<PAGE>
UNITED STATES
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 June 30, 1996
--------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission File Number 0-20125
------------------------------------------------------
BASIN EXPLORATION, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1143307
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
370 17th Street, Suite 1800, Denver, CO 80202
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(303) 685-8000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of Common stock, as of the latest practicable date.
Outstanding at
Class June 30, 1996
---------------------------- -----------------
Common stock, $.01 par value 10,701,345 shares
<PAGE>
BASIN EXPLORATION, INC.
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets-
June 30, 1996 and December 31, 1995 . . . . . . 3
Consolidated Income Statements-
Three Months Ended June 30, 1996 and 1995 and
Six Months Ended June 30, 1996 and 1995 . . . . 5
Consolidated Statements of Changes in
Stockholders' Equity. . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows-
Six Months Ended June 30, 1996 and 1995 . . . . 7
Notes to Consolidated Financial Statements . . . 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders. . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 14
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
EXHIBITS -
Index to Exhibits. . . . . . . . . . . . . . . . . . . . . 16
2<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
ASSETS
------
<TABLE>
<CAPTION>
(Unaudited, in thousands) June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 37,623 $ 1,613
Accounts receivable 3,771 7,029
Stockholder note receivable 559 559
Inventory and other 898 1,116
------- -------
Total current assets 42,851 10,317
------- -------
PROPERTY AND EQUIPMENT, at cost:
Oil and gas properties, under the full
cost method of accounting
Proved 68,567 206,880
Unproved 12,121 5,001
Less accumulated depreciation,
depletion and amortization (34,885) (80,961)
-------- --------
45,803 130,920
Furniture and equipment, net 2,898 3,678
------- -------
48,701 134,598
------- -------
OTHER ASSETS:
Restricted cash 614 578
Other, net 338 1,158
------- -------
952 1,736
------- -------
$ 92,504 $ 146,651
======= =======
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
3<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
(Unaudited, dollars in thousands) June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 328 $ 175
Accounts payable and accrued expenses 14,616 7,985
Accrued ad valorem taxes 1,030 4,368
Income taxes payable 2,000 -
------- -------
Total current liabilities 17,974 12,528
------- -------
LONG-TERM DEBT, net of current portion 373 77,172
AD VALOREM TAXES AND OTHER 1,603 3,664
DEFERRED INCOME TAXES 3,694 -
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per
share; 10,000,000 shares authorized,
no shares issued and outstanding - -
Common stock, par value $.01 per
share, 50,000,000 shares authorized,
10,757,000 and 10,724,000 shares issued,
respectively 107 107
Additional paid-in capital 59,436 59,288
Retained earnings (deficit) 9,445 (6,014)
Common stock held in treasury, at cost,
56,000 and 32,000 shares, respectively (128) (94)
-------- --------
Total stockholders' equity 68,860 53,287
------- -------
$ 92,504 $146,651
======= =======
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
4<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
(Unaudited, in thousands, except per 1996 1995 1996 1995
share data) --------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUE:
Oil sales $ 3,164 $ 5,225 $ 7,039 $ 10,987
Gas sales 1,932 4,837 5,443 10,369
Gain on sale of assets 22,472 - 22,472 -
Other - 114 23 373
------- ------- ------- -------
27,568 10,176 35,077 21,729
------- ------- ------- -------
OPERATING COSTS AND EXPENSES:
Lease operating expenses 1,328 2,046 3,004 4,116
Production taxes 473 880 1,199 1,884
Depreciation, depletion and amortization 2,116 4,369 5,470 9,003
General and administrative, net 1,023 1,572 2,212 3,115
Other - 117 18 261
------- ------- ------- -------
4,940 8,984 11,903 18,379
------- ------- ------- -------
OPERATING INCOME 22,628 1,192 23,174 3,350
------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest income 146 28 174 36
Interest expense (671) (1,637) (2,200) (3,259)
Other (34) (12) 5 (38)
-------- -------- ------- --------
(559) (1,621) (2,021) (3,261)
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME
TAXES 22,069 (429) 21,153 89
Income tax benefit (provision) (5,694) 158 (5,694) (35)
-------- ------- -------- --------
NET INCOME (LOSS) $ 16,375 $ (271) $ 15,459 $ 54
======== ========= ======== ========
EARNINGS (LOSS) PER SHARE $ 1.53 $ (0.02) $ 1.44 $ 0.01
======== ========= ======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 10,711 10,683 10,699 10,680
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
5<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH JUNE 30, 1996
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
COMMON STOCK PAID-IN TREASURY STOCK EARNINGS STOCKHOLDERS'
(UNAUDITED, IN THOUSANDS) SHARES AMOUNT CAPITAL SHARES AMOUNT (DEFICIT) EQUITY
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, January 1, 1995 10,692 $107 $58,986 (13) $(47) $13,529 $72,575
Issuance and vesting of restricted
stock and stock options 32 - 302 - - - 302
Purchase of treasury stock - - - (19) (47) - (47)
Net loss - - - - - (19,543) (19,543)
--------------------------------------------------------------------------------
BALANCES, December 31, 1995 10,724 $107 $59,288 (32) $(94) $ (6,014) $53,287
Issuance and vesting of restricted
stock and stock options 33 - 148 - - - 148
Purchase of treasury stock - - - (24) (34) - (34)
Net income - - - - - 15,459 15,459
--------------------------------------------------------------------------------
BALANCES, June 30, 1996 10,757 $ 107 $59,436 (56) $(128) $ 9,445 $ 68,860
================================================================================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
6<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited, in thousands) For the Six Months Ended
June 30,
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,459 $ 54
Adjustments to reconcile net income to net cash
provided by operating activities
Gain on sale of assets (22,472) -
Depreciation, depletion and amortization 5,470 9,003
Deferred income tax expense 3,694 35
Stock compensation expense 65 183
Amortization of prepaid expenses 115 200
Changes in operating assets and liabilities:
Decrease (increase) in:
Restricted cash (36) (38)
Receivables 2,893 2,294
Inventory and other, net (593) 51
Increase (decrease) in:
Accounts payable and accrued expenses (2,708) (7,044)
Ad valorem taxes and other (2,150) (2,356)
Unearned income - (1,054)
Income taxes payable 2,000 -
---------- ----------
Net cash provided by operating activities 1,737 1,328
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions (19,145) (9,850)
Increase (decrease) in drilling payables 9,038 (753)
Proceeds from sale of property and equipment 120,977 2,528
---------- ----------
Net cash provided by (used in) investing activities 110,870 (8,075)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and long-term debt 8,089 4,237
Principal payments on notes payable and long-term debt (84,736) (327)
Purchase of treasury stock (34) (35)
Issuance of common stock 84 -
---------- ----------
Net cash provided by (used in) financing activities (76,597) 3,875
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 36,010 (2,872)
CASH AND CASH EQUIVALENTS, beginning of period 1,613 5,394
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 37,623 $ 2,522
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 2,273 $ 3,124
========== ==========
Cash paid for income taxes $ - $ -
========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
7
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of
normal recurring items) necessary to present fairly the financial
position of Basin Exploration, Inc. and its wholly-owned subsidiaries
(collectively, "Basin" or the "Company") as of June 30, 1996 and the
results of operations and cash flows for the periods presented.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
Securities and Exchange Commission's rules and regulations. The
results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year.
Management believes the disclosures made are adequate to ensure that
the information is not misleading, and suggests that these financial
statements be read in conjunction with the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
(2) DIVESTITURE OF OIL AND GAS PROPERTIES
-------------------------------------
In February 1996, the Company entered into two sales agreements with
HS Resources, Inc. ("HS"). The first agreement provided for the
Company to sell certain assets in the D-J Basin to HS for
approximately $38.0 million. This transaction was closed on March 15,
1996. The second agreement provided for the Company to sell the
remainder of its D-J Basin assets for approximately $87.5 million.
This transaction was closed on June 7, 1996, following approval by the
Company's stockholders. The final aggregate purchase price for both
transactions was $123.5 million, reflecting the parties' negotiated
settlement of $2 million for title defects and other adjustments
claimed by HS. Because the second transaction constituted the sale of
a significant portion of the Company's total oil and gas reserves
which would significantly alter the relationship between the Company's
capitalized costs and its proved reserves, net capitalized costs of
oil and gas properties were allocated between the reserves sold and
retained based on their estimated relative reserve quantities as of
June 7, 1996 and a resulting gain was recognized in the amount of
$22.5 million. Both transactions had a January 1, 1996 effective date
and the related agreements provided for the Company to receive
interest on the purchase prices from the effective date to the
respective closing dates at 7.5% per annum. A portion of the proceeds
from the sales was used to pay off all outstanding bank debt with the
remaining proceeds of approximately $35 million invested in short-term
money market instruments. Combined, these sales resulted in Basin
selling its interests in approximately two-thirds of its producing
wells and 70% of its proved oil and gas reserves at December 31, 1995.
(3) INCOME TAXES
------------
The differences between the income tax provisions for the three and
six months ended June 30, 1996, and the amounts which would be
calculated by applying statutory income tax rates to income before
income taxes are due primarily to reversal of a previously established
$2.2 million deferred tax asset valuation allowance.
8<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Basin Exploration, Inc. ("Basin" or the "Company") is an independent
energy company engaged in the acquisition, exploration and development
of oil and gas properties and marketing of the related oil and gas
production. Basin's revenue and results of operations are
significantly affected by changes in oil and gas prices. Assuming
level production, the Company's total revenue would generally be
higher in the first and fourth quarters due to higher natural gas
prices resulting from greater demand during colder months. The
following discussion should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto.
RESULTS OF OPERATIONS
- ---------------------
REVENUE. Excluding a $22,472,000 gain on sale of assets recognized
during 1996, revenue for the three and six months ended June 30, 1996,
were $5,096,000 and $12,605,000, representing decreases of $5,080,000,
or 50%, and $9,124,000, or 42%, respectively, as compared to the same
periods in 1995. The following table reflects the Company's average
oil and gas prices and its average daily oil and gas production for
the periods presented:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
1996 1995 % Change 1996 1995 % Change
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Average price:
Oil (per Bbl) $ 20.84 $ 16.72 25 $ 19.14 $ 16.78 14
Gas (per Mcf) $ 1.32 $ 1.47 (10) $ 1.41 $ 1.53 (8)
Average daily production:
Oil (Bbl) 1,668 3,434 (51) 2,021 3,619 (44)
Gas (Mcf) 16,103 36,300 (56) 21,558 37,400 (42)
</TABLE>
The decreases in average daily production were attributable to the
combined effects of sales of producing properties during 1995 and
1996, the Company's low level of capital expenditures during the past
eighteen months (when it drilled only eight wells compared to 152
wells drilled in 1994) and natural production declines. During the
three and six months ended June 30, 1995, the Company recognized gas
revenue for payments received with respect to transferred Section 29
tax credits in the amount of $511,000 and $1,039,000, respectively.
9<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As more fully described below under Liquidity and Capital Resources,
the Company consummated two transactions with HS Resources, Inc.
during 1996 in which approximately two-thirds of its producing wells
and 70% of its proved oil and gas reserves were sold. In conjunction
with the second transaction, which closed in June 1996, a $22,472,000
gain was recognized. Excluding the production and sales from
properties sold, average oil and gas prices and average daily oil and
gas production for the periods presented were:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
1996 1995 % Change 1996 1995 % Change
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Average price:
Oil (per Bbl) $ 21.07 $ 18.28 15 $ 20.01 $ 17.88 12
Gas (per Mcf) $ 1.06 $ 1.03 3 $ 1.17 $ 1.13 4
Average daily production:
Oil (Bbl) 1,181 1,411 (16) 1,182 1,492 (21)
Gas (Mcf) 5,029 5,684 (12) 5,003 5,883 (15)
</TABLE>
LEASE OPERATING EXPENSES. Lease operating expenses for the three and
six months ended June 30, 1996, were $1,328,000 and $3,004,000,
decreases of $718,000, or 35%, and $1,112,000, or 27%, respectively,
compared to the same periods in 1995. Production costs per barrel of
oil equivalent (BOE) produced during the three and six months ended
June 30, 1996, were $3.35 and $2.94, compared to $2.37 and $2.31,
respectively, in 1995. The higher costs per BOE were caused primarily
by a decline in the number of new wells brought on line, since such
wells typically have relatively high initial production rates,
generating average unit production costs that are lower than for more
mature properties.
PRODUCTION TAXES. Production taxes for the three and six months ended
June 30, 1996, were $473,000 and $1,199,000, decreases of $407,000, or
46%, and $685,000, or 36%, respectively, compared to the same periods
in 1995. Production taxes as a percent of oil and gas sales for the
three and six months ended June 30, 1996 were 9.3% and 9.5%, compared
to 8.7% and 8.8%, respectively, in 1995. The increased average tax
rates were due to a greater portion of sales occurring in higher-tax
jurisdictions in 1996.
DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation, depletion and
amortization expense for the three and six months ended June 30, 1996,
were $2,116,000 and $5,470,000, decreases of $2,253,000, or 52%, and
$3,533,000, or 39%, respectively, compared to the same periods in
1995. The decreases are attributable to the lower production volumes
in 1996 as compared to the same periods in 1995. The depletion rate
of $4.88 per BOE produced in the six months ended June 30, 1996 was
approximately the same as in the 1995 period.
10<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General and administrative, net. General and administrative expenses
for the three and six months ended June 30, 1996 were $1,023,000 and
$2,212,000, reflecting decreases of $549,000, or 35%, and $903,000, or
29%, respectively, compared to the same periods in 1995. The
decreases resulted primarily from staff reductions made during the
second half of 1995 and the first half of 1996.
OTHER INCOME (EXPENSE), NET. Other net expenses for the three and six
months ended June 30, 1996 were $559,000 and $2,021,000, decreases of
$1,062,000, or 66%, and $1,240,000, or 38%, respectively, compared to
the same periods in 1995. The decreases were principally attributable
to lower average borrowings as a result of asset sales consummated
during 1996, as summarized below:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average borrowings (in millions) $ 33 $ 80 $ 52 $ 79
Average interest rate on borrowings 8.1% 8.2% 8.5% 8.3%
</TABLE>
INCOME TAX BENEFIT (PROVISION). The differences between the income
tax provisions for the three and six months ended June 30, 1996, and
the amounts which would be calculated by applying statutory income tax
rates to income before income taxes are due primarily to reversal of a
previously established $2.2 million deferred tax asset valuation
allowance.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
In February 1996, the Company entered into agreements with HS
Resources, Inc. ("HS") pursuant to which the Company sold all of its
assets in the D-J Basin, in two transactions closed in March and June
1996, respectively, for an aggregate sales price of $123.5 million,
effective January 1, 1996. Combined, these transactions resulted in
Basin selling its interests in approximately two-thirds of its
producing wells and 70% of its proved oil and gas reserves at December
31, 1995. A portion of the proceeds from the sales was used to pay
off all outstanding bank debt leaving residual proceeds of
approximately $35 million. It is the Company's plan to utilize the
liquidity created by these asset sales to make new investments in oil
and gas properties, through both acquisitions and exploration. Until
the sales proceeds are redeployed, however, cash balances will be
invested in short term, interest-bearing cash equivalents. As a
consequence of the significant reduction of operating assets resulting
from the HS asset sale, operational cash flows have been
substantially reduced from pre-sale levels and the Company has reduced
the staff size at its Denver office headquarters and implemented
certain related general and administrative expense reductions.
On August 6, 1996, the Company entered into an Amended and Restated
Credit Agreement with its existing bank group. The initial borrowing
base was set at $25 million. The credit agreement provides for the
interest rate on borrowings to be determined based on the prime rate
or LIBOR, at the Company's election. A varying spread above the prime
rate ranging from 0% to 0.5% and over
11<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIBOR ranging from 0.625% to 1.25% will be applied based on the
Company's applicable debt-to- capitalization ratio. The Credit
Agreement provides for borrowings to be revolving loans until July 31,
1999, at which time the outstanding balance is scheduled to convert to
a four year amortizing term loan. The Credit Agreement contains
various covenants, including ones which could limit the Company's
ability to incur other debt, dispose of assets, pay dividends or
repurchase stock. No borrowings are currently outstanding under the
facility.
The Company had no major capital expenditure commitments pending at
June 30, 1996, other than approximately $7.2 million for the balances
owing on leases on which the Company was high bidder at a federal
offshore lease sale held in April 1996 (further discussed below). The
Company's capital expenditures are generally discretionary and
activity levels are determined by a number of factors, including oil
and gas prices, interest rates, availability of funds, quantity and
character of identified investment projects and competition.
The Company is currently conducting its exploration activities
primarily in the Gulf of Mexico. This is the Company's first year of
Gulf Coast operations and, as such, it began the period with no
prospect inventory and, therefore, reduced control over the volume and
timing of its business activity than would typically be the case.
Based on activities year-to-date and anticipated developments during
the second half of the year, the Company is currently projecting 1996
capital expenditures for Gulf Coast exploration between $13 million
and $20 million, excluding development costs for successful prospects.
This estimate anticipates participation in four to six prospect test
wells during the year and reflects an estimated range for net
investment in leaseholds due to uncertainty about resale proceeds and
success levels in building prospect inventory. Through the first six
months of 1996, the Company acquired 75% to 100% working interests in
ten offshore lease blocks, including six blocks offshore Louisiana at
the Central Gulf of Mexico federal lease sale held in April. The
Company's total initial leasehold investment for these blocks is
approximately $10 million. The Company plans to generally reduce its
interests in these prospects through sale of promoted interests or
through swapping for other prospect interests. Although exchanging
prospect interests would result in less cost recoupment for the
Company, it would be consistent with the Company's overall objectives
of prospect diversification and risk management, and would accelerate
development of prospect inventory. The Company is not anticipating a
current year contribution of production or cash flow resulting from
Gulf Coast exploration, even if it makes one or more discoveries,
since at least nine months is typically required for platform
fabrication and installation for a new discovery (unless such
infrastructure is already in place). The Company drilled and
abandoned one prospect test well during the first half of 1996.
The Company anticipates investing up to $4 million during the second
half of 1996 on development of its proved properties in Wyoming. The
amount of any additional capital expenditures during the year will be
dependent upon the level of success achieved in pursuing proved
property acquisitions and the amount of development activity generated
by exploration discoveries. Such investments could be significant.
Although the Company is not in negotiations and cannot predict if or
when it will make a material acquisition, or a substantial discovery,
the Company believes that it could finance investment opportunities
aggregating $75 million or more. The Company expects to be able to
fund such capital investments primarily with cash flow from operations
and funds made available through the sale of its D-J Basin assets,
including availability established under its bank credit line.
12<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Further, if conditions warrant, the Company may consider raising
additional capital through issuance of debt or equity securities.
CHANGES IN PRICES. The Company's revenue, cash flow, and the value of
its oil and gas properties have been, and will continue to be,
affected by changes in oil and natural gas prices. The Company's
ability to maintain current borrowing capacity and to obtain
additional capital on attractive terms is also substantially dependent
on oil and natural gas prices. As such, changes in oil and gas prices
can significantly affect the amount of the Company's capital
expenditures. Oil and natural gas prices are subject to significant
seasonal and other fluctuations that are beyond the Company's ability
to control or predict.
"SAFE HARBOR" STATEMENT UNDER THE UNITED STATES
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
- ------------------------------------------------
Statements that are not historical facts contained in this report are
forward looking statements that involve risks and uncertainties that
could cause actual results to differ from projected results. Factors
that could cause actual results to differ materially include, among
others: general economic conditions, the market price of oil and
natural gas, the risks associated with exploration in the Gulf Coast
and Rocky Mountain regions, the Company's ability to find, acquire,
market, develop and produce new properties, operating hazards
attendant to the oil and natural gas business, uncertainties in the
estimation of proved reserves and in the projection of future rates of
production and timing of development expenditures, the strength and
financial resources of the Company's competitors, the Company's
ability to find and retain skilled personnel, climatic conditions,
labor relations, availability and cost of material and equipment,
delays in anticipated start-up dates, environmental risks, the results
of financing efforts and other risk factors detailed elsewhere herein.
13<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
--------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
Proxies for the Company's annual meeting of shareholders held on
June 6, 1996, were solicited pursuant to Regulation 14A during the
quarter ended June 30, 1996. There was no solicitation in opposition
to the nominees listed in the proxy statement and all such nominees
were elected. The following is a summary of the matters voted upon at
such meeting and the number of votes cast for, against and
abstentions:
<TABLE>
<CAPTION>
Number of Votes Cast
---------------------
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
Election of Directors
John F. Greene 9,051,675 300 1,134,895
Neil L. Stenbuck 9,051,675 300 1,134,895
Proposal to sell D-J Basin
Assets to HS Resources, Inc. 7,838,874 53,506 14,500
Amend Equity Incentive Plan 7,147,265 2,761,035 13,480
Amend Non-Employee
Directors' Plan 9,758,729 312,199 16,445
Ratify selection of Arthur
Andersen LLP as auditors 10,165,325 7,645 13,900
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
a. Exhibits.
10 Amended and Restated Credit Agreement dated August 6,
1996 between the Company and Colorado National Bank,
Union Bank of California, N.A. and NationsBank of
Texas, N.A.
27 Financial data schedule.
b. Reports filed on Form 8-K.
March 15, 1996 - Item 2. Acquisition or Disposition of
Assets - Information relating to
sale of assets to HS Resources,
Inc.
- Item 7. Financial Statements and Exhibits -
Pro forma financial information and
exhibits.
June 7, 1996 - Item 2. Acquisition or Disposition of
Assets - Information relating to
sale of assets to HS Resources,
Inc.
- Item 7. Financial Statements and Exhibits -
Pro forma financial information and
exhibits.
14<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.
BASIN EXPLORATION, INC.
-----------------------
(Registrant)
Date: August 14, 1996 By: Neil L. Stenbuck
-----------------
Neil L. Stenbuck
Chief Financial Officer
Date: August 14, 1996 By: James A. Tuell
----------------
James A. Tuell
Controller
(Principal Accounting Officer)
15<PAGE>
Index to Exhibits
Exhibit Numbers Exhibits Page
- --------------- -------- ----
10 Amended and Restated Credit Agreement dated
August 6, 1996 between the Company and
Colorado National Bank, Union Bank of
California, N.A. and NationsBank of Texas, N.A. 17
27 Financial data schedule 76
16
_________________________________________________________________
AMENDED AND RESTATED
CREDIT AGREEMENT
________________________________
BASIN EXPLORATION, INC.
and
COLORADO NATIONAL BANK,
UNION BANK OF CALIFORNIA, N.A.
and
NATIONSBANK OF TEXAS, N.A
________________________________
August 6, 1996
_________________________________________________________________
<PAGE>
TABLE OF CONTENTS
----------------
ARTICLE I -- Definitions and References ................. 1
Section 1.1. Defined Terms ...................... 1
Section 1.2. Incorporation of Exhibits and
Schedules ..................................... 13
Section 1.3. Amendment of Defined Instruments ... 13
Section 1.4. References and Titles .............. 13
Section 1.5. Calculations and Determinations..... 13
ARTICLE II -- The Loan .................................. 14
Section 2.1. The Loan ........................... 14
Section 2.2. The Notes .......................... 15
Section 2.3. Regular Payments ................... 15
Section 2.4. Voluntary Prepayments .............. 15
Section 2.5. Termination of Commitment........... 16
Section 2.6 Payments to Lenders ................ 16
Section 2.7 Use of Proceeds .................... 16
Section 2.8 Rate Elections ..................... 17
Section 2.9 Increased Cost of Fixed Rate
Portions ...................................... 18
Section 2.10 Availability ....................... 18
Section 2.11 Reimbursable Taxes ................. 19
Section 2.12 Funding Losses ..................... 20
Section 2.13 Capital Reimbursement .............. 20
ARTICLE III -- Security; Fees ........................... 21
Section 3.1. The Security ....................... 21
Section 3.2. Periodic Reviews and Borrowing Base
Reductions .................................... 21
Section 3.3. Perfection and Protection of
Security Interests and Liens .................. 22
Section 3.4. Bank Accounts and Offset ........... 22
Section 3.5. Proceeds of Runs ................... 22
Section 3.6. Fees ............................... 22
ARTICLE IV -- Conditions Precedent to Loan .............. 23
Section 4.1. Conditions Precedent to Loan ....... 23
Section 4.2. Additional Conditions Precedent .... 24
ARTICLE V -- Representations and Warranties ............. 25
Section 5.1. Borrower's Representations and
Warranties .................................... 25
Section 5.2. Representations by Lenders ......... 30
ARTICLE VI -- Covenants of Borrower ..................... 30
Section 6.1. Affirmative Covenants .............. 30
Section 6.2. Negative Covenants ................. 38
-i-<PAGE>
ARTICLE VII -- Events of Default and Remedies .......... 42
Section 7.1. Events of Default ................ 42
Section 7.2. Remedies ......................... 45
Section 7.3. Indemnity ........................ 46
ARTICLE VIII -- Agent; Collateral Agent ................ 47
Section 8.1. Actions .......................... 47
Section 8.2. Exculpation ...................... 48
Section 8.3. Successor ........................ 49
Section 8.4. Other Loans by Lenders ........... 50
Section 8.5. Credit Decisions ................. 50
Section 8.6. Payment of Collected Amounts ..... 50
Section 8.7. Application of Collateral Proceeds 50
Section 8.8 Right of First Refusal............ 51
Section 8.9 Majority Lenders ................. 51
ARTICLE IX -- Miscellaneous ............................ 52
Section 9.1. Waiver and Amendment .............. 52
Section 9.2. Survival of Agreements; Cumulative
Nature ....................................... 52
Section 9.3. Notices ........................... 53
Section 9.4. Joint and Several Liability;
Parties in Interest .......................... 54
Section 9.5. Governing Law ..................... 54
Section 9.6. Limitation on Interest ............ 54
Section 9.7. Severability ...................... 55
Section 9.8. Counterparts ...................... 55
Section 9.9. Conflicts ......................... 55
Section 9.10 Supersession ...................... 55
SCHEDULE 1 SECURITY SCHEDULE ........................... 1-1
SCHEDULE 2 DISCLOSURE SCHEDULE ......................... 2-1
Exhibit A-l -- Allonge (NBT) ........................... A-1-1
Exhibit A-2 -- Allonge (CNB) ........................... A-2-1
Exhibit A-3 -- Allonge (Union).......................... A-3-1
Exhibit B -- Advance Request ........................... B-1
Exhibit C -- Request for Issuance of Letter of Credit .. C-1
Exhibit D -- Rate Election ............................. D-1
-ii-<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------
THIS AMENDED AND RESTATED CREDIT AGREEMENT made as of
August 6, 1996, is by and among BASIN EXPLORATION, INC., a
Delaware corporation ("Borrower"), COLORADO NATIONAL BANK
("CNB"), UNION BANK OF CALIFORNIA, N.A. ("Union"), and
NATIONSBANK OF TEXAS, N.A. ("NBT"). Each of CNB, Union and NBT
shall act hereunder as a lender with respect to the Loan, as more
fully described below; NBT shall act hereunder as agent, on
behalf of CNB, Union and NBT, with respect to the Loan, as more
fully described below; and NBT shall act as collateral agent, on
behalf of CNB, Union and NBT, with respect to the Security
Documents and any other collateral for the Loan, as more fully
described below.
RECITALS
A. Borrower, CNB, Union and NBT entered into an
Amended and Restated Credit Agreement dated as of May 13, 1994,
as the same has heretofore been amended (the "Prior Credit
Agreement"), in order to set forth the terms upon which CNB,
Union and NBT would make loans to Borrower and issue letters of
credit at the request of Borrower and by which the loans and
letters of credit would be governed.
B. Borrower, CNB, Union and NBT wish to enter into
this Amended and Restated Credit Agreement in order to amend and
restate in their entirety the terms and provisions of the Prior
Credit Agreement and to provide for the terms upon which CNB,
Union and NBT will make loans to Borrower and issue letters of
credit at the request of Borrower and by which such loans and
letters of credit will be governed.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and
the mutual covenants and agreements contained herein, the parties
hereto agree as follows:
ARTICLE I
Definitions and References
--------------------------
Section 1.1. Defined Terms. As used in this
-------------
Agreement, each of the following terms has the meaning given it
in this Section 1.1 or in the recitals, sections and subsections
referred to below:
"Advance" means any advance to be made to Borrower
-------
pursuant to Article II hereof.
<PAGE>
"Affiliate" means, as to any Person, each other Person
---------
that directly or indirectly (through one or more intermediaries
or otherwise) controls, is controlled by, or is under common
control with, such Person.
"Agent" means NBT, in its capacity as agent for Lenders
-----
hereunder and any successor Agent appointed and accepting such
appointment as described in Article VIII below.
"Agreement" means this Amended and Restated Credit
--------
Agreement.
"Allonges" means the amendments to the existing
--------
Promissory Notes from Borrower to Lenders, substantially in the
form of Exhibits A-1, A-2 and A-3 attached hereto and made a part
hereof.
"Amortization Period" means the time period commencing
-------------------
upon the termination of the Revolving Period and ending four
years thereafter.
"Authorized Officer" means, with respect to any act to
------------------
be performed or duty to be discharged by or on behalf of any
Person who is not an individual, any partner, officer, agent or
representative thereof who is at the time in question authorized
to perform such act or discharge such duty on behalf of such
Person.
"Base Rate" means the rate of interest established by
---------
Agent from time to time as its "prime rate". Such rate is set by
Agent as a general reference rate of interest, taking into
account such factors as it may deem appropriate, it being
understood that many of Agent's commercial or other loans are
priced in relation to such rate, that it is not necessarily the
lowest or the best rate actually charged to any customer, that it
may not correspond with further increases and decreases in
interest rates charged by other lenders or market rates in
general and that Agent may make various commercial or other loans
at rates of interest having no relationship to such rate.
"Base Rate Portion" means any portion of the unpaid
-----------------
principal balance of the Loan which is not a Fixed Rate Portion.
"Base Rate Spread" means: (a) for any and all calendar
----------------
months that the Capitalization Ratio is greater than or equal to
50 percent, 0.25 percentage points per annum; and (b) for any and
all calendar months that the Capitalization Ratio is less than 50
percent, 0.00 percentage points per annum.
-2-<PAGE>
"Borrower" means Basin Exploration, Inc., a Delaware
--------
corporation.
"Borrowing Base" means, at any time, the aggregate loan
--------------
value of the Borrowing Base Properties, as determined by Lenders
in accordance with the provisions of Section 3.2 below; provided
that the Borrowing Base for the time period from the date of this
Agreement through April 30, 1997 shall be $25,000,000, unless
Borrower and Lenders hereafter mutually agree upon a different
amount or unless the Borrowing Base is redetermined pursuant to
Section 3.2 below prior to April 30, 1997.
"Borrowing Base Properties" means, at any time, the
-------------------------
properties of Borrower which have been reflected as containing
proved developed reserves or proved undeveloped reserves in the
most recent engineering report submitted by Borrower to Lenders
pursuant to Section 6.1(b)(v) below and which have been evaluated
by Lenders in making the then-most-recent determination of the
Borrowing Base.
"Business Day" means a day on which commercial banks
------------
are open for business with the public in Denver, Colorado, in Los
Angeles, California and in Dallas, Texas. Any Business Day in
any way relating to Fixed Rate Portions (such as the day on which
an Interest Period begins or ends) must also be a day on which,
in the judgment of Lenders, significant transactions in dollars
are carried out in the interbank eurocurrency market.
"Capitalization Ratio" means, for any calendar month,
--------------------
the ratio, determined as of the end of the second preceding
calendar month, of: (a) Borrower's long-term debt (including
without limitation current maturities of long-term debt),
determined on a Consolidated basis in accordance with GAAP, to
(b) the sum of: (i) Borrower's long-term debt (including without
limitation current maturities of long-term debt), determined on a
Consolidated basis in accordance with GAAP, and (ii) Borrower's
shareholders' equity, determined in accordance with GAAP. For
example, the Capitalization Ratio in effect for August, 1996 will
be calculated from Borrower's financial data as of the end of
June, 1996. The Capitalization Ratio shall be increased or
decreased in accordance with this definition only if Borrower
notifies Lender of such increase or decrease pursuant to Section
6.1(p); provided, however, that Lenders may make such change
without receiving notice from Borrower based on information then
available to Lenders, but Lenders will have no obligation to do
so.
"Closing Date" means August 6, 1996.
------------
-3-<PAGE>
"Collateral" means all tangible or intangible real or
----------
personal property which, under the terms of any Security
Document, is or is purported to be covered thereby or subject
thereto.
"Collateral Agent" means NBT, in its capacity as the
----------------
holder of Lenders' Liens on the Collateral on behalf of Lenders
and any successor Collateral Agent appointed and accepting such
appointment as described in Article VIII below.
"Commitment" means the agreement of each Lender to make
----------
Advances to Borrower of amounts up to its Proportionate Share of
the Commitment Amount on the terms and subject to the conditions
hereof.
"Commitment Amount" means, at any time, the lesser of:
-----------------
(a) the Borrowing Base, or (b) the Maximum Loan Amount.
"Commitment Expiration Date" means the date after which
--------------------------
no further Advances are to be made hereunder, which shall be the
close of business on the earlier of: (a) the last day of the
Revolving Period, or (b) the date of any termination of the
Commitment.
"Commitment Fee Rate" means: (a) for each day during
-------------------
any and all calendar months that the Capitalization Ratio is
greater than or equal to 50 percent, 0.50 percentage points per
annum; (b) for each day during any and all calendar months that
the Capitalization Ratio is less than 50 percent but greater than
or equal to 40 percent, 0.375 percentage points per annum; (c)
for each day during any and all calendar months that the
Capitalization Ratio is less than 40 percent but greater than or
equal to 30 percent, 0.30 percentage points per annum; and (d)
for each day during any and all calendar months that the
Capitalization Ratio is less than 30 percent, 0.25 percentage
points per annum.
"Consolidated" refers to the consolidation of any
------------
Person, in accordance with GAAP, with its properly consolidated
Affiliates. References herein to a Person's Consolidated
financial statements, financial position, financial condition,
liabilities, etc. refer to the consolidated financial statements,
financial position, financial condition, liabilities, etc. of
such Person and its properly consolidated Affiliates.
"Cumulative Net Income" means, with respect to any
---------------------
Person, the sum of such Person's net income, determined in
accordance with GAAP, on a Consolidated basis, for each completed
fiscal quarter after January 1, 1996.
-4-<PAGE>
"Debt" means, as to any Person, all indebtedness,
----
liabilities and obligations of such Person, whether primary or
secondary, direct or indirect, absolute or contingent.
"Default" means any Event of Default and any default,
-------
event or condition which would, with the giving of any requisite
Default Notice and/or the passage of any requisite Grace Period,
constitute an Event of Default.
"Default Notice" has the meaning given it in Section
--------------
7.1.
"Disclosure Schedule" means (a) Schedule 2 attached
-------------------
hereto and (b) any documents listed on such schedule and
expressly incorporated therein by reference, so long as Borrower
has heretofore delivered true and correct copies of such
documents to Lenders. Insofar as any representations and
warranties made herein are incorporated by reference or otherwise
remade in Loan Documents delivered as of a date after the date
hereof, the term "Disclosure Schedule" shall in such
representations and warranties be deemed to refer to all
documents, instruments or other writings which have at the time
in question been delivered to Lenders in connection with the
transactions contemplated herein.
"Distribution" means any dividend payable in cash or
------------
property with respect to any shares of capital stock of any
Person (other than dividends payable in shares of the same class
of common, preferred or other capital stock as the shares upon
which the dividend is being paid), any other distribution made
with respect to any shares of capital stock of any Person, or any
purchase, redemption or retirement of, or other payment with
respect to, any shares of capital stock of any Person.
"ERISA" means the Employee Retirement Income Security
-----
Act of 1974, as amended from time to time, together with all
rules and regulations promulgated with respect thereto.
"ERISA Plan" means any pension benefit plan subject to
----------
Title IV of ERISA maintained by any Obligated Person or any
Affiliate thereof to which any Obligated Person is required to
contribute.
"Eurodollar Rate" means, with respect to each
---------------
particular Fixed Rate Portion and the related Interest Period,
the rate of interest per annum (expressed as a percentage)
determined by Lenders, in accordance with their customary
practices, to be representative of the rates at which deposits of
U.S. dollars are offered to Agent at approximately 9:00
-5-<PAGE>
a.m., Dallas, Texas time, two Business Days prior to the first
day of such Interest Period (by prime banks in the interbank
eurocurrency market which have been selected by Agent in
accordance with their customary practices) for delivery on the
first day of such Interest Period in an amount equal or
comparable to the amount of such Fixed Rate Portion and for a
period of time equal or comparable to the length of such Interest
Period. The Eurodollar Rate determined by Agent with respect to
a particular Fixed Rate Portion shall be fixed at such rate for
the duration of the associated Interest Period. If Agent is
unable so to determine the Eurodollar Rate for any Fixed Rate
Portion, or if the associated Fixed Rate would cause the interest
limitations set forth in Section 9.6 below to be applicable,
Borrower shall be deemed not to have elected such Fixed Rate
Portion.
"Event of Default" has the meaning given it in Section
----------------
7.1.
"Fiscal Quarter" means a three-month period ending on
--------------
the last day of March, June, September or December of any year.
"Fiscal Year" means a twelve-month period ending on
-----------
December 31 of any year.
"Fixed Rate" means, with respect to each particular
----------
Fixed Rate Portion and the associated Eurodollar Rate and Reserve
Requirement, the rate of interest per annum calculated by Agent
(rounded upward, if necessary, to the next higher 0.01 percent)
determined pursuant to the following formula:
Fixed = Eurodollar Rate + Fixed Rate
Rate -------------------------- Spread
1.00 - Reserve Requirement
If the Reserve Requirement changes during the Interest Period for
a Fixed Rate Portion, Agent may, at its option, either change the
Fixed Rate for such Fixed Rate Portion or leave it unchanged for
the duration of such Interest Period. The Fixed Rate for any
Fixed Rate Portion (other than Fixed Rate Portions in outstanding
and unexpired Interest Periods) shall change only if Lenders
receive notice from Borrower that the Capitalization Ratio has
increased or decreased pursuant to Section 6.1(p); provided,
however, that Lenders may make such change without receiving
notice from Borrower based on information then available to
Lenders, but Lenders will have no obligation to do so.
-6-<PAGE>
"Fixed Rate Portion" means any portion of the unpaid
------------------
principal balance of the Loan which Borrower designates as such
in a Rate Election.
"Fixed Rate Spread" means: (a) for any and all calendar
-----------------
months that the Capitalization Ratio is greater than or equal to
50 percent, 1.25 percentage points per annum; (b) for any and all
calendar months that the Capitalization Ratio is less than 50
percent but greater than or equal to 40 percent, 1.00 percentage
point per annum; (c) for any and all calendar months that the
Capitalization Ratio is less than 40 percent but greater than or
equal to 30 percent, 0.75 percentage point per annum; and (d) for
any and all calendar months that the Capitalization Ratio is less
than 30 percent, 0.625 percentage point per annum.
"GAAP" means those generally accepted accounting
----
principles and practices which are recognized as such by the
Financial Accounting Standards Board (or any generally recognized
successor) and which, in the case of Borrower and its
Consolidated Affiliates, (a) are applied for all periods after
the date hereof in a manner consistent with the manner in which
such principles and practices were applied to the Initial
Financial Statements, and (b) are consistently applied for all
periods after the date hereof so as to properly reflect the
financial condition, and the results of operations and changes in
financial position, of Borrower and, on a Consolidated basis, of
Borrower and its Consolidated Affiliates.
"Grace Period" shall have the meaning given it in
-----------
Section 7.1.
"Hedging Obligations" means, with respect to any
-------------------
Person, all liabilities of such Person under: (a) interest rate
swap agreements, interest rate cap agreements, interest rate
collar agreements and all other agreements and arrangements
designed to protect such Person against fluctuations in interest
rates, or (b) commodity hedge, commodity swap, exchange, collar
or cap agreements, fixed price agreements and all other
agreements and arrangements designed to protect such Person
against fluctuations in the price of oil, gas or other
hydrocarbons.
"Initial Engineering Report" means a report prepared as
--------------------------
of January 1, 1996, by Borrower and audited by Netherland, Sewell
& Associates, Inc., true and correct copies of which have been
furnished to Lenders.
-7-<PAGE>
"Initial Financial Statements" means (a) the audited
----------------------------
annual Consolidated financial statements of Borrower, dated as of
December 31, 1995, and (b) the quarterly Consolidated financial
statements of Borrower dated as of March 31, 1996, copies of all
of which Initial Financial Statements have heretofore been
delivered by Borrower to Lenders.
"Interest Period" means, with respect to each
---------------
particular Fixed Rate Portion, a period of one, two, three or six
months, as specified in the Rate Election applicable thereto,
beginning on and including the date specified in such Rate
Election (which must be a Business Day) and ending on but not
including the date which corresponds numerically to such
beginning date one, two, three or six months thereafter (or if
such month has no numerically corresponding date, on the last
Business Day of such month); provided that each Interest Period
which would otherwise end on a day which is not a Business Day
shall end on the next succeeding Business Day unless such next
succeeding Business Day is the first Business Day of a calendar
month, in which case such Interest Period shall end on the
Business Day next preceding such numerically corresponding day.
No Interest Period may be elected which would end after the date
on which the Loan is due and payable in full.
"Late Payment Rate" means, at the option of Lenders in
-----------------
each particular instance: (a) the Base Rate then in effect plus
five percentage points per annum, or (b) any other rate of
interest which may, with respect to the Obligation in question,
be provided for in any other applicable Loan Document.
"Lenders" means CNB, Union and NBT and their respective
-------
successors and assigns, in their respective capacities as lenders
of the Loan.
"Letter of Credit" means a standby letter of credit
----------------
requested by Borrower and agreed to be issued by Lenders pursuant
to Article II below. Any and all Letters of Credit shall
actually be issued in the name of Agent, but any such issuance
shall be on behalf of all Lenders, and each Lender shall
participate in the risks and benefits relating to each such
Letter of Credit to the extent of such Lender's Proportionate
Share.
"Lien" means, with respect to any property or assets,
----
any right or interest therein of a creditor to secure Debt owed
to him or any other arrangement with such creditor which provides
for the payment of such Debt out of such property or assets or
which allows him to have such Debt satisfied out of
-8-<PAGE>
such property or assets prior to the general creditors of any
owner thereof, including without limitation any lien, mortgage,
security interest, pledge, deposit, production payment, rights of
a vendor under any title retention or conditional sale agreement
or lease substantially equivalent thereto, or any other charge or
encumbrance for security purposes, whether arising by law or
agreement or otherwise, but excluding any right of offset which
arises without agreement in the ordinary course of business.
"Loan" has the meaning given it in Section 2.1.
----
"Loan Documents" means this Agreement, the Security
--------------
Documents, the Notes, Letters of Credit, applications for Letters
of Credit, the Transfer Orders and all other agreements,
certificates, legal opinions and other documents, instruments and
writings heretofore or hereafter delivered in connection herewith
or therewith.
"Majority Lenders" means any two or more Lenders (one
----------------
of which shall be Agent) whose aggregate Proportionate Shares are
not less than two-thirds.
"Maximum Loan Amount" means, at any time, $102,000,000;
-------------------
provided that, at any time prior to the end of the Revolving
Period, Borrower may irrevocably elect, by giving written notice
to Lenders, to decrease the Maximum Loan Amount to an amount less
than $102,000,000.
"Notes" means: (i) the Promissory Note dated
-----
November 22, 1994, as amended, made by Borrower, payable to the
order of CNB, (ii) the Promissory Note dated November 22, 1994,
as amended, made by Borrower, payable to the order of Union, and
(iii) the Promissory Note dated November 22, 1994, as amended,
made by Borrower, payable to the order of NBT, all as now in
effect or as hereafter amended, modified, extended, restated or
replaced.
"Obligated Persons" means Borrower and/or any other
-----------------
Person hereafter becoming liable for payment of the Obligations.
"Obligations" means all Debt from time to time owing by
-----------
Borrower to any Lender under or pursuant to any of the Loan
Documents. "Obligation" means any part of the Obligations.
----------
"Payment Amount" means: (a) with respect to any Payment
--------------
Date during the Revolving Period, the amount of interest accrued
through such Payment Date; and (b) with respect to any Payment
Date during the Amortization Period,
-9-<PAGE>
6.25 percent of the outstanding principal balance of the Loan as
of the end of the Revolving Period plus interest accrued through
such Payment Date.
"Payment Date" means: (i) the last day of each
------------
January, April, July and October, commencing October 31, 1996,
and (ii) if all Obligations due and payable on any such date are
not then paid, each succeeding day until all due and payable
Obligations are paid in full.
"Permitted Investment" means:
--------------------
(a) Any evidence of indebtedness issued or guaranteed
by the United States Government, maturing not more than one year
after the date of acquisition by any Obligated Person; or
(b) Commercial paper, maturing not more than nine
months from the date of issuance thereof, which is issued by:
(i) a corporation (other than an Affiliate of Borrower) organized
under the laws of any state of the United States or of the
District of Columbia and rated A-1 by Standard & Poor's
Corporation or P-1 by Moody's Investors Service, Inc., or (ii)
any Lender (or its holding company); or
(c) Any certificate of deposit, maturing not more than
one year from the date of issuance thereof, which is issued by a
commercial banking institution that is a member of the Federal
Reserve System and has a combined capital and surplus and
undivided profits of not less than U.S. $500,000,000; or
(d) Any repurchase agreement entered into with a
commercial banking institution that is a member of the Federal
Reserve System and has a combined capital and surplus and
undivided profits of not less than U.S. $500,000,000, which: (i)
is secured by a fully perfected security interest in any
obligation of the type described in any of clauses (a) through
(c) above, and (ii) has a market value at the time such
repurchase agreement is entered into of not less than 100 percent
of the repurchase obligation of such commercial banking
institution thereunder; or
(e) Any deposit account at a commercial banking
institution that is a member of the Federal Reserve System and
has a combined capital and surplus and undivided profits of not
less than U.S. $500,000,000; or
(f) Hedging Obligations of any Obligated Person;
-10-<PAGE>
(g) Any other investment owned by Borrower as of the
date of this Agreement, so long as Borrower does not increase
such investment after the date hereof; or
(h) Other short-term investments of durations and
involving credit risks comparable to the investments described
above.
"Person" means an individual, corporation, partnership,
------
association, joint-stock company, trust or trustee thereof,
estate or executor thereof, unincorporated organization or joint
venture, court or governmental unit or any agency or subdivision
thereof, or any other legally recognizable entity.
"Prior Credit Agreement" has the meaning given such
----------------------
term in Recital A above.
"Prohibited Lien" means any Lien not expressly allowed
---------------
under Section 6.2(b).
"Proportionate Share" means, for any Lender, the
-------------------
fractional share equal to that Lender's share of all of the
rights and obligations of Lenders hereunder, including without
limitation the obligations of Lenders to make Advances hereunder
and the rights of Lenders to receive payments hereunder. Unless
hereafter amended, the Proportionate Share of each of CNB, Union
and NBT shall be one-third.
"Rate Election" has the meaning given such term in
-------------
Section 2.8 below.
"Regulation D" means Regulation D of the Board of
------------
Governors of the Federal Reserve System, as from time to time in
effect.
"Reserve Requirement" means, on any day with respect to
-------------------
each particular Fixed Rate Portion, the maximum reserve
requirement, as determined by Lenders (including without
limitation any basic, emergency, supplemental, marginal or
similar reserves), expressed as a decimal and rounded to the next
higher 0.0001, which would then apply to Lenders under Regulation
D with respect to "Eurocurrency liabilities" (as such term is
defined in Regulation D) equal in amount to such Fixed Rate
Portion, were Lenders to have any such "Eurocurrency
liabilities". If such reserve requirement shall change after the
date hereof, the Reserve Requirement shall be automatically
increased or decreased, as the case may be, from time to time as
of the effective time of each such change in such reserve
requirement.
-11-<PAGE>
"Revolving Period" means the time period from the date
----------------
of this Agreement through July 31, 1999; provided that, upon the
request of Borrower, Lenders may, in their sole discretion,
extend such time period at any time and from time to time to a
date not later than July 31, 2002.
"Section 29 Tax Credit Revenues" means any and all
------------------------------
revenues distributed to Borrower from partnerships or other
entities formed for the purpose, among others, of utilizing tax
credits available pursuant to Section 29 of the Internal Revenue
Code of 1986, as amended.
"Security Documents" means the instruments listed in
------------------
the Security Schedule and all other security agreements, deeds of
trust, mortgages, chattel mortgages, pledges, guaranties,
financing statements, continuation statements, extension
agreements and other agreements or instruments now, heretofore,
or hereafter delivered by Borrower to Lenders, or any of them, in
connection with this Agreement or any transaction contemplated
hereby to secure or guarantee the payment of any part of the
Obligations or the performance of any other duties and
obligations of Borrower under the Loan Documents, whenever made
or delivered.
"Security Schedule" means Schedule l hereto.
-----------------
"Termination Event" means (a) the occurrence with
-----------------
respect to any ERISA Plan of (i) a reportable event described in
Section 4043(b)(5) of ERISA or (ii) any other reportable event
described in Section 4043 of ERISA other than a reportable event
not subject to the provision for 30-day notice to the Pension
Benefit Guaranty Corporation under such regulations, or (b) the
withdrawal of any Obligated Person or of any Affiliate of any
Obligated Person from an ERISA Plan during a plan year in which
it was a "substantial employer" as defined in Section 4001(a)(2)
of ERISA, or (c) the filing of a notice of intent to terminate
any ERISA Plan or the treatment of any ERISA Plan amendment as a
termination under Section 4041 of ERISA, or (d) the institution
of proceedings to terminate any ERISA Plan by the Pension Benefit
Guaranty Corporation under Section 4042 of ERISA, or (e) any
other event or condition which might constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any ERISA Plan.
"Transfer Orders" means transfer orders in proper form
---------------
acceptable to Lenders and to the purchasers of production,
covering the properties included in the Collateral, directing the
purchasers of production to pay proceeds of such properties to
Collateral Agent for the account of Borrower.
-12-<PAGE>
Section 1.2. Incorporation of Exhibits and Schedules.
---------------------------------------
All Exhibits and Schedules attached to this Agreement are a part
hereof for all purposes. Reference is hereby made to such
Schedules for the meaning of certain terms defined therein and
used but not defined herein, which definitions are incorporated
herein by reference.
Section 1.3. Amendment of Defined Instruments. Unless
--------------------------------
the context otherwise requires or unless otherwise provided
herein the terms defined in this Agreement which refer to a
particular agreement, instrument or document also refer to and
include all renewals, extensions and modifications of such
agreement, instrument or document, provided that nothing
contained in this section shall be construed to authorize any
such renewal, extension or modification.
Section 1.4. References and Titles. All references in
---------------------
this Agreement to Exhibits, Schedules, articles, sections,
subsections and other subdivisions refer to the Exhibits,
Schedules, articles, sections, subsections and other subdivisions
of this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any subdivisions are for
convenience only and do not constitute any part of such
subdivisions and shall be disregarded in construing the language
contained in such subdivisions. The words "this Agreement",
"this instrument", "herein", "hereof", "hereby", "thereunder" and
words of similar import refer to this Agreement as a whole and
not to any particular subdivision unless expressly so limited.
The phrases "this section" and "this subsection" and similar
phrases refer only to the sections or subsections hereof in which
such phrases occur. Pronouns in masculine, feminine and neuter
genders shall be construed to include any other gender, and words
in the singular form shall be construed to include the plural and
vice versa, unless the context otherwise requires.
Section 1.5. Calculations and Determinations. All
-------------------------------
interest accruing under the Loan Documents shall be calculated on
the basis of actual days elapsed (including the first day but
excluding the last) and a year of 360 days. Unless otherwise
expressly provided herein or unless Lenders otherwise consent,
all financial statements and reports furnished to Lenders
hereunder shall be prepared and all financial computations and
determinations pursuant hereto shall be made in accordance with
GAAP. Each determination by Lenders of amounts to be paid under
Sections 2.9 through 2.12 or any other matters which are to be
determined hereunder by Lenders (such as any Eurodollar Rate,
Fixed Rate, Business Day, interest Period or Reserve Requirement)
shall, in the absence of manifest error, be conclusive and
binding.
-13-<PAGE>
ARTICLE II
The Loan
--------
Section 2.1. The Loan. (a) Subject to the terms and
--------
conditions hereof, each Lender agrees to: (i) make its
Proportionate Share of advances ("Advances") to Borrower from
time to time requested by notice from Borrower to Agent, on
behalf of Lenders (as to each of which notices Agent shall give
prompt notice to Lenders), not later than 10:00 a.m., Denver,
Colorado time on the Business Day on which such any such Advance
is requested, and (ii) participate, to the extent of its
Proportionate Share, in the issuance of Letters of Credit from
time to time requested upon written notice to Agent, on behalf of
Lenders (as to each of which notices Agent shall give prompt
notice to Lenders), from Borrower no later than five days prior
to the requested date of issuance of each such Letter of Credit
(any request by Borrower for an Advance or for the issuance of a
Letter of Credit being deemed to be a certification that the
conditions precedent contained in Sections 4.1 and 4.2 below have
been satisfied); provided that Lenders shall have no obligation
to: (1) make any Advance or issue any Letter of Credit after the
Commitment Expiration Date, (2) issue or renew a Letter of Credit
which does not expire prior to the Commitment Expiration Date, or
(3) make an Advance or issue a Letter of Credit which would cause
the aggregate amount of all Advances outstanding hereunder plus
the face amount of all Letters of Credit outstanding hereunder to
exceed the Commitment Amount; provided further that within the
limitation of the Commitment Amount and subject to the other
terms and provisions hereof, Borrower may borrow, repay and
reborrow hereunder.
(b) Subject to the satisfaction (or waiver by Lenders)
of all of the conditions precedent to the initial Advance, as
more fully set forth in Article IV below, Borrower shall be
deemed to have requested, and each Lender shall be deemed to have
made its Proportionate Share of, the initial Advance on the
Closing Date, in an aggregate amount equal to the entire balance
of principal, interest, fees and other amounts outstanding in
connection with the Prior Credit Agreement. The intent of
Lenders is that each Lender will participate equally and with
equal priority in the extension and refinancing of the
indebtedness outstanding under the Prior Credit Agreement, and
Lenders hereby assign and cross-assign to one another all rights
and interests with respect to the indebtedness under the Prior
Credit Agreement in order to accomplish such result.
-14-<PAGE>
(c) Each request by Borrower for an Advance shall be
in the form of Exhibit B attached hereto and made a part hereof
and shall be sent by Borrower to Agent, on behalf of Lenders (as
to each of which notices Agent shall give prompt notice to
Lenders). Each request by Borrower for the issuance of a Letter
of Credit shall be in the form of Exhibit C attached hereto and
made a part hereof, shall be sent by Borrower to Agent, on behalf
of Lenders (as to each of which notices Agent shall give prompt
notice to Lenders), and shall be accompanied by an application
for issuance of a letter of credit on Agent's then-standard form,
duly executed by Borrower.
(d) Each payment by any Lender under or in connection
with a Letter of Credit shall be deemed to be an Advance bearing
interest from the date of such payment, shall be entitled to all
benefits of the Security Documents and shall be subject to all
terms of this Agreement and any and all other applicable Loan
Documents.
(e) The above-described Advances and Letters of
Credit, in the aggregate, shall be herein referred to as the
"Loan". Borrower hereby expressly requests and irrevocably
authorizes each Lender to make its Proportionate Share of the
Loan.
Section 2.2. The Notes. Borrower's obligation to
---------
repay the Advances, with interest thereon, shall be evidenced by
the Notes. In the event any provision contained in the Notes
conflicts with a provision contained in this Agreement, the
provisions of this Agreement will control. The Notes shall bear
interest at the rates per annum provided in the Notes. Borrower
shall pay all accrued and unpaid interest due on the Notes on
each Payment Date.
Section 2.3. Regular Payments. Borrower shall make
----------------
payments on each Payment Date, commencing October 31, 1996, each
such payment to be equal in the aggregate to the Payment Amount
in effect for such Payment Date; provided that any such payments
shall be in addition to any amount payable by Borrower pursuant
to Section 3.2. On the last day of the Amortization Period, the
entire unpaid principal balance of the Loan and all accrued and
unpaid interest thereon shall be due and payable unless Lenders
have extended the term of the Loan.
Section 2.4. Voluntary Prepayments. Borrower shall
---------------------
have the right to prepay the Notes at any time, in whole or in
part, without penalty or premium.
-15-<PAGE>
Section 2.5. Termination of Commitment. Borrower
-------------------------
shall have the right at any time and from time to time, upon not
less than three business days' prior written or telegraphic
notice to Lenders, to terminate the Commitment. Upon any
termination of the Commitment, Borrower shall, at the time of
such termination, prepay the Notes in full. Any such prepayment
shall be without penalty or premium.
Section 2.6. Payments to Lenders.
-------------------
(a) Required Payments. Borrower will pay to Agent, on
-----------------
behalf of Lenders (and Agent shall pay each Lender its respective
Proportionate Share thereof on the Business Day that any such
payment is deemed to be received from Borrower), each payment
which Borrower owes under the Loan Documents, not later than
11:00 a.m., Denver, Colorado time, in lawful money of the United
States of America and in immediately available funds. Any
payment received after such time will be deemed to have been made
on the next following Business Day. Except as otherwise provided
in this Agreement with respect to Fixed Rate Portions, should any
such payment become due and payable on a day other than a
Business Day, the maturity of such payment shall be extended to
the next succeeding Business Day, and, in the case of a payment
of principal or past due interest, interest shall accrue and be
payable thereon for the period of such extension. Each payment
under a Loan Document shall be due and payable at the place
provided therein and, if no specific place of payment is
provided, shall be due and payable at the respective places of
payment of the Notes. When any Lender collects or receives money
on account of the Obligations owing to such Lender, such Lender
may apply such money as it elects to the various Obligations then
due and payable.
(b) Optional Prepayments. All prepayments made by
--------------------
Borrower pursuant to Section 2.4 or Section 2.5 shall be paid by
Borrower to Agent, on behalf of Lenders (and Agent shall pay each
Lender its respective Proportionate Share thereof on the Business
Day that any such payment is deemed to be received from
Borrower). Any such payment received after 11:00 a.m. Denver,
Colorado time will be deemed to have been made on the next
following Business Day.
Section 2.7. Use of Proceeds. In no event shall the
---------------
funds from the Loan be used directly or indirectly for the
purpose, whether immediate, incidental or ultimate, of
purchasing, acquiring or carrying any "margin stock" or any
"margin securities" (as such terms are defined respectively in
Regulation U and Regulation G promulgated by the Board of
Governors of the Federal Reserve System) or to extend credit
-16-<PAGE>
to others directly or indirectly for the purpose of purchasing or
carrying any such margin stock or margin securities. Borrower
represents and warrants to Lenders that Borrower is not engaged
principally, or as one of Borrower's important activities, in the
business of extending credit to others for the purpose of
purchasing or carrying such margin stock or margin securities.
Section 2.8. Rate Elections. Borrower may from time
--------------
totime designate all or any portion of the Loan (including any
yet-to-be-made Advances which are to be made prior to or at the
beginning of the designated Interest Period but excluding any
portion of the Loan which is required to be repaid prior to the
end of the designated Interest Period) as a Fixed Rate Portion;
provided that, without the consent of Lenders, Borrower may make
no such election during the continuance of a Default and Borrower
may make such an election with respect to an already existing
Fixed Rate Portion only if such election will take effect at or
after the termination of the Interest Period applicable to such
already existing Fixed Rate Portion. Each election by Borrower
of a Fixed Rate Portion shall:
(a) Be made in writing in the form and substance of the
"Rate Election" attached hereto as Exhibit D, duly completed;
(b) Specify the amount of the Loan which Borrower desires
to designate as a Fixed Rate Portion, the first day of the
Interest Period which is to apply thereto, and the length of such
Interest Period; and
(c) Be received by Lenders not later than 10:00 a.m.,
Denver, Colorado time, on the third Business Day preceding the
first day of the specified Interest Period.
Each election which meets the requirements of this Section 2.8 (herein
called a "Rate Election") shall be irrevocable. Borrower may make no
Rate Election which does not specify an Interest Period complying with
the definition of "Interest Period" in Section 1.1, and the amount of
the Fixed Rate Portion elected in any Rate Election must be an amount
greater than or equal to $3,000,000 and an integral multiple of
$1,000,000. Upon the termination of each Interest Period, the portion
of the Loan theretofore constituting the related Fixed Rate Portion
shall, unless the subject of a new Rate Election then taking effect,
automatically become a part of the Base Rate Portion and become
subject to all provisions of the Loan Documents governing the Base
Rate Portion. Borrower shall have no more than four Fixed Rate
Portions in effect at any time.
-17-<PAGE>
Section 2.9. Increased Cost of Fixed Rate Portions.
-------------------------------------
If any applicable domestic or foreign law, treaty, rule or
regulation (whether now in effect or hereafter enacted or
promulgated, including Regulation D) or any interpretation or
administration thereof by any governmental authority charged with
the interpretation or administration thereof (whether or not
having the force of law):
(a) Shall change the basis of taxation of payments to
Lenders of any principal, interest, or other amounts attributable
to any Fixed Rate Portion or otherwise due under this Agreement
in respect of any Fixed Rate Portion (other than taxes imposed on
the overall net income of any Lender or any lending office of any
Lender by any jurisdiction in which any Lender or any such
lending office is located); or
(b) Shall change, impose, modify, apply or deem applicable
any reserve, special deposit or similar requirements in respect
of any Fixed Rate Portion (excluding those for which Lenders are
fully compensated pursuant to adjustments made in the definition
of Fixed Rate) or against assets of, deposits with or for the
account of, or credit extended by, any Lender to the extent the
same relate to a Fixed Rate Portion; or
(c) Shall impose on any Lender or the interbank
eurocurrency deposit market any other condition affecting any
Fixed Rate Portion, the result of which is to increase the cost
to any Lender of funding or maintaining any Fixed Rate Portion or
to reduce the amount of any sum receivable by any Lender in
respect of any Fixed Rate Portion by an amount deemed by such
Lender to be material;
then: (x) Lenders shall promptly notify Borrower in writing of the
happening of such event, (y) Borrower shall upon demand pay to Lenders
such additional amount or amounts as will compensate Lenders for any
such event (on an after-tax basis), and (z) Borrower may elect, by
giving to Lenders not less than three Business Days' notice, to
convert all (but not less than all) of any such Fixed Rate Portion
into a part of the Base Rate Portion.
Section 2.10. Availability. If Lenders shall
------------
determine (which determination shall, upon notice thereof to
Borrower, be conclusive and binding on Borrower and Lenders)
that: (a) the introduction of or any change in or in the
interpretation of any law, treaty, rule or regulation makes it
unlawful or impracticable, or any central bank or other
governmental authority asserts that it is unlawful, for Lenders
to make, continue or maintain any Fixed Rate Portion or shall
materially restrict the authority of Lenders to purchase or take
offshore deposits of dollars (i.e.,
-18-<PAGE>
"Eurodollars"), or (b) matching deposits appropriate to fund or
maintain any Fixed Rate Portion are not available to them, or (c)
the formula for calculating the Eurodollar Rate does not fairly
reflect the cost to Lenders of making or maintaining loans based
on such rate, then Borrower's right to elect Fixed Rate Portions
shall be suspended to the extent and for the duration of such
illegality, impracticability or restriction and all Fixed Rate
Portions (or portions thereof) which are then outstanding or are
then the subject of any Rate Election and which cannot lawfully
or practicably be maintained or funded shall immediately become
or remain part of the Base Rate Portion. Borrower agrees to
indemnify Lenders and hold them harmless against all costs,
expenses, claims, penalties, liabilities and damages which may
result from any such change in law, treaty, rule, regulation,
interpretation or administration.
Section 2.11. Reimbursable Taxes. Borrower covenants
------------------
and agrees that:
(a) Borrower will indemnify Lenders against, and
reimburse Lenders for, all present and future income, excise,
stamp or franchise taxes and other taxes, fees, duties,
withholdings or other charges of any nature whatsoever imposed,
assessed, levied or collected on or in respect of this Agreement
insofar as it pertains to a Fixed Rate Portion or any Fixed Rate
Portions (whether or not legally imposed, assessed, levied or
collected), but excluding taxes imposed on or measured by any
Lender's net income or receipts (such non-excluded items being
called "Reimbursable Taxes"). Such indemnification shall be on
an after-tax basis, taking into account any income taxes imposed
on the amounts paid as indemnity.
(b) All payments by Borrower on account of
principal of, and interest on, the Loan and all other amounts
payable by Borrower to Lenders hereunder shall be made in full
without set-off or counterclaim and shall be made free and clear
of and without deduction or withholding for any Reimbursable
Taxes, all of which shall be for the account of Borrower. In the
event that any withholding or deduction from any payment to be
made by Borrower hereunder is required in respect of any
Reimbursable Taxes pursuant to any applicable law, rule or
regulation, Borrower shall pay on the due date of such payment,
by way of additional interest, such additional amounts as are
needed to ensure that the amount actually received by Lenders
will equal the full amount Lenders would have received had no
such withholding or deduction been required. If Borrower shall
make any deduction or withholding as aforesaid, Borrower shall
within 60 days thereafter forward to Lenders an official receipt
or other official document evidencing payment of such deduction
or withholding.
-19-<PAGE>
(c) If Borrower is ever required to pay any
Reimbursable Tax with respect to any Fixed Rate Portion, Borrower
may elect, by giving to Lenders not less than three Business
Days' notice, to convert all (but not less than all) of any such
Fixed Rate Portion into a part of the Base Rate Portion, but such
election shall not diminish Borrower's obligation to pay all
Reimbursable Taxes.
Section 2.12. Funding Losses. In addition to its
--------------
other obligations hereunder, Borrower will indemnify Lenders
against, and reimburse Lenders on demand for, any loss or expense
(including any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired
by Lenders to make, continue or maintain any Fixed Rate Portion
or any Advance) as a result of: (a) any payment or prepayment
(whether authorized or required hereunder or otherwise) of all or
any portion of a Fixed Rate Portion on a date other than the
scheduled last day of the Interest Period applicable thereto; (b)
any payment or prepayment, whether required hereunder or
otherwise, of the Loan made after the delivery, but before the
effective date, of a Rate Election, if such payment or prepayment
prevents such Rate Election from becoming fully effective; (c)
the failure of any Advance to be made or of any Rate Election to
become effective due to any condition precedent not being
satisfied or due to any other action or inaction of any Obligated
Person; or (d) any conversion (whether authorized or required
hereunder or otherwise) of all or any portion of any Fixed Rate
Portion into the Base Rate Portion or into a different Fixed Rate
Portion on a day other than the day on which the applicable
Interest Period ends.
Section 2.13. Capital Reimbursement. If either (a)
---------------------
the introduction or implementation of or the compliance with or
any change in or in the interpretation of any law, rule or
regulation, or (b) the introduction or implementation of or the
compliance with any request, directive or guideline from any
central bank or other governmental authority (whether or not
having the force of law) affects or would affect the amount of
capital required or expected to be maintained by any Lender or
any corporation controlling any Lender, then, upon demand by such
Lender, Borrower will pay to such Lender, from time to time as
specified by such Lender, such additional amount or amounts which
such Lender shall determine to be appropriate to compensate such
Lender or any corporation controlling such Lender in light of
such circumstances, to the extent that such Lender reasonably
determines that the amount of any such capital would be increased
or the rate of return on any such capital would be reduced by or
in whole or in part
-20-<PAGE>
based on the existence of the face amount of such Lender's
Proportionate Share of the Loan or such Lender's commitments
under this Agreement or the existence of the Letters of Credit
issued hereunder.
ARTICLE III
Security; Fees
--------------
Section 3.1. The Security. The Obligations will be
------------
secured by the Security Documents listed on the Security Schedule
and any additional Security Documents hereafter delivered by
Borrower and accepted by Lenders.
Section 3.2. Periodic Reviews and Borrowing Base
-----------------------------------
Reductions. As of approximately April 15 and October 15 of each
- ----------
year, commencing in April, 1997, and up to one additional time
per calendar year at the option of Lenders, and up to one
additional time per calendar year at the option of Borrower,
Lenders will perform a review of the Borrowing Base Properties
and will determine the Borrowing Base, based upon their then-
current customary practices and standards applied generally to
their substantial energy credits (which will be substantially
similar to their present practices, except for market-induced
changes relating to pricing, costs and risk factors relating to
types of oil and gas reserves) and taking into account such other
factors as Lenders in their reasonable discretion deem
appropriate. Promptly after each such determination of the
Borrowing Base, Lenders shall advise Borrower of the new
Borrowing Base. If, at the time of any such determination or at
any other time, the then-outstanding principal balance of the
Loan plus the face amount of all Letters of Credit outstanding
hereunder exceeds the Commitment Amount, Borrower shall, within
30 days of any such determination: (i) mortgage, by instruments
satisfactory in form and substance to Lenders, sufficient
additional available collateral owned by Borrower and
satisfactory to Lenders to increase the Commitment Amount by an
amount sufficient to eliminate such excess; or (ii) prepay the
principal of the Loan in an amount at least equal to the amount
of such excess; or (iii) commence (and thereafter continue) an
amortization schedule under which Borrower repays the Loan in an
amount at least equal to the excess in six equal monthly
principal installments on the last Business Day of each calendar
month, which amounts shall be in addition to the monthly interest
payments and any other principal payments otherwise due, such
that the entire excess is paid within six months. Failure by
Borrower to comply with the foregoing shall be deemed an Event of
Default hereunder.
-21-<PAGE>
Section 3.3. Perfection and Protection of Security
-------------------------------------
Interests and Liens. Borrower will from time to time deliver to
- -------------------
Lenders any financing statements, continuation statements,
extension agreements and other documents, properly completed and
executed (and acknowledged when required) by Borrower in form and
substance reasonably satisfactory to Lenders, which Lenders may
request for the purpose of perfecting, confirming or protecting
Lenders' Liens and other rights in the Collateral.
Section 3.4. Bank Accounts and Offset. To secure the
------------------------
repayment of the Obligations, Borrower hereby grants to Lenders a
security interest, a lien, and a right of offset, each of which
shall be upon and against (a) any and all moneys, securities or
other property (and the proceeds therefrom) of Borrower now or
hereafter held or received by or in transit to any Lender from or
for the account of Borrower, whether for safekeeping, custody,
pledge, transmission, collection or otherwise, (b) any and all
deposits (general or special, time or demand, provisional or
final) of Borrower with any Lender, and (c) any other credits and
claims of Borrower at any time existing against any Lender,
including without limitation claims under certificates of
deposit; provided that the foregoing security interest, lien and
right of offset shall not apply to amounts held by Borrower in
trust for the benefit of Persons other than Borrower. Upon the
occurrence of any Event of Default, Lenders are hereby authorized
to foreclose upon, offset, appropriate, and apply, at any time
and from time to time, without notice to Borrower, any and all
items hereinabove referred to against the Obligations (whether or
not such Obligations are then due and payable).
Section 3.5. Proceeds of Runs. By the terms of the
----------------
deeds of trust and mortgages described in the Security Schedule,
Borrower is and will be assigning to Collateral Agent, for the
benefit of Lenders, all of the proceeds of production accruing to
the property covered thereby. Until and unless an Event of
Default has occurred and is continuing, Collateral Agent, on
behalf of Lenders, shall permit Borrower to continue to receive
such proceeds of production.
Section 3.6. Fees. (a) Borrower shall pay to Agent,
----
on behalf of Lenders (and Agent shall pay each Lender its
respective Proportionate Share thereof on the Business Day that
any such payment is deemed to be received from Borrower), within
30 days after the end of each three-month period ending on the
last day of January, April, July or October during the Revolving
Period, commencing with the three-month period ending October 31,
1996, a commitment fee, computed on a daily
-22-<PAGE>
basis for such three-month period, in an amount equal to: (i) the
Commitment Fee Rate, times (ii) the excess of the Commitment
Amount over the sum of the outstanding principal balance of the
Loan plus the face amount of all Letters of Credit outstanding
hereunder.
(b) If at any time the Borrowing Base is
increased to an amount in excess of $83,500,000 (or in excess of
such higher amount as to which Borrower has already paid a fee
pursuant to this Section 3.6(b)), Borrower shall pay to Agent, on
behalf of Lenders (and Agent shall pay each Lender its respective
Proportionate Share thereof on the Business Day that any such
payment is deemed to be received from Borrower), a fee in an
amount equal to: (i) 0.00125, times (ii) the amount by which the
Borrowing Base exceeds $83,500,000 (or by which the Borrowing
Base exceeds such higher amount as to which Borrower has already
paid a fee pursuant to this Section 3.6(b)).
(c) Borrower shall pay to Agent, on behalf of
Lenders (and, as to the fee described in (1) below, Agent shall
pay each Lender its respective Proportionate Share thereof on the
Business Day that any such payment is deemed to be received from
Borrower), with respect to each Letter of Credit the following
fees: (l) for the account of all Lenders, an amount equal to the
greater of: (A) $250.00, or (B) the Fixed Rate Spread per annum
in effect at the time of issuance of such Letter of Credit times
the face amount of such Letter of Credit, plus (2) for the
account of the Lender issuing such Letter of Credit, one-eighth
of one percentage point per annum times the face amount of such
Letter of Credit, which fee shall be payable at the time of
issuance (and again at the time of any renewal) of such Letter of
Credit.
ARTICLE IV
Conditions Precedent to Loan
----------------------------
Section 4.1. Conditions Precedent to Loan. Lenders
----------------------------
shall have no obligation to extend and refinance (as more fully
described in Section 2.l(b) above) the loan made pursuant to the
Prior Credit Agreement unless Lenders shall have received all of
the following in Denver, Colorado, duly executed and delivered
and in form, substance and date satisfactory to Lenders:
(a) An "Omnibus Certificate" of the Secretary of
Borrower, which shall contain the names and
signatures of the officers of Borrower authorized
to execute Loan Documents and which
-23-<PAGE>
shall certify to the truth, correctness and
completeness of the following exhibits attached
thereto: (i) a copy of resolutions duly adopted by
the Board of Directors of Borrower and in full
force and effect at the time this Agreement is
entered into, authorizing the execution of this
Agreement and any and all other Loan Documents
delivered or to be delivered by Borrower in
connection herewith and with the consummation of
the transactions contemplated herein and therein,
(ii) a copy of the articles of incorporation of
Borrower and all amendments thereto, and (iii) a
copy of the bylaws of Borrower.
(b) A "Compliance Certificate" of an officer of
Borrower in which such officer certifies to the
satisfaction of the conditions set out in
subsections (a), (b), and (c) of Section 4.2.
(c) Each Security Document listed in the Security
Schedule.
(d) An opinion of Borrower's counsel in form and
substance satisfactory to Lenders, relating to
authority, enforceability and other related
matters.
(e) Such title opinions, supplemental title opinions,
UCC searches and other title information
concerning the Borrowing Base Properties or any
portions thereof as may be requested by Lenders.
(f) All fees owing to any Lender and, if available,
legal fees incurred by any Lender through the date
hereof in connection with the negotiation and
preparation of this Agreement.
(g) Any and all other Loan Documents.
Section 4.2. Additional Conditions Precedent. No
-------------------------------
Lender shall have any obligation to make its Proportionate Share
of any subsequent Advance under the Loan unless the following
conditions precedent have been satisfied:
(a) All representations and warranties made by any
Obligated Person in any Loan Document shall be
true on and as of the date of such Advance as if
such representations and warranties had been made
as of the date hereof.
-24-<PAGE>
(b) No Default shall exist as of the date of such
Advance.
(c) Each Obligated Person shall have performed and
complied with all agreements and conditions herein
required to be performed or complied with by it on
or prior to the date of such Advance.
(d) The Loan shall not be prohibited by any law or any
regulation or order of any court or governmental
agency or authority and shall not subject any
Lender to any penalty or other onerous condition
under or pursuant to any such law, regulation or
order.
(e) Lenders shall have received all documents and
instruments which any Lender has then reasonably
requested, in addition to those described in
Section 4.1 (including without limitation opinions
of legal counsel for Borrower; corporate documents
and records; documents evidencing governmental
authorizations, consents, approvals, licenses and
exemptions; and certificates of public officials
and of officers and representatives of Borrower
and other persons), as to (i) the accuracy and
validity of or compliance with all
representations, warranties and covenants made by
any of the Obligated Persons in this Agreement and
the other Loan Documents, (ii) the satisfaction of
all conditions contained herein or therein, and
(iii) all other matters pertaining hereto and
thereto. All such additional documents and
instruments shall be reasonably satisfactory to
Lenders in form, substance and date.
(f) All legal matters relating to the Loan Documents
and the consummation of the transactions
contemplated thereby shall be reasonably
satisfactory to Lenders and their counsel.
ARTICLE V
Representations and Warranties
------------------------------
Section 5.1. Borrower's Representations and
-----------------------------------------
Warranties. To induce Lenders to enter into this Agreement and
to make the Loan, Borrower represents and warrants to Lenders
that:
-25-<PAGE>
(a) No Default. Borrower is not in default in any
----------
material respect in the performance of any of the
covenants and agreements contained herein. No
event has occurred and is continuing which
constitutes a Default.
(b) Organization and Good Standing. Each Obligated
------------------------------
Person is duly organized, validly existing and in
good standing under the laws of its state of
organization, having all corporate powers required
to carry on its business and enter into and carry
out the transactions contemplated hereby. Each
such Obligated Person is duly qualified, in good
standing, and authorized to do business in all
other jurisdictions wherein the character of the
properties owned or held by it or the nature of
the business transacted by it makes such
qualification necessary.
(c) Authorization. Each Obligated Person has duly
-------------
taken all corporate action necessary to authorize
the execution and delivery by it of the Loan
Documents to which it is a party and to authorize
the consummation of the transactions contemplated
thereby and the performance of its obligations
thereunder.
(d) No Conflicts or Consents. The execution and
------------------------
delivery by the various Obligated Persons of the
Loan Documents to which each is a party, the
performance by each of its obligations under such
Loan Documents, and the consummation of the
transactions contemplated by the various Loan
Documents, do not and will not (i) conflict with
any provision of (A) any domestic or foreign law,
statute, rule or regulation, (B) the articles or
certificate of incorporation, bylaws, or charter
of any Obligated Person, or (C) any agreement,
judgment, license, order or permit applicable to
or binding upon any Obligated Person, (ii) result
in the acceleration of any Debt owed by any
Obligated Person, or (iii) result in or require
the creation of any Lien upon any assets or
properties of any Obligated Person except as
expressly contemplated in the Loan Documents.
Except as expressly contemplated in the Loan
Documents, no consent, approval, authorization or
order of, and no notice to or filing with, any
court or governmental authority or third
-26-<PAGE>
party is required in connection with the
execution, delivery or performance by any
Obligated Person of any Loan Document or to
consummate any transactions contemplated by the
Loan Documents.
(e) Enforceable Obligations. This Agreement is, and
-----------------------
the other Loan Documents when duly executed and
delivered will be, legal and binding obligations
of each Obligated Person which is a party hereto
or thereto, enforceable in accordance with their
respective terms except as limited by bankruptcy,
insolvency or similar laws of general application
relating to the enforcement of creditors' rights
and as limited by general equitable principles.
(f) Initial Financial Statements. The Initial
----------------------------
Financial Statements fairly present Borrower's
Consolidated financial position at the respective
dates thereof and the results of Borrower's
Consolidated operations and the changes in
Borrower's Consolidated cash flows for the
respective periods thereof. Since the date of the
annual Initial Financial Statements no material
adverse change has occurred in Borrower's
Consolidated financial condition or businesses,
except as reflected in the quarterly Initial
Financial Statements or in the Disclosure
Schedule. All Initial Financial Statements were
prepared in accordance with GAAP.
(g) Other Obligations. Except as consented to by
-----------------
Lenders pursuant to the terms of this Agreement,
no Obligated Person has any outstanding Debt of
any kind (including contingent obligations, tax
assessments, and unusual forward or long-term
commitments) which is, in the aggregate, material
to Borrower or material with respect to Borrower's
financial condition and not shown in the Initial
Financial Statements or disclosed in the
Disclosure Schedule.
(h) Full Disclosure. To the best of Borrower's
---------------
knowledge after due inquiry, no certificate,
statement or other information delivered herewith
or heretofore by any Obligated Person to any
Lender in connection with the negotiation of this
Agreement or in connection with any
-27-<PAGE>
transaction contemplated hereby contains any
untrue statement of a material fact or omits to
state any material fact known to any Obligated
Person (other than industry-wide risks normally
associated with the types of businesses conducted
by the Obligated Persons) necessary to make the
statements contained herein or therein not
misleading in any material respect as of the date
made or deemed made. At the date of this
Agreement, none of the Obligated Persons is aware
of any material fact (other than industry-wide
risks normally associated with the types of
businesses conducted by the Obligated Persons) of
which Lenders should not reasonably be otherwise
aware that has not been disclosed to Lenders in
writing which could materially and adversely
affect Borrower's properties, business, prospects
or condition (financial or otherwise) or
Borrower's Consolidated properties, businesses,
prospects or condition (financial or otherwise).
In connection with the preparation of the Initial
Engineering Report, to the best of Borrower's
knowledge, Borrower furnished to the preparer
thereof factual information that was complete and
accurate in all material respects, it being
understood that the Initial Engineering Report is
necessarily based upon professional opinions,
estimates and projections and that Borrower does
not warrant that such opinions, estimates and
projections will ultimately prove to have been
accurate. Borrower has heretofore delivered to
Lenders true, correct and complete copies of any
letters and documents listed in the Disclosure
Schedule.
(i) Litigation. Except as disclosed in the Initial
----------
Financial Statements or in the Disclosure
Schedule: (i) there are no actions, suits or
legal, equitable, arbitrative or administrative
proceedings pending, or to the knowledge of any
Obligated Person threatened, against any Obligated
Person before any federal, state, municipal or
other court, department, commission, body, board,
bureau, agency, or instrumentality, domestic or
foreign, which do or may materially and adversely
affect Borrower, Affiliates controlled by
Borrower, their ownership or use of any of their
assets or properties, their businesses or
financial
-28-<PAGE>
condition or prospects, or the right or ability of
any Obligated Person to enter into the Loan
Documents to which it is a party or perform its
obligations thereunder and (ii) there are no
outstanding judgments, injunctions, writs, rulings
or orders by any such governmental entity against
any Obligated Person which have or may have any
such effect.
(j) ERISA Liabilities. Except as disclosed in the
-----------------
Initial Financial Statements or in the Disclosure
Schedule, no Termination Event has occurred with
respect to any ERISA Plan, and the Obligated
Persons are in compliance with ERISA in all
material respects. No Obligated Person is
required to contribute to, or has any other
absolute or contingent liability in respect of,
any "multiemployer plan" as defined in Section
4001 of ERISA.
(k) Title to Properties. Subject to, and not in
-------------------
limitation of, any representations or covenants on
title contained in the Security Documents, to the
best of Borrower's knowledge and subject to
typical oil-industry operating agreements and
product-purchase contracts and other matters
listed on the Disclosure Schedule, Borrower has
good and defensible title to the Borrowing Base
Properties, free and clear of all Prohibited
Liens, except that no representation or warranty
is made with respect to any gas or mineral
property or interest which does not have proved
oil or gas reserves attributed to it in any
information or report prepared for Borrower or
submitted to Lenders.
(l) Borrower's Affiliates. Borrower is not a member
---------------------
of any general or limited partnership, joint
venture or association of any type whatsoever
except those listed in the Disclosure Schedule and
except for associations, joint ventures or other
relationships (a) which are established pursuant
to a standard form oil and gas operating
agreement, (b) which are not corporations or
partnerships (or subject to the Uniform
Partnership Act) under applicable state law, and
(c) whose businesses are limited to the
exploration, development and operation of oil, gas
or mineral properties and interests owned directly
by the parties in such associations,
-29-<PAGE>
joint ventures or relationships. Borrower has no
subsidiaries other than Basin Offshore Oil & Gas,
Inc., a wholly-owned subsidiary, and Sterling
Energy Resources, Inc., a wholly-owned subsidiary.
As of the date hereof Borrower owns, directly or
indirectly, the interest identified in the
Disclosure Schedule in each entity listed in the
Disclosure Schedule.
(m) Names and Places of Business. Borrower has not,
----------------------------
during the preceding five years, been known by or
used any other partnership or fictitious name,
except as disclosed in the Disclosure Schedule.
Except as otherwise indicated in the Disclosure
Schedule, the chief executive office and principal
place of business of Borrower are (and for the
preceding five years have been) located at the
address of Borrower set out in Section 8.3.
Except as indicated in the Disclosure Schedule, no
Obligated Person has any other office or place of
business.
Section 5.2. Representations by Lenders. Each Lender
--------------------------
hereby represents that it will acquire its Note for its own
account in the ordinary course of its commercial banking
business; however, the disposition of each Lender's property
shall at all times be and remain within its control and this
section does not prohibit any Lender's sale of its Note or of any
participation in its Note to any bank, financial institution or
similar purchaser.
ARTICLE VI
Covenants of Borrower
---------------------
Section 6.1. Affirmative Covenants. Borrower
---------------------
warrants, covenants and agrees that until the full and final
payment of the Obligations and the termination of this Agreement,
unless Lenders have previously agreed otherwise in writing:
(a) Payment and Performance. Borrower will pay all
-----------------------
amounts due under the Loan Documents in accordance
with the terms thereof and will in all material
respects observe, perform and comply with every
covenant, term and condition express or implied in
the Loan Documents.
-30-<PAGE>
(b) Books Financial Statements and Records. Borrower
--------------------------------------
will at all times maintain full and accurate books
of account and records. Borrower will maintain a
standard system of accounting and will furnish the
following statements and reports to Lenders at
Borrower's expense:
(i) As soon as available, and in any event within
90 days after the end of each Fiscal Year,
complete Consolidated financial statements of
Borrower, together with all notes thereto,
prepared in reasonable detail in accordance
with GAAP, together with an opinion, based on
an audit using generally accepted auditing
standards, by Arthur Andersen LLP or other
independent certified public accountants
reasonably acceptable to Lenders, stating
that such Consolidated financial statements
have been so prepared. Borrower shall also
submit a report signed by the chief financial
officer or the chief accounting officer of
Borrower stating that he has read this
Agreement and the Security Documents and
further stating that in making the
examination and reporting on the Consolidated
financial statements described above he has
concluded that there did not exist any
condition or event at the end of such Fiscal
Year or at the time of his report which
constituted an Event of Default or a Default,
or, if he did conclude that such condition or
event existed, specifying the nature and
period of existence of any such condition or
event. These Consolidated financial
statements shall contain a Consolidated
balance sheet as of the end of such Fiscal
Year and Consolidated statements of earnings,
cash flows and changes in stockholders'
equity, setting forth in comparative form the
corresponding figures for the preceding
Fiscal Year.
(ii) As soon as available and in any event within
45 days after the end of each Fiscal Quarter,
complete Consolidated financial statements of
Borrower,
-31-<PAGE>
including at least a balance sheet and a
statement of the earnings and cash flow of
Borrower from the beginning of the
then-current Fiscal Year to the end of such
Fiscal Quarter, prepared in reasonable detail
and in accordance with GAAP, together with a
report showing the calculation of all
applicable financial covenants and signed by
the chief financial officer or the chief
accounting officer of Borrower stating that
he has read this Agreement and the Security
Documents and further stating that in making
the examination and reporting on the
financial statements described above, he
concluded that there did not exist any
condition or event at the end of such Fiscal
Quarter or at the time of his report which
constituted an Event of Default or Default,
or, if he did conclude that such condition or
event existed, specifying the nature and
period of existence of any such condition or
event.
(iii) As soon as available and in any event within
90 days after the end of each Fiscal Year, an
estimate of the Consolidated cash flow of
Borrower for the then-current Fiscal Year in
a form substantially similar to the form of
such estimates heretofore provided by
Borrower to Lenders.
(iv) Promptly upon their becoming available,
copies of all financial statements, reports,
notices and proxy statements sent by any
Obligated Person to its stockholders and all
registration statements, periodic reports and
other statements and schedules filed by any
Obligated Person with any securities
exchange, the Securities and Exchange
Commission or any similar governmental
authority.
(v) By: (A) March 1 of each year, an engineering
report and economic evaluation prepared by
Williamson Petroleum Consultants, Inc.,
Netherland,
-32-<PAGE>
Sewell & Associates, Inc. or one or more
other independent petroleum engineers chosen
by Borrower and reasonably acceptable to
Lenders, concerning all oil and gas
properties and interests included in the
Borrowing Base Properties, and (B) September
1 of each year, an engineering report and
economic evaluation prepared by Borrower,
concerning all oil and gas properties and
interests included in the Borrowing Base
Properties. These engineering reports shall
be in form and substance satisfactory to
Lenders and shall contain information and
analysis comparable in scope to that
contained in the Initial Engineering Report.
(vi) At least 45 days prior to the date of any
redetermination of the Borrowing Base
pursuant to Section 3.2 above and at any
other time requested by Lenders, a report
describing by lease or unit the gross volume
of production and sales attributable to
production (and the prices at which such
sales were made and the revenues derived from
such sales) during each of the preceding six
calendar months from the Borrowing Base
Properties and from all other properties
owned by Borrower, and describing the related
severance taxes, other taxes, and leasehold
operating expenses attributable thereto and
incurred during each such calendar month.
(c) Other Information and Inspections. Each Obligated
---------------------------------
Person will furnish to Lenders any information which any Lender
may from time to time reasonably request concerning any covenant,
provision or condition of the Loan Documents or any matter in
connection with the Obligated Persons' businesses and operations
that could reasonably be deemed to materially and adversely
affect the Loan. Each Obligated Person will permit
representatives appointed by any Lender, including independent
accountants, agents, attorneys, appraisers and any other persons,
to visit and inspect, at their sole risk, any of such Obligated
Person's property, including its books of account, other books
and records, and any facilities or other business assets, and to
make extra copies therefrom and photocopies and photographs
thereof, and to write down and record any information such
representatives obtain, and each Obligated Person shall permit
any Lender or its representatives to investigate and verify the
accuracy of the information furnished to any Lender in connection
with the
-33-<PAGE>
Loan Documents and to discuss all such matters with its officers,
employees and representatives. Each Lender agrees that, until
the occurrence of a Default, it will take all reasonable steps to
keep confidential any such proprietary information, provided,
however, that this restriction shall not apply to information
which (i) has at the time in question entered the public domain,
(ii) is required to be disclosed by law or by any order, rule or
regulation (whether valid or invalid) of any court or
governmental agency, or (iii) is furnished to purchasers or
prospective purchasers of participations or interests in the Loan
or the Notes so long as such purchasers and prospective
purchasers have agreed to be subject to restrictions identical to
those imposed upon Lenders under this sentence.
(d) Notice of Material Events. Borrower will promptly
-------------------------
notify Lenders (i) of any material adverse change in Borrower's
financial condition or Borrower's Consolidated financial
condition, (ii) of the occurrence of any Default, (iii) of the
acceleration of the maturity of any Debt owed by any Obligated
Person or of any default by any Obligated Person under any
indenture, mortgage, agreement, contract or other instrument to
which any of them is a party or by which any of them or any of
their properties is bound, if such acceleration or default might
reasonably be expected to have a material adverse effect upon
Borrower's Consolidated financial condition, (iv) of any
uninsured claim of $100,000 or more asserted against Borrower or
its properties, (v) of the occurrence of any Termination Event,
(vi) of the filing of any suit or proceeding against any
Obligated Person in which an adverse decision could have a
material adverse effect upon any Obligated Person's financial
condition, business or operations (or could result in a judgment
not covered by insurance of $100,000 or more against Borrower),
(vii) of the merger or consolidation of Borrower or any of its
Affiliates with any other business entity not previously
affiliated with any of the Obligated Persons, and (viii) of the
sale, transfer, lease, exchange or disposal by Borrower of any
material assets or properties or any assets or properties with a
value in excess of $500,000, except sales of already-severed
hydrocarbons and other products in the ordinary course of
Borrower's business and except any transaction of a type
described in Section 6.2(d)(i), (ii), (iii) or (iv) below
(regardless of whether any such transaction involves Borrowing
Base Properties or other properties owned by Borrower). Upon the
occurrence of any of the foregoing the Obligated Persons will
take all necessary or appropriate steps to remedy promptly any
such material adverse change, Default, or default, to protect
against any such adverse claim, to defend any such suit or
proceeding, and to resolve all controversies on account of any of
the foregoing. Borrower will also notify Lenders in writing at
least twenty Business Days prior to the
-34-<PAGE>
date that any Obligated Person changes its name or the location
of its chief executive office or principal place of business or
the place where it keeps its books and records concerning the
Collateral, furnishing with such notice any necessary financing
statement amendments or requesting Lenders and their counsel to
prepare the same.
(e) Maintenance of Existence and Qualifications. Each
-------------------------------------------
Obligated Person which is a corporation will maintain and
preserve its corporate existence and its rights and franchises in
full force and effect and will qualify to do business as a
foreign corporation in all states or jurisdictions where required
by applicable law, except where the failure so to qualify will
not have any material adverse effect on Borrower.
(f) Maintenance of Properties. Each Obligated Person
-------------------------
will in ail material respects maintain, preserve, protect, and
keep all property used or useful in the conduct of its business
in accordance with the standards of a reasonable and prudent
operator.
(g) Payment of Trade Debt, Taxes, etc. Each Obligated
--------------------------------
Person will (i) timely file all required tax returns; (ii) timely
pay all taxes, assessments, and other governmental charges or
levies imposed upon it or upon its income, profits or property;
(iii) pay all Debt owed by it on ordinary trade terms to vendors,
suppliers and other Persons providing goods and services used by
it in the ordinary course of its business; and (iv) maintain
appropriate accruals and reserves for all of the foregoing Debt
in accordance with GAAP. Each Obligated Person will pay and
discharge in all material respects, when due, all other Debt,
taxes or assessments now or hereafter owed by it. Each Obligated
Person may, however, delay paying or discharging any such Debt so
long as it is in good faith contesting the validity thereof by
appropriate proceedings and has set aside on its books adequate
reserves therefor.
(h) Insurance. Each Obligated Person will maintain
---------
with financially sound and reputable insurance companies,
insurance with respect to its business, operations and properties
in at least such amounts and against at least such risks as are
usually insured against in the same general area by companies of
established repute engaged in the same or a similar business,
including property insurance, public liability insurance for
bodily injury and property damage, well-control coverage
insurance, workmen's compensation insurance and insurance against
loss or damage by employee
-35-<PAGE>
dishonesty, theft, fire, lightning, hail, windstorm, explosion,
hazards, casualties and other contingencies; will apply the
proceeds of any such insurance to pay for, or to reimburse itself
for, the cost of repairing or replacing property covered by such
insurance; and will furnish to Lenders, upon any Lender's written
request, full information as to the insurance carried.
(i) Payment of Expenses. Whether or not the
-------------------
transactions contemplated by this Agreement are consummated,
Borrower will promptly (and in any event within 30 days after any
invoice or other statement or notice) pay all reasonable costs
and expenses incurred by or on behalf of any Lender (including
attorneys' fees) in connection with (i) the preparation,
execution and delivery of the Loan Documents, and any and all
consents, waivers or other documents or instruments relating
thereto, (ii) the filing, recording, refiling and re-recording of
any Security Documents and any other documents or instruments or
further assurances required to be filed or recorded or refiled or
re-recorded by the terms of any Loan Document, and/or (iii) the
enforcement, after the occurrence of a Default or an Event of
Default, of the Loan Documents.
(j) Performance on Borrower's Behalf. If any
--------------------------------
Obligated Person fails to pay any taxes, insurance premiums or
other amounts it is required to pay under any Loan Document,
Lenders may pay the same. Borrower shall immediately reimburse
Lenders for any such payments and each amount paid shall
constitute a part of the Obligations, shall be secured by the
Security Documents and shall bear interest at the Late Payment
Rate from the date such amount is paid by Lenders until the date
such amount is repaid to Lenders.
(k) Compliance with Agreements and Law. Each
----------------------------------
Obligated Person will perform all material obligations it is
required to perform under the terms of each indenture, mortgage,
deed of trust, security agreement, lease, franchise, agreement,
contract or other instrument or obligation to which it is a party
or by which it or any of its properties is bound in such a way
that they result in no material adverse effect upon the Borrowing
Base Properties or Borrower's ability to perform its obligations
under this Agreement. Each Obligated Person will in all material
respects conduct its business and affairs in compliance with all
laws, regulations, and orders applicable thereto (including those
relating to pollution and other environmental matters).
(l) Certifications of Compliance. Each Obligated
----------------------------
Person will furnish to Lenders at such Obligated Person's or
Borrower's expense all certifications which any Lender from
-36-<PAGE>
time to time reasonably requests, including but not limited to
the forms of evidence and assurance described in Section 4.2(e),
as to the accuracy and validity of or compliance with all
representations, warranties and covenants made by any Obligated
Person in the Loan Documents, the satisfaction of all conditions
contained therein, and all other matters pertaining thereto.
(m) Additional Security Documents. Promptly after a
-----------------------------
request therefor by Lenders at any time and from time to time,
but only if the outstanding principal balance of the Loan plus
the face amount of all Letters of Credit outstanding hereunder
exceeds 75 percent of the Commitment Amount at the time of any
such request, Borrower will execute and deliver to Collateral
Agent, for the benefit of Lenders, such additional Security
Documents and/or amendments to existing Security Documents as
Lenders may reasonably deem necessary or appropriate in order to
grant to Collateral Agent, for the benefit of Lenders, a
perfected lien on and security interest (subject to any other
then-existing Liens, except Prohibited Liens) in any or all
Borrowing Base Properties not previously mortgaged to Collateral
Agent, for the benefit of Lenders.
(n) Use of Proceeds. Borrower will use the proceeds
---------------
of the Loan for the exploration, acquisition and/or the
improvement of oil and gas properties and for general working
capital purposes.
(o) Environmental Matters. Borrower will not in any
---------------------
material respect cause or permit the Borrowing Base Properties,
the Associated Collateral or Borrower to be in violation of, or
do anything or permit anything to be done which will subject the
Borrowing Base Properties or the Associated Collateral to, any
remedial obligations under any applicable Environmental Laws,
assuming disclosure to the applicable governmental authorities of
all relevant facts, conditions and circumstances, if any,
pertaining to the Borrowing Base Properties or the Associated
Collateral, and Borrower will promptly notify Lenders in writing
of any existing, pending or, to the best knowledge of Borrower,
threatened investigation or inquiry by any governmental authority
in connection with any Applicable Environmental Laws. Borrower
will take all reasonable steps necessary to determine that no
hazardous substances or solid wastes have been disposed of or
otherwise released on or to the Borrowing Base Properties or the
Associated Collateral. Borrower will not cause or permit the
disposal or other release of any hazardous substance or solid
waste (as defined in the Applicable Environmental Laws) on or to
the Borrowing Base Properties or the Associated Collateral and
covenants and agrees to keep or cause the Borrowing Base
Properties or the Associated Collateral to be kept free of any
hazardous substance or solid waste and to remove the same (or if
removal
-37-<PAGE>
is prohibited by law, to take whatever actions is required by
law) promptly upon discovery at its sole expense. Upon any
Lender's reasonable request, at any time and from time to time
during the existence of this Agreement, Borrower will provide at
Borrower's sole expenses, an inspection or audit of the Borrowing
Base Properties and the Associated Collateral from an engineering
or consulting firm approved by Lenders, indicating the presence
or absence of hazardous substances and solid waste on the
Borrowing Base Properties and/or the Associated Collateral.
Insofar and only insofar as Borrower's obligations under this
Section 6.1(o) relate to Associated Collateral which is not owned
or controlled by Borrower, Borrower shall not be deemed to be in
default hereunder if Borrower has taken any and all reasonable
and practical actions available to it in attempting to comply
with the provisions of this Section 6.1(o).
The term "Associated Collateral" as used in this
Section and in Section 7.3 below shall mean any and all interest
in and to (and or carved out of) the lands which are described or
referred to in the Security Documents in connection with the
Borrowing Base Properties, or which are otherwise described in
any of the oil, gas and/or mineral leases or other instruments
described in or referred to in the Security Documents whether or
not such collateral interests are owned by Borrower.
"Applicable Environmental Laws" as used in this Section
and in Section 7.3 below means any laws, orders, rules, or
regulations pertaining to health of the environment (as the same
now exist or are hereafter enacted and/or amended), including
without limitation the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the
Superfund Amendments and Reauthorization Act of 1986 (as amended,
hereinafter called "CERCLA"), the Resource Conservation and
Recovery Act of 1976, as amended by the Used Oil Recycling Act of
1980, the solid Waste Disposal Act Amendments of 1980, and the
Hazardous and Solid Waste Amendments on 1984 (as amended,
hereinafter called "RCRA") and applicable state law.
(p) Capitalization Ratio. Borrower will notify
--------------------
Lenders of any change in the Capitalization Ratio that would
cause a change in the applicable Base Rate Spread or Fixed Rate
Spread, such notice to be received by Lenders not later than the
beginning of the calendar month as to which such change would be
effective.
Section 6.2. Negative Covenants. Borrower warrants,
------------------
covenants and agrees that until the full and final payment of the
Obligations and the termination of this Agreement, unless Lenders
have previously agreed otherwise in writing:
-38-<PAGE>
(a) Current Ratio. The Consolidated current ratio of
-------------
Borrower, determined in accordance with GAAP (but excluding
current maturities of long-term debt from the calculation of
current liabilities, and including up to a maximum of $10,000,000
in unused borrowing capacity hereunder in the calculation of
current assets), shall not at any time be less than 1.0:1.0.
(b) Limitation on Liens. No Obligated Person will
-------------------
create, assume or permit to exist any mortgage, deed of trust,
pledge, encumbrance, lien or charge of any kind (including any
security interest in or vendor's lien on property purchased under
conditional sales or other title retention agreements and
including any lease intended as security or in the nature of a
title retention agreement) upon any of its properties or assets,
whether now owned or hereafter acquired except:
(i) Liens at any time existing in favor of
Collateral Agent, for the benefit of
Lenders;
(ii) statutory Liens for taxes, statutory or
contractual mechanics' and materialmen's
Liens incurred in the ordinary course of
business, and other similar Liens
incurred in the ordinary course of
business, provided such Liens secure
only Debt which is not delinquent or
which is being contested as provided in
Section 6.1(g);
(iii) any Liens expressly permitted under the
terms of any Security Documents
hereafter accepted by Lenders; and
(iv) Liens securing Debt owing by Borrower to
any third party, if such Debt has not
been incurred in violation of this
Agreement; provided that no such Lien
(except any Lien for the benefit of
Lenders) shall cover or affect any of
the Borrowing Base Properties.
(c) Additional Debt. No Obligated Person will create,
---------------
incur, assume or permit to exist Debt not existing on the date of
this Agreement, except (i) trade debt owed to suppliers, pumpers,
mechanics, materialmen and others furnishing goods or services to
Borrower in the ordinary course of Borrower's business, (ii)
non-recourse Debt as to which Lenders have given their prior
written consent, which consent shall not be withheld if the
incurrence of such Debt would not have a material adverse effect
upon the Borrowing Base Properties or upon Borrower's ability to
perform its
-39-<PAGE>
obligations under this Agreement, (iii) Hedging Obligations of
any Obligated Person in an amount not to exceed 85 percent of the
proved developed producing reserves as shown in the most recent
engineering report delivered to Lenders pursuant to Section
6.1(b)(v), and (iv) other Debt in the aggregate outstanding
amount of not more than $1,000,000 at any time.
(d) Limitation on Sales of Property. No Obligated
-------------------------------
Person will sell, transfer, lease, exchange, alienate or dispose
of any Borrowing Base Properties except as follows (and the
following exceptions shall be subject to any limitations
contained in the Security Documents):
(i) equipment which is worthless or
obsolete, which is replaced by equipment
of equal suitability and value or which
is salvaged from wells which have been
plugged and abandoned by or on behalf of
Borrower;
(ii) inventory (including oil and gas sold as
produced and seismic data) which is sold
in the ordinary course of business;
(iii) personal property located on oil and gas
properties operated by third parties,
the sale of which personal property
cannot be prevented by Borrower;
(iv) farmouts, promotions, acreage swaps,
acreage sales, non-recourse Debt (to the
extent permitted under Section 6.2(c)
above) and similar oil-industry
arrangements for the exploration or
development of undeveloped reserves
included in the Borrowing Base
Properties; provided that no such
arrangement shall affect in any way any
developed reserves included in the
Borrowing Base Properties;
(v) portions of the Borrowing Base
Properties as to which Borrower prepays
the Loan in an amount agreed upon
between Borrower and Lenders as the
result of good-faith negotiations
between Borrower and Lenders; and
-40-<PAGE>
(vi) properties having an aggregate value of
not more than $2,500,000 during any
period subsequent to the then most
recent determination of the Borrowing
Base pursuant to Section 3.2 above.
(e) ERISA Plans. No Obligated Person will incur any
-----------
obligation to contribute to any "multiemployer plan" as defined
in Section 4001 of ERISA.
(f) Limitation on Credit Extensions. No Obligated
-------------------------------
Person will extend credit, make advances or make loans other than
(i) normal and prudent extensions of credit to customers buying
goods and services in the ordinary course of business, which
extensions shall not be for longer periods than those extended by
similar businesses operated in a normal and prudent manner, and
(ii) advances to employees of Borrower in an aggregate amount of
not more than $15,000 outstanding at any time.
(g) Fiscal Year. No Obligated Person will change its
-----------
fiscal year without Lenders' consent, which will not be
unreasonably withheld.
(h) Amendment of Contracts. No Obligated Person will
----------------------
amend or permit any amendment to any contract which could
reasonably be foreseen to release, qualify, limit, make
contingent or otherwise detrimentally affect, in any material
way, the rights and benefits of Collateral Agent or any Lender
under or acquired pursuant to any of the Security Documents.
(i) Limitation on Guarantees. No Obligated Person
------------------------
will guarantee or be or become secondarily liable for any Debt
which is the primary obligation of any other Person.
(j) Distributions. No Obligated Person will make any
-------------
Distributions; provided that the foregoing shall not be deemed to
prevent Borrower from granting stock options or making restricted
stock awards to the extent that the foregoing actions are taken
in connection with Borrower's presently existing Equity Incentive
Plan, Borrower's presently-existing Non-Employee Directors Stock
Option Plan or any similar employee or director incentive program
granting reasonable incentives to Borrower's employees and/or
directors; provided further that Borrower may hereafter pay
dividends and/or purchase outstanding stock of Borrower so long
as, immediately after any such purchase or payment, the aggregate
amount expended for such purchases and payments after the date
hereof does not exceed the lesser of: (1) $5,000,000, or (2) 50
percent of Borrower's Cumulative Net Income after December 31,
1995, except that no such dividend payment or stock purchase
shall be made at any time that a Default has occurred and is
continuing or would result from any such payment or purchase.
-41-<PAGE>
(k) Reorganizations; Combinations. No Obligated
-----------------------------
Person will change its name or the nature of its business,
reorganize, liquidate, dissolve or enter into any merger, joint
venture, partnership or other combination.
(l) Investments. No Obligated Person will purchase,
-----------
acquire, hold or otherwise invest in, or deposit any money into,
any stock, bond, evidence of indebtedness, deposit account or
other security or investment other than any Permitted Investment.
ARTICLE VII
Events of Default and Remedies
------------------------------
Section 7.1. Events of Default. Each of the following
-----------------
events constitutes an Event of Default under this Agreement:
(a) Borrower fails to pay any Obligation when due and
payable, whether at a date for the payment of a fixed installment
or contingent or other payment to any Lender or as a result of
acceleration or otherwise, and such failure is not remedied
within the applicable Grace Period; or
(b) Any "default" or "event of default" occurs under
any Loan Document which defines either term, and the same is not
remedied within the applicable period of grace (if any) provided
in such Loan Document; or
(c) Any Obligated Person fails (other than as referred
to in subsections (a) and (b) above) to duly observe, perform or
comply with any covenant, agreement, condition or provision
(other than those referred to in subsections (a) and (b) above)
of any Loan Document, and such failure is not remedied within the
applicable Grace Period; or
(d) Any representation or warranty previously,
presently or hereafter made in writing by or on behalf of any
Obligated Person in connection with any Loan Document shall prove
to have been false or incorrect in any material respect on any
date on or as of which made, and the represented or warranted
state of affairs does not become true within the applicable Grace
Period; or
(e) Either (i) any "accumulated funding deficiency"
(as defined in Section 412(a) of the Internal Revenue Code of
1954, as amended) in excess of $10,000 exists with respect to any
ERISA Plan, whether or not waived by the Secretary of the
Treasury or his delegate, or (ii) any Termination Event occurs
-42-<PAGE>
with respect to any ERISA Plan and the then current value of such
ERISA Plan's benefits guaranteed under Title IV of ERISA exceeds
the then current value of such ERISA Plan's assets available for
the payment of such benefits by more than $10,000 (or in the case
of a Termination Event involving the withdrawal of a substantial
employer, the withdrawing employer'S proportionate share of such
excess exceeds such amount); or
(f) Any Obligated Person:
(i) suffers the entry against it of a
judgment, decree or order for relief by
a court of competent jurisdiction in an
involuntary proceeding commenced under
any applicable bankruptcy, insolvency or
other similar law of any jurisdiction
now or hereafter in effect, including
the federal Bankruptcy Code, as from
time to time amended, or has any such
proceeding commenced against it which
remains undismissed for a period of 120
days (or, if applicable, such longer or
shorter period as may be necessary to
ensure that the Obligated Person has a
reasonable opportunity to respond to
such proceeding and request that it be
dismissed); or
(ii) suffers the appointment of a receiver,
liquidator, assignee, custodian,
trustee, sequestrator or similar
official for a substantial part of its
assets or for any part of the Borrowing
Base Properties in a proceeding brought
against or initiated by it, and such
appointment is neither made ineffective
nor discharged within 30 days after the
making thereof, or such appointment is
consented to, requested by, or
acquiesced to by it (or, if applicable,
such longer or shorter period as may be
necessary to ensure that the Obligated
Person has a reasonable opportunity to
respond to such proceeding and request
that it be dismissed); or
(iii) commences a voluntary case under any
applicable bankruptcy, insolvency or
similar law now or hereafter in effect,
including the federal Bankruptcy Code,
as from time to time amended; or applies
-43-<PAGE>
for or consents to the entry of an order
for relief in an involuntary case under
any such law or to the appointment of or
taking possession by a receiver,
liquidator, assignee, custodian,
trustee, sequestrator or other similar
official of any substantial part of its
assets or any part of the Borrowing Base
Properties; or makes a general
assignment for the benefit of creditors;
or fails generally to pay (or admits in
writing its inability to pay) its debts
as such debts become due; or takes
corporate or other action in furtherance
of any of the foregoing); or
(iv) suffers the entry against it of a final
judgment for the payment of money in
excess of $250,000 (not covered by
insurance), unless the same is
discharged within 30 days after the date
of entry thereof or an appeal or
appropriate proceeding for review
thereof is taken within such period and
a stay of execution pending such appeal
is obtained; or
(v) suffers the entry of an order issued by
any court or tribunal taking, seizing or
apprehending all or any substantial part
of its property or any part of the
Borrowing Base Properties and bringing
the same into the custody of such Court
or tribunal, and such order is not
stayed or released within thirty days
after the entry thereof; or
(g) Any Person or Persons acting in concert (other
than Michael S. Smith and his immediate family and entities
controlled by Michael S. Smith or his immediate family) acquire
35 percent or more of Borrower's common stock; or
(h) Changes occur in the membership of the Board of
Directors of Borrower (except for any change arising by reason of
the death of any director) such that a majority of the members of
the Board of Directors of Borrower is changed within any 12-month
period; or
(i) Borrower fails to comply with the provisions of
Section 3.2 above within the time periods for compliance
specified in said Section 3.2.
-44-<PAGE>
Upon the occurrence of an Event of Default described in
subsection (f)(i), (f)(ii) or (f)(iii) of this section, all of
the Obligations shall thereupon be immediately due and payable,
without presentment, demand, protest, notice of protest,
declaration or notice of acceleration or intention to accelerate,
or any other notice or declaration of any kind, all of which are
hereby expressly waived by Borrower. During the continuance of
any other Event of Default, Lenders owning Proportionate Shares
of at least 66-2/3 percent at any time and from time to time
(unless all Events of Default have theretofore been remedied) may
declare any or all of the Obligations immediately due and
payable, and all such Obligations shall thereupon be immediately
due and payable. The term "Grace Period," as used herein with
respect to an Event of Default for which a Grace Period is
expressly provided, means the period beginning on the date of the
related Default and ending the number of days provided below
after written notice of such Default (a "Default Notice") is
given by any Lender to Borrower: (x) in the case of a Default
described in Section 7.1(a) above, one Business Day; (y) in the
case of any Default (other than a Default described in Section
7.1(a)) as to which Borrower does not give notice of such Default
to Lenders as required in Section 6.1(d) prior to a Lender's
giving notice thereof to Borrower, 15 days (which period may be
extended for one additional period of 30 days if the Default
relates to a breach of a covenant contained in Article VI above,
if the Default cannot reasonably be cured within the original
period, and if, within such original period, Borrower commences,
and thereafter diligently prosecutes, measures to cure such
Default); and (z) in the case of any other Default for which a
Grace Period is expressly provided, 30 days (which period may be
extended for one additional period of 30 days if the Default
relates to a breach of a covenant contained in Article VI above,
if the Default cannot reasonably be cured within the original
period, and if, within such original period, Borrower commences,
and thereafter diligently prosecutes, measures to cure such
Default).
Section 7.2. Remedies. If any Default shall occur and
--------
be continuing, the obligation of Lenders to make Advances under
this Agreement shall terminate immediately. If any Event of
Default shall occur, Lenders may protect and enforce their rights
under the Loan Documents by any appropriate proceedings,
including proceedings for specific performance of any covenant or
agreement contained in any Loan Document, and Lenders may enforce
the payment of any Obligations due or enforce any other legal or
equitable right. All rights, remedies and powers conferred upon
Lenders under the Loan Documents shall be deemed cumulative and
not exclusive of any other rights, remedies or powers available
under the Loan Documents or at law or in equity.
-45-<PAGE>
Section 7.3. Indemnity. Borrower hereby agrees to
---------
indemnify, defend and hold harmless Lenders and their agents,
affiliates, officers, directors, and employees from and against
any claims, losses, demands, actions, causes of action, and
liabilities whatsoever (including without limitation reasonable
attorney's fees and expenses, and costs and expenses reasonably
incurred in investigating, preparing or defending against any
litigation or claim, action, suit, proceeding or demand of any
kind or character) arising out of or resulting from: (a) the Loan
Documents (including without limitation the enforcement thereof),
except to the extent such claims, losses, and liabilities are
proximately caused by a Lender's gross negligence or willful
misconduct, (b) any violation on or prior to the Release Date (as
hereinafter defined) of any Applicable Environmental Law, (c) any
act, omission, event or circumstance existing or occurring on or
prior to the Release Date (including without limitation the
presence on the Borrowing Base Properties or the Associated
Collateral or release from the Borrowing Base Properties or the
Associated Collateral of hazardous substances or solid wastes
disposed of or otherwise released, resulting from or in
connection with the ownership, construction, occupancy,
operation, use and/or maintenance of the Borrowing Base
Properties or the Associated Collateral, regardless of whether
the act, omission, event or circumstance constituted a violation
of any Applicable Environmental Law at the time of its existence
of occurrence, and (d) any and all claims or proceedings (whether
brought by a private party or governmental agencies) for bodily
injury, property damage, abatement or remediation, environmental
damage or impairment or any other injury or damage resulting from
or relating to any hazardous or toxic substance, solid waste or
contaminated material located upon or migrating into, from or
through the Borrowing Base Properties or Associated Collateral
(whether or not the release of such materials was caused by
Borrower, a tenant or subtenant or a prior owner or tenant, or
subtenant on the Borrowing Base Properties or the Associated
Collateral and whether or not the alleged liability is
attributable to the handling, storage, generation,
transportation, removal or disposal of such substance, waste or
material or the mere presence of such substance, waste or
material on the Borrowing Base Properties or the Associated
Collateral), which the any Lender may have liability with respect
to due to the making of the Loan, the granting of the Security
Documents, the exercise of its rights under the Loan Documents,
or otherwise. The "Release Date" as used herein shall mean the
earlier of the following two dates: (i) the date on which the
Obligations have been paid and performed in full and the Security
Documents have been released of record, or (ii) the date on which
the liens of the Security Documents are foreclosed or a deed in
lieu of such foreclosure is fully effective and
-46-<PAGE>
recorded. WITHOUT LIMITATION, IT IS THE INTENTION OF BORROWER,
AND BORROWER AGREES, THAT THE FOREGOING INDEMNITIES SHALL APPLY
TO EACH INDEMNIFIED PARTY WITH RESPECT TO CLAIMS, DEMANDS,
LIABILITIES, LOSSES, DAMAGES, CAUSES OF ACTION, JUDGMENTS,
PENALTIES, COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION
REASONABLE ATTORNEYS' FEES) WHICH IN WHOLE OR IN PART ARE CAUSED
BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER)
INDEMNIFIED PARTY. However, such indemnities shall not apply to
any particular indemnified party (but shall apply to the other
indemnified parties) to the extent the subject of the
indemnification is caused by or arises out of the gross
negligence or willful misconduct of such particular indemnified
party. The foregoing indemnities shall not terminate upon the
Release Date or upon the release, foreclosure or other
termination of the Security Documents, but will survive the
Release Date, foreclosure of the Security Documents or
conveyances in lieu of foreclosure, and the repayment of the Loan
and the discharge and release of the Security Documents and the
other documents evidencing and/or securing the Loan.
ARTICLE VIII
Agent; Collateral Agent
-----------------------
Section 8.1. Actions. Each Lender hereby irrevocably
-------
appoints Agent to act as agent for Lenders under and for purposes
of this Agreement and each other Loan Document (other than the
Security Documents), to the extent provided herein. Each Lender
hereby irrevocably appoints Collateral Agent to act as collateral
agent under the Security Documents. Each Lender authorizes Agent
to act on behalf of such Lender hereunder and under the other
Loan Documents (other than the Security Documents) and to
exercise such powers hereunder and thereunder as are specifically
delegated to or required of Agent by the terms hereof and
thereof, together with such other powers as may be reasonably
incidental thereto. Each Lender authorizes Collateral Agent to
act on behalf of such Lender under the Security Documents and to
exercise such powers thereunder as are specifically delegated to
or required of Collateral Agent by the terms hereof and thereof,
together with such other powers as may be reasonably incidental
thereto. Without limiting the generality of the foregoing, each
Lender authorizes Collateral Agent to act on behalf of such
Lender to execute and accept on its behalf any and all of the
Security Documents. Each Lender hereby indemnifies (which
indemnity shall survive any termination of this Agreement) Agent
and Collateral Agent (and agrees to make payment thereof to Agent
within 10 days after demand is made by Agent), pro rata according
to such Lender's Proportionate Share, from and against any and
all liabilities,
-47-<PAGE>
obligations, losses, damages, claims, costs or expenses of any
kind or nature whatsoever which may at any time be imposed upon,
incurred by, or asserted against, Agent or Collateral Agent in
any way relating to or arising out of this Agreement or any other
Loan Document, including reasonable attorneys' fees, and as to
which Agent or Collateral Agent is not reimbursed by Borrower or
either of them; provided, however, that no Lender shall be liable
to Agent or Collateral Agent for the payment of any portion of
such liabilities, obligations, losses, damages, claims, costs or
expenses which are determined by a court of competent
jurisdiction in a final proceeding to have resulted solely from
Agent's or Collateral Agent's gross negligence or wilful
misconduct. Agent or Collateral Agent shall not be required to
take any action hereunder or under any other Loan Document, or to
prosecute or defend any suit in respect of this Agreement or any
other Loan Documents, unless it is indemnified hereunder to its
satisfaction. If any indemnity in favor of Agent or Collateral
Agent shall be or become, in Agent's or Collateral Agent's
determination, inadequate, Agent or Collateral Agent may call for
additional indemnification from Lenders and cease to do the acts
indemnified against hereunder until such additional indemnity is
given. The relationship of Agent to Lenders is only that of one
commercial bank acting as administrative agent for others, and
nothing in the Loan Documents shall be construed to constitute
Agent a trustee or other fiduciary for any holder of any of the
Notes or of any participation therein nor to impose on Agent
duties and obligations other than those expressly provided for in
the Loan Documents. With respect to any matters not expressly
provided for in the Loan Documents and any matters which the Loan
Documents place within the discretion of Agent, Agent shall not
be required to exercise any discretion or take any action, and it
may request instructions from Lenders with respect to any such
matter, in which case it shall be required to act or to refrain
from acting (and shall be fully protected and free from liability
to all Lenders in so acting or refraining from acting) upon the
instructions of Majority Lenders (including itself); provided,
however, that Agent shall not be required to take any action
which exposes it to a risk of personal liability that it
considers unreasonable or which is contrary to the Loan Documents
or to applicable law.
Section 8.2. Exculpation. None of Agent, Collateral
-----------
Agent or any Lender, nor any of their respective directors,
officers, employees or agents, shall be liable to any Lender for
any action taken or omitted to be taken by it under this
Agreement or any other Loan Document, or in connection herewith
or therewith, except for its own wilful misconduct or gross
negligence, nor responsible for any recitals or warranties herein
or therein, nor for the effectiveness,
-48-<PAGE>
enforceability, validity or due execution of this Agreement or
any other Loan Document, nor for the creation, perfection or
priority of any Liens purported to be created by any of the Loan
Documents, or the validity, genuineness, enforceability,
existence, value or sufficiency of any collateral security, nor
to make any inquiry respecting the performance by Borrower of its
obligations hereunder or under any other Loan Document. Any such
inquiry which may be made by any Lender, Agent or Collateral
Agent shall not obligate it to make any further inquiry or to
take any action. Each Lender, Agent and Collateral Agent shall
be entitled to rely upon advice of counsel concerning legal
matters and upon any notice, consent, certificate, statement or
writing which such Lender, Agent or Collateral Agent believes to
be genuine and to have been presented by a proper Person.
Section 8.3. Successor. Agent or Collateral Agent may
---------
resign as such at any time upon at least 30 days' prior notice to
Borrower and all Lenders. If Agent or Collateral Agent at any
time shall resign, Lenders may appoint another Lender as a
successor Agent or Collateral Agent which shall thereupon become
Agent or Collateral Agent hereunder. If no successor Agent or
Collateral Agent shall have been so appointed by Lenders, and
shall have accepted such appointment, within 30 days after the
retiring Agent or Collateral Agent's giving notice of
resignation, then the retiring Agent or Collateral Agent may, on
behalf of Lenders, appoint a successor Agent or Collateral Agent,
which shall be one of Lenders or a commercial banking institution
organized under the laws of the U.S. or Canada (or any State or
Province thereof) or a U.S. or Canadian branch or agency of a
commercial banking institution, and having a combined capital and
surplus of at least $200,000,000. Upon the acceptance of any
appointment as Agent or Collateral Agent hereunder by a successor
Agent or Collateral Agent, such successor Agent or Collateral
Agent shall be entitled to receive from the retiring Agent or
Collateral Agent such documents of transfer and assignment as
such successor Agent or Collateral Agent may reasonably request,
and shall thereupon succeed to and become vested with all rights,
powers, privileges and duties of the retiring Agent or Collateral
Agent, and the retiring Agent or Collateral Agent shall be
discharged from its duties and obligations under this Agreement.
After any retiring Agent's or Collateral Agent's resignation
hereunder as Agent or Collateral Agent, the provisions of (a)
this Article VIII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent or
Collateral Agent under this Agreement; and (b) Section 8.2 shall
continue to inure to its benefit.
-49-<PAGE>
Section 8.4. Other Loans by Lenders. Each Lender and
----------------------
its Affiliates may accept deposits from, lend money to, and
generally engage in any kind of business with Borrower or any
Affiliate of Borrower.
Section 8.5. Credit Decisions. Each Lender
----------------
acknowledges that it has, independently of Agent, Collateral
Agent and each other Lender, and based on such Lender's review of
the financial information of Borrower, this Agreement, the
Security Documents, the other Loan Documents (the terms and
provisions of which being satisfactory to such Lender) and such
other documents, information and investigations as such Lender
has deemed appropriate, made its own credit decision to extend
its Proportionate Share of the Commitment. Each Lender also
acknowledges that it will, independently of Agent, Collateral
Agent and each other Lender, and based on such other documents,
information and investigations as it shall deem appropriate at
any time, continue to make its own credit decisions as to
exercising or not exercising from time to time any rights and
privileges available to it under this Agreement, the Security
Documents or any other Loan Document.
Section 8.6. Payment of Collected Amounts. (a) If any
----------------------------
Lender receives any payment or other amount on account of the
Loan (whether by exercise of such Lender's rights of setoff or
banker's lien or by any other method) other than such Lender's
Proportionate Share of any payment made by or on behalf of
Borrower, such Lender shall, no later than the next Business Day
after such Lender's receipt of any such payment or other amount,
pay over to the other Lenders, their respective Proportionate
Shares of the payment or other amount received by such Lender.
(b) Subject to the rights of any other persons in the
Borrowing Base Properties, in the event of the acquisition of
title to any portion of the Borrowing Base Properties, either
through foreclosure or otherwise, this Agreement shall continue
in full force and effect and (i) each Lender shall pay its
Proportionate Share (determined as of the date such expenses are
incurred) of expenses for maintenance and taxes and any and all
other expenses necessary in connection with the acquisition,
holding, sale or other disposition of the Borrowing Base
Properties and (ii) each Lender shall be deemed to have an
undivided interest in the Borrowing Base Properties (as
tenants-in-common) equal to such Lender's Proportionate Share.
Section 8.7. Application of Collateral Proceeds. The
----------------------------------
Security Documents secure: (a) obligations of Borrower, or either
of them, to Lenders, or any of them, or Collateral Agent under or
in connection with this Agreement, and (b)
-50-<PAGE>
other obligations of Borrower, or either of them, to Lenders, or
any of them. The parties agree that, from and after the
occurrence of an Event of Default and upon the election of
Lenders to foreclose against or otherwise realize upon the
Collateral, any amounts collected as proceeds of the Collateral
shall be applied as follows: first, to the repayment of the
obligations described in (a) above until such obligations have
been repaid in full (with any amount collected by any Lender or
Collateral Agent being divided pro rata among Lenders according
to their respective proportionate shares of the obligations
described in (a) above and applied by each Lender at its
discretion to the principal, interest, fees and other amounts due
under or in connection with any or all of such obligations); and
second, to the repayment of the obligations described in (b)
above (with any amount collected by any Lender or Collateral
Agent being applied pro rata among all obligations owed to any
Lender pursuant to (b) above) until such obligations have been
repaid in full.
Section 8.8. Right of First Refusal. If any Lender
----------------------
desires to terminate its participation as a Lender hereunder,
each of the other Lenders, in proportion to their respective
Proportionate Shares, shall have a right of first refusal, to be
exercised within 30 days of its receipt of notice from the
terminating Lender of its desire to terminate its participation,
to acquire the participation of the terminating Lender by paying
to the terminating Lender an amount equal to all outstanding
principal, interest, fees and other amounts owing to the
terminating Lender hereunder or in connection herewith, insofar
as such amounts are allocable to the proportionate interest being
acquired by such acquiring Lender. If any Lender having a right
of first refusal declines to exercise such right, the other
Lender(s) shall have the right to exercise such right of first
refusal for their own benefit for a period of 10 days after
notification of the original Lender's decision not to exercise
such right of first refusal.
Section 8.9. Majority Lenders. Any and all decisions
----------------
to be made and actions to be taken by Lenders hereunder or under
any of the Loan Documents (including without limitation any
determination or re-determination of the Borrowing Base, any
consent or waiver of, or amendment to, any covenant, or any
acceleration of the maturity of the Loan) may be made or taken by
Majority Lenders on behalf of all Lenders; provided that the
agreement of all Lenders shall be required in order to: (a) waive
or consent to any default in the timely payment of principal or
interest, (b) approve any release of any of the Collateral, (c)
change any interest rate or fee payable with respect to the Loan,
(d) change the Maximum Loan Amount, or (e) extend the
Amortization Period or the Revolving Period.
-51-<PAGE>
ARTICLE IX
Miscellaneous
-------------
Section 9.1. Waiver and Amendment. No failure or
--------------------
delay by any Lender in exercising any right, power or remedy
which it may have under any of the Loan Documents shall operate
as a waiver thereof or of any other right, power or remedy, nor
shall any single or partial exercise by any Lender of any such
right, power or remedy preclude any other or further exercise
thereof or of any other right, power or remedy. No waiver of any
provision of any Loan Document and no consent to any departure
therefrom shall ever be effective unless it is in writing and
signed by all Lenders, and then such waiver or consent shall be
effective only in the specific instances and for the purposes for
which given and to the extent specified in such writing. No
notice to or demand on any Obligated Person shall in any case of
itself entitle any Obligated Person to any other or further
notice or demand in similar or other circumstances. This
Agreement and the other Loan Documents set forth the entire
understanding between the parties hereto, and no modification or
amendment of or supplement to this Agreement or the other Loan
Documents shall be valid or effective unless the same is in
writing and signed by the party against whom it is sought to be
enforced.
Section 9.2. Survival of Agreements; Cumulative
----------------------------------
Nature. All of the Obligated Persons' various representations,
- ------
warranties, covenants and agreements in the Loan Documents shall
survive the execution and delivery of this Agreement and the
other Loan Documents and the performance hereof and thereof,
including without limitation the making or granting of the Loan
and the delivery of the Notes and the other Loan Documents, and
shall further survive until all of the Obligations are paid in
full to Lenders and all of Lenders' obligations to Borrower are
terminated. All statements and agreements contained in any
certificate or other instrument delivered by any Obligated Person
to any Lender under any Loan Document shall be deemed
representations and warranties by Borrower to Lenders and/or
agreements and covenants of Borrower under this Agreement. The
representations, warranties, and covenants made by the Obligated
Persons in the Loan Documents, and the rights, powers, and
privileges granted to Lenders in the Loan Documents, are
cumulative, and no Loan Document shall be construed in the
context of another to diminish, nullify, or otherwise reduce the
benefit to any Lender of any such representation, warranty,
covenant, right, power or privilege. In particular and without
limitation, no exception set out in this Agreement to any
representation, warranty or covenant
-52-<PAGE>
herein contained shall apply to any similar representation,
warranty or covenant contained in any other Loan Document, and
each such similar representation, warranty or covenant shall be
subject only to those exceptions which are expressly made
applicable to it by the terms of the various Loan Documents.
Section 9.3. Notices. All notices, requests,
-------
consents, demands and other communications required or permitted
under any Loan Document shall be in writing and, unless otherwise
specifically provided in such Loan Document, shall be deemed
sufficiently given or furnished if delivered by personal
delivery, by telegram or telex, by expedited delivery service
with proof of delivery, or by registered or certified United
States mail, return receipt requested, postage prepaid, at the
addresses specified below (unless changed by similar notice in
writing given by the particular Person whose address is to be
changed). Any such notice or communication shall be deemed to
have been given either at the time of personal delivery or, in
the case of delivery service or mail, as of the date of first
attempted delivery at the address and in the manner provided
herein (provided that the notifying party promptly takes
reasonable steps to effect actual delivery if the first attempted
delivery is unsuccessful), or, in the case of telegram or telex,
upon receipt. All such notices to any Obligated Person may, at
the option of Lenders in each particular instance, be either
addressed and delivered to such Obligated Person or addressed and
delivered to Borrower:
Borrower's address: 370 Seventeenth Street
Suite 1800
Denver, Colorado 80202
Attention: Neil Stenbuck
CNB's address: 950 Seventeenth Street
Denver, Colorado 80202
Attention: Kathryn A. Gaiter
Union's address: 500 North Akard Street
Suite 4200
Dallas, Texas 75201
Attention: Randall L. Osterberg
NBT's address: 901 Main Street, 64th Floor
Dallas, Texas 75283
Attention: Energy Banking Group
with an additional
copy to NBT at: 370 Seventeenth Street
Suite 3250
Denver, Colorado 80202
Attention: David C. Rubenking
-53-<PAGE>
Section 9.4. Joint and Several Liability; Parties in
---------------------------------------
Interest. All Obligations which are owed by two or more
- --------
Obligated Persons shall be joint and several, and not merely
joint, obligations. All grants, covenants and agreements
contained in the Loan Documents shall bind and inure to the
benefit of the parties thereto and their respective successors
and assigns; provided, however, that no Obligated Person may
assign or transfer any of its rights or delegate any of its
duties or obligations under any Loan Document without the prior
consent of Lenders.
Section 9.5. Governing Law. The Loan Documents shall
-------------
be deemed contracts and instruments made under the laws of the
State of Colorado and shall be construed and enforced in
accordance with and governed by the laws of the State of Colorado
and the laws of the United States of America, except (i) to the
extent that the law of another jurisdiction is expressly elected
in a Loan Document, and (ii) with respect to specific Liens, or
the perfection thereof, evidenced by Security Documents covering
real or personal property which by the laws applicable thereto
are required to be construed under the laws of another
jurisdiction. Borrower hereby irrevocably submits itself and
each other Obligated Person to the non-exclusive jurisdiction of
the state and federal courts of the State of Colorado.
Section 9.6. Limitation on Interest. Lenders and the
----------------------
the Obligated Persons intend to contract in strict compliance
with applicable usury law from time to time in effect. In
furtherance thereof such persons stipulate and agree that none of
the terms and provisions contained in the Loan Documents shall
ever be construed to create a contract to pay, for the use,
forbearance or detention of money, interest in excess of the
maximum amount of interest permitted to be charged by applicable
law from time to time in effect. Neither any Obligated Person
nor any present or future guarantors, endorsers, or other Persons
hereafter becoming liable for payment of any Obligation shall
ever be liable for unearned interest thereon or shall ever be
required to pay interest thereon in excess of the maximum amount
that may be lawfully charged under applicable law from time to
time in effect, and the provisions of this section shall control
over all other provisions of the Loan Documents which may be in
conflict or apparent conflict herewith. Lenders expressly
disavow any intention to charge or collect excessive unearned
interest or finance charges in the event the maturity of any
Obligation is accelerated. If (a) the maturity of any Obligation
is accelerated for any reason, (b) any Obligation is prepaid and
as a result any amounts held to constitute interest are
determined to be in excess of the legal maximum, or (c) any
Lender or any other holder of any or all of the Obligations
-54-<PAGE>
shall otherwise collect moneys which are determined to constitute
interest which would otherwise increase the interest on any or
all of the Obligations to an amount in excess of that permitted
to be charged by applicable law then in effect, then all such
sums determined to constitute interest in excess of such legal
limit shall, without penalty, be promptly applied to reduce the
then outstanding principal of the related Obligations or, at
Lenders' option, promptly returned to Borrower or the other payor
thereof upon such determination.
Section 9.7. Severability. If any term or provision
------------
of any Loan Document shall be determined to be illegal or
unenforceable all other terms and provisions of the Loan
Documents shall nevertheless remain effective and shall be
enforced to the fullest extent permitted by applicable law.
Section 9.8. Counterparts. This Agreement may be
------------
separately executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which
when so executed shall be deemed to constitute one and the same
Agreement.
Section 9.9. Conflicts. To the extent of any
---------
irreconcilable conflicts between the provisions of this Agreement
and the provisions of any of the Loan Documents, the provisions
of this Agreement shall prevail.
Section 9.10. Supersession. Upon the repayment of all
------------
amounts due under or in connection with the Prior Credit
Agreement, the terms of this Agreement shall supersede the terms
of the Prior Credit Agreement in their entirety.
IN WITNESS WHEREOF, this Agreement is executed as of
the date first above written.
BASIN EXPLORATION, INC.
By: /s/ Neil Stenbuck
--------------------------------
Neil Stenbuck,
Vice President-Chief Financial
Officer
COLORADO NATIONAL BANK
By:________________________________
Kathryn A. Gaiter,
Vice President
-55-<PAGE>
NATIONSBANK OF TEXAS, N.A., as a
LENDER, AGENT and COLLATERAL AGENT
By:________________________________
______________________,
_______ Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Randall L. Osterberg
--------------------------------
Randall L. Osterberg,
Vice President
By: /s/ Michael E. Tregoning
--------------------------------
Michael E. Tregoning
Senior Vice President
-56-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S INTERIM UNAUDITED FINANCIAL STATEMENTS FOR THE
SIX MONTHS ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 37,623
<SECURITIES> 0
<RECEIVABLES> 4,330
<ALLOWANCES> 0
<INVENTORY> 92
<CURRENT-ASSETS> 42,851
<PP&E> 86,288
<DEPRECIATION> (37,587)
<TOTAL-ASSETS> 92,504
<CURRENT-LIABILITIES> 17,974
<BONDS> 0
0
0
<COMMON> 107
<OTHER-SE> 68,753
<TOTAL-LIABILITY-AND-EQUITY> 92,504
<SALES> 12,582
<TOTAL-REVENUES> 35,077
<CGS> 4,203
<TOTAL-COSTS> 11,903
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,200
<INCOME-PRETAX> 21,153
<INCOME-TAX> 5,694
<INCOME-CONTINUING> 15,459
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,459
<EPS-PRIMARY> 1.44<F1>
<EPS-DILUTED> 1.44<F1>
<FN>
<F1> Per share.
</FN>
</TABLE>
