expressly provided
herein) be made by application of GAAP applied on a basis
consistent with those used in the preparation of the latest
annual or quarterly financial statements furnished to the Banks
pursuant to Section 9.01 hereof (or, prior to the delivery of the
first financial statements under Section 9.01 hereof, used in the
preparation of the audited financial statements as at December
31, 1994 referred to in Section 8.02 hereof) unless (i) the
Company objects to the Banks in writing to determining such
compliance on such basis at the time of delivery of such
financial statements to the Banks or (ii) the Majority Banks
shall object to the Company (through the Agent) in writing to so
determining such compliance within 30 days after such delivery of
such financial statements, in either of which events such
calculations shall be made on a basis consistent with those used
in the preparation of the latest financial statements as to which
such objection shall not have been made (which, if objection is
made in respect of the first financial statements delivered under
<PAGE>
-27-
Section 9.01 hereof, shall mean the financial statements referred
to in Section 8.02 hereof).
(b) At the reasonable request of the Majority Banks
the Borrowers shall deliver to the Banks (i) a description in
reasonable detail of any material variation between the
application of accounting principles employed in the preparation
of such statement and the application of accounting principles
employed in the preparation of the next preceding annual or
quarterly financial statements as to which no objection has been
made in accordance with the last sentence of subsection (a) above
and (ii) reasonable estimates of the difference between such
statements arising as a consequence thereof.
(c) None of the Company and its Subsidiaries will
change the last day of their respective fiscal years from
December 31 of each year, or the last days of the first three
fiscal quarters in each of its fiscal years from March 31, June
30 and September 30 of each year, respectively.
1.03 Borrowing Base.
(a) Reserve Evaluation Reports. The Company has
furnished to the Agent and the Banks a reserve report as of
January 1, 1995, which report shall be deemed to be the initial
Reserve Evaluation Report. On or before each Report Delivery
Date, the Company shall furnish to the Agent and the Banks an
updated Reserve Evaluation Report.
(b) Borrowing Base. During the period commencing on
the date hereof and ending on such date the first redetermination
of the Borrowing Base becomes effective as provided below in this
Section 1.03(b), the Borrowing Base shall be $43,000,000 (subject
to any adjustments and redeterminations provided for by Sections
1.03(c), 1.03(d) and 1.03(e) hereof) which amount has been
determined on the basis of the initial Reserve Evaluation Report
referred to in the first sentence of Section 1.03(a) hereof (with
such adjustments to the rates, factors, values, estimates, assump
tions and computations set forth in such Reserve Evaluation
Report as are acceptable to the Majority Banks). As promptly as
reasonably practicable after its receipt of each Reserve
Evaluation Report furnished to it pursuant to the second sentence
of Section 1.03(a) hereof, the Agent (in consultation with the
Majority Banks) shall endeavor to redetermine the Borrowing Base
on the basis of such Reserve Evaluation Report in the manner
provided in this clause (b), notify the Banks of such
redetermination and, if such redetermination is approved by each
of the Banks (in the case of an increase in the Borrowing Base)
or by the Majority Banks (in the case of a decrease in the
Borrowing Base), as applicable, notify the Company of the
Borrowing Base as so redetermined and such redetermined Borrowing
Base shall become effective on the Determination Date next
<PAGE>
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following each Report Delivery Date (or, if later, on the date
notified by the Agent to the Company) and shall remain effective
until again redetermined as provided in this Section 1.03(b)
(subject to any adjustments and redeterminations provided for by
Sections 1.03(c), 1.03(d) and 1.03(e) hereof). The determination
by the Agent and each of the Banks or the Majority Banks, as the
case may be, of the Borrowing Base for any Determination Period
shall be made on the basis of parameters which may include the
Present Value of Reserves attributable to Hydrocarbon Properties
included in the Mortgaged Properties as set forth in the Reserve
Evaluation Report for such Determination Period, subject,
however, to such adjustments as the Agent, with the concurrence
of each of the Banks or the Majority Banks, as the case may be,
may make in its and their sole discretion to the rates, factors,
values, estimates, assumptions and computations set forth in such
Reserve Evaluation Report and any other relevant information or
factors, including without limitation, any additional
Indebtedness or other obligations that may be incurred by the
Company and its Subsidiaries that the Majority Banks may deem
appropriate.
(c) Material Change. The Company agrees to notify the
Agent promptly of any material change of which the Company or any
of its Subsidiaries is aware which reduces or may result in a
reduction of the Borrowing Base by more than 10%. Promptly upon
receipt of such notice, the Agent (in consultation with the
Banks) shall endeavor to adjust the Borrowing Base pursuant to
the procedures set forth in Section 1.03(b) hereof.
(d) Redetermination. If so requested by the Majority
Banks or the Company at any time, the Agent shall, as promptly as
reasonably practicable after the receipt of such request,
endeavor to redetermine (in consultation with the Company and the
Banks) the Borrowing Base as then in effect on the basis of the
then most recent Reserve Evaluation Report (subject, however, to
such additional adjustments to the rates, factors, values,
estimates, assumptions and computations as set forth therein as
the Agent, with the concurrence of the Majority Banks, may
determine to be appropriate) and any other relevant information
and factors, including, without limitation, any additional
Indebtedness or other obligations that have been or are
reasonably anticipated to be incurred by the Company and its
Subsidiaries and any Hydrocarbon Properties acquired by the
Company and its Subsidiaries which are not subject to any Lien
other than Liens created hereunder or under the Security
Documents, Liens permitted by Section 9.06 hereof, that the
Majority Banks may deem appropriate and otherwise as provided in
Section 1.03(b) hereof, provided that no Hydrocarbon Properties
acquired by any Subsidiary of the Company (other than Forest I
Development Company) after the date hereof shall be included in
the calculation of the Borrowing Base unless such Subsidiary is a
Borrower under this Agreement.
<PAGE>
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(e) Determinations, Etc. All determinations and
redeterminations and adjustments by the Agent provided for above
in this Section 1.03 or in the definition of "Present Value of
Reserves" in Section 1.01 (and any determinations and decisions
by the Majority Banks in connection therewith, including any
thereof approving or disapproving a proposed redetermination or
redetermination by the Agent or effecting any adjustment to any
element included in a Reserve Evaluation Report or the determina
tion or redetermination of the Borrowing Base) shall be made on a
reasonable basis, in good faith and in a manner reasonably
consistent with the basis on which the initial Borrowing Base was
determined to be acceptable to the Banks (but after giving effect
to changes in facts and circumstance occurring after the date of
such initial determination including, but not limited to,
reserves and production, operating expenses and economic
assumptions with respect to price of hydrocarbons and inflation),
and any such determination, redetermination or adjustment shall
consider any other relevant information or factors, including
without limitation, any additional Indebtedness or other
obligations that may be incurred by the Company and its Subsidi
aries that the Majority Banks may deem appropriate, provided that
no Hydrocarbon Properties acquired by any Subsidiary of the
Company (other than Forest I Development Company) after the date
hereof shall be included in the calculation of the Borrowing Base
unless such Subsidiary is a Borrower under this Agreement.
1.04 Types of Loans. Loans hereunder are
distinguished by "Type". The "Type" of a Loan refers to whether
such Loan is a Base Rate Loan or a Eurodollar Loan, each of which
constitutes a Type.
1.05 Designation of Subsidiaries as Restricted or
Unrestricted Subsidiaries. The Company may, but only with the
approval of the Majority Banks, designate (by notice to the Agent
which shall promptly notify the Banks) a Restricted Subsidiary
(other than a Subsidiary Borrower) to be an Unrestricted
Subsidiary or an Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that the Company may, without such approval,
designate (by notice to the Agent which shall promptly notify the
Banks) a corporation or other entity that is formed or acquired
as a direct or indirect Subsidiary of the Company after the date
hereof (no part of the business or assets of which was owned by
the Company or a Restricted Subsidiary prior to the date of such
formation or acquisition) to be an Unrestricted Subsidiary on or
prior to the date of such formation or acquisition if, after
giving effect thereto, the Company would be in compliance with
its obligations with respect to such Subsidiary as an
Unrestricted Subsidiary under Section 9.19 hereof and no other
Default shall have occurred and be continuing.
<PAGE>
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1.06 References to Subsidiaries, Restricted
Subsidiaries and Unrestricted Subsidiaries in Connection with
Calculations of Certain Financial Ratios. References (whether in
the singular or the plural) to Subsidiaries, Restricted
Subsidiaries and Unrestricted Subsidiaries in the definitions of
"Cash Flow", "Debt Service" and "Interest Expense" in Section
1.01 hereof shall, for purposes of calculating Cash Flow, Debt
Service or Interest Expense (as the case may be) for a period or
part of a period ending prior to the date of this Agreement, be
deemed to refer to corporations or other entities that would have
been "Subsidiaries", "Restricted Subsidiaries" or "Unrestricted
Subsidiaries" (as the case may be) had this Agreement been in
effect on the first day of such period.
Section 2. Commitments, Loans, Notes and Prepayments.
2.01 Loans.
(a) Each Bank severally agrees, in accordance with the
terms and conditions of this Agreement, to make one or more loans
to the Borrowers in Dollars during the period from and including
the Closing Date to and including the Commitment Termination
Date, in an aggregate amount, as to all Borrowers, up to but not
exceeding the lesser of (x) the Commitment of such Bank and (y)
an amount equal to such Bank's Commitment Percentage multiplied
by the Borrowing Base determined pursuant to the immediately
preceding Reserve Evaluation Report; provided that (i) in no
event shall the aggregate principal amount of all Loans, together
with the aggregate amount of all Letter of Credit Liabilities,
exceed the lesser of (x) the aggregate amount of the Commitments
as in effect from time to time any (y) the Borrowing Base
determined pursuant to the immediately preceding Reserve
Evaluation Report and (ii) the Borrowers may not borrow Loans or
obtain Letters of Credit under this Agreement at any time while a
Borrowing Base Deficiency exists. The aggregate of the
Commitments of the Banks on the date hereof is $50,000,000.
(b) Subject to the terms and conditions of this
Agreement, during the period from and including the Closing Date
to but not including the Commitment Termination Date, the
Borrowers may borrow, repay and reborrow the Loans by means of
Base Rate Loans and Eurodollar Loans, and may Convert Loans of
one Type into Loans of another Type (as provided in Section 2.08
hereof) or Continue Loans of one Type as Loans of the same Type
(as provided in Section 2.08 hereof); provided that no more than
three separate Interest Periods in respect of Eurodollar Loans
may be outstanding at any one time.
(c) Notwithstanding any provision of this Section 2.01
to the contrary, the aggregate amount of Letter of Credit
Liabilities outstanding under this Agreement shall not at any
<PAGE>
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time exceed the lesser of (i) $10,000,000 and (ii) the aggregate
of the Commitments.
2.02 Borrowings. The Company shall give the Agent
(which shall promptly notify the Banks) notice of each borrowing
hereunder as provided in Section 4.05 hereof. Not later than
1:00 p.m. New York time on the date specified for each borrowing
hereunder, each Bank shall make available the amount of the Loan
or Loans to be made by it on such date to the Agent, at account
number NYAO-DI-900-9-000036 maintained by the Agent with Chase at
the Principal Office, in immediately available funds, for account
of the Borrowers. The amount so received by the Agent shall,
subject to the terms and conditions of this Agreement, be made
available to the Borrowers by depositing the same, in immediately
available funds, in an account of the Borrowers maintained with
Chase at the Principal Office designated by the Company.
2.03 Letters of Credit. Subject to the terms and
conditions of this Agreement, the Commitments may be utilized,
upon the request of the Company, in addition to the Loans
provided for by Section 2.01(a) hereof, for the issuance by the
Issuing Bank of letters of credit (collectively, "Letters of
Credit") for account of the Borrowers, provided that in no event
shall (i) the aggregate amount of all Letter of Credit
Liabilities, together with the aggregate principal amount of the
Loans, exceed the lesser of (A) the aggregate of the Commitments
and (B) the Borrowing Base as determined pursuant to the
immediately preceding Reserve Evaluation Report, (ii) the
outstanding aggregate amount of all Letter of Credit Liabilities
exceed $10,000,000 and (iii) the expiration date of any Letter of
Credit extend beyond the earlier of the Commitment Termination
Date and the date 12 months following the issuance of such Letter
of Credit. The following additional provisions shall apply to
Letters of Credit:
(a) The Company shall give the Agent at least three
Business Days' irrevocable prior notice (effective upon
receipt) specifying the Business Day (which shall be no
later than 30 days preceding the Commitment Termination
Date) each Letter of Credit is to be issued and the account
party or parties therefor and describing in reasonable
detail the proposed terms of such Letter of Credit
(including the beneficiary thereof) and the nature of the
transactions or obligations proposed to be supported thereby
(including whether such Letter of Credit is to be a commer
cial letter of credit or a standby letter of credit). Upon
receipt of any such notice, the Agent shall advise the
Issuing Bank of the contents thereof.
(b) 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
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terminated, the Commitment of each Bank shall be deemed to
be utilized for all purposes of this Agreement in an amount
equal to such Bank's Commitment Percentage of the then
undrawn face amount of such Letter of Credit. Each Bank
(other than the Issuing Bank) agrees that, upon the issuance
of any Letter of Credit hereunder, it shall automatically
acquire a participation in the Issuing Bank's liability
under such Letter of Credit in an amount equal to such
Bank's applicable Commitment Percentage of such liability,
and each such Bank (other than the Issuing Bank) thereby
shall absolutely, unconditionally and irrevocably assume, as
primary obligor and not as surety, and shall be
unconditionally obligated to the Issuing Bank to pay and
discharge when due, its Commitment Percentage of the Issuing
Bank's liability under such Letter of Credit.
(c) Upon receipt from the beneficiary of any Letter of
Credit of any demand for payment under such Letter of
Credit, the Issuing Bank shall promptly notify the Company
(through the Agent) of the amount to be paid by the Issuing
Bank as a result of such demand and the date on which
payment is to be made by the Issuing Bank to such bene
ficiary in respect of such demand. Notwithstanding the
identity of the account party of any Letter of Credit, the
Borrowers hereby jointly and severally unconditionally agree
to pay and reimburse the Agent for account of the Issuing
Bank for the amount of each demand for payment under such
Letter of Credit at or prior to the date on which payment is
to be made by the Issuing Bank to the beneficiary there
under, without presentment, demand, protest or other
formalities of any kind.
(d) Forthwith upon its receipt of a notice referred to
in clause (c) of this Section 2.03, the Company shall advise
the Agent whether or not the Borrowers intend to borrow
hereunder to finance their obligations to reimburse the
Issuing Bank for the amount of the related demand for
payment and, if it does, submit a notice of such borrowing
as provided in Section 4.05 hereof. In the event that the
Company fails to so advise the Agent, or if the Borrowers
fail to reimburse the Issuing Bank for a demand for payment
under a Letter of Credit by the date of such payment, the
Agent shall give each Bank prompt notice of the amount of
the demand for payment, specifying such Bank's Commitment
Percentage of the amount of the related demand for payment.
(e) Each Bank (other than the Issuing Bank) shall pay
to the Agent for the account of the Issuing Bank at the
Principal Office in Dollars and in immediately available
funds, the amount of such Bank's Commitment Percentage of
any payment under a Letter of Credit upon notice by the
Issuing Bank (through the Agent) to such Bank requesting
<PAGE>
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such payment and specifying such amount. Each Bank's
obligation to make such payments to the Agent for account of
the Issuing Bank under this clause (e), and the Issuing
Bank's right to receive the same, shall be absolute and
unconditional and shall not be affected by any circumstance
whatsoever, including, without limitation, (i) the failure
of any other Bank to make its payment under this clause (e),
the financial condition of the Borrowers and the other
Obligors (or any other account party), the existence of any
Default or (ii) the termination of the Commitments. Each
such payment to the Issuing Bank shall be made without any
offset, abatement, withholding or reduction whatsoever. If
any Bank shall default in its obligation to make any such
payment to the Agent for account of the Issuing Bank, for so
long as such default shall continue the Agent shall at the
request of the Issuing Bank withhold from any payments
received by the Agent under this Agreement or any Note for
account of such Bank the amount so in default and the Agent
shall pay the same to the Issuing Bank in satisfaction of
such defaulted obligation.
(f) Upon the making of each payment by a Bank to the
Issuing Bank pursuant to clause (e) above in respect of any
Letter of Credit, such Bank shall, automatically and without
any further action on the part of the Agent, the Issuing
Bank or such Bank, acquire (i) a participation in an amount
equal to such payment in the Reimbursement Obligation owing
to the Issuing Bank by such Borrower hereunder and under the
Letter of Credit Documents relating to such Letter of Credit
and (ii) a participation in a percentage equal to such
Bank's Commitment Percentage of its Commitment in any
interest or other amounts payable by such Borrower hereunder
and under such Letter of Credit Documents in respect of such
Reimbursement Obligation (other than the commissions,
charges, costs and expenses payable to the Issuing Bank
pursuant to clause (g) of this Section 2.03). Upon receipt
by the Issuing Bank from or for account of such Borrower of
any payment in respect of any Reimbursement Obligation or
any such interest or other amount (including by way of
setoff or application of proceeds of any collateral
security) the Issuing Bank shall promptly pay to the Agent
for account of each Bank, such Bank's Commitment Percentage
of its Commitment of such payment, each such payment by the
Issuing Bank to be made in the same money and funds in which
received by the Issuing Bank. In the event any payment
received by the Issuing Bank and so paid to the Banks
hereunder is rescinded or must otherwise be returned by the
Issuing Bank, each Bank shall, upon the request of the
Issuing Bank (through the Agent), repay to the Issuing Bank
(through the Agent) the amount of such payment paid to such
Bank, with interest at the rate specified in clause (j) of
this Section 2.03.
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(g) The Borrowers jointly and severally agree to pay
to the Agent for account of the Issuing Bank in respect of
each Letter of Credit issued to such Borrower an issuance
fee in an amount equal to 1.25% per annum of the daily
average undrawn face amount of such Letter of Credit for the
period from and including the date of issuance of such
Letter of Credit to and including the date such Letter of
Credit is drawn in full, expires or is terminated (such fee
to be non-refundable, to be paid in arrears on each
Quarterly Date and on the Commitment Termination Date and to
be calculated, for any day, after giving effect to any
payments made under such Letter of Credit on such day). The
Issuing Bank shall pay to the Agent for account of each Bank
(other than the Issuing Bank), from time to time at
reasonable intervals (but in any event at least quarterly),
but only to the extent actually received from the Borrowers,
an amount equal to such Bank's Commitment Percentage of all
such fees in respect of each Letter of Credit (including any
such fee in respect of any period of any renewal or
extension thereof). In addition, the Borrowers jointly and
severally agree to pay to the Agent for account of the
Issuing Bank a fronting fee in respect of each Letter of
Credit in an amount equal to the greater of (i) $1,000 and
(ii) 1/2 of 1% per annum of the daily average undrawn face
amount of such Letter of Credit for the period from and
including the date of issuance of such Letter of Credit to
and including the date such Letter of Credit is drawn in
full, expires or is terminated (such fee to be
non-refundable, $1,000 of such fee to be paid on the date of
the issuance of such Letter of Credit, with the balance, if
any, to be paid in arrears on each Quarterly Date and on the
Commitment Termination Date and to be calculated, for any
day, after giving effect to any payments made under such
Letter of Credit on such day) plus all commissions, charges,
costs and expenses in the amounts customarily charged by the
Issuing Bank from time to time in like circumstances with
respect to the issuance of each Letter of Credit and
drawings and other transactions relating thereto.
(h) Promptly following the end of each calendar month,
the Issuing Bank shall deliver (through the Agent) to each
Bank and the Company notice describing the aggregate amount
of all Letters of Credit outstanding at the end of such
month. Upon the request of any Bank from time to time, the
Issuing Bank shall deliver any other information in its
possession reasonably requested by such Bank with respect to
each Letter of Credit then outstanding.
(i) The issuance by the Issuing Bank of each Letter of
Credit shall, in addition to the conditions precedent set
forth in Section 7 hereof, be subject to the conditions
precedent that (i) such Letter of Credit shall be in such
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form, contain such terms and support such transactions as
shall be satisfactory to the Issuing Bank consistent with
its then current practices and procedures with respect to
letters of credit of the same type and (ii) each Borrower
shall have executed and delivered such applications,
agreements and other instruments relating to such Letter of
Credit as the Issuing Bank shall have reasonably requested
consistent with its then current practices and procedures
with respect to letters of credit of the same type, provided
that in the event of any conflict between any such
application, agreement or other instrument and the
provisions of this Agreement or any Security Document, the
provisions of this Agreement and the Security Documents
shall control.
(j) To the extent that any Bank fails to pay any
amount required to be paid pursuant to clause (e) or (f) of
this Section 2.03 on the due date therefor, such Bank shall
pay interest to the Issuing Bank (through the Agent) on such
amount from and including such due date to but excluding the
date such payment is made (i) during the period from and
including such due date to but excluding the date three
Business Days thereafter, at a rate per annum equal to the
Federal Funds Rate (as in effect from time to time) and
(ii) thereafter, at a rate per annum equal to the Base Rate
(as in effect from time to time) plus 2%.
(k) The issuance by the Issuing Bank of any modifica
tion or supplement to any Letter of Credit hereunder shall
be subject to the same conditions applicable under this
Section 2.03 to the issuance of new Letters of Credit, and
no such modification or supplement shall be issued hereunder
unless either (x) the respective Letter of Credit affected
thereby would have complied with such conditions had it
originally been issued hereunder in such modified or
supplemented form or (y) each Bank shall have consented
thereto.
The Borrowers hereby jointly and severally indemnify and hold
harmless each Bank and the Agent from and against any and all
claims and damages, losses, liabilities, costs or expenses which
such Bank or the Agent may incur (or which may be claimed against
such Bank or the Agent by any Person whatsoever) by reason of or
in connection with the execution and delivery or transfer of or
payment or refusal to pay by the Issuing Bank under any Letter of
Credit; provided that the Borrowers shall not be required to
indemnify any Bank or the Agent for any claims, damages, losses,
liabilities, costs or expenses to the extent caused by (x) the
willful misconduct or gross negligence of the Issuing Bank in
determining whether a request presented under any Letter of
Credit complied with the terms of such Letter of Credit or (y) in
the case of the Issuing Bank, such Bank's failure to pay under
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any Letter of Credit after the presentation to it of a request
strictly complying with the terms and conditions of such Letter
of Credit. Nothing in this Section 2.03 is intended to limit the
other obligations of the Borrowers, any Bank or the Agent under
this Agreement.
2.04 Changes of Commitments.
(a) The aggregate amount of the Commitments shall be
automatically reduced to zero on the Commitment Termination Date.
(b) The Borrowers shall have the right at any time or
from time to time (i) so long as no Loans or Letter of Credit
Liabilities are outstanding, to terminate the Commitments and
(ii) to reduce the aggregate unused amount of the Commitments
(for which purpose use of the Commitments shall be deemed to
include the aggregate amount of Letter of Credit Liabilities);
provided that (x) the Company shall give notice of each such
termination or reduction as provided in Section 4.05 hereof and
(y) each partial reduction shall be in an aggregate amount at
least equal to $1,000,000 or in multiples of $500,000 in excess
thereof.
(c) The Commitments once terminated or reduced may not
be reinstated.
2.05 Commitment Fee. The Borrowers shall pay to the
Agent for account of each Bank a commitment fee on the daily
average unused amount of the difference, if any, between (x) each
Bank's outstanding Loans and (y) an amount equal to such Bank's
Commitment Percentage multiplied by the Borrowing Base determined
pursuant to the immediately preceding Reserve Evaluation Report
(the "Available Borrowing Amount") (for which purpose the
aggregate amount of any Letter of Credit Liabilities shall be
deemed to be a pro rata use of each Bank's Available Borrowing
Amount) for the period from and including the date of this
Agreement to but not including the earlier of the date such
Bank's Commitment is terminated and the Commitment Termination
Date, at a rate per annum equal to 1/2 of 1%. Accrued commitment
fee shall be payable on each Quarterly Date and on the earlier of
the date the Commitments are terminated and the Commitment
Termination Date.
2.06 Lending Offices. The Loans of each Type made by
each Bank shall be made and maintained at such Bank's Applicable
Lending Office for Loans of such Type.
2.07 Several Obligations; Remedies Independent. The
failure of any Bank to make any Loan to be made by it on the date
specified therefor shall not relieve any other Bank of its
obligation to make its Loan on such date, but neither any Bank
nor the Agent shall be responsible for the failure of any other
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Bank to make a Loan to be made by such other Bank, and no Bank
shall have any obligation to the Agent or any other Bank for the
failure by such Bank to make any Loan required to be made by such
Bank. The amounts payable by the Borrowers at any time hereunder
and under the Notes to each Bank shall be a separate and
independent debt and each Bank shall be entitled to protect and
enforce its rights arising out of this Agreement and the Notes,
and it shall not be necessary for any other Bank or the Agent to
consent to, or be joined as an additional party in, any
proceedings for such purposes.
2.08 Notes.
(a) The Loans made by each Bank shall be evidenced by
a single promissory note of the Borrowers substantially in the
form of Exhibit A hereto, dated the date hereof, payable to such
Bank in a principal amount equal to the amount of its Commitment
as originally in effect and otherwise duly completed.
(b) The date, amount, Type, interest rate and duration
of Interest Period (if applicable) of each Loan made by each Bank
to the Borrowers, and each payment made on account of the
principal thereof, shall be recorded by such Bank on its books
and, prior to any transfer of the Note evidencing the Loans held
by it, endorsed by such Bank on the schedule attached to such
Note or any continuation thereof; provided that the failure of
such Bank to make any such recordation or endorsement shall not
affect the obligations of the Borrowers to make a payment when
due of any amount owing hereunder or under such Note in respect
of the Loans evidenced by such Note.
(c) No Bank shall be entitled to have its Notes
subdivided, by exchange for promissory notes of lesser
denominations or otherwise, except in connection with a permitted
assignment of all or any portion of such Bank's Commitment, Loans
and Note pursuant to Section 12.06(b) hereof.
2.09 Optional Prepayments and Conversions or
Continuations of Loans. Subject to Section 4.04 hereof, the
Borrowers shall have the right to prepay Loans, or to Convert
Loans of one Type into Loans of another Type or Continue Loans of
one Type as Loans of the same Type, at any time or from time to
time, provided that: (a) the Company shall give the Agent notice
of each such prepayment, Conversion or Continuation as provided
in Section 4.05 hereof (and, upon the date specified in any such
notice of prepayment, the amount to be prepaid shall become due
and payable hereunder); and (b) Eurodollar Loans may be prepaid
or Converted only on the last day of an Interest Period for such
Loans. Notwithstanding the foregoing, and without limiting the
rights and remedies of the Banks under Section 10 hereof, in the
event that any Event of Default shall have occurred and be
continuing, the Agent may (and at the request of the Majority
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Banks shall) by notice to the Company suspend the right of the
Borrowers to Convert any Loan into a Eurodollar Loan, or to
Continue any Loan as a Eurodollar Loan, in which event all Loans
shall be Converted (on the last day(s) of the respective Interest
Periods therefor) or Continued, as the case may be, as Base Rate
Loans.
2.10 Mandatory Prepayments and Reductions of
Commitments.
(a) Borrowing Base. The Agent shall notify the
Borrowers (in a "Deficiency Notice") any time the Borrowing Base
as then in effect is less than the aggregate principal amount of
the Loans and Letter of Credit Liabilities outstanding at such
time (the amount of such difference being called herein the
"Borrowing Base Deficiency") and within 30 days after the date of
the Deficiency Notice the Company shall notify the Agent of the
Borrowers' intentions with respect to compliance with the
procedures set forth in this Section 2.10(a). As specified in
such notice from the Borrowers, the Borrowers shall (within 90
days after the date of the Deficiency Notice) (i) prepay (in
accordance with the procedures of this Agreement) the outstanding
principal of the Loans and, if all of the Loans have been prepaid
and a Borrowing Base Deficiency still exists, provide cover for
Letter of Credit Liabilities in an amount equal to such
Deficiency as specified in clause (e) below and/or (ii) add to
the Hydrocarbon Properties included in the Mortgaged Properties
(each such additional Property to have a Present Value of
Reserves at least equal to $1,000,000) having a loan value, as
determined by the Majority Banks, in an amount sufficient so that
the aggregate amount of such prepayments and the loan value of
such additional Properties shall equal or exceed the Borrowing
Base Deficiency (any such additional Property to be deemed added
to the Hydrocarbon Properties on the date the Borrowers deliver
to the Agent a written commitment to subject such additional
Property to the Lien of the Mortgages). The Borrowers shall,
within 120 days of receipt of notice from the Agent that the
Properties to be added to the Borrowing Base are acceptable to
the Majority Banks, subject such Properties to the Lien of the
Mortgages pursuant to documentation and otherwise in a manner
satisfactory to the Majority Banks.
(b) Casualty Events. Upon the date 30 days following
the receipt by the Company or any of its Subsidiaries of the
proceeds of insurance, condemnation award or other compensation
in respect of any Casualty Event affecting any Hydrocarbon
Property other than Unrestricted Properties of any Borrower, the
Borrowers (jointly and severally) shall prepay the Loans (and/or
provide cover for Letter of Credit Liabilities as specified in
clause (e) below), and the Commitments shall be subject to
automatic reduction, in an aggregate amount, if any, equal to
100% of the Net Available Proceeds of such Casualty Event not
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theretofore applied to the repair or replacement of such
Hydrocarbon Property, or such lesser amount as is specified in a
written notice from the Majority Banks, such prepayment and
reduction to be effected in each case in the manner and to the
extent specified in clause (d) of this Section 2.10. Nothing in
this clause (b) shall be deemed to limit any obligation of the
Company and any of its Subsidiaries pursuant to any of the
Security Documents to remit to a collateral or similar account
(including, without limitation, the Collateral Account)
maintained by the Agent pursuant to any of the Security Documents
the proceeds of insurance, condemnation award or other
compensation received in respect of any Casualty Event.
(c) Sale of Assets. Without limiting the obligation
of the Obligors to obtain the consent of the Majority Banks
pursuant to Section 9.05 hereof to any Disposition not otherwise
permitted hereunder, no later than five Business Days prior to
the occurrence of any Disposition, the Company, on behalf of the
applicable Obligor will deliver to the Banks a statement,
certified by the chief financial officer or treasurer of the
Company, in form and detail satisfactory to the Agent, of the
amount of the Net Available Proceeds of such Disposition and, to
the extent such Net Available Proceeds (when taken together with
the Net Available Proceeds of all prior Dispositions as to which
a prepayment has not yet been made under this Section 2.10(c))
shall exceed $1,000,000, the Borrowers (jointly and severally)
shall prepay the Loans (and/or provide cover for Letter of Credit
Liabilities as specified in clause (e) below), and the
Commitments shall be subject to automatic reduction, in an
aggregate amount equal to 100% of the Net Available Proceeds of
such Disposition, or such lesser amount as is specified in a
written notice from the Majority Banks (together with 100%, or
such lesser amount as is specified in a written notice from the
Majority Banks, of the Net Available Proceeds of all prior
Dispositions as to which a prepayment has not yet been made under
this Section 2.10(c)), such prepayment and reduction to be
effected in each case in the manner and to the extent specified
in clause (d) of this Section 2.10. Notwithstanding the
forgoing, the Company shall not be required to prepay the Loans
(and/or provide cover for the Letter of Credit Liabilities
pursuant to Section 2.10(e) hereof), and the Commitments shall
not be subject to automatic reduction upon any sale of Property,
other than Mortgaged Property, pursuant to Section 9.05 hereof.
(d) Application. Prepayments and reductions of
Commitments described in the above clauses of this Section 2.10
shall be effected as follows: the Commitments shall be
automatically reduced by an amount equal to the amount specified
in such clauses (and to the extent that, after giving effect to
such reduction, the aggregate principal amount of the Loans,
together with the aggregate amount of all Letter of Credit
Liabilities, would exceed the Commitments, the Borrowers shall
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first, prepay the Loans and second, provide cover for Letter of
Credit Liabilities with respect to the Commitments as specified
in clause (e) below, in an aggregate amount equal to such
excess).
(e) Cover for Letter of Credit Liabilities. In the
event that the Borrowers shall be required pursuant to this
Section 2.10, or pursuant to Section 3.01 or 5.07(c) hereof, to
provide cover for Letter of Credit Liabilities, the Borrowers
shall effect the same by paying to the Agent immediately
available funds in an amount equal to the required amount, which
funds shall be retained by the Agent in the Collateral Account
(as provided in Section 4.04 of the Security Agreement as
collateral security in the first instance for the Letter of
Credit Liabilities) until such time as the Letters of Credit
shall have been terminated and all of the Letter of Credit
Liabilities have been paid in full.
Section 3. Payments of Principal and Interest.
3.01 Repayment of Loans. The Borrowers hereby jointly
and severally promise to pay to the Agent for the account of each
Bank the entire outstanding principal amount of such Bank's
Loans, and each Loan shall mature, on the Commitment Termination
Date. In addition, if following any reduction in the
Commitments, the aggregate principal amount of the Loans,
together with the aggregate amount of all Letter of Credit
Liabilities shall exceed the Commitments, the Borrowers shall
first, prepay Loans and second, provide cover for Letter of
Credit Liabilities with respect to the Commitments as specified
in Section 2.10(e) above, in an aggregate amount equal to such
excess.
3.02 Interest. The Borrowers hereby jointly and
severally promise to pay to the Agent for the account of each
Bank interest on the unpaid principal amount of each Loan made by
such Bank for the period from and including the date of such Loan
to but excluding the date such Loan shall be paid in full, at the
following rates per annum:
(a) during such periods as such Loan is a Base Rate
Loan, the Base Rate (as in effect from time to time) plus
the Applicable Margin, and
(b) during such periods as such Loan is a Eurodollar
Loan, for each Interest Period relating thereto, the
Eurodollar Rate for such Loan for such Interest Period plus
the Applicable Margin.
Notwithstanding the foregoing, the Borrowers hereby jointly and
severally promise to pay to the Agent for account of each Bank
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interest at the applicable Post-Default Rate on any principal of
any Loan made by such Bank, on any Reimbursement Obligation held
by such Bank and on any other amount payable by the Borrowers
hereunder or under the Note held by such Bank to or for account
of such Bank, which shall not be paid in full when due (whether
at stated maturity, by acceleration, by mandatory prepayment or
otherwise), for the period from and including the due date
thereof to but excluding the date the same is paid in full.
Accrued interest on each Loan shall be payable (i) in the case of
a Base Rate Loan, quarterly on the Quarterly Dates, (ii) in the
case of a Eurodollar Loan, on the last day of each Interest
Period therefor and (iii) in the case of any Loan, upon the
payment or prepayment thereof or the Conversion of such Loan to a
Loan of another Type (but only on the principal amount so paid,
prepaid or Converted), except that interest payable at the
Post-Default Rate shall be payable from time to time on demand.
Promptly after the determination of any interest rate provided
for herein or any change therein, the Agent shall give notice
thereof to the Banks to which such interest is payable and to the
Company.
Section 4. Payments; Pro Rata Treatment; Computations;
Etc.
4.01 Payments.
(a) Except to the extent otherwise provided herein,
all payments of principal, interest, Reimbursement Obligations
and other amounts to be made by the Borrowers under this
Agreement and the Notes, and, except to the extent otherwise
provided therein, all payments to be made by the Obligors under
any other Basic Document, shall be made in Dollars, in
immediately available funds, without deduction, set-off or
counterclaim, to the Agent at account number NYAO-DI-900-9-000036
maintained by the Agent with Chase at the Principal Office, not
later than 1:00 p.m. New York time on the date on which such
payment shall become due (each such payment made after such time
on such due date to be deemed to have been made on the next
succeeding Business Day).
(b) Any Bank for whose account any such payment is to
be made may (but shall not be obligated to) debit the amount of
any such payment that is not made by such time to any ordinary
deposit account of one or more of the Borrowers with such Bank
(with notice to the Borrowers, through the Company, and the
Agent).
(c) The Company shall, at the time of making each
payment under this Agreement or any Note for the account of any
Bank, specify to the Agent (which shall so notify the intended
recipient(s) thereof) the Loans, Reimbursement Obligations or
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other amounts payable by the Borrowers hereunder to which such
payment is to be applied (and in the event that the Company fail
to so specify, or if an Event of Default has occurred and is
continuing, the Agent may distribute such payment to the Banks
for application in such manner as it or the Majority Banks,
subject to Section 4.02 hereof, may determine to be appropriate).
(d) Except to the extent otherwise provided in the
last sentence of Section 2.03(e) hereof, each payment received by
the Agent under this Agreement or any Note for account of any
Bank shall be paid by the Agent promptly to such Bank, in
immediately available funds, for account of such Bank's
Applicable Lending Office for the Loan or other obligation in
respect of which such payment is made.
(e) If the due date of any payment under this
Agreement or any Note would otherwise fall on a day that is not a
Business Day, such date shall be extended to the next succeeding
Business Day, and interest shall be payable for any principal so
extended for the period of such extension.
4.02 Pro Rata Treatment. Except to the extent
otherwise provided herein: (a) each borrowing of Loans from the
Banks under Section 2.01 hereof shall be made from the Banks,
each payment of commitment fee under Section 2.05 hereof in
respect of Commitments shall be made for account of the Banks,
and each termination or reduction of the amount of the Commit
ments under Section 2.04 hereof shall be applied to the
respective Commitments of the Banks, pro rata according to the
amounts of their respective Commitments; (b) the making,
Conversion and Continuation of Loans of a particular Type (other
than Conversions provided for by Section 5.04 hereof) shall be
made pro rata among the Banks according to the amounts of their
respective Commitments (in the case of the making of Loans) or
their respective Loans (in the case of Conversions and
Continuations of Loans) and the then current Interest Period for
each Eurodollar Loan shall be coterminous; (c) each payment or
prepayment of principal of Loans by the Borrowers shall be made
for the account of the Banks pro rata in accordance with the
respective unpaid principal amounts of the Loans held by them;
provided that if immediately prior to giving effect to any such
payment in respect of any Loans the outstanding principal amount
of the Loans shall not be held by the Banks pro rata in
accordance with their respective Commitments in effect at the
time such Loans were made (whether by reason of a failure of a
Bank to make a Loan hereunder in the circumstances described in
the last paragraph of Section 12.04 hereof or otherwise), then
such payment shall be applied to the Loans in such manner as
shall result, as nearly as is practicable, in the outstanding
principal amount of the Loans being held by the Banks pro rata in
accordance with their respective Commitments; and (d) each
payment of interest on Loans by the Borrowers shall be made for
<PAGE>
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account of the Banks pro rata in accordance with the amounts of
interest on such Loans then due and payable to the respective
Banks.
4.03 Computations. Interest on Eurodollar Loans and
commitment fee and letter of credit fees shall be computed on the
basis of a year of 360 days and actual days elapsed (including
the first day but excluding the last day) occurring in the period
for which payable and interest on Base Rate Loans and Reimburse
ment Obligations shall be computed on the basis of a year of 365
or 366 days, as the case may be, and actual days elapsed
(including the first day but excluding the last day) occurring in
the period for which payable. Notwithstanding the foregoing, for
each day that the Base Rate is calculated by reference to the
Federal Funds Rate, interest on Base Rate Loans and Reimbursement
Obligations shall be computed on the basis of a year of 360 days
and actual days elapsed.
4.04 Minimum Amounts. Except for mandatory prepay
ments made pursuant to Section 2.10 hereof and Conversions or
prepayments made pursuant to Section 5.04 hereof, each borrowing,
Conversion and partial prepayment of principal of Loans shall be
in an aggregate amount at least equal to $500,000 or in multiples
of $100,000 in excess thereof (borrowings, Conversions or prepay
ments of or into Loans of different Types or, in the case of
Eurodollar Loans, having different Interest Periods at the same
time hereunder to be deemed separate borrowings, Conversions and
prepayments for purposes of the foregoing, one for each Type or
Interest Period).
4.05 Certain Notices. Notices by the Borrowers to the
Agent of terminations or reductions of the Commitments and of
borrowings, Conversions, Continuations and optional prepayments
of Loans, of Types of Loans and of the duration of Interest
Periods shall be irrevocable and shall be effective only if
received by the Agent not later than 11:00 a.m. New York time on
the number of Business Days prior to the date of the relevant
termination, reduction, borrowing, Conversion, Continuation or
prepayment or the first day of such Interest Period specified
below:
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Number of
Business
Notice Days Prior
------ ----------
Termination or reduction 2
of Commitments
Borrowing or prepayment of 1
Base Rate Loans
Borrowing or prepayment of, 3
Conversions of or into,
Continuations as, or duration
of Interest Period for,
Eurodollar Loans
Each such notice of termination or reduction shall specify the
amount of the Commitments to be terminated or reduced. Each such
notice of borrowing, Conversion, Continuation or optional
prepayment shall specify the Loans to be borrowed, Converted,
Continued or prepaid and the amount (subject to Section 4.04
hereof) and Type of each Loan to be borrowed, Converted,
Continued or prepaid and the date of borrowing, Conversion,
Continuation or optional prepayment (which shall be a Business
Day). Each such notice of the duration of an Interest Period
shall specify the Loans to which such Interest Period is to
relate. The Agent shall promptly notify the Banks of the
contents of each such notice. In the event that the Borrowers
fail to select the Type of Loan, or the duration of any Interest
Period for any Eurodollar Loan, within the time period and
otherwise as provided in this Section 4.05, such Loan (if
outstanding as a Eurodollar Loan) will be automatically Converted
into a Base Rate Loan on the last day of the then current
Interest Period for such Loan or (if outstanding as a Base Rate
Loan) will remain as, or (if not then outstanding) will be made
as, a Base Rate Loan.
4.06 Non-Receipt of Funds by the Agent. Unless the
Agent shall have been notified by a Bank or a Borrower (the
"Payor") prior to the date on which the Payor is to make payment
to the Agent of (in the case of a Bank) the proceeds of a Loan to
be made by such Bank, or a participation in a Letter of Credit
drawing to be acquired by such Bank, hereunder or (in the case of
the Borrowers) a payment to the Agent for account of one or more
of the Banks hereunder (such payment being herein called the
"Required Payment"), which notice shall be effective upon
receipt, that the Payor does not intend to make the Required
Payment to the Agent, the Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption
(but shall not be required to), make the amount thereof available
to the intended recipient(s) on such date; and, if the Payor has
<PAGE>
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not in fact made the Required Payment to the Agent, the
recipient(s) of such payment shall, on demand, repay to the Agent
the amount so made available together with interest thereon in
respect of each day during the period commencing on the date (the
"Advance Date") such amount was so made available by the Agent
until the date the Agent recovers such amount at a rate per annum
equal to the Federal Funds Rate for such day and, if such
recipient(s) shall fail promptly to make such payment, the Agent
shall be entitled to recover such amount, on demand, from the
Payor, together with interest as aforesaid, provided that if
neither the recipient(s) nor the Payor shall return the Required
Payment to the Agent within three Business Days of the Advance
Date, then, retroactively to the Advance Date, the Payor and the
recipient(s) shall each be obligated to pay interest on the
Required Payment as follows:
(i) if the Required Payment shall represent a payment
to be made by the Borrowers to the Banks, the Borrowers
(jointly and severally) and the recipient(s) shall each be
obligated retroactively to the Advance Date to pay interest
in respect of the Required Payment at the Post-Default Rate
(and, in case the recipient(s) shall return the Required
Payment to the Agent, without limiting the obligation of the
Borrowers under Section 3.02 hereof to pay interest to such
recipient(s) at the Post-Default Rate in respect of the
Required Payment) and
(ii) if the Required Payment shall represent proceeds
of a loan to be made by a Bank to the Borrowers, the Payor
and the Borrowers shall each be obligated retroactively to
the Advance Date to pay interest in respect of the Required
Payment at the rate of interest provided for such Required
Payment pursuant to Section 3.02 hereof (and, in case the
Borrowers shall return the Required Payment to the Agent,
without limiting any claim the Borrowers may have against
the Payor in respect of the Required Payment);
provided that the Agent shall only be entitled to retain interest
in respect of a Required Payment pursuant to clause (i) or
(ii) above from either the Payor or the recipient.
4.07 Sharing of Payments, Etc.
(a) Each of the Obligors agrees that, in addition to
(and without limitation of) any right of set-off, banker's lien
or counterclaim a Bank may otherwise have, each Bank shall be
entitled, at its option, to offset balances held by it for
account of such Obligor at any of its offices, in Dollars or in
any other currency, against any principal of or interest on any
of such Bank's Loans, Reimbursement Obligations or any other
amount payable to such Bank hereunder, that is not paid when due
(regardless of whether such balances are then due to the
<PAGE>
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Borrowers), in which case it shall promptly notify such Obligor
(through the Company) and the Agent thereof, provided that such
Bank's failure to give such notice shall not affect the validity
thereof.
(b) If any Bank shall obtain from any Obligor payment
of any principal of or interest on any Loan or Letter of Credit
Liability owing to it or payment of any other amount under this
Agreement or any other Basic Document through the exercise of any
right of set-off, banker's lien or counterclaim or similar right
or otherwise (other than from the Agent as provided herein), and,
as a result of such payment, such Bank shall have received a
greater percentage of the principal of or interest on the Loans
or Letter of Credit Liabilities or such other amounts then due
hereunder or thereunder by such Obligor to such Bank than the
percentage received by any other Bank, it shall promptly purchase
from such other Banks participations in (or, if and to the extent
specified by such Bank, direct interests in) the Loans or Letter
of Credit Liabilities or such other amounts, respectively, owing
to such other Banks (or in interest due thereon, as the case may
be) in such amounts, and make such other adjustments from time to
time as shall be equitable, to the end that all the Banks shall
share the benefit of such excess payment (net of any expenses
that may be incurred by such Bank in obtaining or preserving such
excess payment) pro rata in accordance with the unpaid principal
of and/or interest on the Loans or Letter of Credit Liabilities
or such other amounts, respectively, owing to each of the Banks,
provided that if at the time of such payment the outstanding
principal amount of the Loans shall not be held by the Banks pro
rata in accordance with their respective Commitments in effect at
the time such Loans were made (whether by reason of a failure of
a Bank to make a Loan hereunder in the circumstances described in
the last paragraph of Section 12.04 hereof or otherwise), then
such purchases of participations and/or direct interests shall be
made in such manner as will result, as nearly as is practicable,
in the outstanding principal amount of the Loans being held by
the Banks pro rata according to the amounts of such Commitments.
To such end all the Banks shall make appropriate adjustments
among themselves (by the resale of participations sold or
otherwise) if such payment is rescinded or must otherwise be
restored.
(c) The Borrowers agree that any Bank so purchasing
such a participation (or direct interest) may exercise all rights
of set-off, banker's lien, counterclaim or similar rights with
respect to such participation as fully as if such Bank were a
direct holder of Loans or other amounts (as the case may be)
owing to such Bank in the amount of such participation.
(d) Nothing contained herein shall require any Bank to
exercise any such right or shall affect the right of any Bank to
exercise, and retain the benefits of exercising, any such right
<PAGE>
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with respect to any other indebtedness or obligation of any
Obligor. If, under any applicable bankruptcy, insolvency or
other similar law, any Bank receives a secured claim in lieu of a
set-off to which this Section 4.07 applies, such Bank shall, to
the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Banks
entitled under this Section 4.07 to share in the benefits of any
recovery on such secured claim.
Section 5. Yield Protection, Etc.
5.01 Additional Costs.
(a) The Borrowers (jointly and severally) shall pay
directly to each Bank from time to time such amounts as such Bank
may determine to be necessary to compensate such Bank for any
costs that such Bank determines are attributable to its making or
maintaining of any Eurodollar Loans or its obligation to make any
Eurodollar Loans hereunder, or any reduction in any amount
receivable by such Bank hereunder in respect of any of such Loans
or such obligation (such increases in costs and reductions in
amounts receivable being herein called "Additional Costs"),
resulting from any Regulatory Change that:
(i) changes the basis of taxation of any amounts
payable to such Bank under this Agreement or its Notes in
respect of any of such Loans (other than taxes imposed on or
measured by the overall net income of such Bank or of its
Applicable Lending Office for any of such Loans by the
jurisdiction in which such Bank has its principal office or
such Applicable Lending Office); or
(ii) imposes or modifies any reserve, special
deposit or similar requirements (other than the Reserve
Requirement utilized in the determination of the Eurodollar
Rate for such Loan) relating to any extensions of credit or
other assets of, or any deposits with or other liabilities
of, such Bank (including, without limitation, any of such
Loans or any deposits referred to in the definition of
"Eurodollar Base Rate" in Section 1.01 hereof), or any
commitment of such Bank (including, without limitation,
either of the Commitments of such Bank hereunder); or
(iii) imposes any other condition affecting this
Agreement or its Note (or any of such extensions of credit
or liabilities) or its Commitments.
If any Bank requests compensation from the Borrowers under this
Section 5.01(a), the Company may, by notice to such Bank (with a
copy to the Agent), suspend the obligation of such Bank
thereafter to make or Continue Eurodollar Loans, or to Convert
<PAGE>
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Prime Rate Loans into Eurodollar Loans, until the Regulatory
Change giving rise to such request ceases to be in effect (in
which case the provisions of Section 5.04 hereof shall be
applicable), provided that such suspension shall not affect the
right of such Bank to receive the compensation so requested.
(b) Without limiting the effect of the provisions of
paragraph (a) of this Section 5.01, in the event that, by reason
of any Regulatory Change, any Bank either (i) incurs Additional
Costs based on or measured by the excess above a specified level
of the amount of a category of deposits or other liabilities of
such Bank that includes deposits by reference to which the
interest rate on Eurodollar Loans is determined as provided in
this Agreement or a category of extensions of credit or other
assets of such Bank that includes Eurodollar Loans or
(ii) becomes subject to restrictions on the amount of such a
category of liabilities or assets that it may hold, then, if such
Bank so elects by notice to the Company (with a copy to the
Agent), the obligation of such Bank to make or Continue, or to
Convert Base Rate Loans into, Eurodollar Loans hereunder shall be
suspended until such Regulatory Change ceases to be in effect (in
which case the provisions of Section 5.04 hereof shall be
applicable).
(c) Without limiting the effect of the foregoing
provisions of this Section 5.01 (but without duplication), the
Borrowers (jointly and severally) shall pay directly to each Bank
from time to time on request such amounts as such Bank may
determine to be necessary to compensate such Bank (or, without
duplication, the bank holding company of which such Bank is a
subsidiary) for any costs that it determines are attributable to
the maintenance by such Bank (or any Applicable Lending Office or
such bank holding company), pursuant to any law or regulation or
any interpretation, directive or request (whether or not having
the force of law and whether or not failure to comply therewith
would be unlawful) of any court or governmental or monetary
authority (i) following any Regulatory Change or (ii) imple
menting any risk-based capital guideline or other requirement
(whether or not having the force of law and whether or not the
failure to comply therewith would be unlawful) heretofore or
hereafter issued by any government or governmental or supervisory
authority implementing at the national level the Basel Accord
(including, without limitation, the Final Risk-Based Capital
Guidelines of the Board of Governors of the Federal Reserve
System (12 C.F.R. Part 208, Appendix A; 12 C.F.R. Part 225,
Appendix A) and the Final Risk-Based Capital Guidelines of the
Office of the Comptroller of the Currency (12 C.F.R. Part 3,
Appendix A)), of capital in respect of its Commitment or Loans
(such compensation to include, without limitation, an amount
equal to any reduction of the rate of return on assets or equity
of such Bank (or any Applicable Lending Office or such bank
holding company) to a level below that which such Bank (or any
<PAGE>
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Applicable Lending Office or such bank holding company) could
have achieved but for such law, regulation, interpretation,
directive or request). For purposes of this Section 5.01(c) and
Section 5.06 hereof, "Basel Accord" shall mean the proposals for
risk-based capital framework described by the Basel Committee on
Banking Regulations and Supervisory Practices in its paper
entitled "International Convergence of Capital Measurement and
Capital Standards" dated July 1988, as amended, modified and
supplemented and in effect from time to time or any replacement
thereof.
(d) Each Bank shall notify the Company of any event
occurring after the date of this Agreement entitling such Bank to
compensation under paragraph (a) or (c) of this Section 5.01 as
promptly as practicable, but in any event within 45 days, after
such Bank obtains actual knowledge thereof; provided that (i) if
any Bank fails to give such notice within 45 days after it
obtains actual knowledge of such an event, such Bank shall, with
respect to compensation payable pursuant to this Section 5.01 in
respect of any costs resulting from such event, only be entitled
to payment under this Section 5.01 for costs incurred from and
after the date 45 days prior to the date that such Bank does give
such notice and (ii) each Bank will designate a different
Applicable Lending Office for the Loans of such Bank affected by
such event if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the sole
opinion of such Bank, be disadvantageous to such Bank, except
that such Bank shall have no obligation to designate an
Applicable Lending Office located in the United States of
America. Each Bank will furnish to the Borrowers a certificate
setting forth the basis and amount of each request by such Bank
for compensation under paragraph (a) or (c) of this Section 5.01.
Determinations and allocations by any Bank for purposes of this
Section 5.01 of the effect of any Regulatory Change pursuant to
paragraph (a) or (b) of this Section 5.01, or of the effect of
capital maintained pursuant to paragraph (c) of this
Section 5.01, on its costs or rate of return of maintaining Loans
or its obligation to make Loans, or on amounts receivable by it
in respect of Loans, and of the amounts required to compensate
such Bank under this Section 5.01, shall be conclusive, provided
that such determinations and allocations are made on a reasonable
basis.
5.02 Limitation on Types of Loans. Anything herein to
the contrary notwithstanding, if, on or prior to the determina
tion of any Eurodollar Base Rate for any Interest Period:
(a) the Agent determines, which determination shall be
conclusive, that quotations of interest rates for the
relevant deposits referred to in the definition of
"Eurodollar Base Rate" in Section 1.01 hereof are not being
provided in the relevant amounts or for the relevant
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maturities for purposes of determining rates of interest for
Eurodollar Loans as provided herein; or
(b) the Majority Banks determine, which determination
shall be conclusive, and notify the Agent that the relevant
rates of interest referred to in the definition of
"Eurodollar Base Rate" in Section 1.01 hereof upon the basis
of which the rate of interest for Eurodollar Loans for such
Interest Period is to be determined are not likely to be
adequate to cover the cost to such Banks of making or
maintaining Eurodollar Loans for such Interest Period;
then the Agent shall give the Company and each Bank prompt notice
thereof and, so long as such condition remains in effect, the
Banks shall be under no obligation to make additional Eurodollar
Loans, to Continue Eurodollar Loans or to Convert Base Rate Loans
into Eurodollar Loans, and the Borrowers shall, on the last
day(s) of the then current Interest Period(s) for the outstanding
Eurodollar Loans, either prepay such Loans or Convert such Loans
into Base Rate Loans in accordance with Section 2.09 hereof.
5.03 Illegality. Notwithstanding any other provision
of this Agreement, in the event that it becomes unlawful for any
Bank or its Applicable Lending Office to honor its obligation to
make or maintain Eurodollar Loans hereunder, then such Bank shall
promptly notify the Company thereof (with a copy to the Agent)
and such Bank's obligation to make or Continue, or to Convert
Loans of any other Type into, Eurodollar Loans shall be suspended
until such time as such Bank may again make and maintain
Eurodollar Loans (in which case the provisions of Section 5.04
hereof shall be applicable).
5.04 Treatment of Affected Loans. If the obligation
of any Bank to make Eurodollar Loans or to Continue, or to
Convert Base Rate Loans into, Eurodollar Loans shall be suspended
pursuant to Section 5.01 or 5.03 hereof, such Bank's Eurodollar
Loans shall be automatically Converted into Base Rate Loans on
the last day(s) of the then current Interest Period(s) for
Eurodollar Loans (or, in the case of a Conversion required by
Section 5.01(b) or 5.03 hereof, on such earlier date as such Bank
may specify to the Company with a copy to the Agent) and, unless
and until such Bank gives notice as provided below that the
circumstances specified in Section 5.01 or 5.03 hereof that gave
rise to such Conversion no longer exist:
(a) to the extent that such Bank's Eurodollar Loans
have been so Converted, all payments and prepayments of
principal that would otherwise be applied to such Bank's
Eurodollar Loans shall be applied instead to its Base Rate
Loans; and
<PAGE>
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(b) all Loans that would otherwise be made or
Continued by such Bank as Eurodollar Loans shall be made or
Continued instead as Base Rate Loans, and all Base Rate
Loans of such Bank that would otherwise be Converted into
Eurodollar Loans shall remain as Base Rate Loans.
If such Bank gives notice to the Company with a copy to the Agent
that the circumstances specified in Section 5.01 or 5.03 hereof
that gave rise to the Conversion of such Bank's Eurodollar Loans
pursuant to this Section 5.04 no longer exist (which such Bank
agrees to do promptly upon such circumstances ceasing to exist)
at a time when Eurodollar Loans made by other Banks are
outstanding, such Bank's Base Rate Loans shall be automatically
Converted, on the first day(s) of the next succeeding Interest
Period(s) for such outstanding Eurodollar Loans, to the extent
necessary so that, after giving effect thereto, all Loans held by
the Banks holding Eurodollar Loans and by such Bank are held pro
rata (as to principal amounts, Types and Interest Periods) in
accordance with their respective Commitments.
5.05 Compensation. The Borrowers (jointly and
severally) shall pay to the Agent for the account of each Bank,
upon the request of such Bank through the Agent, such amount or
amounts as shall be sufficient (in the reasonable opinion of such
Bank) to compensate it for any loss, cost or expense that such
Bank determines is attributable to:
(a) any payment, mandatory or optional prepayment or
Conversion of a Eurodollar Loan made by such Bank for any
reason (including, without limitation, the acceleration of
the Loans pursuant to Section 10 hereof) on a date other
than the last day of an Interest Period for such Loan; or
(b) any failure by the Borrowers for any reason
(including, without limitation, the failure of any of the
conditions precedent specified in Section 7 hereof to be
satisfied) to borrow a Eurodollar Loan from such Bank on the
date for such borrowing specified in the relevant notice of
borrowing given pursuant to Section 2.02 hereof.
Without limiting the effect of the preceding sentence, such
compensation shall include an amount equal to the excess, if any,
of (i) the amount of interest that otherwise would have accrued
on the principal amount so paid, prepaid or Converted or not
borrowed for the period from the date of such payment, prepay
ment, Conversion or failure to borrow to the last day of the then
current Interest Period for such Loan (or, in the case of a
failure to borrow, the Interest Period for such Loan that would
have commenced on the date specified for such borrowing) at the
applicable rate of interest for such Loan provided for herein
over (ii) the amount of interest that otherwise would have
accrued on such principal amount at a rate per annum equal to the
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interest component of the amount such Bank would have bid in the
London interbank market for Dollar deposits of leading banks in
amounts comparable to such principal amount and with maturities
comparable to such period (as reasonably determined by such
Bank).
5.06 Additional Costs in Respect of Letters of Credit.
Without limiting the obligations of the Borrowers under
Section 5.01 hereof (but without duplication), if as a result of
any Regulatory Change or any risk-based capital guideline or
other requirement heretofore or hereafter issued by any govern
ment or governmental or supervisory authority implementing at the
national level the Basel Accord there shall be imposed, modified
or deemed applicable any tax, reserve, special deposit, capital
adequacy or similar requirement against or with respect to or
measured by reference to Letters of Credit issued or to be issued
hereunder and the result shall be to increase the cost to any
Bank or Banks of issuing (or purchasing participations in) or
maintaining its obligation hereunder to issue (or purchase
participations in) any Letter of Credit hereunder or reduce any
amount receivable by any Bank hereunder in respect of any Letter
of Credit (which increases in cost, or reductions in amount
receivable, shall be the result of such Bank's or Banks'
reasonable allocation of the aggregate of such increases or
reductions resulting from such event), then, upon demand by such
Bank or Banks (through the Agent), the Borrowers (jointly and
severally) shall pay immediately to the Agent for account of such
Bank or Banks, from time to time as specified by such Bank or
Banks (through the Agent), such additional amounts as shall be
sufficient to compensate such Bank or Banks (through the Agent)
for such increased costs or reductions in amount. A statement as
to such increased costs or reductions in amount incurred by any
such Bank or Banks, submitted by such Bank or Banks to the
Company shall be conclusive in the absence of manifest error as
to the amount thereof.
Section 6. Guarantee.
6.01 Guarantee. The Subsidiary Guarantors hereby
jointly and severally guarantee to each Bank and the Agent and
their respective successors and assigns the prompt payment in
full when due (whether at stated maturity, by acceleration or
otherwise) of the principal of and interest on the Loans made by
the Banks to, and the Notes held by each Bank of, the Borrowers
and all other amounts from time to time owing to the Banks or the
Agent by the Borrowers under this Agreement and under the Notes
and by any Obligor under any of the other Basic Documents, in
each case strictly in accordance with the terms thereof (such
obligations being herein collectively called the "Guaranteed
Obligations"). The Subsidiary Guarantors hereby further jointly
and severally agree that if the Borrowers shall fail to pay in
full when due (whether at stated maturity, by acceleration or
<PAGE>
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otherwise) any of the Guaranteed Obligations, the Subsidiary
Guarantors will promptly pay the same, without any demand or
notice whatsoever, and that in the case of any extension of time
of payment or renewal of any of the Guaranteed Obligations, the
same will be promptly paid in full when due (whether at extended
maturity, by acceleration or otherwise) in accordance with the
terms of such extension or renewal.
6.02 Obligations Unconditional. The obligations of
the Subsidiary Guarantors under Section 6.01 hereof are absolute
and unconditional, joint and several, irrespective of the value,
genuineness, validity, regularity or enforceability of the
obligations of any of the Borrowers under this Agreement, the
Notes or any other agreement or instrument referred to herein or
therein, or any substitution, release or exchange of any other
guarantee of or security for any of the Guaranteed Obligations,
and, to the fullest extent permitted by applicable law,
irrespective of any other circumstance whatsoever which might
otherwise constitute a legal or equitable discharge or defense of
a surety or guarantor, it being the intent of this Section 6.02
that the obligations of the Subsidiary Guarantors hereunder shall
be absolute and unconditional, joint and several, under any and
all circumstances. Without limiting the generality of the
foregoing, it is agreed that the occurrence of any one or more of
the following shall not alter or impair the liability of the
Subsidiary Guarantors hereunder which shall remain absolute and
unconditional as described above:
(i) at any time or from time to time, without notice
to the Subsidiary Guarantors, the time for any performance
of or compliance with any of the Guaranteed Obligations
shall be extended, or such performance or compliance shall
be waived;
(ii) any of the acts mentioned in any of the provisions
of this Agreement or the Notes or any other agreement or
instrument referred to herein or therein shall be done or
omitted;
(iii) the maturity of any of the Guaranteed Obligations
shall be accelerated, or any of the Guaranteed Obligations
shall be modified, supplemented or amended in any respect,
or any right under this Agreement or the Notes or any other
agreement or instrument referred to herein or therein shall
be waived or any other guarantee of any of the Guaranteed
Obligations or any security therefor shall be released or
exchanged in whole or in part or otherwise dealt with; or
(iv) any Lien granted to, or in favor of, the Agent or
any Bank or Banks as security for any of the Guaranteed
Obligations shall fail to be perfected.
<PAGE>
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Each of the Subsidiary Guarantors hereby expressly waive
diligence, presentment, demand of payment, protest and all
notices whatsoever, and any requirement that the Agent or any
Bank exhaust any right, power or remedy or proceed against any or
all of the Borrowers and the other Subsidiary Guarantors under
this Agreement or the Notes or any other agreement or instrument
referred to herein or therein, or against any other Person under
any other guarantee of, or security for, any of the Guaranteed
Obligations.
6.03 Reinstatement. The obligations of the Subsidiary
Guarantors under this Section 6 shall be automatically reinstated
if and to the extent that for any reason any payment by or on
behalf of the Borrowers in respect of the Guaranteed Obligations
is rescinded or must be otherwise restored by any holder of any
of the Guaranteed Obligations, whether as a result of any
proceedings in bankruptcy or reorganization or otherwise and the
Subsidiary Guarantors jointly and severally agree that they will
indemnify the Agent and each Bank on demand for all reasonable
costs and expenses (including, without limitation, fees of
counsel) incurred by the Agent or such Bank in connection with
such rescission or restoration, including any such costs and
expenses incurred in defending against any claim alleging that
such payment constituted a preference, fraudulent transfer or
similar payment under any bankruptcy, insolvency or similar law.
6.04 Subrogation. Each Subsidiary Guarantor hereby
waives all rights of subrogation or contribution, whether arising
by contract or operation of law (including, without limitation,
any such right arising under the Bankruptcy Code) or otherwise by
reason of any payment by it pursuant to the provisions of this
Section 6 and further agrees with the Borrowers for the benefit
of each of its creditors (including, without limitation, each
Bank and the Agent) that any such payment by it shall constitute
a contribution of capital by such Subsidiary Guarantor to the
Borrowers.
6.05 Remedies. The Subsidiary Guarantors jointly and
severally agree that, as between the Subsidiary Guarantors and
the Banks, the obligations of the Borrowers under this Agreement
and the Notes may be declared to be forthwith due and payable as
provided in Section 10 hereof (and shall be deemed to have become
automatically due and payable in the circumstances provided in
said Section 10) for purposes of Section 6.01 hereof
notwithstanding any stay, injunction or other prohibition
preventing such declaration (or such obligations from becoming
automatically due and payable) as against the Borrowers and that,
in the event of such declaration (or such obligations being
deemed to have become automatically due and payable), such
obligations (whether or not due and payable by the Borrowers)
shall forthwith become due and payable by the Subsidiary
Guarantors for purposes of said Section 6.01.
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6.06 Continuing Guarantee. The guarantee in this
Section 6 is a continuing guarantee, and shall apply to all
Guaranteed Obligations whenever arising.
6.07 Rights of Contribution. The Subsidiary
Guarantors hereby agree, as between themselves, that if any
Subsidiary Guarantor (an "Excess Funding Guarantor") shall pay
Guaranteed Obligations in excess of the Excess Funding
Guarantor's Pro Rata Share (as hereinafter defined) of such
Guaranteed Obligations, the other Subsidiary Guarantors shall, on
demand (but subject to the next sentence hereof), pay to the
Excess Funding Guarantor an amount equal to their respective Pro
Rata Shares of such Excess Funding Guarantor's payment. The
payment obligation of any Subsidiary Guarantor to any Excess
Funding Guarantor under this Section 6.07 shall be subordinate
and subject in right of payment to the prior payment in full of
the obligations of such Subsidiary Guarantor under the other
provisions of this Section 6 and such Excess Funding Guarantor
shall not exercise any right or remedy with respect to such
excess until payment and satisfaction in full of all of such
obligations. For the purposes hereof, "Pro Rata Share" shall
mean, for any Subsidiary Guarantor, a percentage equal to the
percentage that such Subsidiary Guarantor's Tangible Net Worth as
of the Closing Date is of the aggregate Tangible Net Worth of all
of the Subsidiary Guarantors as of the Closing Date. If any
Subsidiary of the Company becomes a Subsidiary Guarantor
hereunder subsequent to the Closing Date, then for purposes of
this Section 6.07 such subsequent Subsidiary Guarantor shall be
deemed to have been a Subsidiary Guarantor as of the Closing Date
and the Tangible Net Worth of such Subsidiary Guarantor as of the
Closing Date shall be deemed to be equal to such Tangible Net
Worth on the date such Subsidiary Guarantor becomes a Subsidiary
Guarantor hereunder.
6.08 Limitation on Guarantee Obligations. In any
action or proceeding involving any state corporate law, or any
state or Federal bankruptcy, insolvency, reorganization or other
law affecting the rights of creditors generally, if the
obligations of any Subsidiary Guarantor under Section 6.01 hereof
would otherwise, taking into account the provisions of
Section 6.07 hereof, be held or determined to be void, invalid or
unenforceable, or subordinated to the claims of any other
creditors, on account of the amount of its liability under said
Section 6.01, then, notwithstanding any other provision hereof to
the contrary, the amount of such liability shall, without any
further action by such Subsidiary Guarantor, any Bank, the Agent
or any other Person, be automatically limited and reduced to the
highest amount which is valid and enforceable and not
subordinated to the claims of other creditors as determined in
such action or proceeding.
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Section 7. Conditions Precedent.
7.01 Conditions to Effectiveness. The effectiveness
of this Amended and Restated Credit Agreement is subject to the
receipt by the Agent of the following documents and evidence,
each of which shall be satisfactory to the Agent (and to the
extent specified below, to the Majority Banks) in form and
substance:
(a) Corporate Documents. The following documents,
each certified as indicated below:
(i) for each Obligor, a copy of the charter,
as amended and in effect, of such Obligor certified as
of a recent date by the Secretary of State of its
jurisdiction of incorporation, and a certificate from
such Secretary of State dated as of a recent date as to
the good standing of and charter documents filed by
such Obligor;
(ii) for each Obligor, a certificate of the
Secretary or an Assistant Secretary of such Obligor,
dated the date hereof and certifying (A) that the by-
laws of such Obligor have not been amended since
July 27, 1995, (B) that attached thereto is a true and
complete copy of resolutions duly adopted by the board
of directors of such Obligor authorizing the execution,
delivery and performance of such of the Basic Documents
to which such Obligor is or is intended to be a party
and the extensions of credit hereunder, and that such
resolutions have not been modified, rescinded or
amended and are in full force and effect, (C) that the
charter of such Obligor has not been amended since
August 1, 1995, and (D) as to the incumbency and
specimen signature of each officer of such Obligor
executing such of the Basic Documents to which such
Obligor is intended to be a party and each other
document to be delivered by such Obligor from time to
time in connection therewith (and the Agent and each
Bank may conclusively rely on such certificate until it
receives notice in writing from such Obligor); and
(iii) for each Obligor, a certificate of
another officer of such Obligor as to the incumbency
and specimen signature of the Secretary or Assistant
Secretary, as the case may be, of such Obligor.
(b) Officer's Certificate. A certificate of a senior
officer of the Company, dated the date hereof, to the effect
set forth in the first sentence of Section 7.02 hereof.
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(c) Opinion of Counsel to the Obligors. An opinion,
dated the date hereof, of Daniel McNamara, Esq., Counsel of
each of the Obligors, substantially in the form of Exhibit C
hereto and covering such other matters as the Agent or any
Bank may reasonably request (and each Obligor hereby
instructs such counsel to deliver such opinion to the Banks
and the Agent).
(d) Opinion of Special Counsel to Chase. An opinion,
dated the date hereof, of Milbank, Tweed, Hadley & McCloy,
special counsel to Chase, substantially in the form of
Exhibit D hereto.
(e) Notes. The Notes, duly completed and executed in
exchange for the Original Notes.
(f) Security Agreement. The Security Agreement, duly
executed and delivered by the Obligors and the Agent. In
addition, the Borrowers and the Subsidiary Guarantors shall
have taken such other action (including, without limitation,
delivering to the Agent, for filing, appropriately completed
and duly executed copies of Uniform Commercial Code
financing statements) as the Agent shall have requested in
order to perfect the security interests created pursuant to
the Security Agreement.
(g) Pledge Agreement. The Pledge Agreement, duly
executed and delivered by each of the Obligors, if any,
required by the Majority Banks to execute and deliver the
Pledge Agreement and the certificates identified in
Section 3 thereof, accompanied by undated stock powers
executed in blank. In addition, each of such Obligors, if
any, shall have taken such other action (including, without
limitation, delivering to the Agent, for filing,
appropriately completed and duly executed copies of Uniform
Commercial Code financing statements) as the Agent shall
have requested in order to perfect the security interests
created pursuant to the Pledge Agreement.
(h) Mortgages. The Mortgage Amendments covering the
Hydrocarbon Properties of the Borrowers located in
Louisiana, Oklahoma, Texas and Wyoming, in each case duly
executed and delivered by the Company in recordable form (in
such number of copies as the Agent shall have requested).
(i) Insurance. A certificate of an officer of the
Company as to the existence of all insurance required to be
maintained by the Obligors pursuant to Section 9.04 hereof.
(j) Opinion of Local Counsel. A favorable
opinion from each of Liskow & Lewis, Conner & Winters,
Vinson & Elkins L.L.P. and Brown & Drew, special counsel to
<PAGE>
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the Banks in each of Louisiana, Oklahoma, Texas and Wyoming,
respectively, dated the date hereof, for each such state and
with respect to the properties covered by the Mortgages and
located in such respective states, as to the following:
(i) Compliance with all applicable state
laws, including all applicable recording, filing and
registration laws, of the Mortgages, the Mortgage
Amendments and the Notes, and the form and manner of
the authorization, execution, acknowledgment and
delivery of each thereof;
(ii) the legal, valid and binding nature of
the Mortgages, the Mortgage Amendments and the Notes,
and the enforceability thereof in accordance with their
respective terms;
(iii) the fact that, the Mortgages, as amended
by the Mortgage Amendments, constitute a legal, valid
and effective mortgage lien upon the mortgaged
properties as security for the Indebtedness referred to
therein;
(iv) the absence of any requirement for any
authorization or approval by any public regulatory body
or authority, with regard to the valid execution and
delivery of, and the validity, legality and
effectiveness of, the Mortgages, the Mortgage
Amendments and the Notes;
(v) as to all recording, filing and
registration procedures as shall be necessary under
applicable state laws to constitute the Mortgages, as
amended by the Mortgage Amendments, a mortgage, pledge
and financing statement in accordance with the terms
thereof and the intention of the parties thereto, and
as to the necessity of any periodic or other
rerecording or refiling of the Mortgages, or any other
instrument in order to maintain the lien of the
Mortgages; and
(vi) as to such state or local mortgage
recording taxes, stamp taxes, or other fees, taxes or
governmental charges as shall be required to be paid in
connection with the execution, delivery, filing for
record or recording of the Mortgages and the Notes.
(k) Equity Documents. Evidence that the Company has
received net cash consideration (prior to the payment of any
transaction expenses) of not less than $45,000,000 from
Anschutz with respect to the investment by Anschutz in the
Voting Stock of the Company.
<PAGE>
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(l) JEDI Amendments. The Agent shall have received
copies of any amendment, modification or supplement to the
JEDI Agreement executed in connection with the reduction of
the current interest rate payable pursuant to the JEDI
Agreement.
(m) Other Documents. Such other documents as the Agent
or any Bank or special New York counsel to Chase may reasonably
request.
The obligation of the Banks to make their initial extension of
credit hereunder is also subject to the payment by the Borrowers
of such fees as the Borrowers shall have agreed to pay or deliver
to any Bank or the Agent in connection herewith, including,
without limitation, the fees set forth in the Amendment Fee
Letter and the Original Fee Letter, the reasonable fees and
expenses of Milbank, Tweed, Hadley & McCloy, special New York
counsel to Chase in connection with the negotiation, preparation,
execution and delivery of this Agreement and the Notes and the
other Basic Documents and the extensions of credit hereunder (to
the extent that statements for such fees and expenses have been
delivered to the Company).
7.02 Initial and Subsequent Extensions of Credit.
The obligation of the Banks to make any Loans or
otherwise extend credit to the Borrower upon the occasion of each
borrowing or other extension of credit hereunder (including the
initial extension of credit) is subject to the further conditions
precedent that, both immediately prior to the making of such
Loans or other extension of credit and also after giving effect
thereto and to the intended use thereof: (a) no Default shall
have occurred and be continuing; (b) the representations and
warranties made by each of the Borrowers in Section 8 hereof, and
by each Obligor in each of the other Basic Documents to which it
is a party, shall be true and complete on and as of the date of
the making of such Loans or other extension of credit with the
same force and effect as if made on and as of such date (or, if
any such representation or warranty is expressly stated to have
been made as of a specific date, as of such specific date); and
(c) the aggregate principal amount of Loans and Letter of Credit
Liabilities shall not exceed the Borrowing Base as determined
pursuant to Section 1.03 hereof. Each notice of borrowing or
request for the issuance of a Letter of Credit by the Borrowers
hereunder shall constitute a certification by the Borrowers to
the effect set forth in the preceding sentence (both as of the
date of such notice or request and, unless the Company otherwise
notifies the Agent prior to the date of such borrowing or
issuance, as of the date of such borrowing or issuance).
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Section 8. Representations and Warranties. Each of
the Borrowers represents and warrants to the Banks that:
8.01 Corporate Existence. Each of the Company and its
Material Subsidiaries (including, without limitation, the
Subsidiary Borrowers): (a) is a corporation, partnership or
other entity duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its organization;
(b) has all requisite corporate power, and has all material
governmental licenses, authorizations, consents and approvals
necessary to own its assets and carry on its business as now
being or as proposed to be conducted; and (c) is qualified to do
business and is in good standing in all jurisdictions in which
the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify could
have a Material Adverse Effect.
8.02 Financial Condition. The Company has heretofore
furnished to each of the Banks the consolidated balance sheet of
the Company and its Consolidated Subsidiaries as at December 31,
1994 and the related consolidated statements of income, retained
earnings and cash flow of the Company and its Consolidated
Subsidiaries for the fiscal year ended on said date, with the
opinion thereon of KPMG Peat Marwick. All such financial
statements are complete and correct and fairly present the
consolidated financial condition of the Company and its
Consolidated Subsidiaries as at said date and the consolidated
results of operations for the fiscal year ended on said date, all
in accordance with GAAP. Neither the Company nor any of its
Subsidiaries has on the date hereof any material contingent
liabilities, liabilities for taxes, unusual forward or long-term
commitments or unrealized or anticipated losses from any
unfavorable commitments, except as referred to or reflected or
provided for in said balance sheets as at said date. Since
December 31, 1994 there has been no material adverse change in
the consolidated financial condition, operations, business or
prospects taken as a whole of the Company and its Consolidated
Subsidiaries from that set forth in said financial statements as
at said date.
8.03 Litigation. Except as disclosed to the Banks in
writing prior to the date of this Agreement, there are no legal
or arbitral proceedings, or any proceedings by or before any
governmental or regulatory authority or agency, now pending or
(to the knowledge of the Company or any of its Subsidiaries)
threatened against the Company or any of its Subsidiaries which,
if adversely determined could have a Material Adverse Effect.
8.04 No Breach. None of the execution and delivery of
this Agreement and the Notes and the other Basic Documents, the
consummation of the transactions herein and therein contemplated
or compliance with the terms and provisions hereof and thereof
<PAGE>
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will conflict with or result in a breach of, or require any
consent under, the charter or by-laws of any Obligor, or any
applicable law or regulation, or any order, writ, injunction or
decree of any court or governmental authority or agency, or any
agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which any of them or any of their
Property is bound or to which any of them is subject, or
constitute a default under any such agreement or instrument, or
(except for the Liens created pursuant to the Security Documents)
result in the creation or imposition of any Lien upon any
Property of the Company or any of its Subsidiaries pursuant to
the terms of any such agreement or instrument.
8.05 Action. Each Obligor has all necessary corporate
power, authority and legal right to execute, deliver and perform
its obligations under each of the Basic Documents to which it is
or is intended to be a party; the execution, delivery and
performance by each Obligor of each of the Basic Documents to
which it is or is intended to be a party have been duly
authorized by all necessary corporate action on its part
(including, without limitation, any required shareholder
approvals); and this Agreement has been duly and validly executed
and delivered by each Obligor and constitutes, and each of the
Notes and the other Basic Documents to which it is a party when
executed and delivered by such Obligor (in the case of the Notes,
for value) will constitute, its legal, valid and binding
obligation, enforceable against each Obligor in accordance with
its terms, except as such enforceability may be limited by
(a) bankruptcy, insolvency, reorganization, moratorium or similar
laws of general applicability affecting the enforcement of
creditors' rights and (b) the application of general principles
of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
8.06 Approvals. No authorizations, approvals or
consents of, and no filings or registrations with, any
governmental or regulatory authority or agency, or any securities
exchange, are necessary for the execution, delivery or
performance by any Obligor of the Basic Documents to which it is
a party or for the legality, validity or enforceability hereof or
thereof, except for filings and recordings in respect of the
Liens created pursuant to the Security Documents.
8.07 Use of Credit. Neither the Company nor any of
its Subsidiaries is engaged principally, or as one of its
important activities, in the business of extending credit for the
purpose, whether immediate, incidental or ultimate, of buying or
carrying Margin Stock, and no part of the proceeds of any
extension of credit hereunder will be used to buy or carry any
Margin Stock.
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8.08 ERISA. Each Plan, and, to the knowledge of the
Company, each Multiemployer Plan, is in compliance in all
material respects with, and has been administered in all material
respects in compliance with, the applicable provisions of ERISA,
the Code and any other Federal or State law, except where non-
compliance will not have a Material Adverse Effect and no event
or condition has occurred and is continuing as to which the
Company would be under an obligation to furnish a report to the
Banks under Section 9.01(e) hereof.
8.09 Taxes. The Company and its Subsidiaries are
members of an affiliated group of corporations filing
consolidated returns for Federal income tax purposes, of which
the Company is the "common parent" (within the meaning of
Section 1504 of the Code) of such group. The Company and its
Subsidiaries have filed either directly or indirectly through the
Company all Federal income tax returns and all other material tax
returns that are required to be filed by them and have paid
either directly or indirectly through the Company all taxes due
pursuant to such returns or pursuant to any assessment received
by the Company or any of its Subsidiaries. The charges, accruals
and reserves on the books of the Company and its Subsidiaries in
respect of taxes and other governmental charges are, in the
opinion of the Company, adequate. Except as disclosed to the
Banks in writing, the Company has not given or been requested to
give a waiver of the statute of limitations relating to the
payment of Federal, state, local and foreign taxes or other
impositions.
8.10 Investment Company Act. Neither the Company nor
any of its Subsidiaries is an "investment company", or a company
"controlled" by an "investment company", within the meaning of
the Investment Company Act of 1940, as amended.
8.11 Public Utility Holding Company Act. Neither the
Company nor any of its Subsidiaries is a "holding company", or an
"affiliate" of a "holding company" or a "subsidiary company" of a
"holding company", within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
8.12 Material Agreements and Liens.
(a) Part A of Schedule I hereto is a complete and
correct list, as of the date of this Agreement, of each credit
agreement, loan agreement, indenture, purchase agreement,
guarantee, letter of credit or other arrangement providing for or
otherwise relating to any Indebtedness or any extension of credit
(or commitment for any extension of credit) to, or guarantee by,
the Company or any of its Material Subsidiaries the aggregate
principal or face amount of which equals or exceeds (or may equal
or exceed) $1,000,000, and the aggregate principal or face amount
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outstanding or that may become outstanding under each such
arrangement is correctly described in Part A of said Schedule I.
(b) Part B of Schedule I hereto is a complete and
correct list, as of the date of this Agreement, of each Lien
securing Indebtedness of any Person the aggregate principal or
face amount of which equals or exceeds (or may equal or exceed)
$1,000,000 and covering any Property of the Company or any of its
Material Subsidiaries, and the aggregate Indebtedness secured (or
which may be secured) by each such Lien and the Property covered
by each such Lien is correctly described in Part B of said
Schedule I.
8.13 Environmental Matters. Each of the Company and
its Subsidiaries has obtained all environmental, health and
safety permits, licenses and other authorizations required under
all Environmental Laws to carry on its business as now being or
as proposed to be conducted, except to the extent failure to have
any such permit, license or authorization would not have a
Material Adverse Effect. Each of such permits, licenses and
authorizations is in full force and effect and each of the
Company and its Subsidiaries is in compliance with the terms and
conditions thereof, and is also in compliance with all other
limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in
any applicable Environmental Law or in any regulation, code,
plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder,
except to the extent failure to comply therewith would not have a
Material Adverse Effect.
In addition, except as set forth in Schedule II hereto:
(a) No notice, notification, demand, request for
information, citation, summons or order has been issued, no
complaint has been filed, no penalty has been assessed and
no investigation or review is pending or threatened by any
governmental or other entity with respect to any alleged
failure by the Company or any of its Subsidiaries to have
any environmental, health or safety permit, license or other
authorization required under any Environmental Law in
connection with the conduct of the business of the Company
or any of its Subsidiaries or with respect to any
generation, treatment, storage, recycling, transportation,
discharge or disposal, or any Release of any Hazardous
Materials generated by the Company or any of its
Subsidiaries.
(b) Neither the Company nor any of its Subsidiaries
owns, operates or leases a treatment, storage or disposal
facility requiring a permit under the Resource Conservation
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and Recovery Act of 1976, as amended, or under any
comparable state or local statute; and
(i) to the knowledge of the Company after
due inquiry, no polychlorinated biphenyls (PCB's) are
or have been present at any site or facility now or
previously owned, operated or leased by the Company or
any of its Subsidiaries;
(ii) to the knowledge of the Company after
due inquiry, no asbestos or asbestos-containing
materials is or has been present at any site or
facility now or previously owned, operated or leased by
the Company or any of its Subsidiaries;
(iii) to the knowledge of the Company after
due inquiry, there are no underground storage tanks or
surface impoundments for Hazardous Materials, active or
abandoned, at any site or facility now or previously
owned, operated or leased by the Company or any of its
Subsidiaries;
(iv) to the knowledge of the Company after
due inquiry, no Hazardous Materials have been Released
at, on or under any site or facility now or previously
owned, operated or leased by the Company or any of its
Subsidiaries in a reportable quantity established by
statute, ordinance, rule, regulation or order; and
(v) to the knowledge of the Company after
due inquiry, no Hazardous Materials have been otherwise
Released at, on or under any site or facility now or
previously owned, operated or leased by the Company or
any of its Subsidiaries that would have a Material
Adverse Effect.
(c) Neither the Company nor any of its Subsidiaries
has transported or arranged for the transportation of any
Hazardous Material to any location that is listed on the
National Priorities List ("NPL") under the Comprehensive
Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), listed for possible inclusion
on the NPL by the Environmental Protection Agency in the
Comprehensive Environmental Response and Liability
Information System, as provided for by 40 C.F.R. 300.5
("CERCLIS"), or on any similar state or local list or that
is the subject of Federal, state or local enforcement
actions or other investigations that may lead to
Environmental Claims against the Company or any of its
Subsidiaries .
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(d) No Hazardous Material generated by the Company or
any of its Subsidiaries has been recycled, treated, stored,
disposed of or Released by the Company or any of its
Subsidiaries at any location other than those listed in
Schedule II hereto.
(e) No oral or written notification of a Release of a
Hazardous Material has been filed by or on behalf of the
Company or any of its Subsidiaries and no site or facility
now or previously owned, operated or leased by the Company
or any of its Subsidiaries is listed or proposed for listing
on the NPL, CERCLIS or any similar state list of sites
requiring investigation or clean-up.
(f) No Liens have arisen under or pursuant to any
Environmental Laws on any site or facility owned, operated
or leased by the Company or any of its Subsidiaries , and no
government action has been taken or is in process that could
subject any such site or facility to such Liens and neither
the Company nor any of its Subsidiaries would be required to
place any notice or restriction relating to the presence of
Hazardous Materials at any site or facility owned by it in
any deed to the real property on which such site or facility
is located.
(g) There have been no environmental investigations,
studies, audits, tests, reviews or other analyses conducted
by or that are in the possession of the Company or any of
its Subsidiaries in relation to any site or facility now or
previously owned, operated or leased by the Company or any
of its Subsidiaries which have not been made available to
the Banks.
8.14 Subsidiaries, Etc.
(a) Set forth in Part A of Schedule III hereto is a
complete and correct list, as of the date of this Agreement, of
all of the Subsidiaries of the Company, together with, for each
such Subsidiary, (i) the jurisdiction of organization of such
Subsidiary, (ii) each Person holding ownership interests in such
Subsidiary and (iii) the nature of the ownership interests held
by each such Person and the percentage of ownership of such
Subsidiary represented by such ownership interests. Except as
disclosed in Part A of Schedule III hereto, (x) each of the
Company and its Subsidiaries owns, free and clear of Liens (other
than Liens created pursuant to the Security Documents), and has
the unencumbered right to vote, all outstanding ownership
interests in each Person shown to be held by it in Part A of
Schedule III hereto, (y) all of the issued and outstanding
capital stock of each such Person organized as a corporation is
validly issued, fully paid and nonassessable and (z) there are no
outstanding Equity Rights with respect to such Person.
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(b) Set forth in Part B of Schedule III hereto is a
complete and correct list, as of the date of this Agreement, of
all Investments (other than Investments disclosed in Part A of
said Schedule III hereto and other than Permitted Investments)
held by the Company or any of its Subsidiaries in any Person and,
for each such Investment, (x) the identity of the Person or
Persons holding such Investment and (y) the nature of such
Investment. Except as disclosed in Part B of Schedule III
hereto, each of the Company and its Subsidiaries owns, free and
clear of all Liens (other than Liens created pursuant to the
Security Documents), all such Investments.
(c) None of the Restricted Subsidiaries of the
Company, other than Forest I Development Company, is, on the date
of this Agreement, subject to any indenture, agreement,
instrument or other arrangement of the type described in the last
sentence of 9.15 hereof.
8.15 True and Complete Disclosure. The information,
reports, financial statements, exhibits and schedules furnished
in writing by or on behalf of the Obligors to the Agent or any
Bank in connection with the negotiation, preparation or delivery
of this Agreement and the other Basic Documents or included
herein or therein or delivered pursuant hereto or thereto, when
taken as a whole do not contain any untrue statement of material
fact or omit to state any material fact necessary to make the
statements herein or therein, in light of the circumstances under
which they were made, not misleading. All written information
furnished after the date hereof by the Obligors to the Agent and
the Banks in connection with this Agreement and the other Basic
Documents and the transactions contemplated hereby and thereby
will be true, complete and accurate in every material respect, or
(in the case of projections) based on reasonable estimates, on
the date as of which such information is stated or certified.
There is no fact known to any Obligor that could have a Material
Adverse Effect that has not been disclosed herein, in the other
Basic Documents or in a report, financial statement, exhibit,
schedule, disclosure letter or other writing furnished to the
Banks for use in connection with the transactions contemplated
hereby or thereby.
Section 9. Covenants of the Obligors. Each Obligor
covenants and agrees with the Banks and the Agent that, so long
as any Commitment, Loan or Letter of Credit Liability is
outstanding and until payment in full of all amounts payable by
the Borrowers hereunder:
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9.01 Financial Statements Etc. The Company shall (for
itself and on behalf of each of the other Obligors) deliver to
the Agent and each of the Banks:
(a) as soon as available and in any event within 60
days after the end of each quarterly fiscal period of each
fiscal year of the Company, consolidated and, if prepared,
or if the Company has designated any Subsidiary an
Unrestricted Subsidiary, consolidating statements of income,
retained earnings and cash flow of the Company and its
Consolidated Subsidiaries for such period and for the period
from the beginning of the respective fiscal year to the end
of such period, and the related consolidated and, if
prepared, or if the Company has designated any Subsidiary an
Unrestricted Subsidiary, consolidating balance sheets of the
Company and its Consolidated Subsidiaries as at the end of
such period, setting forth in each case in comparative form
the corresponding consolidated and, if prepared, or if the
Company has designated any Subsidiary an Unrestricted
Subsidiary, consolidating figures for the corresponding
period in the preceding fiscal year, accompanied by a
certificate of a senior financial officer of the Company,
which certificate shall state that said consolidated
financial statements fairly present the consolidated
financial condition and results of operations of the Company
and its Consolidated Subsidiaries, and said consolidating
financial statements are materially correct and reconcile to
the consolidated financial statements of the Company and its
Consolidated Subsidiaries, and that such consolidated
financial statements have been prepared in accordance with
GAAP, as at the end of, and for, such period (subject to
normal year-end audit adjustments);
(b) as soon as available and in any event within 100
days after the end of each fiscal year of the Company,
consolidated and, if prepared, consolidating statements of
income, retained earnings and cash flow of the Company and
its Consolidated Subsidiaries for such fiscal year and the
related consolidated and, if prepared, or if the Company has
designated any Subsidiary an Unrestricted Subsidiary,
consolidating balance sheets of the Company and its
Consolidated Subsidiaries as at the end of such fiscal year,
setting forth in each case in comparative form the
corresponding consolidated and consolidating figures for the
preceding fiscal year, and accompanied (i) in the case of
said consolidated statements and balance sheet of the
Company, by an opinion thereon of independent certified
public accountants of recognized national standing, which
opinion shall state that said consolidated financial
statements fairly present the consolidated financial
condition and results of operations of the Company and its
Consolidated Subsidiaries as at the end of, and for, such
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fiscal year in accordance with generally accepted accounting
principles, and (ii) in the case of said consolidating
statements and balance sheet, by a certificate of a senior
financial officer of the Company, which certificate shall
state that said consolidating financial statements are
materially correct and reconcile to the consolidated
financial statements of the Company and its Consolidated
Subsidiaries, and that such consolidated financial
statements have been prepared in accordance with GAAP, as at
the end of, and for, such fiscal year;
(c) promptly upon their becoming available, copies of
all registration statements and regular periodic reports, if
any, which the Company shall have filed with the Securities
and Exchange Commission (or any governmental agency
substituted therefor) or any national securities exchange;
(d) promptly upon the mailing thereof to the
shareholders of the Company generally or to holders of
Subordinated Indebtedness generally, copies of all financial
statements, reports and proxy statements so mailed;
(e) as soon as possible, and in any event within ten
days after the Company knows or has reason to believe that
any of the events or conditions specified below with respect
to any Plan or Multiemployer Plan has occurred or exists, a
statement signed by a senior financial officer of the
Company setting forth details respecting such event or
condition and the action, if any, that the Company or its
ERISA Affiliate proposes to take with respect thereto (and a
copy of any report or notice required to be filed with or
given to PBGC by the Company or an ERISA Affiliate with
respect to such event or condition):
(i) any reportable event, as defined in
Section 4043(b) of ERISA and the regulations issued
thereunder, with respect to a Plan, as to which PBGC
has not by regulation waived the requirement of
Section 4043(a) of ERISA that it be notified within 30
days of the occurrence of such event (provided that a
failure to meet the minimum funding standard of
Section 412 of the Code or Section 302 of ERISA,
including, without limitation, the failure to make on
or before its due date a required installment under
Section 412(m) of the Code or Section 302(e) of ERISA,
shall be a reportable event regardless of the issuance
of any waivers in accordance with Section 412(d) of the
Code); and any request for a waiver under
Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041(c)
of ERISA of a notice of intent to terminate any Plan or
<PAGE>
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any action taken by the Company or an ERISA Affiliate
to terminate any Plan (other than in connection with a
standard termination under Section 4041(b) of ERISA);
(iii) the institution by PBGC of proceedings
under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, any Plan,
or the receipt by the Company or any ERISA Affiliate of
a notice from a Multiemployer Plan that such action has
been taken by PBGC with respect to such Multiemployer
Plan;
(iv) the complete or partial withdrawal from
a Multiemployer Plan by the Company or any ERISA
Affiliate that results in liability under Section 4201
or 4204 of ERISA (including the obligation to satisfy
secondary liability as a result of a purchaser default)
or the receipt by the Company or any ERISA Affiliate of
notice from a Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241
or 4245 of ERISA or that it intends to terminate or has
terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a
fiduciary of any Multiemployer Plan against the Company
or any ERISA Affiliate to enforce Section 515 of ERISA,
which proceeding is not dismissed within 30 days; and
(vi) the adoption of an amendment to any Plan
that, pursuant to Section 401(a)(29) of the Code or
Section 307 of ERISA, would result in the loss of
tax-exempt status of the trust of which such Plan is a
part if the Company or an ERISA Affiliate fails to
timely provide security to the Plan in accordance with
the provisions of said Sections;
(f) on or before each Report Delivery Date, a Reserve
Evaluation Report;
(g) promptly after the Company or any of its
Subsidiaries knows or has reason to believe that any Default
has occurred, a notice of such Default describing the same
in reasonable detail and, together with such notice or as
soon thereafter as possible, a description of the action
that the Company or any of its Subsidiaries has taken or
proposes to take with respect thereto;
(h) within ten days after the Company or any of its
Subsidiaries receives notice of any change in the schedule
of payment or delivery of any Production Payment to which
the Company or such Subsidiary is a party, the Company shall
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give the Agent notice of such change, together with an
explanation of the reason for such change;
(i) as soon as available, and in any event no later
than the day on which it is delivered to the JEDI Lender,
the statement of the calculation of the Monthly Payment
Amount (as defined in the JEDI Agreement) for such month
delivered or to be delivered to the JEDI Lender, provided
that if such statement is no longer required to be delivered
to the JEDI Lender, a statement containing all of the
information that is required to be delivered to the JEDI
Lender pursuant to Section 4.01(g) of the JEDI Agreement as
in effect as of December 28, 1993; and
(j) from time to time such other information regarding
the financial condition, operations, business, prospects or
Properties of the Company or any of its Subsidiaries
(including, without limitation, any Plan or Multiemployer
Plan and any reports or other information required to be
filed under ERISA) as any Bank or the Agent may reasonably
request.
The Company will furnish to each Bank, at the time it furnishes
each set of financial statements pursuant to paragraph (a) or (b)
above, a certificate of a senior financial officer of the Company
(i) to the effect that no Default has occurred and is continuing
(or, if any Default has occurred and is continuing, describing
the same in reasonable detail and describing the action that the
Company has taken or proposes to take with respect thereto) and
(ii) setting forth in reasonable detail the computations
necessary to determine whether the Company is in compliance with
Sections 9.06(k), 9.07(e) and (f), 9.08(g), 9.09, 9.10, 9.11 and
9.16 hereof as of the end of the respective quarterly fiscal
period or fiscal year, which computations in respect of Sections
9.09, 9.10, 9.11 and 9.16 shall be in accordance with GAAP.
9.02 Litigation. The Company will promptly give to
each Bank notice of all legal or arbitral proceedings, and of all
proceedings by or before any governmental or regulatory authority
or agency, and any material development in respect of such legal
or other proceedings, affecting the Company or any of its
Subsidiaries , except proceedings which, if adversely determined,
would not have a Material Adverse Effect. Without limiting the
generality of the foregoing, the Company will give to each Bank
notice of the assertion of any Environmental Claim by any Person
against, or with respect to the activities of, the Company or any
of its Subsidiaries and notice of any alleged violation of or
non-compliance with any Environmental Laws or any permits,
licenses or authorizations, other than any Environmental Claim or
alleged violation which, if adversely determined, would not have
a Material Adverse Effect.
<PAGE>
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9.03 Existence, Etc. The Company will, and will cause
each of its Subsidiaries to:
(a) preserve and maintain its legal existence and all
of its material rights, privileges, licenses and franchises
(provided that nothing in this Section 9.03 shall prohibit
any transaction expressly permitted under Section 9.05
hereof);
(b) comply with the requirements of all applicable
laws, rules, regulations and orders of governmental or
regulatory authorities if failure to comply with such
requirements could have a Material Adverse Effect;
(c) pay and discharge all taxes, assessments and
governmental charges or levies imposed on it or on its
income or profits or on any of its Property prior to the
date on which penalties attach thereto, except for any such
tax, assessment, charge or levy the payment of which is
being contested in good faith and by proper proceedings and
against which adequate reserves are being maintained;
(d) maintain all of its Properties used or useful in
its business in good working order and condition, ordinary
wear and tear excepted;
(e) keep adequate records and books of account, in
which complete entries will be made in accordance with
generally accepted accounting principles consistently
applied; and
(f) permit representatives of any Bank or the Agent,
at their own risk during normal business hours, to examine,
copy and make extracts from its books and records, to
inspect any of its Properties, and to discuss its business
and affairs with its officers, all to the extent reasonably
requested by such Bank or the Agent (as the case may be).
9.04 Insurance. The Company will, and will cause each
of its Subsidiaries (including without limitation the Subsidiary
Borrowers) to, keep insured by financially sound and reputable
insurers all Property of a character usually insured by corpora
tions engaged in the same or similar business similarly situated
against loss or damage of the kinds and in the amounts
customarily insured against by such corporations and carry such
other insurance as is usually carried by such corporations or as
is required by law.
9.05 Prohibition of Fundamental Changes. The Company
will not, and will not permit any of its Restricted Subsidiaries
to, enter into any transaction of merger or consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer
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any liquidation or dissolution). The Company will not, and will
not permit any of its Restricted Subsidiaries to, acquire any
business or Property from, or capital stock of, or be a party to
any acquisition of, any Person except for purchases of inventory
and other Property to be sold or used in the ordinary course of
business and Investments permitted under Section 9.08 hereof.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, convey, sell, lease, transfer or otherwise
dispose of, in one transaction or a series of transactions, all
or a substantial part of its business or Property, whether now
owned or hereafter acquired including, without limitation,
receivables and leasehold interests, but excluding (i) obsolete
or worn-out Property, tools or equipment no longer used or useful
in its business so long as the amount thereof sold in any single
fiscal year by the Company and its Subsidiaries shall not have a
fair market value in excess of $1,000,000, (ii) any hydrocarbons
produced or sold in the ordinary course of business and on
ordinary business terms (excluding, with respect to Properties of
the Company or any Restricted Subsidiary existing on the date
hereof, and with respect to any Mortgaged Property, Production
Payments or any other sale or lease of interests in hydrocarbons
in the ground other than Production Payments entered into by the
Company or any of its Restricted Subsidiaries prior to the date
hereof), (iii) on and after the date hereof, other Properties of
the Company and its Restricted Subsidiaries (other than Mortgaged
Properties and Unrestricted Properties) provided that the
aggregate fair market value of such other Properties conveyed,
sold, leased, transferred or otherwise disposed of on or after
the date hereof shall not exceed $10,000,000, provided, further,
that such conveyance, sale, lease, transfer or other disposition
shall not include any Accounts or Inventory (each as defined in
the Security Agreement) of the Company or any of its Restricted
Subsidiaries other than Accounts or Inventory (x) incidental to
the sale of Hydrocarbon Properties and (y) created or produced
from such Hydrocarbon Properties on or after the effective date
of any such conveyance, sale, lease, transfer or other
disposition of such Hydrocarbon Properties, (iv) the expiration
of leases covering hydrocarbon producing properties and (v)
Unrestricted Properties. Notwithstanding the foregoing
provisions of this Section 9.05:
(a) any Subsidiary of the Company may be merged or
consolidated with or into: (i) the Company if the Company
shall be the continuing or surviving corporation or (ii) any
other such Subsidiary; provided that (x) if any such
transaction shall be between a Subsidiary and a Wholly Owned
Subsidiary, the Wholly Owned Subsidiary shall be the
continuing or surviving corporation and (y) that if any such
transaction shall be between a Subsidiary Guarantor and a
Subsidiary not a Subsidiary Guarantor, and such Subsidiary
Guarantor is not the continuing or surviving corporation,
then the continuing or surviving corporation shall have
<PAGE>
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assumed all of the obligations of such Subsidiary Guarantor
hereunder;
(b) any Subsidiary of the Company may sell, lease,
transfer or otherwise dispose of any or all of its Property
(upon voluntary liquidation or otherwise) to the Company or
a Wholly Owned Subsidiary of the Company; provided that if
any such sale is by a Subsidiary Guarantor to a Subsidiary
of the Company not a Subsidiary Guarantor, then such
Subsidiary shall have assumed all of the obligations of such
Subsidiary Guarantor hereunder; and
(c) the Company or any Subsidiary of the Company may
merge or consolidate with any other Person if (i) in the
case of a merger or consolidation of the Company, the
Company is the surviving corporation and, in any other case,
the surviving corporation is a Wholly Owned Subsidiary of
the Company and (ii) after giving effect thereto no Default
would exist hereunder.
9.06 Limitation on Liens. The Company will not, nor
will it permit any of its Restricted Subsidiaries to, create,
incur, assume or suffer to exist any Lien upon any of their
Property, whether now owned or hereafter acquired, except:
(a) Liens created pursuant to the Security Documents;
(b) Liens in existence on the date hereof and listed
in Part B of Schedule I hereto (excluding, however,
following the making of the initial Loans hereunder, Liens
securing Indebtedness to be repaid with the proceeds of such
Loans, if any, indicated on said Schedule I);
(c) Liens imposed by any governmental authority for
taxes, assessments, charges or levies not yet due or which
are being contested in good faith and by appropriate
proceedings if, unless the amount thereof is not material
with respect to it or its financial condition, adequate
reserves with respect thereto are maintained on the books of
the Company or the affected Subsidiaries, as the case may
be, in accordance with GAAP;
(d) carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other like Liens arising in
the ordinary course of business which are not overdue for a
period of more than 45 days or which are being contested in
good faith and by appropriate proceedings and Liens securing
judgments (but only to the extent, for an amount and for a
period not resulting in an Event of Default under
Section 10(h) hereof);
<PAGE>
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(e) pledges or deposits under worker's compensation,
unemployment insurance and other social security or similar
legislation;
(f) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory
obligations, surety, stay, appeal and indemnity bonds,
performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(g) easements, rights-of-way, restrictions and other
similar encumbrances incurred in the ordinary course of
business and encumbrances consisting of zoning restrictions,
easements, licenses, restrictions on the use of Property or
minor imperfections in title thereto which, in the
aggregate, are not material in amount, and which do not in
any case materially detract from the value of the Property
subject thereto or interfere with the ordinary conduct of
the business of the Company or any of its Subsidiaries;
(h) Liens on Property of any corporation which becomes
a Subsidiary of the Company after the date of this
Agreement, provided that such Liens are in existence at the
time such corporation becomes a Subsidiary of the Company
and were not created in anticipation thereof;
(i) Liens upon real and/or tangible personal Property
acquired after the date hereof (by purchase, construction or
otherwise) by the Company or any of its Subsidiaries, each
of which Liens either (A) existed on such Property before
the time of its acquisition and was not created in
anticipation thereof, or (B) was created solely for the
purpose of securing Indebtedness representing, or incurred
to finance, refinance or refund, the cost (including the
cost of construction) of such Property; provided that (x) no
such Lien shall extend to or cover any Property of a
Borrower or a Subsidiary of the Company other than the
Property so acquired and improvements thereon; (y) the
principal amount of Indebtedness secured by any such Lien
shall at no time exceed 80% of the fair market value (as
determined in good faith by a senior financial officer of
the applicable Borrower) of such Property at the time it was
acquired (by purchase, construction or otherwise); provided
that the obligations of the Company or any Subsidiary of the
Company in respect of Capital Lease Obligations under a
capital lease of Property other than Hydrocarbon Property
entered into in the ordinary course of business may be
secured by a Lien on the Property subject to such capital
lease and (z) no such Lien shall be incurred in connection
with any Production Payment unless the Company, as promptly
as reasonably practicable, and in any event within 10 days
after the creation of such Lien, provides the Agent with
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information concerning the Production Payment which gave
rise to such Lien and delivers to the Agent, promptly upon
request, such additional information concerning such
Production Payment or such Lien as the Agent or any Bank may
reasonably request;
(j) Liens for farm-in, farm-out, joint operating, area
of mutual interest agreements or similar agreements entered
into by the Borrowers in the ordinary course of business
which the Borrowers determine in good faith to be necessary
for or advantageous to the economic development of their
Properties; provided any farm-out agreements covering any
Mortgaged Property shall require the prior written consent
of the Majority Banks;
(k) additional Liens upon real and/or personal
Property created after the date hereof, provided that the
aggregate Indebtedness secured thereby and incurred on and
after the date hereof shall not exceed $1,000,000 in the
aggregate at any one time outstanding;
(l) Liens created pursuant to any Commodity Hedging
Agreement or Interest Rate Protection Agreement (i) with any
Bank or any Affiliate of such Bank, provided that the
Majority Banks consent to the creation of such Lien or (ii)
with any other Person, provided that the aggregate
Indebtedness secured by all such Liens permitted by this
clause (ii) shall not exceed $2,000,000 in the aggregate at
any one time outstanding and no such Liens shall extend to
any Mortgaged Properties;
(m) Liens securing Indebtedness of the Company or its
Subsidiaries permitted pursuant to Section 9.07(g) hereof,
provided that the Company will not and will not permit its
Subsidiaries to create any such Liens on any Mortgaged
Property;
(n) Liens securing obligations of a Subsidiary of the
Company to the Company or to any Restricted Subsidiary or
any obligations of the Company to a Restricted Subsidiary
provided that such Liens are not (i) on Mortgaged Properties
existing on the date hereof or (ii) on Mortgaged Properties
acquired after the date hereof that are not subject to any
Lien prior to the Lien of the Mortgage; and
(o) any extension, renewal or replacement of the
foregoing, provided that the Liens permitted hereunder shall
not be spread to cover any additional Indebtedness or
Property (other than a substitution of like Property).
9.07 Indebtedness. The Company will not, and will not
permit any of its Subsidiaries to, create, incur or suffer to
exist any Indebtedness except:
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(a) Indebtedness to the Banks hereunder;
(b) Indebtedness outstanding on the date hereof and
listed in Part A of Schedule I hereto (excluding, however,
following the making of the initial Loans hereunder, the
Indebtedness to be repaid with the proceeds of such Loans,
if any, indicated on said Schedule I);
(c) Subordinated Indebtedness;
(d) Indebtedness of Subsidiaries of the Company to the
Company or to other Subsidiaries of the Company;
(e) Indebtedness of the Company and its Subsidiaries
secured by Liens permitted by Section 9.06(j) hereof up to
but not exceeding $500,000 at any one time outstanding;
(f) additional Indebtedness of the Company up to but
not exceeding $1,000,000 at any one time outstanding;
(g) Non-Recourse Debt;
(h) Indebtedness of the Company and its Subsidiaries
secured by Liens permitted by Section 9.06(l) hereof; and
(i) Indebtedness ("Refinancing Indebtedness") issued
in exchange for or the proceeds of which are used to repay,
refund, refinance or discharge or otherwise retire any
Indebtedness ("Refinanced Indebtedness") specified in clause
(b) above, such Refinancing Indebtedness not to exceed the
principal amount of, accelerate the maturity of, or increase
the interest rate applicable to, the Refinanced Indebtedness
outstanding on the date of the issuance of the Refinancing
Indebtedness.
9.08 Investments. The Company will not, and will not
permit any of its Restricted Subsidiaries to, make or permit to
remain outstanding any Investments except:
(a) Investments outstanding on the date hereof and
identified in Schedule III Part B hereto (excluding
Investments in Unrestricted Subsidiaries);
(b) operating deposit accounts with banks;
(c) Permitted Investments;
(d) Investments by the Company and its Subsidiaries in
capital stock of Restricted Subsidiaries to the extent
outstanding on the date of the financial statements of the
Company and its Consolidated Subsidiaries referred to in
Section 8.02 hereof and advances by the Company and its
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Restricted Subsidiaries to Restricted Subsidiaries of the
Company in the ordinary course of business; provided that
the Company may make loans or other advances to any
Restricted Subsidiary that is a Subsidiary Borrower;
(e) Investments in the Capital Stock of any Wholly-
Owned Subsidiary of the Company formed or acquired by the
Company or any of its other Wholly-Owned Subsidiaries (other
than Unrestricted Subsidiaries) after the date hereof (a
"New Wholly-Owned Subsidiary"), provided that (i) such New
Wholly-Owned Subsidiary is maintained as a separate
Subsidiary of the Company (unless the Majority Banks consent
to the merger of such New Wholly-Owned Subsidiary into the
Company or into another Wholly-Owned Subsidiary of the
Company, except that no such consent shall be required to
merge such New Wholly-Owned Subsidiary into another Wholly-
Owned Subsidiary of the Company established solely for the
purpose of facilitating the acquisition of such New Wholly-
Owned Subsidiary (which Wholly-Owned Subsidiary, following
such merger, shall have no assets other than the assets of
such New Wholly-Owned Subsidiary)), (ii) such New Wholly-
Owned Subsidiary is engaged principally in the business of
the acquisition and exploitation of, exploration for and/or
development, production and processing of oil, gas or other
hydrocarbons, (iii) immediately following the consummation
of each such Investment, such New Wholly-Owned Subsidiary
shall have no Indebtedness other than Non-Recourse Debt
(provided such Indebtedness may have full recourse to the
assets of such Wholly-Owned Subsidiary or any Unrestricted
Subsidiary) and, if applicable, Indebtedness hereunder and
(iv) the Company complies with Section 9.16 hereof with
respect to such New Wholly-Owned Subsidiary immediately
following the consummation of such Investment by the
Company;
(f) Investments permitted by Section 9.07(h) hereof;
(g) additional Investments up to but not exceeding
$5,000,000 (or the equivalent) in the aggregate, including,
without limitation, Investments in Unrestricted Subsidiaries
and JEDI Investments; provided that any cash dividends
received by the Company or any Restricted Subsidiary from an
Unrestricted Subsidiary, up to the amount of the Investments
in such Unrestricted Subsidiary, shall reduce pro tanto the
aggregate amount of the Investments in such Unrestricted
Subsidiary for purposes of calculating compliance with such
$5,000,000 limitation; and
(h) undivided fractional interests in hydrocarbon
reserves.
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9.09 Dividend Payments. The Company will not, nor
will it permit any of its Subsidiaries to, declare or make any
Dividend Payment at any time; provided that (i) any Wholly-Owned
Subsidiaries of the Company may declare and make Dividend
Payments to the Company and (ii) the Company or any Subsidiary
may declare and make Dividend Payments in cash, subject to the
satisfaction of each of the following conditions on the date of
such Dividend Payment and after giving effect thereto:
(i) no Default shall have occurred and be continuing
or shall occur as a result of the making of such Dividend
Payment; and
(ii) immediately after giving effect to such Dividend
Payment, the aggregate amount of Dividend Payments made
during the period commencing on the date hereof through and
including the date of such Dividend Payment shall not exceed
an amount equal to the sum of (A) 50% of consolidated net
income of the Company and its Consolidated Subsidiaries for
the period commencing on October 1, 1993 through and
including the last day of the fiscal quarter most recently
ended prior to the date of such Dividend Payment (the
"Tracking Period") (treated for these purposes as a single
accounting period), minus 100% of consolidated net losses of
the Company and its Consolidated Subsidiaries for the
Tracking Period (treated for these purposes as a single
accounting period), plus 50% of the net cash proceeds
received by the Company during the Tracking Period from any
Person other than a Subsidiary of the Company as a result of
the issuance or sale of Capital Stock (other than
Disqualified Capital Stock) of the Company (reduced by 100%
of the amount of such net cash proceeds used or intended to
be used to prepay, redeem or retire any Subordinated
Indebtedness pursuant to Section 9.17 hereof); provided that
no more than 10% of such net cash proceeds may be used to
make any Dividend Payment during any fiscal year of the
Company and (B) $3,000,000; provided that in no event will
the amount determined pursuant to clause (A) hereof be less
than zero. For the purpose of this paragraph 9.09(ii),
consolidated net income or loss of the Company and its
Consolidated Subsidiaries shall exclude the following non-
cash items (provided that the same shall be included when
they become cash items): (i) any impairment of Properties
for accounting purposes under a ceiling test adjustment,
(ii) any extraordinary item or (iii) any gain or loss
attributable to a change in accounting method which, at the
time of recognition in the financial statements of the
Company and its Subsidiaries is not a cash item. To the
extent future cash payments are made or received with
respect to a change in accounting method and such payment is
not otherwise included in the computation of consolidated
net income or loss for such period, consolidated net income
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or loss shall be reduced or increased by the amount of such
cash payment or receipt.
9.10 Debt Coverage Ratio; Interest Coverage Ratio.
(a) The Company will not permit the Debt Coverage
Ratio for any period of two complete consecutive fiscal quarters
(treated for this purpose as a single accounting period)
following March 31, 1995, to be less than 1.5 to 1 as of the end
of any fiscal quarter of the Company; and
(b) The Company will not permit the Interest Coverage
Ratio for any period of two complete consecutive fiscal quarters
(treated for this purpose as a single accounting period)
following March 31, 1995, to be less than the following
respective ratios as of the end of any fiscal quarter of the
Company during the following respective periods:
For the fiscal quarter
ending September 30, 1995
through the fiscal quarter
ending March 31, 1996: 1.8 to 1
For the fiscal quarter
ending June 30, 1996 and
at all times thereafter: 2.0 to 1
9.11 Working Capital. The Company will not permit the
current assets of the Company and its Consolidated Subsidiaries
(determined on a consolidated basis in accordance with GAAP) to
be equal to or less than the current liabilities of the Company
and its Consolidated Subsidiaries (so determined). For purposes
hereof, the terms "current assets" and "current liabilities"
shall have the respective meanings assigned to them by GAAP,
provided that in any event there shall be (i) included in current
assets the aggregate amount of the unused Commitments (but only
to the extent such unused Commitments could then be utilized as
provided in Section 7.02 hereof), (ii) excluded from current
liabilities all Indebtedness hereunder, (iii) excluded from
current liabilities all Non-Recourse Debt and (iv) the current
portion of any gas balancing liabilities.
9.12 Lines of Business. The Company will not, and
will not permit any of its Subsidiaries to, engage to any
substantial extent in any line or lines of business activity
other than the business of the acquisition, exploration,
development, production, processing, marketing, gathering and
sale of hydrocarbons.
<PAGE>
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9.13 Transactions with Affiliates. Except as
expressly permitted by this Agreement, the Company will not, and
will not permit any Restricted Subsidiaries to, directly or
indirectly: (a) make any Investment in an Affiliate;
(b) transfer, sell, lease, assign or otherwise dispose of any
Property to an Affiliate; (c) merge into or consolidate with or
purchase or acquire Property from an Affiliate; or (d) enter into
any other transaction directly or indirectly with or for the
benefit of an Affiliate (including, without limitation,
guarantees and assumptions of obligations of an Affiliate);
provided that (x) any Affiliate who is an individual may serve as
a director, officer or employee of any of the Company and its
Subsidiaries and receive reasonable compensation for his or her
services in such capacity and (y) any of the Company and its
Restricted Subsidiaries may enter into transactions with
Affiliates (other than extensions of credit to Affiliates)
providing for the leasing of Property, the rendering or receipt
of services or the purchase or sale of inventory and other
Property in the ordinary course of business if the monetary or
business consideration arising therefrom would be substantially
as advantageous to the Company and its Restricted Subsidiaries as
the monetary or business consideration which would obtain in a
comparable transaction with a Person not an Affiliate.
9.14 Use of Proceeds. The Borrowers will use the
proceeds of the Loans hereunder and will use Letters of Credit
issued hereunder solely for general corporate purposes (in
compliance with all applicable legal and regulatory
requirements); provided that neither the Agent nor any Bank shall
have any responsibility as to the use of any of such proceeds.
9.15 Certain Obligations Respecting Subsidiaries. The
Company will, and will cause each of its Restricted Subsidiaries
to, take such action from time to time as shall be necessary to
ensure that the Company and each of its Restricted Subsidiaries
at all times own (subject only to the Lien of the Pledge
Agreement) at least the same percentage of the issued and
outstanding shares of each class of stock of each of such
Restricted Subsidiaries the stock of which is subject to the Lien
of the Pledge Agreement as is owned on the date hereof or, in the
case of New Wholly-Owned Subsidiaries created or acquired after
the date hereof, the stock of which are required to be subject to
the Lien of the Pledge Agreement, 100% of each class of stock of
each of such Subsidiaries (each of the Subsidiaries referred to
above being herein called, a "Pledged Subsidiary"). Without
limiting the generality of the foregoing, none of the Company and
its Restricted Subsidiaries will sell, transfer or otherwise
dispose of any shares of stock in any Pledged Subsidiary owned by
it, nor permit any Pledged Subsidiary to issue any shares of
stock of any class whatsoever to any Person (other than to the
Company or another Obligor). In the event that any such
additional shares of stock are issued by any Pledged Subsidiary,
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the respective Obligor agrees forthwith to deliver to the Agent
pursuant to the Pledge Agreement the certificates evidencing such
shares of stock, accompanied by undated stock powers executed in
blank and shall take such other action as the Agent shall request
to perfect the security interest created therein pursuant to the
Pledge Agreement. The Company will not and will not permit any
of its Restricted Subsidiaries to enter into any indenture,
agreement, instrument or other arrangement (other than the
Indenture included in the Senior Subordinated Debt Documents as
initially in effect) that, directly or indirectly, prohibits or
restrains, or has the effect of prohibiting or restraining, or
imposes materially adverse conditions upon, the incurrence or
payment of Indebtedness of the Company and its Restricted
Subsidiaries, the granting of Liens (other than Liens on
Properties securing Non-Recourse Debt), the declaration or
payment of dividends, the making of loans, advances or
Investments or the sale, assignment, transfer or other
disposition of Property.
9.16 Additional Borrowers and Subsidiary Guarantors.
The Company will take such action, and will cause each of its
Subsidiaries to take such action, including without limitation
the action specified below in this Section 9.16 from time to time
as shall be necessary to ensure that (i) each of such
Subsidiaries (other than Unrestricted Subsidiaries and Forest I
Development Company) with Tangible Net Worth of more than 5% of
the Tangible Net Worth of the Company and its Consolidated
Subsidiaries determined on a consolidated basis in accordance
with GAAP is a Subsidiary Borrower hereunder and (ii) all
Subsidiaries that Guarantee the Company's obligations in respect
of the Senior Subordinated Indebtedness are Subsidiary Guarantors
and in each case, thereby, "Obligors" hereunder. Each Subsidiary
of the Company that is required to become a Subsidiary Borrower
after the date hereof shall execute such instruments and
agreements, in form and substance satisfactory to, and as
required by, the Agent to acknowledge that such Subsidiary has
all of the rights and obligations of a Borrower under this
Agreement. Each Subsidiary of the Company that is required to
become a Subsidiary Guarantor after the date hereof shall execute
such instruments and agreements, in form and substance
satisfactory to, and as required by, the Agent to acknowledge
that such Subsidiary has all of the obligations of a Subsidiary
Guarantor pursuant to this Agreement.
9.17 Modifications and Payments of Subordinated
Indebtedness and Non-Recourse Indebtedness. The Company will
not, and will not permit any of its Subsidiaries to, (a) agree to
any amendment, supplement or other modification of any of the
Senior Subordinated Debt Documents or any other documents
providing for or evidencing any Subordinated Indebtedness or Non-
Recourse Debt or (b) pay, prepay, redeem, retire, purchase or
otherwise acquire for value, or defease, any Subordinated
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Indebtedness or Non-Recourse Debt except for (subject to the
subordination provisions, if applicable, relating thereto)
regularly scheduled payments of principal thereof and interest
thereon or regularly scheduled redemptions thereof on the
respective dates on which such payments or redemptions are
required to be made; provided that the Company may (if no
Default has occurred and is continuing or will result therefrom)
(i) apply 30% of the net cash proceeds received by the Company
from any Person other than a Subsidiary of the Company as a
result of the issuance or sale of Capital Stock of the Company
(other than Disqualified Capital Stock) to prepay, redeem or
retire any Subordinated Indebtedness or Non-Recourse Debt;
provided, however, the Company shall apply 100% of the net cash
proceeds received by the Company from the exercise of the
warrants granted in connection with the transactions contemplated
by the Transaction Documents (as defined in the Purchase
Agreement) to the JEDI Repayment and (ii) refinance such Senior
Subordinated Debt or Non-Recourse Debt provided that (w) the
subordination or non-recourse provisions, as the case may be, for
such Indebtedness remain unchanged; (x) the interest rate
applicable to such Indebtedness is not increased; (y) the final
maturity of such Indebtedness is not accelerated and (z) the
covenants and other provisions thereof are not modified in any
respect determined by the Majority Banks to be materially adverse
to the Company or the Banks.
9.18 Changes to Production Payments. The Company will
not, and will not permit any Material Subsidiary to voluntarily
change, agree or consent to any change in the delivery or payment
schedule of any Production Payment or similar agreement without
the prior written consent of the Majority Banks.
9.19 Unrestricted Subsidiaries. The Company:
(a) will cause the management, business and affairs of
each of the Company and its Subsidiaries to be conducted in such
a manner (including, without limitation, by keeping separate
books of account, furnishing separate financial statements of
Unrestricted Subsidiaries to creditors and potential creditors
thereof and by not permitting Properties of the Company and its
respective Subsidiaries to be commingled) so that each
Unrestricted Subsidiary that is a corporation will be treated as
a corporate entity separate and distinct from the Company and the
Restricted Subsidiaries;
(b) will not, and will not permit any of the
Restricted Subsidiaries to, incur, assume, Guarantee or be or
become liable for any Indebtedness or other obligations of any of
the Unrestricted Subsidiaries; and
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(c) will not permit any Unrestricted Subsidiary to
hold any capital stock of or other ownership interest in, or any
Indebtedness of, any Restricted Subsidiary.
9.20 Amendments to Transactions Documents. The
Company will not, and will not permit any Subsidiary to change,
agree or consent to any amendment, modification or supplement to
any of the Transaction Documents (as defined in the Purchase
Agreement) without the prior written consent of the Majority
Banks; provided, however, that the Company may, and may permit
any Subsidiary, to change, agree or consent to any such
amendment, modification or supplement without the prior written
consent of the Agent or the Banks if such amendment, modification
or supplement (i) does not materially change the benefits to be
derived by the Company from the consummation of the transactions
contemplated by the Transaction Documents as in effect as of May
15, 1995, (ii) does not expand in any material respect the
circumstances under which Anschutz may assert any claim under the
Transaction Documents with recourse to the Company (other than
with respect to the Company's, Forest Oil of Canada Ltd.'s or
604228 Alberta Ltd.'s interest in the Anschutz Collateral) and
(iii) could not reasonably be expected to have an adverse effect
on the Banks or the Agent.
Section 10. Events of Default. If one or more of the
following events (herein called "Events of Default") shall occur
and be continuing:
(a) The Borrowers shall default in the payment when
due (whether at stated maturity or upon mandatory or
optional prepayment) of any principal of or interest on any
Loan or any Reimbursement Obligation, any fee or any other
amount payable by it hereunder or under any other Basic
Document; or
(b) The Company or any of its Material Subsidiaries
shall default in the payment when due of any principal of or
interest on any of its other Indebtedness aggregating
$500,000 or more, or in the payment when due of $100,000 or
more under any Interest Rate Protection Agreement; or any
event specified in any note, agreement, indenture or other
document evidencing or relating to any such Indebtedness or
any event specified in any Interest Rate Protection
Agreement shall occur if the effect of such event is to
cause, or (with the giving of any notice or the lapse of
time or both) to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder
or holders) to cause, such Indebtedness to become due, or to
be prepaid in full (whether by redemption, purchase, offer
to purchase or otherwise), prior to its stated maturity or
to have the interest rate thereon reset to a level so that
securities evidencing such Indebtedness trade at a level
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specified in relation to the par value thereof or, in the
case of an Interest Rate Protection Agreement, to permit the
payments owing under such Interest Rate Protection Agreement
to be liquidated; provided that (i) a default under the JEDI
Agreement shall not be an Event of Default under this
Section 10(b) unless such a default has occurred and a claim
in excess of $1,000,000 is made against the Company by or
through the JEDI Lender seeking any recourse against the
Company other than with respect to the Company's interest in
the JEDI Collateral and (ii) a default under the
Participation Agreement shall not be an Event of Default
under this Section 10(b) unless such a default has occurred
and a claim is made against the Company by or through First
Chicago seeking recourse against the Company other than with
respect to the Company's interest in the First Chicago
Collateral; or
(c) Any representation, warranty or certification made
or deemed made herein or in any other Basic Document (or in
any modification or supplement hereto or thereto) by any
Obligor, or any certificate furnished to any Bank or the
Agent pursuant to the provisions hereof or thereof, shall
prove to have been false or misleading as of the time made
or furnished in any material respect; or
(d) The Company shall default in the performance of
any of its obligations under any of Sections 9.01(g), 9.05,
9.06, 9.07, 9.08, 9.09, 9.10, 9.11, 9.12, 9.14, 9.15 or 9.17
hereof or any Obligor shall default in the performance of
any of its obligations under Section 4.02 or 5.02 of the
Security Agreement; or any Obligor shall default in the
performance of any of its other obligations in this
Agreement or any other Basic Document and such default shall
continue unremedied for a period of 30 days after notice
thereof to the Company by the Agent or any Bank (through the
Agent); or
(e) The Company or any of its Material Subsidiaries
shall admit in writing its inability to, or be generally
unable to, pay its debts as such debts become due; or
(f) The Company or any of its Material Subsidiaries
shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee,
examiner or liquidator of itself or of all or a substantial
part of its Property, (ii) make a general assignment for the
benefit of its creditors, (iii) commence a voluntary case
under the Bankruptcy Code, (iv) file a petition seeking to
take advantage of any other law relating to bankruptcy,
insolvency, reorganization, liquidation, dissolution,
arrangement or winding-up, or composition or readjustment of
debts, (v) fail to controvert in a timely and appropriate
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manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Bankruptcy Code
or (vi) take any corporate action for the purpose of
effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without
the application or consent of the Company or any of its
Material Subsidiaries, in any court of competent
jurisdiction, seeking (i) its reorganization, liquidation,
dissolution, arrangement or winding-up, or the composition
or readjustment of its debts, (ii) the appointment of a
receiver, custodian, trustee, examiner, liquidator or the
like of the Company or such Subsidiary or of all or any
substantial part of its Property, or (iii) similar relief in
respect of the Company or such Subsidiary under any law
relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts, and such
proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the
foregoing shall be entered and continue unstayed and in
effect, for a period of 60 or more days; or an order for
relief against the Company or such Subsidiary shall be
entered in an involuntary case under the Bankruptcy Code; or
(h) A final judgment or judgments for the payment of
money in excess of $1,000,000 in the aggregate (exclusive of
judgment amounts fully covered by insurance where the
insurer(s) has or have admitted liability in respect of the
full amount of such judgment(s) in excess of $1,000,000 and
in respect of which the Majority Banks believe such
insurer(s) has or have the financial ability to satisfy the
full amount of such judgment(s)) shall be rendered by a one
or more courts, administrative tribunals or other bodies
having jurisdiction against the Company or any of its
Material Subsidiaries 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 60
days from the date of entry thereof and the Company or the
relevant Subsidiary shall not, within said period of 60
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
(i) An event or condition specified in Section 9.01(e)
hereof shall occur or exist with respect to any Plan or
Multiemployer Plan and, as a result of such event or
condition, together with all other such events or
conditions, the Company or any ERISA Affiliate shall incur
or in the opinion of the Majority Banks shall be reasonably
likely to incur a liability to a Plan, a Multiemployer Plan
or PBGC (or any combination of the foregoing) which would
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constitute, in the determination of the Majority Banks, a
Material Adverse Effect; or
(j) Any Governmental Authority shall assert claims
against the Company or any of its Subsidiaries, or any other
Person shall commence any proceeding against the Company or
any of its Subsidiaries before any court, administrative
tribunal or other body having jurisdiction over the Company
or any of its Subsidiaries, in either such case based on or
arising from the generation, storage, transport, handling or
disposal of Hazardous Materials by the Company or any of its
Subsidiaries or Affiliates, or any predecessor in interest
of the Company or any of its Subsidiaries or Affiliates, or
relating to any site or facility owned, operated or leased
by the Company or any of its Subsidiaries or Affiliates,
which claims or liabilities (insofar as they are payable by
the Company or any of its Subsidiaries but after deducting
any portion thereof which is reasonably expected to be paid
by other creditworthy Persons jointly and severally liable
therefor), and the amount thereof is, singly or in the
aggregate, reasonably anticipated to have a Material Adverse
Effect and such claim is not withdrawn or such proceeding is
not withdrawn or dismissed, as the case may be, within 45
days after the assertion or commencement thereof, as
applicable; or
(k) A Change of Control; or
(l) Except for expiration in accordance with its
terms, any of the Security Documents shall be terminated or
shall cease to be in full force and effect, for whatever
reason;
THEREUPON: (1) in the case of an Event of Default other than one
referred to in clause (f) or (g) of this Section 10 with respect
to any Obligor, the Agent may and, upon request of the Majority
Banks, shall, by notice to the Company, terminate the Commitments
and/or declare the principal amount then outstanding of, and the
accrued interest on, the Loans, the Reimbursement Obligations and
all other amounts payable by the Obligors hereunder and under the
Notes (including, without limitation, any amounts payable under
Section 5.05 or 5.06 hereof) to be forthwith due and payable,
whereupon such amounts shall be immediately due and payable
without presentment, demand, protest or other formalities of any
kind, all of which are hereby expressly waived by each Obligor;
and (2) in the case of the occurrence of an Event of Default
referred to in clause (f) or (g) of this Section 10 with respect
to any Obligor, the Commitments shall automatically be terminated
and the principal amount then outstanding of, and the accrued
interest on, the Loans, the Reimbursement Obligations and all
other amounts payable by the Obligors hereunder and under the
Notes (including, without limitation, any amounts payable under
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Section 5.05 or 5.06 hereof) shall automatically become
immediately due and payable without presentment, demand, protest
or other formalities of any kind, all of which are hereby
expressly waived by each Obligor.
In addition, upon the occurrence and during the
continuance of any Event of Default (if the Agent has declared
the principal amount then outstanding of, and accrued interest
on, the Loans and all other amounts payable by the Borrowers
hereunder and under the Notes to be due and payable), the
Borrowers jointly and severally agree that they shall, if
requested by the Agent or the Majority Banks through the Agent
(and, in the case of any Event of Default referred to in
clause (f) or (g) of this Section 10 with respect to the Company,
forthwith, without any demand or the taking of any other action
by the Agent or such Banks) provide cover for the Letter of
Credit Liabilities by paying to the Agent immediately available
funds in an amount equal to the then aggregate undrawn face
amount of all Letters of Credit, which funds shall be held by the
Agent in the Collateral Account as collateral security in the
first instance for the Letter of Credit Liabilities and be
subject to withdrawal only as therein provided.
Section 11. The Agent.
11.01 Appointment, Powers and Immunities. Each Bank
hereby irrevocably appoints and authorizes the Agent to act as
its agent hereunder and under the other Basic Documents with such
powers as are specifically delegated to the Agent by the terms of
this Agreement and of the other Basic Documents, together with
such other powers as are reasonably incidental thereto. The
Agent (which term as used in this sentence and in Section 11.05
and the first sentence of Section 11.06 hereof shall include
reference to its affiliates and its own and its affiliates'
officers, directors, employees and agents): (a) shall have no
duties or responsibilities except those expressly set forth in
this Agreement and in the other Basic Documents, and shall not by
reason of this Agreement or any other Basic Document be a trustee
for any Bank; (b) shall not be responsible to the Banks for any
recitals, statements, representations or warranties contained in
this Agreement or in any other Basic Document, or in any
certificate or other document referred to or provided for in, or
received by any of them under, this Agreement or any other Basic
Document, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of any collateral security provided
for by any of the Security Documents, or of this Agreement, any
Note or any other Basic Document or any other document referred
to or provided for herein or therein, or for any failure by the
Borrowers or any other Person to perform any of its obligations
hereunder or thereunder; (c) shall not be required to initiate or
conduct any litigation or collection proceedings hereunder or
under any other Basic Document; and (d) shall not be responsible
for any action taken or omitted to be taken by it hereunder or
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under any other Basic Document or under any other document or
instrument referred to or provided for herein or therein or in
connection herewith or therewith, except for its own gross
negligence or willful misconduct. The Agent may employ agents
and attorneys-in-fact and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact
selected by it in good faith. The Agent may deem and treat the
payee of any Note as the holder thereof for all purposes hereof
unless and until a notice of the assignment or transfer thereof
shall have been filed with the Agent, together with the consent
of the Borrowers to such assignment or transfer (to the extent
provided in Section 12.06(b) hereof).
11.02 Reliance by Agent. The Agent shall be entitled
to rely upon any certification, notice or other communication
(including, without limitation, any thereof by telephone,
telecopy, telex, telegram or cable) believed by it to be genuine
and correct and to have been signed or sent by or on behalf of
the proper Person or Persons, and upon advice and statements of
legal counsel, independent accountants and other experts selected
by the Agent. As to any matters not expressly provided for by
this Agreement or any other Basic Document, the Agent shall in
all cases be fully protected in acting, or in refraining from
acting, hereunder or thereunder in accordance with instructions
given by the Majority Banks, and such instructions of the
Majority Banks and any action taken or failure to act pursuant
thereto shall be binding on all of the Banks.
11.03 Defaults. The Agent shall not be deemed to have
knowledge or notice of the occurrence of a Default (other than
the non-payment of principal of or interest on Loans, Reimburse
ment Obligations or of commitment fees) unless the Agent has
received notice from a Bank or the Company specifying such
Default and stating that such notice is a "Notice of Default".
In the event that the Agent receives such a notice of the
occurrence of a Default, the Agent shall give prompt notice
thereof to the Banks (and shall give each Bank prompt notice of
each such non-payment). The Agent shall (subject to
Section 11.07 hereof) take such action with respect to such
Default as shall be directed by the Majority Banks, provided
that, unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to
such Default as it shall deem advisable in the best interest of
the Banks except to the extent that this Agreement expressly
requires that such action be taken, or not be taken, only with
the consent or upon the authorization of the Majority Banks or
all of the Banks.
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11.04 Rights as a Bank. With respect to its
Commitment and the Loans made by it, Chase (and any successor
acting as Agent) in its capacity as a Bank hereunder shall have
the same rights and powers hereunder as any other Bank and may
exercise the same as though it were not acting as the Agent, and
the term "Bank" or "Banks" shall, unless the context otherwise
indicates, include the Agent in its individual capacity. Chase
(and any successor acting as Agent) and its affiliates may
(without having to account therefor to any Bank) accept deposits
from, lend money to, make investments in and generally engage in
any kind of banking, trust or other business with the Obligors
(and any of their Subsidiaries or Affiliates) as if it were not
acting as the Agent, and Chase and its affiliates may accept fees
and other consideration from the Obligors for services in
connection with this Agreement or otherwise without having to
account for the same to the Banks.
11.05 Indemnification. The Banks agree to indemnify
the Agent (to the extent not reimbursed under Sections 12.03 and
12.07 hereof, but without limiting the obligations of the Company
under said Sections 12.03 and 12.07, and including in any event
any payments under any indemnity that the Agent is required to
issue to any bank referred to in Section 4.02 of the Security
Agreement to which remittances in respect of Accounts, as defined
therein, are to be made) ratably in accordance with the aggregate
principal amount of the Loans and Reimbursement Obligations held
by the Banks (or, if no Loans or Reimbursement Obligations are at
the time outstanding, ratably in accordance with their respective
Commitments or, if no Loans, Reimbursement Obligations or Commit
ments are at the time outstanding or in effect, ratably in
accordance with their respective Commitments as most recently in
effect), for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever that may be
imposed on, incurred by or asserted against the Agent (including
by any Bank) arising out of or by reason of any investigation in
or in any way relating to or arising out of this Agreement or any
other Basic Document or any other documents contemplated by or
referred to herein or therein or the transactions contemplated
hereby or thereby (including, without limitation, the costs and
expenses that the Borrowers are obligated to pay under
Sections 12.03 and 12.07 hereof, and including also any payments
under any indemnity that the Agent is required to issue to any
bank referred to in Section 4.02 of the Security Agreement to
which remittances in respect of Accounts, as defined therein, are
to be made, but excluding, unless a Default has occurred and is
continuing, normal administrative costs and expenses incident to
the performance of its agency duties hereunder) or the
enforcement of any of the terms hereof or thereof or of any such
other documents, provided that no Bank shall be liable for any of
the foregoing to the extent they arise from the gross negligence
or willful misconduct of the party to be indemnified.
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11.06 Non-Reliance on Agent and Other Banks. Each
Bank agrees that it has, independently and without reliance on
the Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own credit
analysis of the Company and its Subsidiaries and decision to
enter into this Agreement and that it will, independently and
without reliance upon the Agent or any other Bank, and based on
such documents and information as it shall deem appropriate at
the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement. The Agent
shall not be required to keep itself informed as to the
performance or observance by any Obligor of this Agreement or any
of the other Basic Documents or any other document referred to or
provided for herein or therein or to inspect the Properties or
books of the Company or any of its Subsidiaries. Except for
notices, reports and other documents and information expressly
required to be furnished to the Banks by the Agent hereunder, the
Agent shall not have any duty or responsibility to provide any
Bank with any credit or other information concerning the affairs,
financial condition or business of the Company or any of its
Subsidiaries (or any of their Affiliates) that may come into the
possession of the Agent or any of its affiliates.
11.07 Failure to Act. Except for action expressly
required of the Agent hereunder and under the other Basic
Documents, the Agent shall in all cases be fully justified in
failing or refusing to act hereunder and thereunder unless it
shall receive further assurances to its satisfaction from the
Banks of their indemnification obligations under Section 11.05
hereof against any and all liability and expense that may be
incurred by it by reason of taking or continuing to take any such
action.
11.08 Resignation or Removal of Agent. Subject to the
appointment and acceptance of a successor Agent as provided
below, the Agent may resign at any time by giving notice thereof
to the Banks and the Company, and the Agent may be removed at any
time with or without cause by the Majority Banks. Upon any such
resignation or removal, the Majority Banks shall have the right
to appoint a successor Agent. If no successor Agent shall have
been so appointed by the Majority Banks and shall have accepted
such appointment within 30 days after the retiring Agent's giving
of notice of resignation or the Majority Banks' removal of the
retiring Agent, then the retiring Agent may, on behalf of the
Banks, appoint a successor Agent, that shall be a bank which has
an office in New York, New York with a combined capital and
surplus of at least $1,000,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties
and obligations hereunder. After any retiring Agent's resigna
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tion or removal hereunder as Agent, the provisions of this
Section 11 shall continue in effect for its benefit in respect of
any actions taken or omitted to be taken by it while it was
acting as the Agent.
11.09 Consents under Other Basic Documents. The Agent
may, with the prior consent of the Majority Banks (but not
otherwise), consent to any modification, supplement or waiver
under any of the Basic Documents other than this Agreement,
provided that, without the prior consent of each Bank, the Agent
shall not (except as provided herein or in the Security
Documents) release any collateral or otherwise terminate any Lien
under any Basic Document providing for collateral security, or
agree to additional obligations being secured by such collateral
security (unless the Lien for such additional obligations shall
be junior to the Lien in favor of the other obligations secured
by such Basic Document), except that no such consent shall be
required, and the Agent is hereby authorized, to release any Lien
covering Property which is the subject of a disposition of
Property permitted hereunder.
Notwithstanding any provision of this Agreement to the
contrary, the Agent shall, in connection with any disposition by
an Obligor of any Properties, other than Mortgaged Properties, to
the extent such Properties are disposed of in accordance with the
limitations set forth in Section 9.05(iii) hereof, release such
Properties from the Lien of each of the Security Documents,
without the consent of any Bank, upon the receipt by the Agent of
a certificate from the Obligor seeking such release which
certificate shall state (i) that no Default or Event of Default
has occurred and is continuing and (ii) that the disposition of
such Property in the manner contemplated by such Obligor is
permitted pursuant to the terms of this Agreement provided that
such release shall not extend to (A) any equipment located on,
proceeds from sale of, or production of hydrocarbons from, such
Hydrocarbon Properties that are retained by the Company after any
farmout or similar agreement and (B) any Inventory or Equipment
(as defined in the Security Agreement) that is the subject of
such farmout or similar agreement (the "Farmout Interest") and
that is or may be utilized for the exploration, production or
marketing of Hydrocarbons attributable to (x) the Farmout
Interest and (y) other properties of the Company that are (i)
Mortgaged Properties or (ii) described in the Security Documents
and intended to be Mortgaged Properties.
11.10 Collateral Sub-Agents. Each Bank by its
execution and delivery of this Agreement agrees, as contemplated
by Section 4.03 of the Security Agreement, that, in the event it
shall hold any Permitted Investments referred to therein, such
Permitted Investments shall be held in the name and under the
control of such Bank, and such Bank shall hold such Permitted
Investments as a collateral sub-agent for the Agent thereunder.
<PAGE>
-92-
The Company by its execution and delivery of this Agreement
hereby consents to the foregoing.
Section 12. Miscellaneous.
12.01 Waiver. No failure on the part of the Agent or
any Bank to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power or privilege under this
Agreement or any Note shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or
privilege under this Agreement or any Note preclude any other or
further exercise thereof or the exercise of any other right,
power or privilege. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
12.02 Notices. All notices, requests and other
communications provided for herein and under the Security
Documents (including, without limitation, any modifications of,
or waivers or consents under, this Agreement) shall be given or
made in writing (including, without limitation, by telex or
telecopy) delivered to the intended recipient at the "Address for
Notices" specified below its name on the signature pages hereof
(below the name of the Company, in the case of any Subsidiary
Borrower or any Subsidiary Guarantor); or, as to any party, at
such other address as shall be designated by such party in a
notice to each other party. Except as otherwise provided in this
Agreement, all such communications shall be deemed to have been
duly given when transmitted by telex or telecopier or personally
delivered or, in the case of a mailed notice, upon receipt, in
each case given or addressed as aforesaid.
12.03 Expenses. The Borrowers hereby jointly and
severally agree to pay or reimburse each of the Banks and the
Agent for paying: (a) all reasonable out-of-pocket costs and
expenses of the Agent (including, without limitation, the
reasonable fees and expenses of (i) Milbank, Tweed, Hadley &
McCloy, special New York counsel to Chase and (ii) each of the
special counsel to the Banks set forth in Section 7.01(j)
hereof), in connection with (i) the negotiation, preparation,
execution and delivery of this Agreement and the other Basic
Documents and the extensions of credit hereunder and (ii) any
modification, supplement or waiver of any of the terms of this
Agreement or any of the other Basic Documents; (b) all reasonable
out-of-pocket costs and expenses of the Banks and the Agent
(including, without limitation, reasonable counsels' fees) in
connection with (i) any Default and any enforcement or collection
proceedings resulting therefrom or in connection with the
negotiation of any restructuring or "work-out" (whether or not
consummated), or the obligations of the Borrowers hereunder and
(ii) the enforcement of this Section 12.03 or Section 12.07; and
(c) all transfer, stamp, documentary or other similar taxes,
<PAGE>
-93-
assessments or charges levied by any governmental or revenue
authority in respect of this Agreement or any of the other Basic
Documents or any other document referred to herein or therein and
all costs, expenses, taxes, assessments and other charges
incurred in connection with any filing, registration, recording
or perfection of any security interest contemplated by any Basic
Document or any other document referred to therein.
12.04 Amendments, Etc. Except as otherwise expressly
provided in this Agreement, any provision of this Agreement may
be modified or supplemented only by an instrument in writing
signed by the Obligors, the Agent and the Majority Banks, or by
the Obligors and the Agent acting with the consent of the
Majority Banks, and any provision of this Agreement may be waived
by the Majority Banks or by the Agent acting with the consent of
the Majority Banks; provided that: no modification, supplement
or waiver shall, unless by an instrument signed by all of the
Banks or by the Agent acting with the consent of all of the Banks
whose rights or interests are affected thereby: (i) increase, or
extend the term of any of the Commitments, or extend the time or
waive any requirement for the reduction or termination of any of
the Commitments, (ii) extend the date fixed for the payment of
principal of or interest on the Loans, the Reimbursement
Obligations or any fee hereunder, (iii) reduce the amount of any
such payment of principal, (iv) reduce the rate at which interest
is payable thereon or any fee is payable hereunder, (v) alter the
rights or obligations of the Company to prepay Loans, (vi) alter
the terms of this Section 12.04 or (vii) modify the definition of
the term "Majority Banks" or modify in any other manner the
number or percentage of the Banks required to make any
determinations or waive any rights hereunder or to modify any
provision hereof, any modification or supplement of this
Agreement that increases any of the obligations or reduces or
impairs any of the rights of, or otherwise adversely affects the
interests of, the Agent or the Issuing Bank under this Agreement
or any of the other Basic Documents shall require the consent of
the Agent or the Issuing Bank (as the case may be).
Anything in this Agreement to the contrary
notwithstanding, if:
(x) at a time when the conditions precedent set forth
in Section 7 hereof to any Loans or other extension of
credit hereunder are, in the opinion of the Majority Banks
satisfied, any Bank shall fail to fulfill its obligations to
make the Loan to be made by it; or
(y) any Bank shall fail to pay to the Agent for the
account of the Issuing Bank the amount of such Bank's
Commitment Percentage of the Commitments of any payment
under a Letter of Credit pursuant to Section 2.04(e) hereof;
<PAGE>
-94-
then, for so long as such failure shall continue, such Bank shall
(unless the Majority Banks, determined as if such Bank were not a
"Bank" hereunder, shall otherwise consent in writing) be deemed
for all purposes relating to amendments, modifications, waivers
or consents under this Agreement or any of the other Basic
Documents (including, without limitation, under this Section
12.04 and under Section 11.09 hereof) to have no Loans, Letter of
Credit Liabilities or Commitments, shall not be treated as a
"Bank" hereunder when performing the computation of Majority
Banks and shall have no rights under the preceding paragraph of
this Section 12.04 or under Section 11.09 hereof; provided that
any action taken by the other Banks with respect to the matters
referred to in the preceding paragraph shall not be effective as
against such Bank.
12.05 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
12.06 Assignments and Participations.
(a) No Obligor may assign any of its rights or
obligations hereunder or under the Notes without the prior
consent of the Majority Banks and the Agent.
(b) Each Bank may assign any of its Loans, its Note,
its Commitment, and its Letter of Credit Interest (but only with
the consent of, in the case of an outstanding Commitment, the
Company and the Agent and, in the case of a Commitment or a
Letter of Credit Interest, the Issuing Bank (which consent, in
the case of the Company, shall not be unreasonably withheld));
provided that (i) no such consent by the Company or the Agent or
the Issuing Bank, if applicable, shall be required in the case of
any assignment to another Bank; (ii) any such partial assignment
shall be in an amount at least equal to $3,000,000; and
(iii) each such assignment by a Bank of any of its Loans, Notes,
Commitments or Letter of Credit Interests shall be made in such
manner so that the same portion of its Loans, Notes, Commitments
and Letter of Credit Interests is assigned to the respective
assignee. Upon execution and delivery by the assignee to
Company, the Agent and the Issuing Bank of an instrument in
writing pursuant to which such assignee agrees to become a "Bank"
hereunder (if not already a Bank) having the Commitments, Loans,
and, if applicable, Letter of Credit Interests specified in such
instrument, and upon the consent thereto by the Company, the
Agent and the Issuing Bank, to the extent required above, the
assignee shall have, to the extent of such assignment (unless
otherwise provided in such assignment with the consent of the
Company, the Agent and the Issuing Bank), the obligations, rights
and benefits of a Bank hereunder holding the Commitments, Loans
and, if applicable, Letter of Credit Interests (or portions
thereof) assigned to it (in addition to the Commitments, Loans
<PAGE>
-95-
and Letter of Credit Interests, if any, theretofore held by such
assignee) and the assigning Bank shall, to the extent of such
assignment, be released from the Commitments (or portion thereof)
so assigned. Upon each such assignment the assigning Bank shall
pay the Agent an assignment fee of $50,000.
(c) Each Bank may sell or agree to sell to one or more
other Persons a participation in not more than 75% of its rights
and obligations under this Agreement (including, without
limitation, not more than 75% of its Commitment and the Loans
and/or Letter of Credit Interest held by it), in which event each
purchaser of a participation (a "Participant") shall be entitled
to the rights and benefits of the provisions of Section 9.01(h)
hereof with respect to its participation in such Loans, Letter of
Credit Interests and Commitments as if (and the Borrowers shall
be directly obligated to such Participant under such provisions
as if) such Participant were a "Bank" for purposes of said
Section, but, except as otherwise provided in Section 4.07(c)
hereof, shall not have any other rights or benefits under this
Agreement or any Note or any other Basic Document (the
Participant's rights against such Bank in respect of such
participation to be those set forth in the agreements executed by
such Bank in favor of the Participant). All amounts payable by
the Borrowers to any Bank under Section 5 hereof in respect of
Loans, Letter of Credit Interests held by it, and its Commitment,
shall be determined as if such Bank had not sold or agreed to
sell any participations in such Loans, Letter of Credit Interest
and Commitment, and as if such Bank were funding each of such
Loans, Letter of Credit Interests and Commitment in the same way
that it is funding the portion of such Loans, Letter of Credit
Interests and Commitment in which no participations have been
sold. In no event shall a Bank that sells a participation agree
with the Participant to take or refrain from taking any action
hereunder or under any other Basic Document except that such Bank
may agree with the Participant that it will not, without the
consent of the Participant, agree to any of the following (to the
extent the rights or interest of the Participant are adversely
affected thereby): (i) increase or extend the term, or extend
the time or waive any requirement for the reduction or
termination, of such Bank's Commitment, (ii) extend the date
fixed for the payment of principal of or interest on the related
Loan or Loans, Reimbursement Obligations or any portion of any
fee hereunder payable to the Participant, (iii) reduce the amount
of any such payment of principal, (iv) reduce the rate at which
interest is payable thereon, or any fee hereunder payable to the
Participant, to a level below the rate at which the Participant
is entitled to receive such interest or fee, (v) alter the rights
or obligations of the Borrowers to prepay the related Loans or
(vi) consent to any other modification, supplement or waiver
hereof or of any of the other Basic Documents to the extent that
the same, under Section 11.09 or 12.04 hereof, requires the
consent of each Bank.
<PAGE>
-96-
(d) In addition to the assignments and participations
permitted under the foregoing provisions of this Section 12.06,
including, without limitation, Section 12.06(c) hereof, any Bank
may assign and pledge all or any portion of its Loans and its
Notes to any Federal Reserve Bank as collateral security pursuant
to Regulation A and any Operating Circular issued by such Federal
Reserve Bank. No such assignment shall release the assigning
Bank from its obligations hereunder.
(e) A Bank may furnish any information concerning the
Company or any of its Subsidiaries in the possession of such Bank
from time to time to assignees and participants (including
prospective assignees and participants), subject, however, to the
provisions of Section 12.13(b) hereof.
(f) Anything in this Section 12.06 to the contrary
notwithstanding, no Bank may assign or participate any interest
in any Loan or Reimbursement Obligation held by it hereunder to
the Borrowers or any of their Affiliates or Subsidiaries without
the prior written consent of each Bank.
12.07 Indemnification. The Borrowers hereby jointly
and severally agree (i) to indemnify the Agent and each Bank and
their respective directors, officers, employees, attorneys and
agents from, and hold each of them harmless against, any and all
losses, liabilities, claims, damages or expenses incurred by any
of them (including, without limitation, any and all losses,
liabilities, claims, damages or expenses incurred by the Agent to
any Bank, whether or not the Agent or any Bank is a party
thereto) arising out of or by reason of any investigation or
litigation or other proceedings (including any threatened
investigation or litigation or other proceedings) relating to the
extensions of credit hereunder or any actual or proposed use by
the Company or any of its Subsidiaries of the proceeds of any of
the extensions of credit hereunder, including, without
limitation, the reasonable fees and disbursements of counsel
incurred in connection with any such investigation or litigation
or other proceedings (but excluding any such losses, liabilities,
claims, damages or expenses incurred by reason of the gross
negligence or willful misconduct of the Person to be indemnified)
and (ii) not to assert any claim against the Agent, any Bank, any
of their affiliates, or any of their respective directors,
officers, employees, attorneys and agents, on any theory of
liability, for special, indirect, consequential or punitive
damages arising out of or otherwise relating to any of the
transactions contemplated herein or in any other Basic Document;
provided that the Borrowers may enforce the obligations, if
applicable, of the Banks hereunder. Without limiting the
generality of the foregoing, the Borrowers will (x) indemnify the
Agent for any payments that the Agent is required to make under
any indemnity issued to any bank referred to in Section 4.02 of
the Security Agreement to which remittances in respect to
<PAGE>
-97-
Accounts, as defined therein, are to be made and (y) indemnify
the Agent and each Bank from, and hold the Agent and each Bank
harmless against, any losses, liabilities, claims, damages or
expenses described in the preceding sentence (but excluding, as
provided in the preceding sentence, any loss, liability, claim,
damage or expense incurred by reason of the gross negligence or
willful misconduct of the Person to be indemnified) arising under
any Environmental Law as a result of the past, present or future
operations of the Company or any of its Subsidiaries (or any
predecessor in interest to the Company or any of its
Subsidiaries), or the past, present or future condition of any
site or facility owned, operated or leased by the Company or any
of its Subsidiaries (or any such predecessor in interest), or any
Release or threatened Release of any Hazardous Materials from any
such site or facility, including any such Release or threatened
Release which shall occur during any period when the Agent or any
Bank shall be in possession of any such site or facility
following the exercise by the Agent or any Bank of any of its
rights and remedies hereunder or under any of the Security
Documents.
12.08 Survival. The obligations of the Borrowers
under Sections 5.01, 5.05, 5.06, 5.07, 12.03 and 12.07 hereof and
the obligations of the Banks under Section 11.05 hereof shall
survive the repayment of the Loans and Reimbursement Obligations
and the termination of the Commitments. In addition, each
representation and warranty made, or deemed to be made by a
notice of any extension of credit (whether by means of a Loan or
a Letter of Credit), herein or pursuant hereto shall survive the
making of such representation and warranty, and no Bank shall be
deemed to have waived, by reason of making any extension of
credit hereunder (whether by means of a Loan or a Letter of
Credit), any Default which may arise by reason of such
representation or warranty proving to have been false or
misleading, notwithstanding that such Bank or the Agent may have
had notice or knowledge or reason to believe that such
representation or warranty was false or misleading at the time
such extension of credit was made.
12.09 Captions. The table of contents and captions
and section headings appearing herein are included solely for
convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
12.10 Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together shall
constitute one and the same instrument and any of the parties
hereto may execute this Agreement by signing any such
counterpart.
12.11 Governing Law; Submission to Jurisdiction. This
Agreement and the Notes shall be governed by, and construed in
<PAGE>
-98-
accordance with, the law of the State of New York. Each Obligor
hereby submits to the nonexclusive jurisdiction of the United
States District Court for the Southern District of New York and
of any New York state court sitting in New York City for the
purposes of all legal proceedings arising out of or relating to
this Agreement or the transactions contemplated hereby. Each
Obligor irrevocably waives, to the fullest extent permitted by
applicable law, any objection which it may now or hereafter have
to the laying of the venue of any such proceeding brought in such
a court and any claim that any such proceeding brought in such a
court has been brought in an inconvenient forum.
12.12 Waiver of Jury Trial. EACH OF THE OBLIGORS, THE
AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
12.13 Treatment of Certain Information.
(a) The Company acknowledges that from time to time
financial advisory, investment banking and other services may be
offered or provided to the Company or one or more of its
Subsidiaries (in connection with this Agreement or otherwise) by
any Bank or by one or more subsidiaries or affiliates of such
Bank and the Company, subject to Section 12.13(b) hereof, hereby
authorizes each Bank to share any information delivered to such
Bank by the Company and its Subsidiaries pursuant to this
Agreement, or in connection with the decision of such Bank to
enter into this Agreement, to any such subsidiary or affiliate.
(b) Each Bank and the Agent agrees (on behalf of
itself and each of its affiliates, directors, officers, employees
and representatives) to use reasonable precautions to keep
confidential, in accordance with their customary procedures for
handling confidential information of the same nature and in
accordance with safe and sound banking practices, any non-public
information supplied by the Company or any of its Subsidiaries
pursuant to this Agreement which is identified by such Person as
being confidential at the time the same is delivered to such Bank
or the Agent, provided that nothing herein shall limit the
disclosure of any such information (i) to the extent required by
statute, rule, regulation or judicial process, (ii) to counsel
for any of the Banks or the Agent, (iii) to bank examiners,
auditors or accountants, (iv) to the Agent or any other Bank, (v)
in connection with any litigation to which any one or more of the
Banks or the Agent is a party, (vi) to a subsidiary or affiliate
of such Bank as provided in clause (a) above (provided that
neither the Agent nor any Bank shall disclose any non-public
information delivered by the Company or any of its Subsidiaries
pursuant to this Agreement to any subsidiary or affiliate of the
Agent or any such Bank, as the case may be, which is generally
<PAGE>
-99-
engaged in the securities business other than in connection with
(x) Commodity Hedging Agreements or Interest Rate Protection
Agreements permitted pursuant to Section 9.07(h) hereof or (y)
the syndication or participation of the Commitments, Loans or
Letter of Credit Interests under this Agreement, without the
prior written consent of the Company) or (vii) to any assignee or
participant (or prospective assignee or participant) so long as
such assignee or participant (or prospective assignee or
participant) first executes and delivers to the respective Bank a
Confidentiality Agreement substantially in the form of Exhibit G
hereto.
<PAGE>
-100-
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and
year first above written.
FOREST OIL CORPORATION
By Kenton Scroggs
--------------------------------
Title:
Address for Notices:
1500 Colorado National Building
950 17th Street
Denver, Colorado 80202
Attention: Kenton Scroggs
Telecopier No.: (303) 592-2414
Telephone No.: (303) 592-2602
<PAGE>
-101-
BANKS
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
Commitment $30,000,000
By_________________________
Title:
Lending Office for all Loans:
The Chase Manhattan Bank
(National Association)
1 Chase Manhattan Plaza
3rd Floor
New York, New York 10081
Address for Notices:
The Chase Manhattan Bank
(National Association)
1 Chase Manhattan Plaza
3rd Floor
New York, New York 10081
Attention: Patricia Quinn
Telecopier No.: (212) 552-1687
Telephone No.: (212) 552-4753
<PAGE>
-102-
CHRISTIANA BANK
(NEW YORK BRANCH)
Commitment $20,000,000
By_________________________
Title:
By_________________________
Title:
Address for Notices:
Christiana Bank
(New York Branch)
Attention:
Telecopier No.:
Telephone No.:
<PAGE>
-103-
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Agent
By_________________________
Title:
Address for Notices to
Chase as Agent:
The Chase Manhattan Bank
(National Association)
4 Chase Metrotech Center
13th Floor
Brooklyn, New York 11245
Attention: New York Agency
Telecopier No.:(718) 242-6910
Telephone No.: (718) 242-7979
with copies to:
The Chase Manhattan Bank
(National Association)
1 Chase Manhattan Plaza
New York, NY 10081
Attn:
<PAGE>
SCHEDULE I
Material Agreements and Liens
(Sections 8.12 and 9.07(b))
[To be inserted]
<PAGE>
SCHEDULE II
Hazardous Materials
(Section 8.13)
[To be inserted]
<PAGE>
SCHEDULE III
Subsidiaries and Investments
(Sections 8.15 and 9.08(a))
[To be inserted]
<PAGE>
SCHEDULE IV
JEDI Collateral (Leases)
[To be inserted]
<PAGE>
Exhibit 11
FOREST OIL CORPORATION
Calculation of Loss Per Share of Common Stock
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
------------- ------------- ------------- -------------
1995 1994 1995 1994
------- ------- ------- -------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C>
PRIMARY LOSS PER SHARE:
Net loss $(6,574) (32,873) (14,533) (46,892)
Less dividends payable on
$.75 Convertible Preferred Stock (540) (541) (1,620) (1,621)
------- ------- ------- -------
Net loss attributable to common stock
for primary loss per share calculation $(7,114) (33,414) (16,153) (48,513)
======= ======= ======= =======
Weighted average number of common
shares outstanding 42,312 28,135 33,057 28,072
======= ======= ======= =======
Primary loss per share of common stock $ (.17) (1.19) (.49) (1.73)
======= ======= ======= =======
FULLY DILUTED LOSS PER SHARE:
Net loss attributable to common stock,
as above $(7,114) (33,414) (16,153) (48,513)
Add:
Dividend requirements on:
$.75 Convertible Preferred Stock 540 541 1,620 1,621
------- ------- ------- -------
Loss applicable to fully diluted calculation $(6,574) (32,873) (14,533) (46,892)
======= ======= ======= =======
Common shares applicable to fully diluted
calculation:
Weighted average number of common shares
outstanding, as above 42,312 28,135 33,057 28,072
Add:
Weighted average number of shares
issuable upon assumed conversion
of Convertible Preferred Stock 10,081 10,084 10,082 10,083
------- ------- ------- -------
Common shares applicable to fully
diluted calculation 52,393 38,219 43,139 38,155
======= ======= ======= =======
Fully diluted loss per share* $ (.13) (.86) (.34) (1.23)
======= ======= ======= =======
</TABLE>
*The fully diluted loss per share is not presented in the Company's financial
statements because the effects of assumed exercises and conversions were
anti-dilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheets and condensed consolidated statements of
income on pages 1 and 2 of the Company's Form 10-Q for the quarterly period
ending September 30, 1995, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 3,417
<SECURITIES> 0
<RECEIVABLES> 15,299
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,215
<PP&E> 1,202,447
<DEPRECIATION> 941,701
<TOTAL-ASSETS> 304,743
<CURRENT-LIABILITIES> 30,974
<BONDS> 181,959
<COMMON> 4,775
0
24,356
<OTHER-SE> 15,256
<TOTAL-LIABILITY-AND-EQUITY> 304,743
<SALES> 60,154
<TOTAL-REVENUES> 60,528
<CGS> 16,576
<TOTAL-COSTS> 22,337
<OTHER-EXPENSES> 33,631
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,100
<INCOME-PRETAX> (14,540)
<INCOME-TAX> (7)
<INCOME-CONTINUING> (14,533)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,533)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> (.49)
</TABLE>
