<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-11698
KCS ENERGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2889587
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
379 THORNALL STREET, EDISON, NEW JERSEY 08837
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (908) 632-1770
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Class on which registered
-------------- -----------------------
COMMON STOCK, par value $0.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of class
--------------
COMMON STOCK, par value $0.01 per share
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES: X NO:
---- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.045 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10K. X
----
The aggregate market value of the 12,771,838 shares of the Common Stock held by
non-affiliates of the Registrant at the $35.875 closing price on February 28,
1997 was $458,189,668.
Number of shares of Common Stock outstanding as of the close of business in
February 28, 1997: 14,604,272
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference to Notice of and Proxy Statement
for the 1997 Annual Meeting of Shareholders to the extent indicated herein.
<PAGE> 2
KCS ENERGY, INC.
FORM 10-K
Report for the Year Ended December 31, 1996
PART I
Item 1. Business.
(a) General development of business
GENERAL
KCS Energy, Inc. "KCS" or the "Company" is an independent oil and gas
company primarily engaged in the acquisition, exploration, development and
production of natural gas and crude oil. The Company was formed in 1988 in
connection with the spin-off of the non-utility operations of NUI Corporation, a
New Jersey-based natural gas distribution company that had been engaged in the
oil and gas exploration and production business since the late 1960s. The
Company's operations to date have been focused primarily on properties in the
Onshore Gulf Coast region and since November 1995, the Rocky Mountain region.
The Company augments its working interest ownership of properties with a
volumetric production payment ("VPP") program to acquire oil and gas reserves
from properties which to date have been located primarily in the Offshore Gulf
Coast region and in the Niagaran Reef trend in Michigan.
During the past fourteen months several important developments, including
three significant acquisitions and the conclusion of a six-year legal battle,
have occurred that have had, and will continue to have, a significant impact on
the Company.
On December 23, 1996, the Company and Tennessee Gas Pipeline Company
("Tennessee Gas") entered into a settlement covering all claims and litigation
between them related to an above-market, take-or-pay contract ("Tennessee Gas
Contract"). As part of the settlement, the Tennessee Gas Contract was terminated
effective January 1, 1997, approximately two years prior to its expiration date,
and the parties also agreed to the dismissal of the contract dispute that
resulted in a November 1996 jury award to Tennessee Gas unfavorable to the
Company. See Note 9 to Consolidated Financial Statements on page 38 of this Form
10-K.
As of December 31, 1996, the Company completed the arrangements for the
acquisition of InterCoast Oil and Gas Company (formerly Medallion Production
Company and renamed KCS Medallion Resources, Inc.) and certain of its affiliates
(the "Medallion Acquisition"), the Company's largest acquisition to date. The
Medallion Acquisition expanded the Company's operations to include a third core
operating area, the Mid-Continent region, encompassing west Texas, the Texas
Panhandle, northwest Oklahoma and north Louisiana. In November 1995, the Company
acquired substantially all of the oil and gas assets of Natural Gas Processing
Company (the "Rocky Mountain Acquisition") and in December 1995, the Company
acquired 24.6 Bcfe of proved reserves in the northern and southern Niagaran Reef
trend in Michigan (the "Michigan Acquisition"). See Note 2 to Consolidated
Financial Statements on page 31 of this Form 10-K for more information on these
acquisitions.
These developments have transformed the Company from an enterprise heavily
dependent on the Bob West Field, from which natural gas was sold under the
Tennessee Gas Contract, to a more diversified enterprise with three core
operating areas - the Gulf Coast region, the Rocky Mountain region and the
Mid-Continent region - and its VPP program.
The Company also operates a natural gas transportation business and a
natural gas marketing and services business, which together contributed
approximately 2% of the Company's operating income during 1996. In
1
<PAGE> 3
February 1997, the Company entered into an agreement to sell its primary
natural gas transportation asset, its Texas intrastate natural gas pipeline
system, for $28 million in cash. During 1996, the Company scaled back its
natural gas marketing and services operations and in December 1996 closed its
Houston, Texas and Buffalo, New York marketing offices. With the Company's
strategic focus on its oil and gas operations and the recent developments in its
natural gas transportation and marketing operations, it is not expected that the
natural gas transportation and marketing operations will make a significant
contribution to the Company's consolidated results in 1997 and beyond.
(b) Financial information about industry segments
Three-year financial data by business segment is contained in Note 11 to
the Consolidated Financial Statements on page 42 of this Form 10-K.
(c) Narrative description of business
OIL AND GAS EXPLORATION AND PRODUCTION
All of the Company's exploration and production activities are located
within the United States. The Company competes with major oil and gas companies,
other independent oil and gas concerns and individual producers and operators in
the areas of reserve acquisitions and the exploration, development, production
and marketing of oil and gas, as well as contracting for equipment and securing
personnel. Oil and gas prices have historically been volatile and are expected
to continue to be volatile in the future. Prices for oil and gas are subject to
wide fluctuation in response to relatively minor changes in the supply of and
demand for oil and gas, market uncertainty and a variety of additional factors
that are beyond the Company's control. These factors include political
conditions in the Middle East and elsewhere, the foreign supply of oil and gas,
the price of foreign imports, the level of consumer product demand, weather
conditions, domestic and foreign government regulations and taxes, the price and
availability of alternative fuels and overall economic conditions.
One customer, Tennessee Gas, accounted for approximately 40% and 72% of the
oil and gas exploration and production business' revenue and 11% and 14% of the
Company's consolidated revenue for the years ended December 31, 1996 and 1995,
respectively. No other single customer accounted for more than 10% of the
Company's consolidated revenues in 1996 or 1995.
Oil and gas exploration and production operations accounted for 27% of the
Company's consolidated revenues and 98% of segment operating income for the year
ended December 31, 1996.
Development and Production Activities
During the three-year period ended December 31, 1996, the Company
participated in the drilling of 118 development wells with a 93% success rate.
During 1994 and 1995, a total of 45 wells were drilled with the majority of
these wells being in the Bob West Field where 27 wells were drilled and
completed with a 100% success rate. During 1996, the Company substantially
increased its level of development drilling in areas other than the Bob West
Field, drilling 67 wells and completing 59. In the Bob West Field, the Company
drilled and completed six wells during 1996. The Company's activities are now
focused on the Manderson Field in the Big Horn Basin of Wyoming, the Sweet Grass
Arch area in Montana, the Langham Creek Area and Glasscock Ranch Field in Texas
and the Laurel Ridge Field and the Tensas Parish Area in Louisiana.
The Company has currently identified over 600 development drilling and
recompletion locations, representing approximately a four-year inventory, and
has initially budgeted $70 million for development activities in 1997. The
Company plans to drill, recomplete or workover as many as 150 wells in 1997 and
focus its development drilling program primarily on the Rocky Mountain and
Onshore Gulf Coast regions discussed above and on the Sawyer Canyon Field and
several other of Medallion's prospects in the west Texas, ArkLaTex, Anadarko and
Arkoma areas located in the Mid-Continent region.
2
<PAGE> 4
Exploration Activities
During the three-year period ended December 31, 1996, the Company
participated in the drilling of 70 exploratory wells with a 46% success rate.
Discoveries included wells in the Bob West Field, Langham Creek Area and Laurel
Ridge Field. During 1996, the Company participated in the drilling of 21
exploratory wells and completed six wells, two of which it operates. Discoveries
in 1996 included the St. Jo prospect (now designated as the Aubrey and Wilsonia
Fields) located in Tensas Parish, Louisiana, where seven successful wells were
drilled and completed as of December 31, 1996.
The Company's policy is to commit no more than 25% of its operating cash
flow to exploration activities and generally no more than $750,000 for any
single well. The company has established an initial budget of $25 million for
exploration in 1997 and intends to participate in drilling a wide variety of
prospects, including both low-risk and high-risk, high-potential prospects in
order to maintain a balanced program with the potential for significant reserve
additions.
During 1997, the Company plans to participate in the drilling of up to 50
exploratory prospects and to continue 3-D and 2-D seismic data acquisition and
analysis. Exploration activities will focus primarily on properties located in
the onshore Gulf Coast regions of Texas and Louisiana and in the Rocky
Mountains. The Company also intends to further analyze the undeveloped acreage
it acquired in the Medallion Acquisition for possible exploration prospects and
continue its participation in exploration prospects in Michigan, where a 3-D
seismic program is currently under way.
Sale of Certain Properties
In early 1996, the Company sold several non-strategic properties located in
south Texas, including its interest in the San Salvador, Bloomberg and Birdie
Fields, for a total sale price of $16.4 million. As of December 31, 1995, these
properties had reserves attributable to them by an independent reserve engineer
of 9.4 Bcf of natural gas and 63,000 barrels of oil. Prior to their sale, the
properties contributed 232 Mcf of natural gas and 2,900 barrels of oil to the
Company's production in 1996.
Volumetric Production Payment Program
The Company augments its working interest ownership of properties with a
VPP program, a method of acquiring oil and gas reserves scheduled to be
delivered in the future at a discount to the current market price in exchange
for an up-front cash payment. A VPP is comparable to a term royalty interest in
oil and gas properties and entitles the Company to a priority right to a
specified volume of oil and gas reserves scheduled to be produced and delivered
over a stated time period. Although specific terms of the Company's VPPs vary,
the Company is generally entitled to receive delivery of its scheduled oil and
gas volumes at agreed delivery points, free of drilling and lease operating
costs and, in certain cases, free of state severance taxes. The Company is not
the operator of any of the properties underlying its VPPs, and it does not bear
any development or lease operating expenses. After delivery of the oil or gas
volumes, the Company sells such volumes to available markets. The Company
believes that its VPP program diversifies its reserve base and achieves
attractive rates of return while minimizing the Company's exposure to certain
development, operating and reserve volume risks. Typically, the estimated proved
reserves of the properties underlying a VPP are substantially greater than the
specified reserve volumes required to be delivered pursuant to the production
payment.
Through December 31, 1996, the Company had invested $79 million under the
VPP program and acquired proved reserves of 49 Bcf of gas and 1.4 million
barrels of oil through 15 separate transactions. The Company has recovered more
than $55 million in revenue from the sale of oil and gas acquired under the
program, with 27.1 Bcf of gas and 1.1 million barrels of oil scheduled for
future deliveries.
3
<PAGE> 5
NATURAL GAS TRANSPORTATION AND MARKETING OPERATIONS
At December 31, 1996, the major asset related to the Company's natural gas
transportation operations was a 150-mile carbon steel intrastate pipeline system
and related gathering facilities (the "Pipeline System") located north of
Houston, Texas. In February 1997 the Company entered into an agreement to sell
the Pipeline System, together with related marketing assets and a joint venture
gathering system (see Note 13 to Consolidated Financial Statements on page 45 of
this Form 10-K). The main line of the Pipeline System is approximately 80 miles
long and consists of 12-inch pipe with a wall thickness of 0.25 inch. The
remainder of the Pipeline System consists of lateral pipelines which connect to
producing wells; interstate and intrastate pipelines; an electric generating
plant; utility distribution systems; industrial and chemical facilities; a
natural gas liquefaction facility and two storage fields. Diameters of these
laterals range from 2 to 12 inches. The Pipeline System, which is connected to
13 intrastate and interstate pipelines, is pledged as collateral for a bank
credit facility. The Company also owns 17 natural gas gathering systems (16 upon
the consummation of the February 1997 sale) totaling more than 270 miles in
Texas, Montana and Louisiana.
Through its natural gas marketing and services operations, the Company buys
and resells natural gas directly to industrial and commercial end users and also
offers energy supply and transportation consulting services. During 1996, the
Company served approximately 290 customers in the United States and Canada and
bought natural gas from over 170 domestic and Canadian suppliers. It is the
Company's policy to hedge or match any fixed price sales or purchase contract
longer than 30 days. The Company utilizes the NYMEX natural gas futures contract
and swaps as pricing and risk management tools. During 1996, the Company
significantly scaled back its marketing operations and in December 1996, it
closed its Houston, Texas and Buffalo, New York marketing offices.
The Company's natural gas transportation and marketing operations compete
with other pipeline and marketing companies for gas supplies and markets in a
highly competitive business.
For the year ended December 31, 1996, natural gas transportation and
marketing operations accounted for 73% of the Company's consolidated revenue and
2% of segment operating income.
Raw Materials
The Company obtains its raw materials (principally natural gas) from
various sources, which are presently considered adequate. While the Company
regards the various sources as important, it does not consider any one source to
be essential to its business segments or to its business as a whole.
Patents and Licenses
There are no patents, trademarks, licenses, franchises or concessions held
by the Company, the expiration of which would have a material adverse effect on
any of its business segments or its business as a whole.
Seasonality
Demand for natural gas and oil is seasonal, principally related to
weather conditions and access to pipeline transportation.
4
<PAGE> 6
Regulation
General. The Company's business is affected by numerous governmental laws
and regulations, including energy, environmental, conservation, tax and other
laws and regulations relating to the energy industry. For example, state and
federal agencies have issued rules and regulations that require permits for the
drilling of wells, regulate the spacing and drilling of wells, prevent the waste
of oil and gas reserves through proration, and regulate oilfield and pipeline
environmental and safety matters. Changes in any of these laws and regulations
could have a material adverse effect on the Company's business. In view of the
many uncertainties with respect to current and future laws and regulations,
including their applicability to the Company, the Company cannot predict the
overall effect of such laws and regulations on its future operations.
The Company believes that its operations comply in all material respect
with all applicable laws and regulations and that the existence and enforcement
of such laws and regulations have no more restrictive effect on the Company's
method of operations than on other similar companies in the energy industry.
The following discussion contains summaries of certain laws and regulations
and is qualified in its entirety by the foregoing.
Regulation of the Sale and Transportation of Oil and Gas. Various aspects
of the Company's oil and gas operations are regulated by agencies of the federal
government. FERC regulates the transportation of natural gas in interstate
commerce pursuant to the Natural Gas Act of 1938 (the "NGA") and the Natural Gas
Policy Act of 1978 (the "NGPA"). In the past, the federal government had
regulated the prices at which the Company's produced oil and gas could be sold.
Currently, "first sales" of natural gas by producers and marketers, and all
sales of crude oil, condensate and natural gas liquids, can be made at
uncontrolled market prices, but Congress could reenact price controls at any
time.
Within the past decade, the FERC has issued numerous orders and policy
statements designed to create a more competitive environment in the national
natural gas marketplace, including orders promoting "open-access" transportation
on natural gas pipelines subject to the FERC's NGA and NGPA jurisdiction. The
FERC's "Order 636" was issued in April 1992 and was designed to restructure the
interstate natural gas transportation and marketing system and to promote
competition within all phases of the natural gas industry. Among other things,
Order 636 required interstate pipelines to separate the transportation of gas
from the sale of gas, to change the manner in which pipeline rates were designed
and to implement other changes intended to promote the growth of market centers.
Subsequent FERC initiatives have attempted to standardize interstate pipeline
business practices and to allow pipelines to implement market-based, negotiated
and incentive rates. The restructured services implemented by Order 636 and
successor orders have now been in effect for a number of winter heating seasons
and have significantly affected the manner in which natural gas (both domestic
and foreign) is transported and sold to consumers.
Although Order 636 has generally been upheld in judicial appeals to date,
petitions for court review are still pending and it is not possible to predict
the ultimate outcome of such appeals or the effect, if any, of future
restructuring orders or policies on the Company's operations. In addition, FERC
has recently announced that it will convene in the near future a public
conference to consider whether FERC's current approach to regulation of the
natural gas industry should be changed and whether further refinements or
changes to existing policies should be made in view of developments in the
natural gas industry since Order 636 was originally issued. Although FERC has
indicted that it remains committed to Order 636's "fundamental goal" of
"improving the competitive structure of the natural gas industry in order to
maximize the benefits of wellhead decontrol," the future regulatory goals and
priorities of FERC may be altered as a result of such conference and related
inquires. FERC's policies may also be impacted by the ongoing restructuring of
the electric power industry pursuant to FERC Order No. 888.
While Order 636 and related orders do not directly regulate either the
production or sale of gas that may be produced from the Company's properties,
the increased competition and changes in business practices within the natural
gas industry resulting from such orders have affected the terms and conditions
under which the Company markets and transports its available gas supplies. To
date, the FERC's pro-competition policies have not materially affected the
Company's business or operations. On a prospective basis, however, such orders
may substantially increase the burden on producers and transporters to
accurately nominate and deliver on a daily basis specified volumes of natural
gas, or to bear penalties or increased costs in the event scheduled deliveries
are not made.
5
<PAGE> 7
The FERC has also recently issued numerous orders confirming the sale and
abandonment of natural gas gathering facilities previously owned by interstate
pipelines and acknowledging that if the FERC does not have jurisdiction over
services provided thereon, then such facilities and services may be subject to
regulation by state authorities in accordance with state law. A number of states
have either enacted new laws or are considering inadequacy of existing laws
affecting gathering rates and/or services. Thus, natural gas gathering may
receive greater regulatory scrutiny by state agencies in the future. The
Company's gathering operations could be adversely affected should they be
subject in the future to increased state regulation of rates or services,
although the Company does not believe that it would be affected by such
regulation any differently than other natural gas producers or gatherers. In
addition, FERC's approval of transfers of previously-regulated gathering systems
to independent or pipeline-affiliated gathering companies that are not subject
to FERC regulation may affect competition for gathering or natural gas marketing
services in areas served by those systems and thus may affect both the costs and
the nature of gathering services that will be available to interested producers
or shippers in the future. The effects, if any, of FERC's gathering policies on
the Company's operations are uncertain.
The Company's natural gas transportation and gathering operations are
generally subject to safety and operational regulations relating to the design,
installation, testing, constructing, operation, replacement and management of
facilities and to state regulation of the rates of such service. To a more
limited degree, a portion of the Company's transportation services may be
subject to FERC oversight in accordance with the provisions of the NGPA.
Pipeline safety issues have recently become the subject of increasing focus in
various political and administrative arenas at both the state and federal
levels. The Company believes its operations, to the extent they may be
subject to current natural gas pipeline safety requirements, comply in all
material respects with such requirements. The Company cannot predict what
effect, if any, the adoption of additional pipeline safety legislation might
have on its operations, but the natural gas industry could be required to incur
additional capital expenditures and increased costs depending upon future
legislative and regulatory changes.
Sales of crude oil, condensate and natural gas liquids by the Company are
not regulated and are made at market prices. The price the Company receives from
the sale of these products is affected by the cost of transporting the products
to market. Effective as of January 1, 1995, the FERC implemented regulations
establishing an indexing system for transportation rates of oil pipelines, which
would generally index such rates to inflation, subject to certain conditions and
limitations. These regulations are subject to pending petitions for judicial
review. The Company is not able to predict with certainty what effect, if any,
these regulations will have on it, but other factors being equal, the
regulations may tend to increase transportation costs or reduce wellhead prices
under certain coditions.
The Company also operates federal oil and gas leases, which are subject to
the regulation of the United States Minerals Management Service ("MMS"). MMS
recently issued a notice of proposed rulemaking in which it proposed to amend
its regulations governing the calculation of royalties and the valuation of
natural gas produced from federal leases. The principle feature in the
amendments, as proposed, would establish an alternative market-index based
method to calculate royalties on certain natural gas production sold to
affiliates or pursuant to non-arm's-length sales contracts. The MMS proposed
this rulemaking to facilitate royalty valuation in light of changes in the gas
marketing environment. The Company cannot predict at this stage what action the
MMS will take on these matters, nor can it predict at this stage of the
rulemaking proceeding how the Company might be affected by amendments to the
regulations.
Additional MMS proposals and proceedings that might affect the oil and gas
industry are pending before Congress, the FERC and the courts. The Company
cannot predict when or whether any such proposals may become effective. In the
past, the natural gas industry historically has been very heavily regulated.
There is no assurance that the current regulatory approach pursued by the FERC
will continue indefinitely into the future. Notwithstanding the foregoing, it is
not anticipated that compliance with existing federal, state and local laws,
rules and regulations will have a material or significantly adverse effect upon
the capital expenditures, earnings or competitive position of the Company.
Taxation. The operations of the Company, as is the case in the energy
industry generally, are significantly affected by federal tax laws, including
the Tax Reform Act of 1986. In addition, federal as well as state tax laws have
many provisions applicable to corporations in general which could affect the
potential tax liability of the Company.
6
<PAGE> 8
Operating Hazards and Environmental Matters. The oil and gas business
involves a variety of operating risks, including the risk of fire, explosions,
blow-outs, pipe failure, casing collapse, abnormally pressured formations and
environmental hazards such as oil spills, natural gas leaks, ruptures and
discharge of toxic gases, the occurrence of any of which could result in
substantial losses to the Company due to injury or loss of life, severe damage
to or destruction of property, natural resources and equipment, pollution or
other environmental damage, clean-up responsibilities, regulatory investigation
and penalties and suspension of operations. Such hazards may hinder or delay
drilling, development and on-line production operations.
Extensive federal, state and local laws and regulations govern oil and gas
operations regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment. These laws and
regulations may require the acquisition of a permit before drilling commences,
restrict or prohibit the types, quantities and concentration of substances that
can be released into the environment or wastes that can be disposed of in
connection with drilling and production activities, prohibit drilling activities
on certain lands lying within wetlands or other protected areas and impose
substantial liabilities for pollution or releases of hazardous substances
resulting from drilling and production operations. Moreover, state and federal
environmental laws and regulations may become more stringent.
The Company owns, leases, or operates properties that have been used for
the exploration and production of oil and gas, and owns and operates a natural
gas pipeline and natural gas gathering systems. Hydrocarbons, mercury,
polychlorinated biphenyls ("PCBs") or other wastes may have been disposed of or
released on or under the properties owned, leased, or operated by the Company or
on or under other locations where such wastes have been or are taken for
disposal, although the Company has no knowledge of any such occurences . The
Company's properties and any wastes that may have been disposed thereon may be
subject to federal or state environmental laws that could require the Company to
remove the wastes or remediate any contamination identified on the Company's
properties.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without regard
to fault or the original conduct, on certain classes of persons who are
considered to be responsible for the release of a "hazardous substance" into the
environment. These persons include the owner or operator of the disposal site or
sites where the release occurred and companies that disposed or arranged for the
disposal of the hazardous substances. Under CERCLA, such persons may be subject
to joint and several liability for the costs of cleaning up the hazardous
substances that have been released into the environment, for damages to natural
resources and for the costs of certain health studies, and it is not uncommon
for neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by the release of hazardous
substances.
Legislation has been proposed in Congress from time to time that would
reclassify certain oil and gas exploration and production wastes as "hazardous
wastes," which would make the reclassified wastes subject to much more stringent
handling, disposal and cleanup requirements. If such legislation were to be
enacted, it could have a significant impact on the operating costs of the
Company, as well as the oil and gas industry in general. Also under
consideration at the federal level are laws and regulations that would require
owners and operators of oil and gas facilities to meet an environmental
"financial responsibility requirement" (with current proposals ranging from $35
million to $150 million) that could have a significant adverse impact on small
oil and gas companies like KCS.
A catastrophic discharge of hydrocarbons into the environment could, to
the extent such event is not insured, subject the Company to substantial
expense.
In addition, the disposal of wastes containing naturally occurring
radioactive material which are commonly generated during oil and gas production
are regulated under state law. Typically, wastes containing naturally occurring
radioactive material can be managed on-site or disposed of at facilities
licensed to receive such waste at costs that are not expected to be material.
Employees
The Company and its subsidiaries employed a total of 209 persons on
December 31, 1996. Of these, 157 performed duties for the oil and gas
exploration and production operation; 39 for the natural gas transportation and
marketing operations; and 13 at the parent company.
7
<PAGE> 9
Item 2. Properties.
WORKING INTEREST OIL AND GAS PROPERTIES
The following table sets forth data as of December 31, 1996 regarding
the number of gross producing wells and the estimated quantities of proved oil
and gas reserves attributable to the Company's principal properties in which it
owns working interests.
<TABLE>
<CAPTION>
ESTIMATED PROVED RESERVES
-------------------------
GROSS
PRODUCTIVE OIL NATURAL GAS TOTAL
WELLS (Mbbls) (MMcf) (MMcfe) % OF TOTAL
----- ------- ------ ------- ----------
<S> <C> <C> <C> <C> <C>
Property/Area
- -------------
Onshore Gulf Coast: 50 -- 23,020 23,020 7%
Bob West Field 12 194 16,289 17,451 6
Langham Creek Area 2 71 1,329 1,756 1
Laurel Ridge Field 10 70 2,863 3,282 1
Glasscock Ranch Field 7 228 2,512 3,878 1
Tensas Parish Area
Others 200 422 10,032 12,566 4
- ------------------------------------------------------------------------------
Subtotal 281 985 56,045 61,953 20
Rocky Mountain:
Big Horn Basin
Manderson Field 32 3,574 13,027 34,469 11
Others 325 1,303 4,136 11,956 4
San Juan Basin 49 -- 9,944 9,945 3
Wind River Basin 22 91 4,402 4,949 1
Sweet Grass Arch 209 475 130 2,982 1
Green River Basin 24 36 3,626 3,840 1
Others 2 15 10 96 --
- ------------------------------------------------------------------------------
Subtotal 663 5,494 35,275 68,237 21
Michigan Niagaran Reef Trend 30 232 3,179 4,570 1
Medallion Acquisition
Sawyer Canyon Field 342 65 51,344 51,734 16
ArkLaTex Area 193 872 26,655 31,884 10
Anadarko Basin 372 472 21,957 24,786 8
Rocky Mountain 913 2,135 13,097 25,910 8
Gulf Coast and South Texas 86 865 12,932 18,122 5
Offshore Gulf of Mexico 53 393 9,403 11,761 4
California 38 1,758 1,577 12,125 4
Others 67 1,296 3,355 11,136 3
- ------------------------------------------------------------------------------
Subtotal 2,064 7,856 140,320 187,458 58
- ------------------------------------------------------------------------------
Total 3,038 14,567 234,819 322,218 100%
==============================================================================
</TABLE>
8
<PAGE> 10
Set forth below are descriptions of certain of the Company's significant
oil and gas producing properties and those targeted for significant drilling
activity in 1997.
ONSHORE GULF COAST PROPERTIES
Bob West Field. The Company has interests in approximately 863 gross (599
net) acres in this field located in Zapata and Starr Counties, Texas. The field
produces natural gas from a series of 20 different Upper Wilcox sands with
formation depths ranging from 9,500 to 13,500 feet that require stimulation by
hydraulic fracturing to effectively recover the reserves. Because the majority
of this field is situated under Lake Falcon on the Rio Grande River, most wells
were drilled directionally under the lake from common lakeshore drill sites. The
Company owns interests in two principal areas in the Bob West Field. Prior to
the termination of the Tennessee Gas Contract effective January 1, 1997,
substantially all of this natural gas production was covered by the contract.
See Note 9 to the Consolidated Financial Statements on page 38 of this Form
10-K.
With the termination of the Tennessee Gas Contract, the Company has the
equivalent of a 12.5% working interest in all production from the Guerra "A" and
Guerra "B" units. As of December 31, 1996, these units contained 33 producing
wells.
The Company also owns a 100% working interest in and operates 17 wells in
the Falcon/Bob West Field. Substantially all of this acreage was covered by the
Tennessee Gas Contract.
Langham Creek Area. This area is comprised of the Cypress, Cypress Deep and
Langham Creek Fields in western Harris County, Texas, where the Company has
non-operated interests in 7,763 gross (3,511 net) acres. Multiple horizons in
this area produce oil and gas from Eocene age sandstones in the Yegua formation
from 6,000 to 7,500 feet and in the Wilcox formation from 9,000 to 13,000 feet.
The Company owns working interests varying from 22% to 65% in 12 wells in
this area, representing an average net revenue interest of approximately 33%.
The geological and geophysical evidence indicates the potential for as many as
six to nine additional drilling locations, with the upper Wilcox sands as the
primary target.
Laurel Ridge Field. The Company is the operator of this field located in
Iberville Parish, Louisiana and has a 26% net revenue interest in 3,773 gross
(1,320 net) acres around two discovery wells. The #1 Claiborne Plantation was
completed in August 1995 in the Cibicides hazzardi (Frio) sand and the second
discovery, the #2 Claiborne Plantation, was completed in December 1995 in the
shallower Miogyp (Frio) formation. Based on the results of the first two
discovery wells and 2-D seismic surveys, the Company drilled two additional
step-out wells in July and October 1996 which were temporarily abandoned. The
Company has deferred future development until the completion of a 3-D seismic
survey.
Glasscock Ranch Field. This field is located in Colorado County, Texas. The
Company and its partners leased approximately 2,800 acres and in 1994 drilled
and completed the #5 Glasscock well as a natural gas well in the upper portion
of the lower Wilcox sand section, a new reservoir for the field. The Company has
recently increased its working interest to approximately 85% and plans to
implement a development drilling program for 1997.
Tensas Parish Area. The Company currently has leases or options covering
32,300 acres in this area and in mid-1996 initiated an exploration and
development drilling program in its St. Jo (now referred to as the Aubrey and
Wilsonia Fields), Barfield and Chicago Mills prospects. The Company currently
owns a 100% working interest in these three prospects. Of the eight wells
drilled in 1996 in the Aubrey and Wilsonia Fields, seven were completed and one
was a dry hole. Six of the completed wells targeted the lower Tuscaloosa at a
depth of approximately 8,300 feet and one well targeted the Wilcox at a depth of
3,200 feet. The Company plans to drill as many as four additional wells in these
fields during 1997.
The Company has 2,300 acres under lease in its Barfield prospect and has
completed a six square mile 3-D seismic survey on the prospect. Three recent
exploration wells were dry, but provided the Company with additional data on the
geology and geophysics of the prospect. A 12,500 foot well to test the James
Lime / Pettet Limestone reef is in the planning stage.
9
<PAGE> 11
The Company has taken options on or leased approximately 27,000 acres
in its Chicago Mills Prospect. A 26-square mile 3-D seismic survey has been
completed on a portion of the optioned acreage and resulted in the leasing of
9,900 acres. The Company has plans to drill four exploratory wells in 1997 to
test seven different prospects delineated by the seismic data. The remainder of
the optioned acreage is scheduled for evaluation using 3-D seismic covering a
29-square mile area beginning in early 1997.
Rocky Mountain Properties
Big Horn Basin. This basin is located in north central Wyoming encompassing
parts of Washakie, Big Horn, Hot Springs and Park counties. The Company
currently has lease holdings on 101,487 gross (86,264 net) acres. The Company
operates 370 wells and has additional interests in 252 non-operated wells in a
total of 20 fields. The major producing properties in the basin are the
Manderson Field that produces oil and gas at depths from 4,500 to 8,000 feet,
the Golden Eagle Field which produces oil and gas at depths from 3,200 to 10,000
feet, the 14-Mile Field that produces oil and gas at depths from 6,000 to 11,000
feet, the Grass Creek Field that produces oil and gas at depths from 2,400 to
7,000 feet and the Sellers Draw Field that produces natural gas at depths from
15,000 to 20,000 feet.
The Manderson Field is located on a northwest-southeast trending anticlinal
nose in the Big Horn Basin. The Company has expanded its holdings in the field
from approximately 7,500 acres obtained in the Rocky Mountain Acquisition to
more than 22,000 acres and owns a 100% working interest. The field has multiple
reservoirs that are producing or potentially productive: the Phosphoria
Dolomite, the Lakota sands, the Dakota sands, the Muddy sands, the Octh Louie
sands, and the Frontier sands.
The Manderson Field was discovered in 1951 and 16 wells targeting the
Phosphoria Dolomite were drilled primarily using 640-acre spacing from 1951 to
1954. Another well drilled in 1990 tested gas in the Phosphoria but was
recompleted to the Muddy sands as a natural gas producer due to the high
percentage of hydrogen sulphide present in the Phosphoria formation.
During 1996, the Company drilled 23 wells in the field, targeting the
Phosphoria Dolomite at a depth of approximately 7,500 feet. As of year-end 1996,
16 of the wells have been completed at an average cost of approximately
$550,000, and have tested at rates ranging from 200 to 1,900 barrels of oil per
day and from 450 to 4,000 Mcf of sour gas per day. The remaining seven wells are
awaiting completion.
Daily production from the field has been constrained due to limitations
imposed by the State of Wyoming and the federal government on the amount of sour
gas, which contains toxic hydrogen sulfide, that can be flared. In late December
1996, KCS began start-up operations of a gas reinjection system designed as an
interim measure to reinject sour gas and allow for increased oil production.
Severe winter weather, delays in obtaining permits, and down hole pressure
constraints in the initial injection well have limited the system's full
implementation. To alleviate the pressure constraints, permits for a second
injection well have been applied for. In addition, a pipeline is currently being
constructed to a treatment facility owned by a third-party, which could process
up to an additional 2,500 Mcf per day of KCS' sour gas.
The Company's own treatment plant should be completed in April 1997 and
should allow the treated gas to be marketed, with the acid gas being reinjected
into a disposal well. Combined, the KCS treatment plant, the gas reinjection
system and the available capacity of the third-party treatment facility should
provide sufficient gas-handling capacities for at least 20,000 Mcf of gas per
day, which would allow for growth in production of up to 10,000 barrels of oil
per day. However, there can be no assurance that this level of production will
be achieved. A second module for the Company's treatment plant is planned for
service in late 1997.
In 1997, the Company plans to drill 27 wells targeting the Phosphoria.
Based on current plans using 160-acre spacing per well, as many as 150 wells
will be required to fully exploit the Phosphoria in the current acreage
holdings. Preliminary tests indicate that 80-acre spacing may be required to
efficiently drain the reservoir, indicating that substantial additional drilling
opportunities may exist. KCS currently has two rigs drilling to the Phosphoria
and one rig drilling to test the other formations. Ten wells targeting the other
sands are planned for 1997. Drilling results to date, coupled with the
acquisition of additional seismic data, indicate that the field has very
significant potential.
10
<PAGE> 12
Sweet Grass Arch. The Company has an interest in 79,539 gross (57,904 net)
acres in this major producing area located in Toole County, Montana. The Company
currently operates 202 wells and has interests in six non-operated wells in the
area. The most important oil producing property in the area is the Homestake
Field, where the Company currently operates 67 wells. The Homestake Field
produces from the Sunburst sand at depths ranging from 1,400 to 1,700 feet.
Discovered in 1922, the field was actively developed during the 1936-1941 period
and again in the mid-1960s. During that latter period, a waterflood project was
initiated with little success due primarily to lack of wellbore integrity.
During the late 1980s, two new wells were drilled in an attempt to revive the
field again with little success because of poor completion techniques. The
Company has begun an active development program designed to improve wellbore
integrity, utilize state-of-the-art completion techniques and redesign the
secondary recovery project. The Company initiated the program in September 1996
and during 1996 drilled 16 wells. Of these, eight wells have been completed,
tied into facilities and tested at a combined rate of 500 barrels of oil per
day. The recent drilling activity is believed to have substantially increased
the productive area of the field. The Company plans to drill an additional 15
wells in the Homestake Field in 1997. In addition to the existing production,
the Company owns five natural gas gathering systems consisting of approximately
200 miles of pipeline that currently gathers approximately 1,700 Mcf per day of
third-party natural gas.
Medallion Acquisition Properties
Sawyer Canyon Field. Medallion's holdings in the Sawyer Canyon Field,
located in Sutton County, Texas, were purchased in April 1996 from Enron Oil &
Gas Company. Medallion owns interests in 342 gross (306 net) wells, of which it
operates 329 gross (306 net) wells. Medallion's average working interest in this
field is 89%, and its leasehold position consists of approximately 34,887 gross
(34,053 net) acres.
The main producing formation in the Sawyer Canyon Field in the Canyon
sandstone at a depth of approximately 5,500 feet. Natural gas in the Canyon
formation is stratigraphically trapped in the lenticular sandstone reservoirs. A
typical Sawyer Canyon Field well encounters multiple productive reservoirs
within the 800 to 1,400 foot thickness of the Canyon formation. These Canyon
reservoirs tend to be discontinuous and generally exhibit lower porosity and
permeability, characteristics which reduce the area that can be effectively
drained by a single well to units as small as 40 acres.
ArkLaTex Area. Medallion's reserve holdings in the ArkLaTex Area are
located primarily in Bossier, Claiborne, Lincoln, and Union Parishes in north
Louisiana. Medallion owns an interest in 193 gross (64 net) wells of which 43
gross (37 net) wells are operated by the Company. Medallion's average working
interest in its ArkLaTex Area operated wells is approximately 86%. Production in
the ArkLaTex Area is primarily from the Hosston, Cotton Valley and Haynesville
formations of Cretaceous and Jurassic age at depths of 5,500 to 10,000 feet.
These formations are lower permeability sandstones which were developed on
640-acre spacing and require advanced fracture stimulations to drain the
reserves in place adequately.
Medallion's largest concentration of reserves in the ArkLaTex Area is in
the Elm Grove Field, Bossier Parish, Louisiana. Production from the Elm Grove
Field is primarily natural gas from the Hosston and Cotton Valley formations at
depths of 7,000 to 9,600 feet. Medallion owns an interest in 39 gross (25 net)
wells, of which 28 gross (25 net) wells are operated by Medallion. Medallion's
operated leasehold position consists of approximately 5,760 gross (5,649 net)
acres. Since Medallion acquired its first interest in the Elm Grove Field in
1994, it has drilled 11 productive development wells, recompleted several of the
existing wells to access behind pipe reserves and discovered a deeper productive
zone not previously produced in the field.
Anadarko Basin Area. Medallion's Anadarko Basin properties are located in
northwest Oklahoma and the Texas panhandle. Medallion owns an interest in 372
gross (102 net) wells, of which it operates 154 gross (83 net) wells.
The majority of the Medallion's properties in this area are located on the
Northern Shelf and predominately produce natural gas from various formations of
Pennsylvanian and Pre-Pennsylvanian age at depths of 7,000 to 12,000 feet.
Medallion's Mills Ranch Field, operated by Chevron, is in the deeper part of the
basin with production from depths of 10,000 to 20,000 feet. Pre-Pennsylvanian
reservoirs include the Mississippi, Chester and Hunton formations and are
typically fractured carbonates. Pennsylvanian reservoirs include the Redfork,
Atoka and Morrow sandstones.
11
<PAGE> 13
VOLUMETRIC PRODUCTION PAYMENT AND UNDERLYING PRINCIPAL PROPERTIES
The following table shows, as of December 31, 1996 the oil and gas
deliveries to the Company that are scheduled to be made pursuant to its VPP
program over the period 1997 through 2007.
<TABLE>
<CAPTION>
CUMULATIVE
NATURAL GAS OIL TOTAL TOTAL
PERIOD (MMcf) (Mbbls) (MMcfe) (MMcfe)
- ------ ------ ------- ------- -------
<S> <C> <C> <C> <C>
1997......................... 12,757 325 14,707 14,707
1998......................... 6,796 242 8,248 22,955
1999......................... 2,353 146 3,229 26,184
2000......................... 1,425 108 2,073 28,257
2001......................... 1,175 75 1,625 29,882
2002 - 2007.................. 2,639 179 3,713 33,595
</TABLE>
The properties underlying the volumetric production payment program are
primarily located in two major regions, the Gulf Coast and the Niagaran Reef
trend in northern and southern Michigan.
Gulf Coast Properties
The Company's Gulf Coast properties are located in 16 blocks offshore
Louisiana and Alabama and one onshore Texas well. The leases offshore Louisiana,
in the federal waters, deliver the predominant oil and gas volumes under the
Company's VPP program. As of December 31, 1996, proved reserves attributable to
all Gulf Coast properties from which KCS will receive its VPP volumes were
40,587 MMcf and 240 Mbbls. Pursuant to its agreements, the Company received
11,061 MMcf in 1996 and is scheduled to receive 10,168 MMcf and 77 Mbbls in
1997 and 4,574 MMcf and 47 Mbbls in 1998.
Niagaran Reef Trend Properties in Michigan
The Company's northern and southern Niagaran Reef trend properties, located
in Michigan, were acquired in December 1995. The VPP program reserves are
expected to be produced largely from an existing group of 89 wells located in 49
fields. Additional reserves available to support the production payment may be
derived from a series of recompletions scheduled during 1997 and from
certain reserves to be developed by the operator in an area of mutual interest
covering the Niagaran Reef trend pursuant to an exploration program with a third
party. The Niagaran Reef reservoirs are typically found at depths between 4,000
and 6,500 feet. An independent petroleum engineer estimated at December 31, 1996
that 12,725 MMcf and 868 Mbbls were attributed to the operator's interest in
these properties to support the production payment, with approximately 80% of
the reserves attributable to 17 wells. Of the remaining 11,060 MMcf and 803
Mbbls to be delivered under the volumetric production payment, the Company was
scheduled to receive 2,476 MMcf and 205 Mbbls in 1997, with the balance to be
delivered between 1998 and 2006.
12
<PAGE> 14
OIL AND GAS RESERVES
All information in this Form 10-K relating to estimates of the Company's
proved reserves not associated with the volumetric production payment program is
based on reports prepared by independent petroleum engineers (principally Ryder
Scott Company, R.A. Lenser and Associates, Inc. and H. J. Gruy and Associates,
Inc.) each in accordance with the rules and regulations of the Securities and
Exchange Commission. These independent reserve engineers' estimates were based
upon a review of production histories and other geologic, economic, ownership
and engineering data provided by the Company or third party operators.
The following table sets forth, as of December 31, 1996, summary
information with respect to (i) the estimates made by the independent reserve
engineers of the Company's proved oil and gas reserves attributable to working
interests and (ii) the reserve amounts contracted for pursuant to the agreements
relating to volumetric production payments. The present value of future net
revenues in the table should not be construed to be the current market value of
the estimated oil and gas reserves owned by the Company.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
PROVED RESERVES:
Oil (Mbbls) ................................................... 14,631
Natural gas (MMcf) ............................................ 268,025
Total (MMcfe) ....................................... 355,813
Future net revenues ($000s) ................................... $849,265
Present value of future net revenues ($000s) .................. $557,612
PROVED DEVELOPED RESERVES:
Oil (Mbbls) ................................................... 12,133
Natural gas (MMcf) ............................................ 236,454
Total (MMcfe) ....................................... 309,252
Future net revenues ($000s) ................................... $750,990
Present value of future net revenues ($000s) .................. $494,240
</TABLE>
There are numerous uncertainties inherent in estimating quantities of
proved oil and gas reserves and in projecting future rates of production and
future amounts and timing of development expenditures, including underground
accumulations of crude oil and natural gas that cannot be measured in an exact
manner, and the accuracy of any reserve estimate is a function of the quality of
available data and of engineering and geological interpretation and judgment.
Estimates of proved undeveloped reserves are inherently less certain than
estimates of proved developed reserves. The quantities of oil and gas that are
ultimately recovered, production and operating costs, the amount and timing of
future development expenditures, geologic success and future oil and gas sales
prices may all differ from those assumed in these estimates. In addition, the
Company's reserves may be subject to downward or upward revision based upon
production history, purchases or sales of properties, results of future
development, prevailing oil and gas prices and other factors. Therefore, the
present value shown above should not be construed as the current market value of
the estimated oil and gas reserves attributable to the Company's properties.
In accordance with SEC guidelines, the estimates of future net revenues
from the Company's proved reserves and the present value thereof are made using
oil and gas sales prices in effect as of the dates of such estimates and are
held constant throughout the life of the properties except where such guidelines
permit alternate treatment, including, in the case of natural gas contracts, the
use of fixed and determinable contractual price escalations. Other than gas sold
under contractual arrangements including swaps, futures contracts and options,
gas prices were $3.54 per Mcf and oil prices were $22.45 per bbl at December 31,
1996. The prices for natural gas and, to a lesser extent, oil, are subject to
substantial seasonal fluctuations, and prices for each are subject to
substantial fluctuations as a result of numerous other factors. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
13
<PAGE> 15
ACREAGE
The following table sets forth certain information with respect to the
Company's developed and undeveloped leased acreage as of December 31, 1996. The
leases in which the Company has an interest are for varying primary terms, and
many require the payment of delay rentals to continue the primary term. The
leases may be surrendered by the operator at any time by notice to the lessors,
by the cessation of production, fulfillment of commitments, or by failure to
make timely payments of delay rentals. Excluded from the table are the Company's
interests in the properties subject to volumetric production payments.
<TABLE>
<CAPTION>
DEVELOPED ACRES UNDEVELOPED ACRES
--------------------- ---------------------
GROSS NET GROSS NET
------- ------- ------- -------
<S> <C> <C> <C> <C>
Texas .................. 129,167 70,109 38,303 19,544
Wyoming ................ 90,867 76,979 77,899 72,184
Montana ................ 78,773 48,614 26,267 19,602
Oklahoma ............... 48,537 25,508 12,111 8,022
Louisiana .............. 107,546 22,310 44,444 38,090
Colorado ............... 27,255 10,448 1,459 1,140
Michigan ............... -- -- 5,237 903
North Dakota ........... 7,626 5,563 27,807 23,518
Utah ................... 44,309 1,903 -- --
Other .................. 10,967 5,850 2,514 2,285
------- ------- ------- -------
Total ........ 545,047 267,284 236,041 185,288
======= ======= ======= =======
</TABLE>
14
<PAGE> 16
DRILLING ACTIVITIES
All of the Company's drilling activities are conducted through arrangements
with independent contractors. Certain information with regard to the Company's
drilling activities during the years ended December 31, 1994, 1995 and 1996, is
set forth below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994
TYPE OF WELL GROSS NET GROSS NET GROSS NET
- ------------ ----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Development:
Oil 43 40.9 1 0.4 -- --
Natural gas 22 10.9 19 7.4 25 12.8
Non-productive 8 5.8 -- -- -- --
---- ---- ---- ---- ---- ----
Total 73 57.6 20 7.8 25 12.8
==== ==== ==== ==== ==== ====
Exploratory:
Oil 1 1.0 1 0.4 2 1.4
Natural gas 5 3.0 12 4.3 11 2.6
Non-productive 15 10.5 8 5.3 15 4.1
---- ---- ---- ---- ---- ----
Total 21 14.5 21 10.0 28 8.1
==== ==== ==== ==== ==== ====
</TABLE>
At December 31, 1996, the Company was participating in the drilling or
completion of 15 gross (8.5 net) wells.
PRODUCTION AND SALES
The following table presents certain information with respect to oil and
gas production attributable to the Company's properties, average sales prices
and average production costs during the three years ended December 31, 1996,
1995 and 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net natural gas produced (MMcf):
Tennessee Gas contract 4,645 6,924 6,851
Other 20,936 12,205 4,453
---------- ---------- ----------
Total 25,581 19,129 11,304
Average natural gas sales price ($ per Mcf):
Tennessee Gas contract $ 8.40 $ 7.90 $ 7.49
Other $ 2.35 $ 1.62 $ 1.81
Average $ 3.61 $ 4.29 $ 5.54
Net oil produced (Mbbls) 758 196 211
Average oil sales price ($ per bbl) $ 20.69 $ 17.28 $ 15.16
Gas equivalents produced (MMcfe) 30,129 20,305 12,570
Average lifting costs ($ per Mcfe) $ 0.39 $ 0.33 $ 0.56
</TABLE>
Other Facilities
Principal offices of the Company and its operating subsidiaries are leased
in modern office buildings in Edison, New Jersey (10,000 square feet), Houston,
Texas (25,000 square feet) and Tulsa, Oklahoma (17,000 square feet). In
Worland, Wyoming, the Rocky Mountain operations are based in a 10,000 square
foot Company-owned facility and in Conroe, Texas, the intrastate transmission
system operations are based in an 1,800 square foot Company-owned facility.
15
<PAGE> 17
The Company believes that all of its property, plant and equipment are well
maintained, in good operating condition and suitable for the purposes for which
they are used.
Forward-Looking Statements and Risk Factors
Current and prospective stockholders should carefully consider the
following risk factors in evaluating an investment in the Company. The
information discussed herein includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). All statements other than statements of historical
facts included herein regarding planned capital expenditures, increases in oil
and gas production, the number of anticipated wells to be drilled after the date
hereof, the Company's financial position, business strategy and other plans and
objectives for future operations, are forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, they do involve certain assumptions, risks and
uncertainties, and the Company can give no assurance that such expectations will
prove to have been correct. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including the timing and success of the Company's drilling
activities, the volatility of prices and supply and demand for oil and gas, the
numerous uncertainties inherent in estimating quantities of oil and gas reserves
and actual future production rates and associated costs, the usual hazards
associated with the oil and gas industry (including blowouts, cratering, pipe
failure, spills, explosions and other unforeseen hazards), and increases in
regulatory requirements, some of which risks (as well as others) are described
more fully elsewhere in this report.
All subsequent written and oral forward-looking statements attributable to
the Company or persons acting on its behalf are expressly qualified in their
entirely by such factors.
Item 3. Legal Proceedings.
Information with respect to this Item is contained in Note 9 to the
Consolidated Financial Statements on pages 38 through 40 of this Form 10-K.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise during the three months ended December 31,
1996.
16
<PAGE> 18
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
The Company's Common Stock is traded on the New York Stock Exchange. Listed
below are the high and low closing sales prices for the periods indicated:
<TABLE>
<CAPTION>
1996
---------------------------------------------------------------------
Jan. - Mar. Apr. - June July - Sept. Oct. - Dec.
<S> <C> <C> <C> <C>
Market Price
High $15.75 $28.75 $35.63 $44.13
Low 13.38 15.63 26.75 28.88
- --------------------------------------------------------------------------------------------
<CAPTION>
1995
---------------------------------------------------------------------
Jan. - Mar. Apr. - June July - Sept. Oct. - Dec.
<S> <C> <C> <C> <C>
Market Price
High $17.25 $22.25 $21.88 $16.75
Low 14.63 15.25 13.75 9.88
- --------------------------------------------------------------------------------------------
</TABLE>
There were 1,175 stockholders of record of the Company's Common Stock on
March 1, 1997.
The Company pays dividends on a quarterly basis. The aggregate amount of
dividends declared were $1,388,000 and $1,377,000 in 1996 and 1995,
respectively.
Item 6. Selected Financial Data.
The following table sets forth the Company's selected Financial Data for
each of the five years ended December 31, 1996.
<TABLE>
<CAPTION>
Dollars in thousands (except per
share data) 1996 1995 1994 1993 1992
- ---------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue $398,009 $449,965 $341,713 $304,289 $154,279
Net income 19,872 21,306 24,157 18,611 4,010
Total assets 569,558 360,609 214,423 165,990 88,220
Long-term debt 310,347 165,529 61,970 36,289 21,637
Stockholders' equity 125,622 101,576 80,668 59,765 30,233
Per common share:
Net income 1.67 1.81 2.05 1.60 0.36
Stockholders' equity 10.84 8.84 7.04 5.19 2.80
Dividends 0.12 0.12 0.09 0.06 0.03
</TABLE>
17
<PAGE> 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
GENERAL
In the past year, several important developments have had and will continue
to have a significant impact on the Company's financial condition and results of
operations. On December 23, 1996, the Company and Tennessee Gas Pipeline Company
("Tennessee Gas") entered into a settlement covering all claims and litigation
between them related to the above-market, take-or-pay contract ("Tennessee Gas
Contract"). As part of the settlement, the Tennessee Gas Contract was terminated
effective January 1, 1997, approximately two years prior to its expiration date,
and the parties also agreed to the dismissal of the contract dispute that
resulted in a November 1996 jury award to Tennessee Gas unfavorable to the
Company. See Note 9 to Consolidated Financial Statements.
The December 1996 settlement did not affect the Company's successful
conclusion of litigation earlier in the year relating to the validity and
pricing provisions of the Tennessee Gas Contract and its recovery in September,
1996, of approximately $70 million in past underpayments that had accrued under
the contract.
As of December 31, 1996, the Company completed the arrangements for the
Medallion Acquisition (see Note 2 to Consolidated Financial Statements) for a
total purchase price of approximately $199.1 million, consisting of $194.1
million in cash and warrants to purchase 435,000 shares of Common Stock at an
exercise price of $45 per share with a four-year term. The Company also made two
significant acquisitions late in 1995 which impacted 1996 results. In November
1995, the Company acquired substantially all of the oil and gas assets of
Natural Gas Processing Company and in December 1995, the Company acquired 24.6
Bcfe of proved reserves in the northern and southern Niagaran Reef trend in
Michigan.
These developments have transformed the Company from an enterprise heavily
dependent on the Bob West Field and the Tennessee Gas Contract to a more
diversified enterprise with three core operating areas - the Gulf Coast region,
the Rocky Mountain region and the Mid-Continent region - and its VPP program.
Production from the Bob West Field, which once accounted for 55% of total
production, is expected to account for less than 5% of production in 1997.
RESULTS OF OPERATIONS -- CONSOLIDATED
For the year ended December 31, 1996, net income was $19.9 million ($1.67
per share) compared to $21.3 million ($1.81 per share) in 1995. Significantly
higher oil and gas production, along with higher oil and gas prices in 1996 for
non-Tennessee Gas Contract sales were offset by lower production from properties
covered by the Tennessee Gas Contract, higher interest costs and a higher
effective income tax rate.
For the year ended December 31, 1995, net income was $21.3 million ($1.81
per share) compared to $24.2 million ($2.05 per share) in 1994. Lower natural
gas prices and higher net interest costs incurred to fund the growth of the
Company's oil and gas exploration and production operations more than offset the
benefit of significantly increased gas production.
RESULTS OF OPERATIONS -- BUSINESS SEGMENTS
Segment information reflects all volumes, revenue and expenses, including
those associated with transactions involving affiliates which are eliminated in
consolidation. Market prices for natural gas are influenced by supply and demand
factors for gas in the U.S., Mexico and Canada, as well as prices of competing
fuels. Average oil prices are reflective of the world oil market during the
periods. Market prices for oil and gas, which are volatile in nature, have a
significant impact on the Company's revenue, net income and cash flow.
18
<PAGE> 20
Oil and Gas Exploration and Production
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1995 1994
---------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenue $108,015 $ 86,629 $ 66,215
Production (lifting) costs 11,693 6,623 7,063
Depreciation, depletion and amortization 45,065 37,988 18,538
Other operating expenses 4,401 2,373 2,671
- --------------------------------------------------------------------------------
Operating income $ 46,856 $ 39,645 $ 37,943
================================================================================
Oil production (Mbbl) 758 196 211
Natural gas production (MMcf):
Tennessee Gas contract 4,645 6,924 6,851
Non-contract 20,936 12,205 4,453
- --------------------------------------------------------------------------------
Total natural gas production 25,581 19,129 11,304
================================================================================
Average sales price:
Oil (per bbl) $ 20.69 $ 17.28 $ 15.16
Natural gas (per Mcf) 3.61 4.29 5.54
Average lifting cost (per MMcfe) $ .39 $ .33 $ .56
DD&A as a percent of revenues 41.7% 43.9% 28.0%
</TABLE>
Oil and gas production increased 48% to 30,129 MMcfe in 1996 compared to
1995. Non-Tennessee Gas Contract production accounted for 85% of total
production during 1996, up from 66% during 1995. Approximately 6,703 MMcfe of
the increase in production was attributable to the Company's VPP program, with
the remainder resulting from increased exploration and development drilling.
Sales to Tennessee Gas decreased to 4,645 MMcf in 1996 compared to 6,924 MMcf
during 1995, largely due to the normal production decline from existing wells.
Average natural gas prices were $3.61 per Mcf in 1996, compared to $4.29 per Mcf
in 1995. This decrease reflects the lower percent of production covered by the
Tennessee Gas Contract. Average non-Tennessee Gas Contract gas prices were $2.35
in 1996, compared to $1.62 in 1995. Natural gas sale prices under the Tennessee
Gas Contract, excluding severance tax reimbursements, were $8.40 in 1996,
compared to $7.90 in 1995.
The early termination of the Tennessee Gas Contract, with its above-market
pricing provisions, resulted in downward revisions in the amounts of $37.1
million for estimated future net revenues before income taxes (based upon a
natural gas price of $3.69 per Mcf, the assumed realized spot market price on
December 31, 1996) and $34.7 million for PV-10.
With the termination of the Tennessee Gas Contract, the Company's future
earnings will be more heavily impacted by changing energy prices. Not only is
the Company's oil and gas revenue more sensitive to price changes, but
significant declines in oil and gas prices, like those experienced in early
1997, if not offset by increases in proved oil and gas reserves, could result in
a substantial increase in non-cash depreciation, depletion and amortization
("DD&A") accruals and could negatively impact earnings. The Company provides for
DD&A using the future gross revenue method based on recoverable reserves valued
at current prices. See Note 1 to Consolidated Financial Statements - "Property,
Plant and Equipment" for a description of how the Company provides for DD&A and
the related limitation on capitalized oil and gas property costs. The Company
utilizes commodity price swaps, futures and options contracts and basis swaps
(See Note 8 to Consolidated
19
<PAGE> 21
Financial Statements) to help mitigate the impact of fluctuations in the price
of its natural gas and oil production.
The 69% increase in natural gas production in 1995 compared to 1994 was due
mainly to newly added properties not covered by the Tennessee Gas Contract.
Non-Tennessee Gas Contract oil and gas production accounted for 66% of total
production in 1995, compared to 45% in 1994. Approximately 7,400 MMcf of the
increase in production was attributable to the Company's volumetric production
payment program, with the remainder attributable to increased exploration and
development drilling. Tennessee Gas Contract production increased slightly in
1995 compared to 1994, largely as a result of continued development of the Bob
West Field, which was able to more than offset the normal production decline
from existing wells. Average natural gas prices were $4.29 per Mcf in 1995,
compared to $5.54 per Mcf in 1994. This decrease reflects the lower Tennessee
Gas Contract production and lower average spot market prices. Average
non-Tennessee Gas Contract gas prices were $1.62 in 1995, compared to $1.81 in
1994. Natural gas sale prices under the Tennessee Gas Contract, excluding
severance tax reimbursements, were $7.90 in 1995, compared to $7.49 in 1994.
Natural Gas Transportation and Marketing
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
----------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenue $ 290,696 $ 365,354 $ 279,155
Cost of natural gas sales 280,139 357,523 267,959
- --------------------------------------------------------------------------------
Gross margin 10,557 7,831 11,196
Depreciation 1,456 1,157 1,178
Other operating expenses 8,144 8,023 7,129
- --------------------------------------------------------------------------------
Operating income $ 957 $ (1,349) $ 2,889
================================================================================
Transportation volume (Bcf) 25.1 25.9 20.9
Transportation gross margin (per Mcf) $ 0.210 $ 0.172 $ 0.176
================================================================================
Marketing volume (Bcf) 102.5 226.3 153.1
Marketing gross margin (per Mcf) $ 0.052 $ 0.015 $ 0.049
================================================================================
</TABLE>
The Company's marketing operations had an operating loss of $0.5 million in
1996, compared to a loss of $2.9 million in 1995 and operating income of $1.7
million in 1994. The significant decline in marketing volumes and revenue in
1996 reflected a strategic shift away from higher volume, low margin "gas
trading" activities and concentration on servicing the core retail customer
base. Coupled with higher natural gas prices in 1996, this resulted in an
increase in gross margin per Mcf. In December 1996, the Company further scaled
back its marketing operations by closing its Houston, Texas and Buffalo, New
York marketing offices. In 1995, lower natural gas prices and the absence of
severe weather conditions during the peak 1994/1995 winter heating season were
the primary reasons for the $2.9 million loss.
The natural gas transportation operation had operating income of $1.5
million in 1996, compared to $1.6 million in 1995 and $1.2 million in 1994. In
1996, higher gross margins per Mcf were offset by lower volume and higher
operating expenses as compared to 1995. In 1995, the increase in volume was
partially offset by lower gross margin per Mcf and higher operating expenses
as compared to 1994.
In February 1997, the Company entered into an agreement to sell its Texas
intrastate pipeline system together with related marketing assets and a joint
venture gathering system for $28 million in cash (see Note 13 to Consolidated
Financial Statements).With the Company's strategic focus on its oil and gas
operations and the recent developments in its transportation and marketing
operations, it is not expected that the natural gas transportation and marketing
operations will make a significant contribution to the Company's consolidated
results in 1997 and beyond.
20
<PAGE> 22
Interest and Other Income, Net
Interest and other income was $5.1 million in 1996, compared to $3.7
million in 1995 and $1.0 million in 1994. Of these amounts, $4.4 million, $3.1
million and $0.2 million, respectively, was interest income accrued on the
Tennessee Gas receivable. These amounts were included in the September 30, 1996
cash payment received from Tennessee Gas. The Tennessee Gas Contract was
terminated effective January 1, 1997. See Note 9 to Consolidated Financial
Statements.
Interest Expense
Interest expense was $18.0 million in 1996, compared to $7.7 million in
1995 and $2.9 million in 1994. The increase in 1996 was due to higher average
borrowings, along with higher average interest rates, principally resulting from
the sale of $150 million of 11% Senior Notes in January 1996. Higher average
borrowings in 1996, compared to 1995, as well as in 1995 compared to 1994, were
used to expand the Company's oil and gas exploration and production operations.
The increases in interest expense during the periods were partially offset by
the increase in interest income as discussed above.
Income Taxes
The income tax provision was $11.6 million in 1996, representing an
effective tax rate of 36.9%, compared to 33.2% and 34.2% in 1995 and 1994,
respectively. See Note 7 to Consolidated Financial Statements for the
reconciliation of the statutory federal income tax rate to the Company's
effective tax rates. A substantial portion of the income taxes reflected on the
Company's income statements during these periods is deferred to future years.
LIQUIDITY AND CAPITAL RESOURCES
Tennessee Gas Litigation
In August 1996, the Texas Supreme Court denied Tennessee Gas' petition for
a rehearing of the Court's April 1996 decision in favor of the Company regarding
the validity and pricing of the Tennessee Gas Contract, and in September 1996,
Tennessee Gas paid the Company approximately $70 million in past underpayments.
On December 23, 1996, the Company and Tennessee Gas entered into a
settlement covering all claims and litigation between them related to the
Tennessee Gas Contract. As part of the settlement, the Tennessee Gas Contract
was terminated effective January 1, 1997, approximately two years prior to its
expiration date. The parties also agreed to the dismissal of the contract
dispute that resulted in a November 1996 jury award to Tennessee Gas of $143.2
million (including $114 million in punitive damages). This settlement did not
affect the April 1996 decision of the Texas Supreme Court. The result of that
decision and the settlement is that Tennessee Gas paid the full contract price
for gas delivered under the Tennessee Gas Contract until the agreed-upon
contract termination date, January 1, 1997. By resolving this major uncertainty
and avoiding any requirement to post a supersedeas bond of nearly $150 million
in order to appeal the verdict, the Company believes it is better positioned to
continue its strategic plan to grow and diversify its proved oil and gas
reserves. Posting a supersedeas bond of such magnitude would have jeopardized
the Medallion Acquisition and significantly and adversely affected the amount of
capital available for future investment, thereby constraining the growth of the
Company.
Cash Flow From Operating Activities
Net income adjusted for non-cash charges was $75.8 million for the year
ended December 31, 1996, compared to $71.1 million in 1995. Net cash provided by
operating activities was $121.3 million in 1996 compared to $30.1 million in
1995. This increase resulted primarily from the receipt of $70 million from
Tennessee Gas on September 30, 1996 and, to a lesser extent, the timing of cash
receipts and payments.
Investing Activities
Capital expenditures in 1996 were $282.2 million, 96% of which were
invested in oil and gas properties. Of that total, $183.1 was related to the
Medallion Acquisition (see Note 2 to Consolidated Financial Statements), $54.9
was for development drilling, $15.9 million for the purchase of proved reserves
under the Company's VPP program and $18.2 million for lease acquisitions,
seismic surveys and exploratory drilling. The Company utilized approximately
$160.5 million from its bank credit facilities to fund the Medallion Acquisition
while the remainder of the 1996 capital program was funded primarily with
internally generated cash, including the $70.0 million from Tennessee Gas and
$16.6 million of proceeds from the sale of certain non-strategic oil and gas
properties.
Capital expenditures in 1995 were $128.7 million, of which $121.3 million
was invested in oil and gas
21
<PAGE> 23
properties. Of the $121.3 million, $43.8 million was for the purchase of oil and
gas reserves under the Company's VPP program (including the Michigan
Acquisition), $33 million was for the Rocky Mountain Acquisition and $19.4
million was for the development of the Bob West Field. The remainder was largely
for lease acquisitions, seismic evaluations and exploratory drilling ($16.9
million) and development drilling ($7.5 million) on non-Tennessee Gas Contract
properties. The Company funded its capital expenditures through a combination of
additional borrowings under its credit facilities and internally generated cash.
Capital expenditures in 1994 were $75 million, $73.7 million of which was
for oil and gas properties. Of these, $28.9 million was for development
drilling, primarily in the Bob West Field, $12.6 million for exploratory
drilling and $27.8 million for producing property acquisitions, including $19.5
million for the acquisition of oil and gas reserves through volumetric
production payments.
Capital spending for 1997 has initially been budgeted at $160 million. Of
that total, $70 million has been allocated to development drilling, $25 million
for exploration and $65 million for oil and gas property acquisitions, including
reserves acquired under the VPP program. The Company believes that internally
generated cash, sales of certain non-strategic assets and borrowings under its
bank credit facilities will be sufficient to fund its 1997 capital budget. A
portion of the 1997 budget will be funded from the proceeds of the pipeline sale
(see Note 13 to Consolidated Financial Statements).
Debt Financing
On January 25, 1996, the Company completed the sale of $150 million
principal amount of 11% Senior Notes due 2003. The net proceeds of approximately
$145 million (after deducting expenses of the offering which were deferred and
are being amortized over the term of the Senior Notes) were utilized to reduce
the outstanding indebtedness under existing bank credit facilities and to repay
a note sold to a third party. Also during 1996, the Company consolidated its
existing bank credit facilities into one Credit Facility and entered into an
additional Revolving Credit Agreement to fund a portion of the purchase price
for the Medallion Acquisition, as described below.
Credit Facility
At June 30, 1996, the Company maintained three separate bank credit
facilities to support its operations. The Master Note facility was utilized
primarily to support the expansion of the Company's exploration and production
and natural gas transportation business. The Company's natural gas marketing
subsidiary had two credit facilities, the VPP Facility and the Receivable
Facility, which were used primarily to support the acquisition of oil and gas
properties through volumetric production payments.
In July 1996, the Receivable Facility was paid in full and terminated. On
September 25, 1996, the Company consolidated the Master Note facility and the
VPP Facility to create one revolving credit facility (the "Credit Facility"),
which will mature on September 30, 2000. The Credit Facility is secured by the
same collateral that was pledged to secure the Master Note and VPP facilities.
The borrowing base under the Credit Facility is a function of the lenders'
determination of the value of the Company's oil and gas reserves, and is limited
to $75 million under the terms of the Indenture governing the Senior Notes. The
Credit Facility bears interest at a spread over the prime rate or LIBOR,
determined each quarter based on the Company's consolidated debt-to-EBITDA
ratio. As of December 31, 1996, immediately following the Medallion Acquisition,
$55.6 million was outstanding under the Credit Facility.
Revolving Credit Agreement for Medallion Acquisition
Simultaneous with the consummation of the Medallion Acquisition, the
Company entered into a new Revolving Credit Agreement with a group of banks. The
Revolving Credit Agreement has a $105 million initial borrowing base and matures
on September 30, 2000.
The Company's obligations under the Revolving Credit Agreement are secured
by substantially all of the oil and gas assets of Medallion and a pledge of
Medallion's common stock. The Revolving Credit Agreement permits the Company to
borrow at interest rates based upon the banks' prime rate or LIBOR. The
applicable spread over the prime rate or LIBOR is determined each quarter based
on the Company's consolidated debt-to-EBITDA ratio. Simultaneously with the
Medallion Acquisition, the Company borrowed $105 million under the Revolving
Credit Agreement to fund a portion of the purchase price of the Medallion
Acquisition.
22
<PAGE> 24
Equity Financing
In January 1997, the Company completed a public offering of 3,000,000
shares of its common stock. The net proceeds to the Company of approximately
$110.7 million were used to reduce outstanding indebtedness under the Credit
Facility and the Revolving Credit Agreement.
Impact of Recently Issued Accounting Standards
The Financial Accounting Standards Board issued Statements of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and No. 123,
"Accounting for Stock-Based Compensation." SFAS Nos. 121 and 123 are effective
for financial statements for fiscal years beginning after December 15, 1995.
SFAS No. 121 was adopted as of January 1, 1996 and had no impact on the
financial position or results of operations of the Company. As permitted under
SFAS 123, the Company will continue to account for such compensation under the
provisions of APB opinion No. 25.
23
<PAGE> 25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To KCS Energy, Inc.:
We have audited the accompanying consolidated balance sheets of KCS Energy,
Inc. (a Delaware Corporation) and subsidiaries as of December 31, 1996 and 1995,
and the related statements of consolidated income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of KCS Energy, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Our audits were made for the purposes of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the accompanying
index is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
February 26, 1997
24
<PAGE> 26
KCS ENERGY, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $398,009 $449,965 $341,713
Operating costs and expenses
Cost of gas sales 279,859 356,186 265,076
Other operating and administrative expenses 27,239 18,669 18,285
Depreciation, depletion and amortization 46,611 39,209 19,740
- ----------------------------------------------------------------------------------------------
Operating costs and expenses 353,709 414,064 303,101
- ----------------------------------------------------------------------------------------------
Operating income 44,300 35,901 38,612
Interest and other income, net 5,146 3,713 1,039
Interest expense (17,963) (7,732) (2,938)
- ----------------------------------------------------------------------------------------------
Income before income taxes 31,483 31,882 36,713
Federal and state income taxes 11,611 10,576 12,556
- ----------------------------------------------------------------------------------------------
Net income $ 19,872 $ 21,306 $ 24,157
==============================================================================================
Earnings per share of common stock and common
stock equivalents $ 1.67 $ 1.81 $ 2.05
==============================================================================================
Average shares of common stock and common stock
equivalents outstanding 11,905,436 11,760,701 11,804,989
==============================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE> 27
<TABLE>
<CAPTION>
KCS ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31,
----------------------
1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 5,100 $ 5,846
Trade accounts receivable, less allowance for doubtful
accounts --1996, $2,084; 1995, $415 91,939 58,052
Receivable from Tennessee Gas -- 56,437
Fuel inventories 1,020 782
Assets held for sale 17,833 --
Other current assets 10,196 3,374
- ---------------------------------------------------------------------------------------------------
Current assets 126,088 124,491
- ---------------------------------------------------------------------------------------------------
Property, plant and equipment
Oil and gas properties, full cost method, less accumulated DD&A --
1996, $131,521; 1995, $86,936 415,870 204,958
Natural gas transportation systems, at cost less accumulated
depreciation -- 1996, $1,544; 1995, $4,285 9,592 22,345
Other property, plant and equipment, at cost less accumulated
depreciation - 1996, $2,005; 1995, $1,472 5,034 2,013
- ---------------------------------------------------------------------------------------------------
Property, plant and equipment, net 430,496 229,316
- ---------------------------------------------------------------------------------------------------
Investments and other assets 12,974 6,802
- ---------------------------------------------------------------------------------------------------
$ 569,558 $ 360,609
===================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 82,870 $ 59,475
Accrued liabilities 13,691 4,926
- ---------------------------------------------------------------------------------------------------
Current liabilities 96,561 64,401
- ---------------------------------------------------------------------------------------------------
Deferred credits and other liabilities
Deferred federal and state income taxes 34,097 26,172
Other 2,931 2,931
- ---------------------------------------------------------------------------------------------------
Deferred credits and other liabilities 37,028 29,103
- ---------------------------------------------------------------------------------------------------
Long-term debt 310,347 165,529
- ---------------------------------------------------------------------------------------------------
Commitments and contingencies
- ---------------------------------------------------------------------------------------------------
Preferred stock, authorized 5,000,000 shares -- unissued -- --
- ---------------------------------------------------------------------------------------------------
Stockholders' equity
Common stock, par value $0.01 per share, authorized 50,000,000
shares, issued 12,488,170 and 12,379,885, respectively 125 124
Additional paid-in capital 30,587 24,910
Retained earnings 98,298 79,814
Less treasury stock, 900,748 and 892,748 shares, respectively -- at cost (3,388) (3,272)
- ---------------------------------------------------------------------------------------------------
Total stockholders' equity 125,622 101,576
- ---------------------------------------------------------------------------------------------------
$ 569,558 $ 360,609
===================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE> 28
<TABLE>
<CAPTION>
KCS ENERGY, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Additional
Common Paid- in Retained Treasury Stockholders'
Stock Capital Earnings Stock Equity
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $123 $23,286 $36,761 $(1,326) $58,844
Stock issuances - option and benefit plans - 380 - - 380
Tax benefit on stock option exercises - 229 - - 229
Net income - - 24,157 - 24,157
Dividends ($0.09 per share) - - (1,033) - (1,033)
Purchase of treasury stock - - - (1,909) (1,909)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 123 23,895 59,885 (3,235) 80,668
Stock issuances - option and benefit plans 1 188 - - 189
Tax benefit on stock option exercises - 201 - - 201
Stock warrants issued - 626 - - 626
Net income - - 21,306 - 21,306
Dividends ($0.12 per share) - - (1,377) - (1,377)
Purchase of treasury stock - - - (37) (37)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 124 24,910 79,814 (3,272) 101,576
Stock issuances - option and benefit plans 1 682 - - 683
Tax benefit on stock option exercises - 665 - - 665
Stock warrants issued - 4,998 - - 4,998
Repurchase of stock warrants - (668) - - (668)
Net income - - 19,872 - 19,872
Dividends ($0.12 per share) - - (1,388) - (1,388)
Purchase of treasury stock - - - (116) (116)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $125 $30,587 $98,298 $(3,388) $125,622
=================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE> 29
<TABLE>
<CAPTION>
KCS ENERGY, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(DOLLARS IN THOUSANDS)
For the Years Ended December 31,
-------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $19,872 $21,306 $24,157
Non-cash charges (credits):
Depreciation, depletion and amortization 46,611 39,209 19,740
Deferred income taxes 7,925 9,756 10,896
Other non-cash charges and credits, net 1,440 820 (65)
- ----------------------------------------------------------------------------------------------------------
75,848 71,091 54,728
Net changes in assets and liabilities:
Trade accounts receivable (33,887) (11,672) 19,107
Receivable from Tennessee Gas 56,437 (42,868) (13,569)
Fuel inventories (238) 1,727 (1,126)
Other current assets (6,822) 490 (1,299)
Accounts payable and accrued liabilities 34,732 14,163 (10,724)
Federal and state income taxes (2,572) 178 (119)
Other, net (2,150) (2,999) 3,118
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 121,348 30,110 50,116
Cash flows from investing activities:
Investment in oil and gas properties (1) (267,133) (121,265) (73,682)
Proceeds from the sale of oil and gas properties 16,634 4,069 -
Investment in natural gas transportation systems (6,059) (5,969) (700)
Investment in other property, plant and equipment (4,026) (1,465) (571)
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (260,584) (124,630) (74,953)
Cash flows from financing activities:
Proceeds from long-term debt 325,636 141,298 49,431
Repayments of long-term debt (180,900) (38,774) (26,247)
Issuance of common stock 683 189 380
Issuance of stock warrants - 626 -
Repurchase of stock warrants (668) - -
Tax benefit on stock option exercises 665 201 229
Purchase of treasury stock (116) (37) (1,909)
Dividends paid (1,388) (1,377) (919)
Deferred financing costs and other, net (5,422) (2,748) (509)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 138,490 99,378 20,456
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (746) 4,858 (4,381)
Cash and cash equivalents at beginning of year 5,846 988 5,369
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $5,100 $5,846 $988
==========================================================================================================
</TABLE>
(1) Does not include $4,998 (non-cash) related to stock warrants issued in
connection with the 1996 Medallion Acquisition.
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 30
KCS ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
KCS Energy, Inc. is principally engaged in the acquisition, exploration,
development and production of natural gas and crude oil. The Company also
operates natural gas transportation and energy marketing and services
businesses.
Recapitalization (Quasi-reorganization)
At September 30, 1988, prior to the start of the Company's first full year
of operations as a separate legal entity with independent management, an amount
equal to the cumulative retained earnings deficit of the KCS subsidiaries
($25,109,000) was eliminated against additional paid-in capital in connection
with a quasi-reorganization.
Basis of Presentation
The consolidated financial statements include the accounts of KCS Energy,
Inc. and its wholly owned subsidiaries ("KCS" or "Company"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain previously reported amounts have been reclassified to conform to current
year presentations.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Futures Contracts
The Company utilizes oil and natural gas futures contracts for the purpose
of hedging the risks associated with fluctuating crude oil and natural gas
prices and accounts for such contracts in accordance with FASB Statement No. 80,
"Accounting for Futures Contracts." These contracts permit settlement by
delivery of commodities and, therefore, are not financial instruments, as
defined by FASB Statement Nos. 107 and 119. Changes in the market value of these
transactions are deferred until the gain or loss on the underlying item is
recognized. See Note 8 for further discussion of the Company's price risk
management activities.
Imbalances
The Company follows the entitlements method of accounting for production
imbalances, where revenues are recognized based on its interest in oil and gas
production from a well. Imbalances arise when a purchaser takes delivery of more
or less from a well than the Company's actual interest in the production from
that well. The difference between cash received and revenue recorded is a
receivable or payable. Such imbalances are reduced either by subsequent
balancing of over and under deliveries or by cash settlement, as required by
applicable contracts.
Property, Plant and Equipment
The Company follows the full cost method of accounting, under which all
productive and nonproductive costs associated with its exploration, development
and production activities are capitalized in a country-wide cost center. Such
costs include lease acquisitions, geological and geophysical services, drilling,
completion, equipment and certain general and administrative costs directly
associated with acquisition, exploration and development activities. General and
administrative costs related to production and general overhead are expensed as
incurred.
The Company provides for depreciation, depletion and amortization of
evaluated costs using the future
29
<PAGE> 31
gross revenue method based on recoverable reserves valued at current prices.
Under accounting procedures prescribed by the Securities and Exchange Commission
("SEC"), capitalized oil and gas property costs are limited to the present value
of future net income from estimated production of proved oil and gas reserves
discounted at 10%, plus the value of unproved properties. To the extent that the
capitalized costs exceed the estimated present value of future net revenues at
the end of any fiscal quarter, such excess costs are written down with a
corresponding charge to income.
Significant declines in oil and gas prices, like those experienced in early
1997, if not offset by increases in proved oil and gas reserves, could cause the
Company's capitalized oil and gas property costs to exceed the limitation on
such costs, as described above.
Unevaluated properties and associated costs not currently being amortized
and included in oil and gas properties were $10.6 million and $7.3 million at
December 31, 1996 and 1995. Such costs relate to projects which were at such
dates undergoing exploration or development activities or in which the Company
intends to commence such activities in the future. The Company will begin to
amortize these costs when proved reserves are established or impairment is
determined.
Depreciation of other property, plant and equipment is provided on a
straight-line basis over the useful lives of the assets, except for certain
natural gas gathering pipelines which are depreciated based on the estimated
lives of the gas wells served. Repairs of all property, plant and equipment and
replacements and renewals of minor items of property are charged to expense as
incurred.
Income Taxes
The Company accounts for income taxes in accordance with FASB Statement No.
109, "Accounting for Income Taxes." Deferred income taxes reflect the future tax
consequences of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year end.
For income tax purposes, the Company deducts the difference between market
value and exercise price arising from the exercise of stock options. The tax
effect of this deduction which, for financial reporting purposes, is accounted
for as an increase to additional paid-in capital, amounted to $665,000, $201,000
and $229,000 in 1996, 1995 and 1994, respectively.
Earnings Per Share
Earnings per share have been computed by dividing net earnings by the
weighted average number of common shares outstanding during the periods,
adjusted for the dilutive effects of stock options and warrants.
Impact of Recently Issued Accounting Standards
The Financial Accounting Standard Board issued Statements of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" and No. 123, "Accounting for
Stock-Based Compensation." SFAS Nos. 121 and 123 are effective for financial
statements for fiscal years beginning after December 15, 1995. SFAS 121 was
adopted as of January 1, 1996 and had no impact on the financial position or
results of operations of the Company. As permitted under SFAS 123, the Company
will continue to account for such compensation under the provisions of APB
Opinion No. 25.
30
<PAGE> 32
2. RECENT ACQUISITIONS
Medallion Acquisition. As of December 31, 1996, the Company completed the
arrangements for the acquisition of all of the outstanding stock of InterCoast
Oil and Gas Company (formerly Medallion Production Company), GED Energy
Services, Inc. and InterCoast Gas Services Company (collectively referred to as
the Medallion entities), indirect wholly-owned subsidiaries of MidAmerican
Energy Holdings Company ("MidAmerican"), for a purchase price of approximately
$199.1 million, consisting of a cash payment of $194.1 million and warrants to
purchase 435,000 shares of Common Stock at an exercise price of $45 per share
and a four-year term (the "Medallion Acquisition").
Medallion's principal assets are proved oil and gas reserves of 187.5 Bcfe
as of December 31, 1996, consisting of 140.3 Bcf of natural gas and 7.9 MMbbls
of oil and liquids. The Company also acquired a natural gas gathering system as
well as oil and gas equipment and supplies. The Medallion Acquisition more than
doubled the Company's reserve and production base.
Rocky Mountain Acquisition. On November 8, 1995, the Company acquired
substantially all of the oil and gas assets of Natural Gas Processing Company
(the "Rocky Mountain Acquisition") for $33 million, subject to adjustments for a
July 1, 1995 effective date. Proved reserves attributable to the properties
acquired were estimated to be 66.7 Bcfe at September 30, 1995, consisting of
40.9 Bcf of natural gas and 4.3 MMbbls of oil. The Company also acquired a
significant inventory of oil and gas equipment and supplies, vehicles and
buildings as well as natural gas gathering systems consisting of approximately
200 miles of pipeline.
Michigan Acquisition. On December 7, 1995, the Company acquired 24.6 Bcfe
of proved reserves in the northern and southern Niagaran Reef trend in Michigan
for $31 million, including a volumetric production payment covering certain
reserves, escalating working interests in related properties and participation
rights and an overriding royalty interest in an exploration program
(collectively, the "Michigan Acquisition"). The volumetric production payment
provides for the delivery to the Company of 13.7 Bcf of natural gas and 1.1
MMbbls of oil to be delivered (without any burden of development and lease
operating expenses) from December 1995 through January 2006. Based on
independent reserve reports as of September 30, 1995, the separately acquired
working interests added 3.1 Bcf of natural gas and 219 Mbbls of oil to the
Company's proved reserves.
These acquisitions were accounted for using the purchase method. The
results of operations for the acquired entities are included in the Company's
consolidated results of operations from the dates of acquisition.
The following are the unaudited pro forma revenue, net income and earnings
per share of the Company giving effect to the Medallion, Rocky Mountain and
Michigan acquisitions and the January 1997 common stock offering for the years
ended December 31, 1996 and 1995, as if such transactions had occurred at the
beginning of such years. The unaudited pro forma financial data do not purport
to be indicative of the financial position or results of operations that would
actually have occurred if the transactions had occurred as presented or that may
be obtained in the future.
<TABLE>
<CAPTION>
Pro Forma
Years Ended
December 31,
---------------------
dollars in thousands
(except per share data)
1996 1995
---------------------
<S> <C> <C>
Revenue $630,016 $611,341
- ---------------------------------------------------------------------
Net income $35,120 $26,652
- ---------------------------------------------------------------------
Earnings per common share $2.36 $1.81
- ---------------------------------------------------------------------
</TABLE>
3. RETIREMENT BENEFIT PLANS
The Company had a trusteed, non-contributory Retirement Plan ("Plan"). The
Plan was amended to freeze the accrual of future benefits as of October 31,
1991. Prior to October, 1991, the Plan covered substantially all full-time
employees of KCS and its participating subsidiaries. The Company's funding
policy for the Plan was to make
31
<PAGE> 33
annual contributions that met the minimum funding requirements of the Employee
Retirement Income Security Act of 1974.
The Board of Directors took action to terminate the Plan effective
September 30, 1995. The Company filed all required standard termination
applications with both the Internal Revenue Service and the Pension Benefit
Guaranty Corporation. In July, 1996, the Company completed the termination of
the Plan and satisfied all obligations thereunder, recording a pre-tax expense
of $262,000.
The Company sponsors a Savings and Investment Plan ("Savings Plan") under
Section 401(k) of the Internal Revenue Code. Eligible employees may contribute
up to 16% of their base salary to the Savings Plan subject to certain IRS
limitations. The Company may make matching contributions, which have been set by
the Board of Directors at 50% of the employee's contribution (up to 6% of annual
base compensation) since the inception of the Savings Plan in June 1988. The
Savings Plan also contains a profit-sharing component whereby the Board of
Directors may declare annual discretionary profit-sharing contributions.
Profit-sharing contributions are allocated to each eligible employee based upon
their pro-rata share of total eligible compensation. Employee and profit-sharing
contributions are invested at the direction of the employee in one or more funds
or can be directed to purchase common stock of the Company at fair market value.
Company matching contributions are invested in shares of KCS common stock.
Eligible employees vest in both the Company matching and discretionary
profit-sharing contributions over a four-year period based upon their years of
service with the Company. Company contributions to the Savings Plan were
$102,455 in 1996, $253,666 in 1995 and $293,622 in 1994.
4. STOCK OPTION AND INCENTIVE PLANS
In October 1995, the Financial Accounting Standards Board issued SFAS 123,
Accounting for Stock-Based Compensation ("SFAS 123"). As permitted under SFAS
123, the Company has elected to continue to account for such compensation under
the provisions of APB Opinion No. 25. The Company has complied with the required
disclosures under SFAS 123. Had compensation cost for the following plans been
determined consistent with SFAS 123, the impact on the Company's net income and
earnings per share would not be material.
Under the 1988 Stock Plan and the 1992 Stock Plan (the "Employee Incentive
Plans"), stock options, stock appreciation rights and restricted stock may be
granted to employees of KCS. The 1992 Stock Plan also provides that bonus stock
may be granted to employees.
The 1994 Directors' Stock Plan provides that each non-employee director be
granted stock options for 1,000 shares annually. This plan also provides that in
lieu of cash, each non-employee director be issued KCS stock with a fair market
value equal to 50% of their annual retainer.
Each plan provides that the option price of shares issued be equal to the
market price on the date of grant. All options expire 10 years after the date of
grant. At December 31, 1996, options for 389,906 shares were exercisable.
Transactions during the last three years involving stock options under the
above plans are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding, December 31, 1993 479,700 $ 1.33 - $22.88
1994 - - Granted 106,000 $14.50 - $26.88
- - Exercised (32,200) $ 1.33 - $ 6.25
1995 - - Granted 105,000 $13.00 - $16.31
- - Exercised (22,600) $ 1.33 - $ 1.98
- - Forfeited (3,100) $22.88 - $26.88
1996 - - Granted 6,000 $22.88
- - Exercised (91,500) $1.50 - $22.88
- - Forfeited (17,725) $13.00 - $22.88
- --------------------------------------------------------------------------------
Options outstanding, December 31, 1996 529,575 $ 1.83 - $26.88
================================================================================
</TABLE>
32
<PAGE> 34
Restricted shares awarded under the Employee Incentive Plans have a fixed
restriction period during which ownership of the shares cannot be transferred
and the shares are subject to forfeiture if employment terminates. Restricted
stock has the same dividend and voting rights as other common stock and is
considered to be currently issued and outstanding. The cost of the awards,
determined as the fair market value of the shares at the date of grant, is
expensed ratably over the period the restrictions lapse. This cost was
immaterial during the three years ended December 31, 1996. Restricted stock
totaling 4,000 shares was outstanding under the Employee Incentive Plans at
December 31, 1996.
Bonus stock awards under the 1992 Stock Plan convert to shares of
restricted stock if certain three-year performance goals are met. The restricted
stock then vests over a two-year period. The cost of the awards is expensed
ratably based on the current market price of the Company's common stock and the
extent to which the performance goals are being met. This cost was immaterial
during the three years ended December 31, 1996. Bonus stock grants totaling
8,800 shares were outstanding at December 31, 1996.
At December 31, 1996, 106,331 shares were available for future grants
(including bonus stock awards) under the Employee Incentive Plans.
Under the 1988 KCS Energy, Inc. Employee Stock Purchase Program (the
"Program"), all eligible employees and directors may purchase full shares from
the Company at a price per share equal to 90% of the market value determined by
the closing price on the date of purchase. The minimum purchase is 25 shares.
The maximum annual purchase is the number of shares costing no more than 10% of
the eligible employee's annual base salary, and for directors, 3,000 shares. The
number of shares issued in connection with the Program was 7,663, 6,897 and
7,438 during 1996, 1995 and 1994, respectively. At December 31, 1996, there were
436,032 shares available for issuance under the Program.
A summary of the status of the Employee Incentive Plans and the 1994
Directors' Stock Plan at December 31, 1996 and 1995 and changes during the years
then ended is presented in the table and narrative below:
<TABLE>
<CAPTION>
1996 1995
Shares Wtd. Avg. Shares Wtd. Avg.
Ex. Price Ex. Price
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beg of year 632,800 $ 9.89 553,500 $ 9.00
Grant 6,000 22.88 105,000 13.15
Exercised (91,500) 3.62 (22,600) 1.61
Forfeited (17,725) 15.69 (3,100) 24.17
- -----------------------------------------------------------------------------------
Outstanding at end of year 529,575 10.91 632,800 9.89
===================================================================================
Exercisable at end of year 389,906 $ 9.36 388,800 $ 6.60
===================================================================================
Weighted average fair value
of options granted $ 8.72 $ 4.81
===================================================================================
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
Number Wtd Average Weighted Number Weighted
Range of Outstanding at Remaining Average Exercisable at Average
Exercise Prices 12/31/96 Contractual Life Exercise Price 12/31/96 Exercise Price
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1.83 - $ 6.23 180,000 4.01 $ 1.96 180,000 $ 1.96
6.24 - 9.36 52,400 5.92 6.25 52,400 6.25
9.37 - 14.01 92,500 8.91 13.00 23,125 13.00
14.02 - 21.03 97,500 7.92 15.48 51,250 14.66
21.04 - 26.88 107,175 7.04 23.06 83,131 23.11
- ------------------------------------------------------------------------------------------------------------------
$ 1.83 - $26.88 529,575 6.38 $10.91 389,906 $ 9.36
==================================================================================================================
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996, respectively: risk - free
33
<PAGE> 35
interest rates of 5.73% and 6.52%; expected dividend yield of .33%; expected
lives of 5.1 years; expected stock price volatility of 30%.
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Master Note Facility $ -- $ 76,255
Receivables Facility -- 26,900
VPP Facility -- 38,000
Note Financing -- 24,374
Credit Facility 55,600 --
11% Senior Notes Due 2003 149,456 --
Revolving Credit Agreement 105,000 --
Other 291 --
- --------------------------------------------------------------------------------
310,347 165,529
Less current maturities -- --
- --------------------------------------------------------------------------------
Long-term debt $310,347 $165,529
================================================================================
</TABLE>
SENIOR NOTES
On January 25, 1996, KCS Energy, Inc. (the "Parent") completed a Rule 144A
private offering of $150 million 11% senior notes due January 15, 2003 (the
"Senior Notes"). The Senior Notes are noncallable for four years and are
unsecured obligations of the Parent. Prior to January 15, 1999, the Parent may
use proceeds from a public equity offering to redeem up to $35 million of the
Senior Notes. The subsidiaries of the Parent have guaranteed the Senior Notes on
a senior unsecured basis. The net proceeds of approximately $145 million were
used to reduce the amounts outstanding under certain of the agreements discussed
below.
The Senior Notes contain certain restrictive covenants which, among other
things, limit the Company's ability to incur additional indebtedness, require
the repurchase of the Senior Notes upon a change of control and restrict the
aggregate cash dividends paid to 50% of the Company's cumulative net income
during the period beginning October 1, 1995.
On June 6, 1996, the Parent completed an offer to exchange the $150 million
outstanding Senior Notes for registered notes of the same tenor (the "Registered
Notes") pursuant to a registration statement declared effective by the
Securities and Exchange Commission on May 7. The Registered Notes are identical
in all material respects to the form and terms of the Senior Notes except for
certain transfer restrictions and registration rights applicable to the Senior
Notes. The Registered Notes evidenced the same debt, and were issued under and
entitled to the benefits of the same Indenture, as the Senior Notes.
CREDIT FACILITY
On September 25, 1996, the Company assigned the collateral pledged under
both the Master Note Facility and VPP Facility, described below, and effectively
amended these facilities to create one consolidated revolving credit facility
("Credit Facility") which matures on September 30, 2000. The Credit Facility is
used for general corporate purposes, including working capital and to support
the Company's capital expenditure program. The borrowing base, or actual
availability under the Credit Facility, is currently limited to $75 million
under the terms of the Senior Notes. The borrowing base is reviewed at least
semiannually and may be adjusted based on the lenders' valuation of the
borrowers' oil and gas reserves and other factors. Substantially all of the
Company's oil and gas reserves (excluding those pledged under the Revolving
Credit Agreement) have been pledged to secure the Credit Facility.
The Credit Facility permits the Borrowers to choose interest rate options
based on the bank's prime rate or LIBOR and from maturities ranging up to twelve
months. The applicable spread over the prime rate or LIBOR is determined each
quarter based on KCS' consolidated debt-to-EBITDA ratio. A commitment fee of
0.375% is paid on the unused portion of the borrowing base. The weighted average
effective interest rate for 1996 was 8.71%. As
34
<PAGE> 36
of December 31, 1996, the weighted average effective interest rate on the
outstanding borrowings was 8.25%. Immediately following the Medallion
Acquisition, $55.6 million was outstanding under the Credit Facility.
REVOLVING CREDIT AGREEMENT
Simultaneous with the completion of the Medallion Acquisition, the Company
entered into a revolving credit agreement ("Revolving Credit Agreement") with a
group of banks. The Revolving Credit Agreement is used for general corporate
purposes, including working capital and to support the Company's capital
expenditure program. The Revolving Credit Agreement had an initial borrowing
base of $105 million and matures on September 30, 2000. The obligations under
the Revolving Credit Agreement are secured by substantially all of the oil and
gas reserves of the Medallion entities and a pledge of the Medallion entities'
common stock. The borrowing base is reviewed at least semiannually and may be
adjusted based on the lenders' valuation of the borrowers' oil and gas reserves
and other factors.
The Revolving Credit Agreement permits KCS to borrow at interest rates
based on the bank's prime rate or LIBOR and from maturities ranging up to twelve
months. The applicable spread over the prime rate or LIBOR is determined each
quarter based on KCS' consolidated debt-to-EBITDA ratio. A commitment fee of
0.375% is paid on the unused portion of the borrowing base. Immediately
following the Medallion Acquisition, $105 million was outstanding under the
Revolving Credit Agreement at a weighted average effective interest rate of
7.8%.
Following the completion of the common stock offering (see Note 13), the
amount outstanding under the Revolving Credit Agreement was reduced to $0.2
million. The Revolving Credit Agreement also included a $30 million term loan
component which was never utilized and was terminated on February 18, 1997.
TERMINATED FACILITIES
The Master Note Facility was used primarily to support the oil and gas
exploration and production and natural gas transportation businesses. On
September 25, 1996, the primary collateral pledged to secure the Master Note
Facility was assigned to the Credit Facility described above. Simultaneous with
the collateral assignment, the Company's obligations under the Master Note
Facility were fully satisfied. The weighted average effective interest rate was
8.86% in 1996 and 7.98% in 1995.
The VPP Facility was used primarily to support the natural gas marketing
subsidiary's volumetric production payment program. On September 25, 1996, the
collateral pledged to secure the VPP Facility was assigned to the Credit
Facility described above. Simultaneous with the collateral assignment, the
Company's obligations under the VPP Facility were fully satisfied. The weighted
average effective interest rate was 7.94% in 1996 and 8.17% in 1995.
The Receivable Facility was used primarily to support the natural gas
marketing subsidiary's working capital requirements. In July 1996, the Company
paid all outstanding obligations and terminated the Receivable Facility. The
weighted average effective interest rate was 7.69% in 1996 and 7.64% in 1995.
The Note Financing was used primarily to fund the Company's oil and gas
property acquisitions and for general corporate purposes. In January 1996, the
Company paid all outstanding obligations and terminated the Note Financing. The
Company also had issued to the purchaser under the Note Financing a warrant to
purchase 114,683 shares of the Company's common stock. In October 1996, the
Company exercised its option to buy back the warrant at a cost of $668,000.
OTHER INFORMATION
KCS Energy, Inc. is a borrower under the Revolving Credit Agreement and has
guaranteed the obligations of its subsidiaries under the Credit Facility. The
agreements contain certain restrictive covenants which, among other things,
require the Company to maintain minimum levels of working capital, cash flow and
tangible net worth, as defined in the agreements. In addition, the Company is
restricted from incurring secured indebtedness under designated credit
facilities in an amount which is the greater of $75 million or 15% of adjusted
consolidated net tangible assets (as defined in the Senior Notes Indenture).
This restriction does not apply to purchase money indebtedness. The Company's
ability to pay cash dividends is limited by these agreements.
The fair value of the Company's Senior Notes, $162 million, is estimated
based upon the December 31,
35
<PAGE> 37
1996 quoted market price of $108.00 for such issue. The carrying amount of the
remaining long-term debt reasonably approximates fair value because its interest
rates are based on current market rates. Interest payments were $10.9 million in
1996, $6.8 million in 1995 and $2.1 million in 1994.
Scheduled maturities of long-term debt during the next five years are as
follows:
<TABLE>
<CAPTION>
ACTUAL PRO FORMA(1)
- -----------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1997 -- --
1998 -- --
1999 -- --
2000 $160,600 $ 49,900
2001 -- --
</TABLE>
(1) Reflects the issuance of common stock in January 1997 and the repayment of
amounts outstanding under the Credit Facility and the Revolving Credit
Agreement.
6. LEASES
Future minimum lease payments under non-cancelable operating leases are as
follows: $825,000 in 1997, $752,000 in 1998, $578,000 in 1999, $535,000 in 2000
and $484,000 in 2001. Lease payments charged to operating expenses amounted to
$564,000, $466,000 and $598,000 during 1996, 1995 and 1994, respectively.
36
<PAGE> 38
7. INCOME TAXES
Federal and state income tax expense includes the following components:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Currently payable $2,561 $1,216 $1,039
Deferred provision, net 7,346 8,296 10,692
- ----------------------------------------------------------------------------------------------------------------
Federal income tax expense 9,907 9,512 11,731
State income taxes (deferred provision $578 in 1996, $1,460 in
1995 and $204 in 1994) 1,704 1,064 825
- ----------------------------------------------------------------------------------------------------------------
$11,611 $10,576 $12,556
================================================================================================================
Sources of deferred federal and state income taxes:
Intangible drilling costs $16,529 $12,619 $10,278
Revenue recognition deferred 1,348 1,854 2,343
Depreciation, depletion and amortization (4,815) (5,579) (1,883)
Tax credit carry forwards and other, net (5,137) 862 158
- ----------------------------------------------------------------------------------------------------------------
$7,925 $9,756 $10,896
================================================================================================================
Reconciliation of federal income tax expense at statutory rate
to provision for income taxes:
Income before income taxes $31,483 $31,882 $36,713
- -----------------------------------------------------------------------------------------------------------------
Tax provision at 35% statutory rate 11,019 11,159 12,850
State income tax, net of federal income tax benefit 1,108 692 537
Statutory depletion (475) (676) (696)
Section 29 credits - (425) (388)
Other, net (41) (174) 253
- ----------------------------------------------------------------------------------------------------------------
$11,611 $10,576 $12,556
================================================================================================================
</TABLE>
The primary differences giving rise to the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------
ASSETS LIABILITIES
---------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Income tax effects of:
Accelerated DD&A and other property related items $37,340
Deferred revenue 6,183
Alternative minimum tax credit carry forwards $1,923
Net operating loss carry forward 6,500
Other, net 1,003
- ----------------------------------------------------------------------------------------------------------------
$9,426 $43,523
================================================================================================================
</TABLE>
Income tax payments were $5.6 million in 1996 and $1.3 million in 1994. No
income tax payments were made in 1995.
The Company had tax net operating losses ("NOL") of approximately $18.6
million at December 31, 1996. This NOL expires in 2011. The Company believes it
will generate future taxable income to realize the entire deferred tax asset
prior to the expiration of the NOL.
37
<PAGE> 39
8. FINANCIAL INSTRUMENTS
The Company has entered into swaps, futures contracts and options to manage
risks associated with fluctuations in the price of its natural gas and oil
production and marketing activities.
Commodity Price Swaps. Commodity price swap agreements require the Company
to make payments to (or entitle it to receive payments from) the counterparties
based upon the differential between a specified fixed and variable price. The
Company accounts for these transactions on a settlement basis and, accordingly,
gains or losses are included in oil and gas revenue in the period in which the
underlying natural gas is produced. These agreements do not impose cash margin
requirements on the Company. As a result of the Medallion Acquisition at
December 31, 1996, the Company was party to commodity price swap agreements
covering approximately 8.5 million MMBtu, 4.8 million MMBtu and 17.8 million
MMBtu of natural gas for the years 1997 and 1998 and for the period 1999 through
2005, respectively.
Futures and Options Contracts. Natural gas futures contracts require the
Company to buy or sell natural gas at a fixed price. The Company uses futures to
hedge price risk on a portion of its oil and gas production and to manage profit
margins on offsetting fixed-price purchase or sale commitments for physical
quantities of natural gas. Futures contracts mandate initial margin
requirements. The Company maintains such margin accounts and funds in cash any
daily settlement requirements relating to futures contracts. Natural gas options
used to hedge price risk only provide the right, not the requirement, to buy or
sell natural gas at a fixed price. The Company uses options to limit overall
price risk exposure.
At December 31, 1996, the Company's hedging activities consisted of 1,500
long contracts at an average price of $2.25 per Mcf and 635 short contracts at
an average price of $2.53 per Mcf maturing through 1999, covering 21,350 MMcf of
natural gas. At December 31, 1995, the Company's hedging activities consisted of
700 long contracts at an average price of $1.82 per Mcf and 587 short contracts
at an average price of $1.95 per Mcf maturing through 1996 covering 12,870 MMcf
of natural gas. Since these contracts qualify as hedges and correlate to market
price movements of natural gas, any gains or losses resulting from market
changes will be offset by losses or gains on corresponding physical
transactions. Deferred gains, net of deferred losses, were $1.0 million at
December 31, 1996. Deferred losses, net of deferred gains, were $0.1 million at
December 31, 1995.
Basis Swaps. Basis swap agreements require KCS to make payments to (or
entitle it to receive payments from) the counterparties based upon the
differential between the variable costs associated with the delivery of natural
gas production to specific delivery points and a contractually specified fixed
cost. As a result of the Medallion Acquisition at December 31, 1996, the Company
had basis swap arrangements relating to a total of approximately 2.2 million
MMBtu during 1997.
9. LITIGATION
Tennessee Gas Litigation
Prior to January 1, 1997, most of the Company's natural gas sold from the
Bob West Field in south Texas was covered by the Tennessee Gas Contract which
had been the subject of several lawsuits. The first such suit was filed by
Tennessee Gas in the 57th District Court of Bexar County, Texas, in August,
1990, and two subsequent suits were filed in the 49th District Court of Zapata
County, Texas, in November, 1994, and April, 1995.
In the suit in the District Court of Bexar County, Texas ("District Court")
against the Company and its co-sellers, Tennessee Gas claimed among other
things, that the price of natural gas under the Tennessee Gas Contract should be
determined under Section 101 of the NGPA rather than Section 102(b)(2), that
certain leases were no longer subject to the contract, that for purposes of the
contract the acreage subject to the contract could not be pooled with other
properties and that the contract was governed by Section 2.306 of the Texas
Uniform Commercial Code ("Section 2.306"). In July 1992, the District Court
ruled in favor of the Company on all of these issues and awarded damages for
past underpayments and legal fees. The District Court's judgment was partially
affirmed by the Court of Appeals, which held that the price of natural gas under
the contract was to be determined in accordance with Section 102(b)(2), that all
leases were subject to the contract, and that pooling of the property with a pro
rata acreage allocation of production to the contract was in accordance with the
contract. However, the Court of Appeals reversed the District Court's summary
judgment holding that the Tennessee Gas Contract was not an output contract
subject to Section 2.306. Under the Court of Appeals decision, new wells could
be drilled and production
38
<PAGE> 40
increased, but any production increase had to have complied with certain good
faith and reasonableness standards mandated by Section 2.306. The Court of
Appeals also set aside the District Court's awards to the Company of legal fees
and past underpayments pending the outcome of the trial on the Section 2.306
issue.
On August 1, 1995, the Texas Supreme Court affirmed the ruling of the Court
of Appeals, including its decision that Section 2.306 was applicable to the
Tennessee Gas Contract. The Texas Supreme Court remanded to the District Court
for plenary trial the question of whether, as required by Section 2.306, natural
gas volumes taken by Tennessee Gas under the contract were produced and
delivered in good faith and were not unreasonably disproportionate to a normal
or otherwise comparable prior output or the expectation of the parties. On
September 15, 1995 the Company filed a request for a rehearing in the Texas
Supreme Court of the Section 2.306 issue.
On April 18, 1996 the Texas Supreme Court granted the petitioners' request
for a rehearing, withdrew its August 1, 1995 opinion and issued a new opinion.
In its April 18, 1996 opinion, the Texas Supreme Court affirmed the Company's
position on all issues, stating that the price payable by Tennessee Gas
escalates monthly in accordance with Section 102 (b) (2) of the Natural Gas
Policy Act of 1978 ("NGPA"); that KCS has the right to pool the leases; that
Tennessee Gas has no legal or contractual right to question or determine whether
certain leases are no longer committed to the Tennessee Gas Contract; and the
Tennessee Gas Contract is not an output contract governed by Section 2.306 of
the Texas Uniform Commercial Code. On June 3, 1996 Tennessee Gas filed a motion
requesting another rehearing and on August 16, 1996 the Texas Supreme Court
denied Tennessee Gas' motion. On September 30, 1996 the Company recovered
approximately $70 million that Tennessee Gas previously withheld under a series
of interim agreements, which was the balance of the purchase price for
production taken by Tennessee Gas from September 17, 1994 through April 30,
1996, plus interest. The terms of the Tennessee Gas Contract, in accordance with
judicial rulings in the case, governed performance by each of the parties
through the termination of the contract effective January 1, 1997.
On December 23, 1996, the Company and Tennessee Gas entered into a
settlement covering all claims and litigation between them related to the
Tennessee Gas Contract. As part of the settlement, the Tennessee Gas Contract
was terminated effective January 1, 1997, approximately two years prior to its
expiration date. The parties also agreed to the dismissal of the pending Zapata
County, Texas, lawsuits including the contract dispute that resulted in a
November 1996 jury award to Tennessee Gas of $143.2 million (including $114
million in punitive damages). The early termination of the Tennessee Gas
Contract with its above-market pricing provisions resulted in downward revisions
of $37.1 million for estimated future net revenues before income taxes (based
upon a natural gas price of $3.69 per Mcf, the assumed realized spot market
price on December 31, 1996) and $34.7 million for PV-10 as compared to prior
reserve reports prepared as of June 30, 1996.
The December 1996 settlement did not affect the Company's successful
conclusion of litigation earlier in the year relating to the validity and
pricing provisions of the Tennessee Gas Contract and its recovery of $70 million
of past underpayments (including interest and net of severance taxes and other
payables related to the contract) that had accrued under the contract.
Royalty Suits
The Company is a party to six lawsuits in the Texas State Courts involving
various claims asserted by various holders of royalty interests under leases on
the acreage that was dedicated to the Tennessee Gas Contract or pooled
therewith. One suit involves claims by the holder of an overriding royalty
interest in the dedicated acreage. Of the other five (the "Royalty Basis
Suits"), one seeks a declaratory judgment on the royalty payment basis for
non-dedicated acreage in which the Company owns no interest. The other four
suits seek declaratory judgements to determine whether royalties payable to the
holders of landowner royalty interests in the dedicated acreage should be based
on the net proceeds received by the Company for gas sales under the Tennessee
Gas Contract or on the spot market price. The Company paid royalties based upon
the spot market price to the holders of royalty interests (other than the
overriding royalty interest) because the Company's leases, which cover only
dedicated acreage, have market value royalty provisions.
The aggregate amount at issue in the Royalty Basis Suits, apart from
certain tort counterclaims and affirmative defenses alleged by the landowner
royalty holders, is a function of the quantity of natural gas for which
Tennessee Gas paid at the contract price. As of December 31, 1996, the amount of
natural gas taken by Tennessee Gas attributable to the royalty interests
involved in the Royalty Basis Suits was approximately 3.8 Bcf for which
royalties have been paid by the Company at the average price of approximately
$1.63 per Mcf, net of severance tax, compared to the average Tennessee Gas
Contract price of approximately $7.60 per Mcf, net of severance tax.
Consequently, if the Company loses in its litigation with these royalty interest
owners on these claims the Company
39
<PAGE> 41
faces a maximum liability in the Royalty Basis Suits of approximately $22.7
million at December 31, 1996.
On March 4, 1997, the holder of an overriding royalty interest filed a
claim against the Company and its co-lessees alleging breach of duties arising
from the termination of the Tennessee Gas Contract and for certain tortious acts
yet to be discovered. The allegations are for joint and several liability,
damages exceeding $25 million, return of the 1/64th overriding royalty interest
acquired by the Company in 1990 under allegedly fraudulent circumstances and
unspecified punitive damages. The Company intends to vigorously contest these
claims. Discovery in this matter has not yet begun.
Initially, there were three Royalty Basis Suits, one in Dallas County,
Texas, in which the Company is a co-plaintiff and two subsequently filed suits
in Zapata County, Texas, in which the Company is a co-defendant. The Dallas suit
has been subsequently split into four separate lawsuits, based on issues
concerning (1) the dedicated acreage in the Guerra "A" and Guerra "B" Units, (2)
the non-dedicated acreage in those Units, (3) the Jesus Yzaguirre Unit, which
consists entirely of dedicated acreage owned only by the Company, and (4) the
overriding royalty interest in the dedicated acreage.
The Dallas Royalty Basis Suits involving the dedicated acreage in the
Guerra "A" and Guerra "B" Units and the Jesus Yzaguirre Unit have resulted in
separate summary judgments in favor of the Company's position that royalty
payments based upon the spot market price are all that is required to be paid
under the leases and dismissal of the royalty owners counterclaims and
affirmative defenses. The summary judgment has been appealed to the Fifth Court
of Appeals in Dallas by the royalty holders in the dedicated leases in the
Guerra "A" and Guerra "B" Units, who have requested oral argument on eleven
points of error. These points of error corcern the granting of summary judgment
against them on issues of lease provisions on market value royalties;
counterclaims and affirmative defenses of fraud, negligent misrepresentations,
conspiracy and estoppel; denial of their efforts to supplement summary judgment
evidence; denial of efforts to transfer venue to Zapata County; failure to abate
the Dallas lawsuit in favor of the two lawsuits filed by them in Zapata County;
and the entry of final judgment in favor of the Company and its co-plaintiffs.
Given the inherent uncertainties of appellate matters and notwithstanding that
the Company's position on the market value and other issues is based upon
established decisional law in Texas, the Company is unable to provide any
assurance of a favorable outcome of this appeal from the summary judgments and
evidentiary rulings, inasmuch as the Appellants can obtain a reversal and remand
for plenary trial upon showing that summary judgment was improper because there
exists an issue of material fact. Because of other issues (discussed below) in
the Royalty Basis Suit involving the Jesus Yzaguirre Unit, the summary judgment
in favor of the Company in that suit is not yet ripe for appeal.
In the Jesus Yzaguirre Royalty Basis Suit, certain of the royalty owners
counterclaimed against the Company, asserting that the largest lease contained
therein had terminated in December, 1975, and that they were entitled to the
Tennessee Gas Contract Price because of the execution of certain division orders
in 1992 that allegedly varied the market value royalty provision of their lease.
The Company and these royalty owners have moved for summary judgment on the
issues of lease termination, lease ratification and the effect of division
orders. The trial judge has not yet ruled on these motions. The royalty owners
who have asserted these claims seek a declaratory judgment of their rights and
have not yet specified the amount or basis of the damages being sought. However,
the amount at issue could include the aggregate of the Company's capital costs
in the lease, the lease operating costs and the working interest revenues of the
lease (at market value of the gas production) since 1976.
Other
The Company is also a party to various other lawsuits and governmental
proceedings, all arising in the ordinary course of business. Although the
outcome of all of the above proceedings cannot be predicted with certainty,
management does not expect such matters to have a material adverse effect,
either singly or in the aggregate, on the financial position of the Company.
40
<PAGE> 42
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarters
------------------------------------------------------
First Second Third Fourth
- ----------------------------------------------------------------------------------------------------------
dollars in thousands (except per share data)
<S> <C> <C> <C> <C>
1996
- ----------------------------------------------------------------------------------------------------------
Revenue $146,557 $96,487 $73,560 $81,405
- ----------------------------------------------------------------------------------------------------------
Operating Income 12,373 10,751 9,057 12,119
- ----------------------------------------------------------------------------------------------------------
Net Income 5,855 4,987 3,964 5,066
- ----------------------------------------------------------------------------------------------------------
Earnings Per Common Share 0.50 0.42 0.33 0.42
=========================================================================================================
1995
- ----------------------------------------------------------------------------------------------------------
Revenue $96,039 $126,556 $109,679 $117,691
- ----------------------------------------------------------------------------------------------------------
Operating Income 10,184 9,306 6,438 9,973
- ----------------------------------------------------------------------------------------------------------
Net Income 6,219 5,377 4,086 5,624
- ----------------------------------------------------------------------------------------------------------
Earnings Per Common Share 0.53 0.46 0.35 0.48
=========================================================================================================
</TABLE>
41
<PAGE> 43
11. FINANCIAL INFORMATION BY BUSINESS SEGMENT
The following financial information has been provided for the business
segments of the Company:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenue
Oil and Gas Exploration and Production $108,015 $86,629 $66,215
Natural Gas Transportation and Marketing 290,696 365,354 279,155
Intercompany (702) (2,018) (3,657)
- ----------------------------------------------------------------------------------------------------------
$398,009 $449,965 $341,713
==========================================================================================================
Operating Income
Oil and Gas Exploration and Production $46,856 $39,645 $37,943
Natural Gas Transportation and Marketing 957 (1,349) 2,889
- ----------------------------------------------------------------------------------------------------------
47,813 38,296 40,832
Corporate Expenses (3,513) (2,395) (2,220)
Interest and Other Income, net 5,146 3,713 1,039
Interest Expense (17,963) (7,732) (2,938)
- ----------------------------------------------------------------------------------------------------------
Income Before Income Taxes $31,483 $31,882 $36,713
==========================================================================================================
Identifiable Assets
Oil and Gas Exploration and Production $463,960 $274,474 $151,571
Natural Gas Transportation and Marketing 95,004 78,331 60,573
Corporate and Other 10,594 7,804 2,279
- ----------------------------------------------------------------------------------------------------------
$569,558 $360,609 $214,423
==========================================================================================================
Depreciation, Depletion and Amortization
Oil and Gas Exploration and Production $45,065 $37,988 $18,538
Natural Gas Transportation and Marketing 1,456 1,157 1,178
Other 90 64 24
- ----------------------------------------------------------------------------------------------------------
$46,611 $39,209 $19,740
==========================================================================================================
Capital Expenditures
Oil and Gas Exploration and Production $275,918 $122,554 $73,870
Natural Gas Transportation and Marketing 6,132 6,085 942
Other 166 60 141
- ----------------------------------------------------------------------------------------------------------
$282,216 $128,699 $74,953
==========================================================================================================
</TABLE>
42
<PAGE> 44
12. OIL AND GAS PRODUCING OPERATIONS
The following data is presented pursuant to FASB Statement No. 69 with
respect to oil and gas acquisition, exploration, development and producing
activities, which is based on estimates of year-end oil and gas reserve
quantities and forecasts of future development costs and production schedules.
These estimates and forecasts are inherently imprecise and subject to
substantial revision as a result of changes in estimates of remaining volumes,
prices, costs, and production rates. As discussed in Note 2, as of December 31,
1996 the Company completed the arrangements for the Medallion Acquisition. As
such, the associated reserves are included in the following tables.
Except where otherwise provided by contractual agreement, future cash
inflows are estimated using year-end prices. Oil and gas prices at December 31,
1996 are not necessarily reflective of the prices the Company expects to receive
in the future. Other than gas sold under contractual arrangements including
swaps, futures contracts and options, gas prices were $3.54 and $2.03 at
December 31, 1996 and 1995, respectively.
Volumetric production payment volumes represent oil and gas reserves
purchased from third parties which entitle the Company to a specified volume of
oil and gas to be delivered over a stated time period. The related volumes
stated herein reflect scheduled amounts of oil and gas to be delivered to the
Company at agreed delivery points, and are stated at year-end prices. The
Company does not bear any development or lease operating expenses associated
with the volumetric production payments.
PRODUCTION REVENUES AND COSTS
Information with respect to production revenues and costs related to oil
and gas producing activities is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenue $107,959 $85,424 $65,773
Production (lifting) costs 11,693 6,623 7,063
Technical support and other 4,401 2,373 2,671
Depreciation, depletion and amortization 44,565 37,859 18,538
- -----------------------------------------------------------------------------------------------------------
Total expenses 60,659 46,855 28,272
- -----------------------------------------------------------------------------------------------------------
Pretax income from producing activities 47,300 38,569 37,501
Income taxes 17,381 12,549 12,041
- -----------------------------------------------------------------------------------------------------------
Results of oil and gas producing activities (excluding
corporate overhead and interest) $29,919 $26,020 $25,460
===========================================================================================================
Capitalized costs incurred:
Property acquisition $198,927 $77,515 $27,772
Exploration 18,315 16,891 12,599
Development 54,889 26,859 33,311
- -----------------------------------------------------------------------------------------------------------
Total capitalized costs incurred $272,131 $121,265 $73,682
===========================================================================================================
Capitalized costs at year-end:
Proved properties $536,817 $284,597 $169,624
Unproved properties 10,574 7,297 5,074
- -----------------------------------------------------------------------------------------------------------
547,391 291,894 174,698
Less accumulated depreciation, depletion and
amortization (131,521) (86,936) (49,077)
Net investment in oil and gas producing properties $415,870 $204,958 $125,621
===========================================================================================================
</TABLE>
43
<PAGE> 45
DISCOUNTED FUTURE NET CASH FLOWS (UNAUDITED)
The following information relating to discounted future net cash flows has
been prepared on the basis of the Company's estimated net proved oil and gas
reserves in accordance with FASB Statement No. 69.
DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
- ------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Future cash inflows $1,213,604 $521,914
Future costs:
Production (320,457) (94,880)
Development (43,882) (21,985)
Discount -- 10% annually (291,653) (113,964)
- ------------------------------------------------------------------------------------------------
Present value of future net revenues 557,612 291,085
Future income taxes, discounted at 10% (120,013) (59,322)
- ------------------------------------------------------------------------------------------------
Standardized measure of discounted future net cash flows $437,599 $231,763
================================================================================================
</TABLE>
CHANGES IN DISCOUNTED FUTURE NET CASH FLOWS FROM PROVED RESERVE QUANTITIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
- -------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year $ 231,763 $ 179,660 $ 160,884
Increases (decreases)
Sales, net of production costs (96,266) (78,801) (58,710)
Net change in prices, net of production costs 50,328 9,593 (11,180)
Discoveries and extensions, net of future production
and development costs 67,791 22,417 26,930
Changes in estimated future development costs 2,005 (862) (9,622)
Change due to acquisition of reserves in place 292,557 108,798 26,038
Development costs incurred during the period 10,411 9,672 13,924
Revisions of quantity estimates (45,003) (19,256) 1,532
Accretion of discount 29,108 24,033 21,017
Net change in income taxes (60,691) 2,021 (12,060)
Sales of reserves in place (11,507) (1,931) --
Changes in production rates (timing) and other (32,897) (23,581) 20,907
- -------------------------------------------------------------------------------------------------------
Net increase 205,836 52,103 18,776
- -------------------------------------------------------------------------------------------------------
Balance, end of year $ 437,599 $ 231,763 $ 179,660
=======================================================================================================
</TABLE>
44
<PAGE> 46
RESERVE INFORMATION (UNAUDITED)
The following information with respect to the Company's net proved oil and
gas reserves are estimates based on reports prepared by independent petroleum
engineers (principally Ryder Scott Company, R.A. Lenser and Associates, Inc. and
H. J. Gruy and Associates, Inc.). Proved developed reserves represent only those
reserves expected to be recovered through existing wells using equipment
currently in place. Proved undeveloped reserves represent proved reserves
expected to be recovered from new wells or from existing wells after material
recompletion expenditures. All of the Company's reserves are located within the
United States.
<TABLE>
---------------------------------------------------------------------
1996 1995 1994
GAS OIL GAS OIL GAS OIL
MMcf Mbbl MMcf Mbbl MMcf Mbbl
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Proved developed and undeveloped
reserves
Balance, beginning of year 140,963 7,517 89,184 2,319 69,740 2,578
Production (25,581) (758) (19,129) (196) (11,304) (211)
Discoveries, extensions, etc 21,998 2,196 10,399 202 10,924 33
Acquisition of reserves in place 157,051 7,245 71,560 5,449 18,206 148
Sales of reserves in place (9,224) (492) (3,751) (3) -- --
Revisions of estimates (17,182) (1,077) (7,300) (254) 1,618 (229)
- ----------------------------------------------------------------------------------------------------------
Balance, end of year 268,025 14,631 140,963 7,517 89,184 2,319
==========================================================================================================
Proved developed reserves
Balance, beginning of year 121,987 3,808 74,215 1,336 61,016 1,579
- ----------------------------------------------------------------------------------------------------------
Balance, end of year 236,454 12,133 121,987 3,808 74,215 1,336
==========================================================================================================
</TABLE>
13. SUBSEQUENT EVENTS
In January 1997 the Company completed a public offering of 3,000,000 shares
of its common stock. The net proceeds to the Company of approximately $110.7
million were used to reduce outstanding indebtedness under the bank credit
facilities.
In February 1997, the Company entered into an agreement to sell its Texas
intrastate natural gas pipeline system together with related marketing assets
and a joint venture gathering system for $28 million in cash, resulting in a
pre-tax gain of approximately $9.5 million. The proceeds from the sale will be
used to fund a portion of the Company's 1997 capital budget.
45
<PAGE> 47
PART III
Item 10 - Directors and Executive Officers of the Registrant, Item 11 -
Executive Compensation, Item 12 - Security Ownership of Certain Beneficial
Owners and Management, and Item 13 - Certain Relationships and Related
Transactions are incorporated by reference from the Company's definitive proxy
statement relating to its 1997 Annual Meeting of Stockholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Financial statements, financial statement schedules, and exhibits.
(1) The following consolidated financial statements of KCS and its
subsidiaries are presented in Item 8 of this Form 10-K.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants .................................................. 24
Statements of Consolidated Income for the years ended December 31, 1996, 1995 and 1994 .... 25
Consolidated Balance Sheets at December 31, 1996 and 1995 ................................. 26
Statements of Consolidated Stockholders' Equity for the years ended December 31, 1996, 1995
and 1994 ................................................................................. 27
Statements of Consolidated Cash Flows for the years ended December 31, 1996, 1995 and 1994 28
Notes to Consolidated Financial Statements ................................................ 29-45
(2) Financial Statement Schedules
The following financial statement schedule for KCS Energy, Inc. is filed as
a part of this Form 10-K. Schedules not included have been omitted because they
are not applicable or the required information is shown in the financial
statements or notes thereto.
Schedule Number
II Valuation and Qualifying Accounts for the three-year period ended
December 31, 1996..... 49
(3) Exhibits
See "Exhibit Index" located on page 50 of this Form 10-K for a listing of
all exhibits filed herein or incorporated by reference to a previously filed
registration statement or report with the Securities and Exchange Commission
("SEC").
</TABLE>
46
<PAGE> 48
(b) Reports on Form 8-K.
During the three months ended December 31, 1996, the registrant filed the
following reports on Form 8-K:
On November 5, 1996, the registrant reported, under Item 5 of Form 8-K,
that it had entered into a letter of intent to make a significant
acquisition of assets. This report was amended, under Item 2 of Form 8-K,
on November 15, 1996 and January 9, 1997.
On November 25, 1996, the registrant reported, under Item 5 of Form 8-K,
that a jury verdict had been reached in its previously disclosed litigation
with Tennessee Gas Pipeline Company.
On December 26, 1996, the registrant reported, under Item 5 of Form 8-K,
that a settlement had been reached between the registrant and Tennessee Gas
Pipeline Company on all items of litigation between them concerning the
registrant's above-market-price, take-or-pay contract with Tennessee Gas
Pipeline Company.
47
<PAGE> 49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
KCS ENERGY, INC.
--------------------
(Registrant)
Date: 3/26/97 By:/s/ Henry A. Jurand
--------------------
Henry A. Jurand, Senior Vice President,
Chief Financial Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities on the dates indicated.
3/26/97 /s/ James W. Christmas
------ ----------------------------
Date James W. Christmas, President
& Chief Executive Officer & Director
3/26/97 /s/ Stewart B. Kean
------ ----------------------------
Date Stewart B. Kean, Chairman and Director
3/26/97 /s/ G. Stanton Geary
------ ----------------------------
Date G. Stanton Geary, Director
3/26/97 /s/ James E. Murphy
------ ----------------------------
Date James E. Murphy, Director
3/26/97 /s/ Robert G. Raynolds
------ ----------------------------
Date Robert G. Raynolds, Director
3/26/97 /s/ Joel D. Siegel
------ ----------------------------
Date Joel D. Siegel, Director
3/26/97 /s/ Christopher A. Viggiano
------ ----------------------------
Date Christopher A. Viggiano, Director
/s/ Henry A. Jurand 3/26/97
- ------------------- -------
Henry A. Jurand, Senior Vice President, Date
Chief Financial Officer and Secretary
48
<PAGE> 50
Schedule II
KCS ENERGY, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994 TO 1996
<TABLE>
<CAPTION>
Balance at Charged to Costs Balance at End
Beginning of and of
Description Period Expenses Deductions Period
- --------------------------------------------------------------------------------------------------------------------
Thousands of Dollars
Valuation accounts deducted in
balance sheet from accounts to which
they apply:
1996
- ------
<S> <C> <C> <C> <C>
Investments and other assets $ 205 $ 20 -- $ 225
===============================================================
Accounts receivable $ 415 $1,688 $ 19 $2,084
===============================================================
1995
- ------
Investments and other assets $ 55 $ 150 -- $ 205
===============================================================
Accounts receivable $ 305 $ 363 $ 253 $ 415
===============================================================
1994
- ------
Investments and other assets $ 55 -- -- $ 55
===============================================================
Accounts receivable $ 99 $ 206 -- $ 305
===============================================================
</TABLE>
49
<PAGE> 51
Exhibit Index
Exhibit
No. Description
------ -----------
(3) i Certificate of Incorporation of KCS filed as Exhibit 4.3 to
Form S-8 Registration Statement No. 33-63982 filed with SEC
June 8, 1993.
ii By-Laws of KCS filed as Exhibit 4.4 to Form S-8 Registration
Statement No. 33-63982 filed with SEC June 8, 1993.
(4) i Form of Common Stock Certificate, $0.01 Par Value, filed as
Exhibit 4 of Registrant's Form 10-K Report for Fiscal 1988.
ii Form of Common Stock Certificate, $0.01 Par Value, filed as
Exhibit 5 of Registrant's Form 8-A Registration Statement
No. 1-11698 filed with the SEC, January 27, 1993.
iii Indenture dated as of January 15, 1996 between KCS, certain
of its subsidiaries and Fleet National Bank of Connecticut,
Trustee, filed as Exhibit 4 to Current Report on Form 8-K
dated January 25, 1996.
iv Form of 11% Senior Note due 2003 (included in Exhibit (4)
(iii)).
(10) i Performance Unit Plan filed as Exhibit 10B of Registrant's
Form 10 filed with the SEC May 13, 1988.*
ii 1988 KCS Group, Inc. Employee Stock Purchase Program filed
as Exhibit 4.1 to Form S-8 Registration Statement No.
33-24147 filed with the SEC on September 1, 1988.*
iii Amendments to 1988 KCS Energy, Inc. Employee Stock Purchase
Program filed as Exhibit 4.2 to Form S-8 Registration
Statement No. 33-63982 filed with SEC June 8, 1993.*
iv 1988 Stock Plan filed as Exhibit 10A of Registrant's Form 10
filed with the SEC May 13, 1988 and as Exhibit 4.1 to Form
S-8 Registration Statement No. 33-25707 filed with the SEC
on November 21, 1988.*
v KCS Group, Inc. Savings and Investment Plan filed as Exhibit
4.1 to Form S-8 Registration Statement No. 33-28899 filed
with the SEC on May 16, 1989.*
vi 1992 Stock Plan filed as Exhibit 4.1 to Form S-8
Registration Statement No. 33-45923 filed with the SEC on
February 24, 1992.*
vii Purchase and Sale Agreement dated as of November 30, 1995
between the Company and Hawkins Oil of Michigan, Inc.
(formerly Savoy Oil & Gas, Inc.), Conveyance of Production
Payment dated as of November 30, 1995, Production and
Delivery Agreement dated as of November 30, 1995, Option
Agreement dated as of November 30, 1995, Drilling
Participation Agreement dated December 7, 1995, Assignment
and Bill of Sale (Working Interests) filed with the SEC as
Exhibits 2.1 through 2.6 to Form 8-K on December 22, 1995.
viii Purchase and Sale Agreement dated September 8, 1995 by and
between Natural Gas Processing Co., a Wyoming corporation,
and KCS Resources, Inc., a Delaware corporation filed with
the SEC as Exhibit 2.1 to Form 8-K on November 22, 1995.
50
<PAGE> 52
ix Credit Agreement among KCS Resources, Inc., KCS Pipeline
Systems, Inc., KCS Michigan Resources, Inc. and KCS Energy
Marketing, Inc., Canadian Imperial Bank of Commerce, New
Agency, as Agent, CIBC Inc., as Collateral Agent, Bank One,
Texas, National Association, as Co-Agent, NationsBank of
Texas, N.A. as Co-Agent dated September 25, 1996 - filed
herewith.
x Guaranty by KCS Energy, Inc. in Favor of Canadian Imperial
Bank of Commerce, New York Agency, as Agent dated
September 25, 1996 - filed herewith.
xi Stock Purchase Agreement by, between and among KCS Energy,
Inc., InterCoast Energy Company, and InterCoast Gas Services
Company dated November 14, 1996 filed with the SEC as
Exhibit 2.1 to Form 8-K/A on November 15, 1996.
xii Credit Agreement among KCS Medallion Resources, Inc., KCS
Energy, Inc., KCS Energy Services, Inc., Medallion Gas
Services, Inc., and GED Energy Services, Inc. and Canadian
Imperial Bank of Commerce, New York Agency, as Agent, CIBC
Inc., as Collateral Agent, NationsBank of Texas, N.A. as
Co-Agent dated January 2, 1997 - filed herewith.
(11) Statement re computation of per share earnings - filed
herewith.
(21) Subsidiaries of the Registrant - filed herewith .
(23) i Consent of Arthur Andersen LLP - filed herewith.
ii Consent of R.A. Lenser and Associates, Inc. - filed
herewith.
iii Consent of H. J. Gruy and Associates, Inc. - filed herewith.
iv Consent of Ryder Scott Company - filed herewith.
- -----------------
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit.
51
<PAGE> 1
EXHIBIT 10(ix)
================================================================================
CREDIT AGREEMENT
AMONG
KCS RESOURCES, INC.,
KCS PIPELINE SYSTEMS, INC.,
KCS MICHIGAN RESOURCES, INC. AND
KCS ENERGY MARKETING, INC.,
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY, AS AGENT,
CIBC INC., AS COLLATERAL AGENT,
BANK ONE, TEXAS, NATIONAL ASSOCIATION, AS CO-AGENT,
NATIONSBANK OF TEXAS, N.A. AS CO-AGENT,
AND
THE LENDERS SIGNATORY HERETO
SEPTEMBER _____, 1996
- --------------------------------------------------------------------------------
REVOLVING LINE OF CREDIT OF UP TO $150,000,000
WITH LETTER OF CREDIT SUBFACILITY
- --------------------------------------------------------------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above......................................... 1
1.2 Additional Defined Terms.................................... 2
1.3 Undefined Financial Accounting Terms........................ 20
1.4 References.................................................. 21
1.5 Articles and Sections....................................... 21
1.6 Number and Gender........................................... 21
1.7 Incorporation of Exhibits................................... 21
1.8. Knowledge................................................... 21
ARTICLE II TERMS OF FACILITY
2.1 Revolving Line of Credit.................................... 21
2.2 Letter of Credit Facility................................... 22
2.3 Limitations on Interest Periods............................. 24
2.4 Limitation on Types of Loans................................ 24
2.5 Use of Loan Proceeds and Letters of Credit.................. 25
2.6 Interest.................................................... 25
2.7 Repayment of Loans and Interest............................. 26
2.8 General Terms............................................... 26
2.9 Time, Place, and Method of Payments......................... 27
2.10 Pro Rata Treatment; Adjustments............................. 27
2.11 Borrowing Base Determinations............................... 28
2.12 Mandatory Prepayments....................................... 29
2.13 Voluntary Prepayments and Conversions of Loans.............. 29
2.14 Commitment Fee.............................................. 29
2.15 Letter of Credit Fee........................................ 30
2.16 Other Fees.................................................. 30
2.17 Loans to Satisfy Obligations of Borrowers................... 30
2.18 Right of Offset............................................. 30
2.19 General Provisions Relating to Interest..................... 30
2.20 Obligations Absolute........................................ 31
2.21 Yield Protection............................................ 32
2.22 Illegality.................................................. 34
2.23 Taxes....................................................... 34
2.24 Replacement Lenders......................................... 35
2.25 Regulatory Change........................................... 36
ARTICLE III CONDITIONS
3.1 Conditions Precedent to Initial Loan and Letter of Credit... 37
3.2 Conditions Precedent to Each Loan........................... 40
3.3 Conditions Precedent to Issuance of Letters of Credit....... 41
-i-
<PAGE> 3
ARTICLE IV REPRESENTATIONS AND WARRANTIES
4.1 Due Authorization........................................... 41
4.2 Corporate Existence......................................... 42
4.3 Valid and Binding Obligations............................... 42
4.4 Existing Indebtedness; No Defenses.......................... 42
4.5 Security Instruments........................................ 42
4.6 Title to Assets............................................. 42
4.7 Scope and Accuracy of Financial Statements.................. 43
4.8 No Material Misstatements................................... 43
4.9 Liabilities, Litigation, and Restrictions................... 43
4.10 Authorizations; Consents.................................... 43
4.11 Compliance with Laws........................................ 44
4.12 Default..................................................... 44
4.13 ERISA....................................................... 44
4.14 Environmental Laws.......................................... 44
4.15 Compliance with Federal Reserve Regulations................. 45
4.16 Investment Company Act Compliance........................... 45
4.17 Public Utility Holding Company Act Compliance............... 45
4.18 Proper Filing of Tax Returns; Payment of Taxes Due.......... 45
4.19 Refunds..................................................... 45
4.20 Gas Contracts............................................... 46
4.21 Intellectual Property....................................... 46
4.22 Labor Matters............................................... 46
4.23 Casualties or Taking of Property............................ 46
4.24 Locations of Borrowers...................................... 46
4.25 Subsidiaries................................................ 46
ARTICLE V AFFIRMATIVE COVENANTS
5.1 Maintenance and Access to Records........................... 47
5.2 Quarterly Financial Statements; Compliance Certificates..... 47
5.3 Annual Financial Statements................................. 47
5.4 Oil and Gas Reserve Reports................................. 47
5.5 Title Opinions; Title Defects............................... 48
5.6 Notices of Certain Events................................... 48
5.7 Additional Information...................................... 49
5.8 Compliance with Laws........................................ 50
5.9 Payment of Assessments and Charges.......................... 50
5.10 Maintenance of Corporate Existence and Good Standing........ 50
5.11 Payment of Notes; Performance of Obligations................ 50
5.12 Further Assurances.......................................... 50
5.13 Fees and Expenses........................................... 51
5.14 Operation of Oil and Gas Properties......................... 51
5.15 Maintenance and Inspection of Properties.................... 51
5.16 Maintenance of Insurance.................................... 52
5.17 Indemnification............................................. 52
-ii-
<PAGE> 4
ARTICLE VI NEGATIVE COVENANTS
6.1 Indebtedness................................................ 53
6.2 Contingent Obligations...................................... 54
6.3 Liens....................................................... 54
6.4 Negative Pledge Agreements.................................. 54
6.5 Sales of Assets............................................. 54
6.6 Leasebacks.................................................. 55
6.7 Loans; Advances; Investments................................ 55
6.8 Dividends and Distributions................................. 55
6.9 Environmental Matters....................................... 55
6.10 Issuance of Stock; Changes in Corporate Structure........... 55
6.11 Transactions with Affiliates................................ 56
6.12 Lines of Business........................................... 56
6.13 ERISA Compliance............................................ 56
6.14 Subordinated Debt........................................... 56
6.15 Use of Proceeds............................................. 56
6.16 Subsidiaries................................................ 56
ARTICLE VII EVENTS OF DEFAULT
7.1 Enumeration of Events of Default............................ 56
7.2 Remedies.................................................... 59
ARTICLE VIII THE AGENT
8.1 Appointment................................................. 60
8.2 Delegation of Duties........................................ 60
8.3 Exculpatory Provisions...................................... 60
8.4 Reliance by Agent........................................... 61
8.5 Notice of Default........................................... 61
8.6 Non-Reliance on Agent and Other Lenders..................... 62
8.7 Indemnification............................................. 62
8.8 Restitution................................................. 63
8.9 Agents in Individual Capacity............................... 63
8.10 Successor Agent............................................. 63
8.11 Applicable Parties.......................................... 64
8.12 Release by Borrowers........................................ 64
ARTICLE IX MISCELLANEOUS
9.1 Assignments; Participations................................. 64
9.2 Survival of Representations, Warranties, and Covenants...... 66
9.3 Notices and Other Communications............................ 66
9.4 Parties in Interest......................................... 66
9.5 Rights of Third Parties..................................... 66
9.6 No Waiver; Rights Cumulative................................ 67
9.7 Severability................................................ 67
9.8 Amendments; Waivers......................................... 67
9.9 Confidentiality............................................. 68
-iii-
<PAGE> 5
9.10 Controlling Agreement....................................... 68
9.11 Governing Law............................................... 69
9.12 Jurisdiction and Venue...................................... 69
9.13 Appointment of Agent for Service of Process................. 69
9.14 Waiver of Rights to Jury Trial.............................. 69
9.15 Integration................................................. 70
9.16 Counterparts................................................ 70
LIST OF EXHIBITS
Exhibit I - Form of Notes
Exhibit II - Form of Assignment Agreement
Exhibit III - Form of Borrowing Request
Exhibit IV - Facility Amounts
Exhibit V - Form of Guaranty
Exhibit VI - Form of Compliance Certificate
Exhibit VII - Material Properties
Exhibit VIII - Form of Opinion of Counsel
Exhibit IX - Form of Opinion of Local Counsel
Exhibit X - Disclosures
-iv-
<PAGE> 6
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and entered into effective as of the
day of September, 1996, by and among KCS RESOURCES, INC., a Delaware corporation
("KRI"); KCS PIPELINE SYSTEMS, INC., a Delaware corporation ("KCS Pipeline");
KCS MICHIGAN RESOURCES, INC., a Delaware corporation ("KCS Michigan"); and KCS
ENERGY MARKETING, INC., a New Jersey corporation ("KCS Marketing," and together
with KRI, KCS Pipeline and KCS Michigan, each individually, a "Borrower" and
collectively, the "Borrowers"), each lender that is a signatory hereto or
becomes a party hereto as provided in Sections 9.1 or 2.24 (individually,
together with its successors and such assigns, a "Lender" and, collectively,
together with their respective successors and such assigns, the "Lenders"),
CANADIAN IMPERIAL BANK OF COMMERCE, a Canadian chartered bank, acting through
its New York Agency (in its individual capacity, "CIBC"), as agent for the
Lenders (in such capacity, together with its successors in such capacity
pursuant to the terms hereof, the "Agent"), CIBC INC., a Delaware corporation
(in its individual capacity, "CIBC Inc.", as collateral agent for the Lenders
(in such capacity, together with its successors in such capacity pursuant to the
terms hereof, the "Collateral Agent"), BANK ONE, TEXAS, NATIONAL ASSOCIATION, a
national banking association, as co-agent for the Lenders, and NATIONSBANK OF
TEXAS, N.A., a national banking association, as co-agent for the Lenders.
W I T N E S S E T H:
In consideration of the mutual covenants and agreements herein
contained, the parties hereto hereby agree as follows, amending and restating in
their entirety (a) the Amended and Restated Credit Agreement dated as of March
15, 1994, by and among KRI, KCS Pipeline, Bank One, Texas, National Association
("Bank One") and the lenders signatory thereto, as heretofore amended, restated,
or supplemented (the "Existing Bank One Credit Agreement") and (b) the Amended
and Restated Credit Agreement dated as of November 28, 1995, by and among KCS
Michigan, KCS Marketing, Comerica Bank-Texas ("Comerica") and the lenders
signatory thereto, as heretofore amended, restated, or supplemented (the
"Existing Comerica Credit Agreement").
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above. As used in this Agreement, the terms
"Agent," "Bank One," "Borrower," "Borrowers," "CIBC," "CIBC Inc.," "Collateral
Agent," "Comerica," "Existing Bank One Credit Agreement," "Existing Comerica
Credit Agreement," "KCS Marketing," "KCS Michigan," "KCS Pipeline," "KRI,"
"Lender," and "Lenders" shall have the meaning assigned to them hereinabove.
<PAGE> 7
1.2 Additional Defined Terms. As used in this Agreement, each of the
following terms shall have the meaning assigned thereto in this Section, unless
the context otherwise requires:
"Additional Costs" shall mean actual costs which any Lender
reasonably determines have been incurred and are attributable to its
obligation to make or its making or maintaining any LIBO Rate Loan or
issuing or participating in Letters of Credit, or any reduction in any
amount receivable by such Lender in respect of any such obligation or any
LIBO Rate Loan or Letter of Credit, in each case resulting from any
Regulatory Change which (a) changes the basis of taxation of any amounts
payable to such Lender under this Agreement or any Note in respect of any
LIBO Rate Loan or Letter of Credit (other than taxes imposed on or
calculated on the basis of the overall net income, capital or profit of
such Lender or its Applicable Lending Office for any such LIBO Rate Loan
or for issuing or participating in any Letter of Credit), (b) imposes or
modifies any reserve, special deposit, minimum capital, capital ratio, or
similar requirements (other than the Reserve Requirement utilized in the
determination of the Adjusted LIBO Rate for such Loan) relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities of, such Lender (including LIBO Rate Loans and Dollar deposits
in the London interbank market in connection with LIBO Rate Loans), or the
Commitment of such Lender, or (c) imposes any other condition affecting
this Agreement or any Note or any of such extensions of credit,
liabilities, or Commitments.
"Adjusted Base Rate" shall mean, for any day and any Base Rate Loan,
an interest rate per annum equal to the sum of (a) greater of (i) the Base
Rate for such day, (ii) the Adjusted CD Rate for such day plus one-half of
one percent (1/2%), or (iii) the Federal Funds Rate for such day plus one
percent (1%) plus (b) the Applicable Margin for such Base Rate Loan, such
rate to be computed on the basis of a year of 365 or 366 days, as the case
may be, and actual days elapsed (including the first day but excluding the
last day) during the period for which payable, but in no event shall such
rate exceed the Highest Lawful Rate.
"Adjusted CD Rate" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by
the Agent to be equal to the sum of (a) the quotient of (i) the CD Rate
for such day divided by (ii) 1 minus the Reserve Requirement plus (b) the
Assessment Rate.
"Adjusted LIBO Rate" shall mean, for any Interest Period for any
LIBO Rate Loan, an interest rate per annum (rounded upwards, if necessary,
to the nearest 1/100 of 1%) determined by the Agent to be equal to the sum
of (a) the quotient of (i) the sum of the LIBO Rate for such Interest
Period for such LIBO Rate Loan divided by (ii) 1 minus the Reserve
Requirement for such Loan for such Interest Period plus (b) the Applicable
Margin for such LIBO Rate Loan, such rate to be computed on the basis of a
year of 360 days and actual days
2
<PAGE> 8
elapsed (including the first day but excluding the last day) during the
period for which payable, but in no event shall such rate exceed the
Highest Lawful Rate.
"Adjustment Date" shall mean the second Business Day following
receipt by the Agent of both (a) the Financial Statements required to be
delivered pursuant to Sections 5.2 or 5.3, as the case may be, for the
most recently completed fiscal period and (b) the Compliance Certificate
required to be delivered pursuant to such Sections with respect to such
fiscal period.
"Affiliate" shall mean any Person directly or indirectly controlled
by, controlling, or under common control with, the Guarantor or any of the
Borrowers and includes any Subsidiary of the Guarantor or any of the
Borrowers and any "affiliate" of any of the Guarantor or any of the
Borrowers within the meaning of Reg. ss.240.12b-2 of the Securities
Exchange Act of 1934, as amended, with "control," as used in this
definition, meaning possession, directly or indirectly, of the power to
direct or cause the direction of management, policies or action through
ownership of voting securities, contract, voting trust, or membership in
management or in the group appointing or electing management or otherwise
through formal or informal arrangements or business relationships.
"Agreement" shall mean this Credit Agreement, as amended, restated,
or supplemented from time to time.
"Applicable Lending Office" shall mean, for each Lender and type of
Loan, the lending office of such Lender (or an affiliate of such Lender)
designated for such type of Loan on the signature pages hereof or such
other office of such Lender (or an affiliate of such Lender) as such
Lender may from time to time specify to the Agent and the Borrowers as the
office by which its Loans of such type are to be made and maintained.
"Applicable Margin" shall mean, as to each Base Rate Loan and each
LIBO Rate Loan, an amount equal to the percentage set forth below for such
type of Loan and determined to be the applicable percentage pursuant to
the Debt to EBITDA ratio as reflected in the most recent Financial
Statements of the Guarantor and its Subsidiaries furnished to the Agent
pursuant to Section 5.2 or 5.3 and reported in the Compliance Certificate
delivered therewith, which Applicable Margin shall change as necessary
effective on each Adjustment Date:
=======================================================================
Debt/EBITDA Ratio LIBO Rate Loan Base Rate Loan
Applicable Margin Applicable Margin
-----------------------------------------------------------------------
Less than or equal to 1.50 0.625% 0%
-----------------------------------------------------------------------
Greater than or equal to 1.51 0.75% 0%
but less than 2.01
-----------------------------------------------------------------------
3
<PAGE> 9
-----------------------------------------------------------------------
Greater than or equal to 2.01 0.875% 0%
but less than 2.51
-----------------------------------------------------------------------
Greater than or equal to 2.51 1.125% 0.125%
but less than 3.01
-----------------------------------------------------------------------
Greater than 3.00 1.50% 0.50%
=======================================================================
provided, however, (a) if such Financial Statements and related Compliance
Certificate are not delivered when due, without giving effect to any
applicable cure period, and the Applicable Margin increases from that
previously in effect as a result of the delivery of such Financial
Statements and Compliance Certificate, then the Applicable Margin during
the period from the date upon which such Financial Statements and
Compliance Certificate were required to be delivered, without giving
effect to any applicable cure period, until the date upon which they
actually are delivered shall, except as otherwise provided in clause (c),
be the Applicable Margin as so increased; (b) if such Financial Statements
and Compliance Certificate are delivered after the date such Financial
Statements and Compliance Certificate were required to be delivered and
the Applicable Margin decreases from that previously in effect as a result
of the delivery of such Financial Statements and Compliance Certificate,
then such decrease in the Applicable Margin shall not become applicable
until the date upon which such Financial Statements and Compliance
Certificate actually are delivered; and (c) if such Financial Statements
and Compliance Certificate are not delivered prior to the date upon which
the resultant Default shall become an Event of Default, then, effective
upon such Default becoming an Event of Default, for the period from the
date upon which such Financial Statements and Compliance Certificate were
required to be delivered, after the expiration of the applicable cure
period, until two Business days following the date upon which they
actually are delivered, the Applicable Margin shall be .50%, in the case
of Base Rate Loans and 1.50%, in the case of LIBO Rate Loans.
"Assessment Rate" shall mean, at any time, the rate (rounded
upwards, if necessary, to the nearest 1/100 of 1%) then charged by the
Federal Deposit Insurance Corporation (or any successor) to the Agent for
deposit insurance for Dollar time deposits with the Agent at the Principal
Office as determined by the Agent. The Assessment Rate determined by the
Agent, in the absence of manifest error, shall be conclusive and binding.
"Assignment Agreement" shall mean an Assignment Agreement,
substantially in the form of Exhibit II, with appropriate insertions.
"Available Commitment" shall mean, at any time, an amount equal to
the remainder, if any, of (a) the lesser of the Maximum Facility Amount or
the Borrowing Base in effect at such time minus (b) the sum of the Loan
Balance at such time plus the L/C Exposure at such time.
4
<PAGE> 10
"Bank One Assignment" shall mean the Assignment of Notes, Liens,
Security Interests, and Other Rights, in form and substance satisfactory
to the Agent, executed by Bank One, CIBC Inc., and Den norske Bank AS,
assigning to the Lenders the Existing Bank One Notes, the indebtedness
evidenced thereby, the Liens securing the Existing Bank One Notes, and the
rights of the lenders signatory to the Existing Bank One Credit Agreement
under the Existing Bank One Loan Documents, and financing statement
changes constituent thereto.
"Base Rate" shall mean the interest rate announced or published by
the Agent from time to time as its general reference rate of interest,
which Base Rate shall change upon each change in such announced or
published general reference interest rate and which Base Rate may not be
the lowest interest rate charged by the Agent.
"Base Rate Loan" shall mean any Loan or any portion of the Loan
Balance which the Borrowers have requested, in the initial Borrowing
Request for such Loan or a subsequent Borrowing Request for such portion
of the Loan Balance, bear interest at the Adjusted Base Rate or which,
pursuant to the terms hereof, is otherwise required to bear interest at
the Adjusted Base Rate.
"Benefitted Lender" shall have the meaning assigned to such term in
Section 2.10(c).
"Borrowing Base" shall mean, at any time, the amount determined in
accordance with Section 2.11.
"Borrowing Request" shall mean each written request, in
substantially the form attached hereto as Exhibit III, by the Borrowers to
the Agent for a borrowing or conversion pursuant to Sections 2.1 or 2.13,
each of which shall:
(a) be signed by a Responsible Officer of each of the
Borrowers;
(b) specify the amount and type of Loan requested or to
be converted and the date of the borrowing or conversion (which
shall be a Business Day);
(c) when requesting a Base Rate Loan, be delivered to the
Agent no later than 11:30 a.m., Eastern Standard or Daylight Savings
Time, as the case may be, on the Business Day of the requested
borrowing or conversion; and
(d) when requesting a LIBO Rate Loan, be delivered to the
Agent no later than 12 noon, Eastern Standard or Daylight Savings
Time, as the case may be, the third Business Day
5
<PAGE> 11
preceding the requested borrowing or conversion and designate the
Interest Period requested with respect to such Loan.
"Business Day" shall mean a day other than a day when commercial
banks are authorized or required to close in the State of New York and,
with respect to all requests, notices, and determinations in connection
with, and payments of principal and interest on, LIBO Rate Loans, which is
also a day for trading by and between banks in Dollar deposits in the
London interbank market.
"CBRS" shall mean C.B.R.S. Inc., carrying on business as "Canadian
Bond Rating Service," and its successors.
"CD Rate" shall mean, for any day relative to any determination of
the Adjusted Base Rate for any Base Rate Loan, the rate of interest per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
determined by the Agent to be the average of the bid rates quoted to the
Agent in the New York City secondary market at approximately 10:00 a.m.
New York time (or as soon thereafter as practicable) initially, on the day
such Base Rate Loan is made, and thereafter, from time to time as the
Agent may select, by two (2) certificate of deposit dealers of recognized
standing selected by the Agent, for the purchase at face value of 30-day
certificates of deposit in an amount approximately equal or comparable to
the amount of such Base Rate Loan. Each determination by the Agent of the
CD Rate shall, in the absence of manifest error, be conclusive and
binding.
"Closing Date" shall mean the date of this Agreement.
"Code" shall mean the United States Internal Revenue Code of 1986,
as amended from time to time.
"Collateral" shall mean the Mortgaged Properties, the Properties
collaterally assigned to the Agent pursuant to the Security Instruments
referenced in Sections 3.1(g)(v) and 3.1(g)(vii), and any other Property
now or at any time subject to a Lien to secure the payment or performance
of all or any portion of the Obligations.
"Comerica Assignment" shall mean the Assignment of Notes, Liens,
Security Interests, and Other Rights, in form and substance satisfactory
to the Agent, executed by Comerica and Den norske Bank AS, assigning to
the Lenders the Existing Comerica Notes, the indebtedness evidenced
thereby, the Liens securing the Existing Comerica Notes, and the rights of
the lenders signatory to the Existing Comerica Credit Agreement under the
Existing Comerica Loan Documents, and financing statement changes
constituent thereto.
"Commitment Period" shall mean the period from and including the
Closing Date to but not including the Commitment Termination Date.
"Commitment Termination Date" shall mean September 30, 2000.
6
<PAGE> 12
"Commitments" shall mean the several obligations of the Lenders to
make Loans to or for the benefit of the Borrowers pursuant to Section 2.1
and the obligations of the Agent to issue and the Lenders to participate
in Letters of Credit pursuant to Section 2.2.
"Commonly Controlled Entity" shall mean any Person which is under
common control with the Borrowers or the Guarantor within the meaning of
Section 4001 of ERISA.
"Compliance Certificate" shall mean each certificate, substantially
in the form attached hereto as Exhibit VI, executed by a Responsible
Officer of each of the Borrowers and the Guarantor and furnished to the
Agent from time to time in accordance with the terms hereof.
"Contingent Obligation" shall mean, as to any Person, any obligation
of such Person guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends, or other obligations of any other Person (for purposes
of this definition, a "primary obligation") in any manner, whether
directly or indirectly, including any obligation of such Person,
regardless of whether such obligation is contingent, (a) to purchase any
primary obligation or any Property constituting direct or indirect
security therefor, (b) to advance or supply funds (i) for the purchase or
payment of any primary obligation, or (ii) to maintain working or equity
capital of any other Person in respect of any primary obligation, or
otherwise to maintain the net worth or solvency of any other Person, (c)
to purchase Property, securities or services primarily for the purpose of
assuring the owner of any primary obligation of the ability of the Person
primarily liable for such primary obligation to make payment thereof, or
(d) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof, with the amount of any
Contingent Obligation being deemed to be equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined
by such Person in good faith.
"DBRS" shall mean Dominion Bond Rating Service Limited and its
successors.
"Debt" shall mean Indebtedness of the Guarantor and its Subsidiaries
on a consolidated basis for borrowed money.
"Default" shall mean any event or occurrence which with the lapse of
time or the giving of notice or both would become an Event of Default.
"Default Rate" shall mean a per annum interest rate equal to the
Base Rate from time to time in effect plus two percent (2)%, such rate to
be computed on the basis of a year of 365 or 366 days, as the case may be,
and actual days
7
<PAGE> 13
elapsed (including the first day but excluding the last day) during the
period for which payable, but in no event shall such rate exceed the
Highest Lawful Rate.
"Dollars" and "$" shall mean dollars in lawful currency of the
United States of America.
"EBITDA" shall mean, for any period, Net Income for such period plus
Interest Expense, federal and state income taxes, depreciation,
amortization, and other non-cash expenses for such period deducted in the
determination of Net Income for such period.
"Environmental Complaint" shall mean any written or oral complaint,
order, directive, claim, citation, notice of environmental report or
investigation by any Governmental Authority or any other Person with
respect to (a) air emissions from any Property at any time owned, leased
or operated by the Guarantor or any of the Borrowers, (b) spills,
releases, or discharges of Hazardous Substances to soils, any improvements
located thereon, surface water, groundwater, or the sewer, septic, waste
treatment, storage, or disposal systems servicing any Property at any time
owned, leased or operated by the Guarantor or any of the Borrowers, (c)
solid or liquid waste disposal of Hazardous Substances at any Property at
any time owned, leased or operated by the Guarantor or any of the
Borrowers or affecting any Property of any of the Borrowers or any real
Property of the Guarantor or the facilities located and the operations
conducted thereon, (d) the use, generation, storage, transportation, or
disposal of any Hazardous Substance by the Guarantor or any of the
Borrowers or affecting any Property of any of the Borrowers or any real
Property of the Guarantor or the facilities located and the operations
conducted thereon, or (e) other environmental, health, or safety matters
affecting any Property at any time owned, leased or operated by any of the
Borrowers or the business conducted thereon or any real Property at any
time owned, leased or operated by the Guarantor or the facilities located
and the operations conducted thereon.
"Environmental Laws" shall mean (a) the following federal laws as
they may be cited, referenced, and amended from time to time: the Clean
Air Act, the Clean Water Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Endangered Species Act, the Hazardous
Materials Transportation Act of 1986, the Occupational Safety and Health
Act, the Oil Pollution Act of 1990, the Resource Conservation and Recovery
Act of 1976, the Safe Drinking Water Act, the Superfund Amendments and
Reauthorization Act, and the Toxic Substances Control Act; (b) any and all
equivalent environmental statutes of any state in which Property at any
time owned, leased or operated by the Guarantor or any Borrower is
situated, as they may be cited, referenced and amended from time to time;
(c) any rules or regulations promulgated under or adopted pursuant to the
above federal and state laws; and (d) any other equivalent federal, state,
or local statute or any requirement, rule, regulation, code, ordinance, or
order adopted pursuant thereto, including those relating to the
8
<PAGE> 14
generation, transportation, treatment, storage, recycling, disposal,
handling, or release of Hazardous Substances.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations thereunder and
published interpretations thereof.
"Event of Default" shall mean any of the events specified in Section
7.1.
"Existing Bank One Loan Documents" shall mean the Loan Documents, as
such term is defined in the Existing Bank One Credit Agreement, in
existence on the Closing Date immediately prior to the Bank One
Assignment.
"Existing Bank One Notes" shall mean, collectively, the Bank One
Credit Note, the CIBC Credit Note, and the DNB Credit Note as each such
term is defined in the Existing Bank One Credit Agreement, in existence on
the Closing Date immediately prior to the Bank One Assignment.
"Existing Bank One Security Instruments" shall mean the Security
Documents, as such term is defined in the Existing Bank One Credit
Agreement, in existence on the Closing Date immediately prior to the Bank
One Assignment.
"Existing Comerica Loan Documents" shall mean the Loan Documents, as
such term is defined in the Existing Comerica Credit Agreement, in
existence on the Closing Date immediately prior to the Comerica
Assignment.
"Existing Comerica Notes" shall mean the Credit Notes, as such term
is defined in the Existing Comerica Credit Agreement, in existence on the
Closing Date immediately prior to the Comerica Assignment.
"Existing Comerica Security Instruments" shall mean the Security
Documents, as such term is defined in the Existing Comerica Credit
Agreement, in existence on the Closing Date immediately prior to the
Comerica Assignment.
"Facility Amount" shall mean, for each Lender, the amount set forth
opposite the name of such Lender on Exhibit IV under the caption "Facility
Amounts", as modified to reflect assignments permitted by Sections 9.1 and
2.24 or otherwise pursuant to the terms hereof.
"Federal Funds Rate" shall mean, for any day, a rate of interest per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to
the weighted average of the rates on overnight federal funds transactions
with members of the Federal Reserve System arranged by federal funds
brokers on such day, as published by the Federal Reserve Bank of New York,
on the Business Day next succeeding such day, provided that (a) if the day
for which such rate is to be determined is not a Business Day, the Federal
Funds Rate for
9
<PAGE> 15
such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day, and (b)
if such rate is not so published for any day, the Federal Funds Rate for
such day shall be the average rate charged to the Agent on such day on
such transactions as determined by the Agent.
"Fee Letter" shall mean the letter agreement dated as of September ,
1996, from CIBC to the Borrowers concerning certain fees in connection
with the transactions contemplated hereby, and any agreements or
instruments executed in connection therewith, as amended, restated, or
supplemented from time to time.
"Final Maturity" shall mean September 30, 2000.
"Financial Statements" shall mean statements of the financial
condition as at the point in time and for the period indicated and
consisting in all cases of at least a balance sheet and related statements
of operations and cash flows, and in each year-end financial statement a
statement of common stock and other stockholders' or partners' equity,
and, when required by applicable provisions of this Agreement to be
audited, accompanied by the unqualified certification of a
nationally-recognized firm of independent certified public accountants or
other independent certified public accountants reasonably acceptable to
the Agent and footnotes to any of the foregoing, all of which, unless
otherwise indicated, shall be prepared in accordance with GAAP
consistently applied (subject to normal year-end audit adjustments with
respect to Financial Statements prepared as at a point in time other than
year-end) and in comparative form with respect to the corresponding period
of the preceding fiscal period.
"GAAP" shall mean generally accepted accounting principles
established by the Financial Accounting Standards Board or the American
Institute of Certified Public Accountants and in effect in the United
States from time to time.
"Governmental Authority" shall mean any nation, country,
commonwealth, territory, government, state, county, parish, municipality,
or other political subdivision and any entity exercising executive,
legislative, judicial, regulatory, or administrative functions of or
pertaining to government.
"Guarantor" shall mean KCS Energy, Inc., a Delaware corporation.
"Guaranty" shall mean the Guaranty dated the Closing Date executed
by the Guarantor, guaranteeing the payment and performance of the
Obligations, in the form attached hereto as Exhibit V, with appropriate
insertions, as ratified, amended, restated, or supplemented from time to
time.
"Hall-Houston Production and Delivery Agreement" means the
Production and Delivery Agreement dated as of September 30, 1994, by and
between KCS Marketing and Hall-Houston Oil Company, as such agreement has
been amended
10
<PAGE> 16
by amendments dated October 31, 1994, June 3 and June 15, 1995 and March
1, 1996.
"Hawkins Oil Production and Delivery Agreement" means the Production
and Delivery Agreement dated as of November 30, 1995, by and between KCS
Marketing and Hawkins Oil of Michigan, Inc.
"Hazardous Substances" shall mean flammables, explosives,
radioactive materials, hazardous wastes, asbestos or any material
containing asbestos, polychlorinated biphenyls (PCBs), petroleum,
petroleum products, associated oil or natural gas exploration, production,
and development wastes, or any substances defined as "hazardous
substances," "hazardous materials," "hazardous wastes," or "toxic
substances" under the Comprehensive Environmental Response, Compensation
and Liability Act, as amended, the Superfund Amendments and
Reauthorization Act, as amended, the Hazardous Materials Transportation
Act, as amended, the Resource Conservation and Recovery Act, as amended,
the Toxic Substances Control Act, as amended, or any other Requirement of
Law.
"Hedging Agreement" shall mean (a) any interest rate or currency
swap, rate cap, rate floor, rate collar, forward agreement, or other
exchange or rate protection agreement with the Agent, any Lender, or any
affiliate of the Agent, or any Lender or any option with respect to any
such transaction and (b) any swap agreement, cap, floor, collar, exchange
transaction, forward agreement, or other exchange or protection agreement
with the Agent, any Lender, or any affiliate of the Agent or any Lender
relating to hydrocarbons or any option with respect to any such
transaction.
"Highest Lawful Rate" shall mean, with respect to each Lender, the
maximum non-usurious interest rate, if any (or, if the context so
requires, an amount calculated at such rate), that at any time or from
time to time may be contracted for, taken, reserved, charged, or received
under laws applicable to such Lender, as such laws are presently in effect
or, to the extent allowed by applicable law, as such laws may hereafter be
in effect and which allow a higher maximum non-usurious interest rate than
such laws now allow.
"Indebtedness" shall mean, as to any Person, without duplication,
(a) all liabilities (excluding reserves for deferred income taxes,
deferred compensation liabilities, and other deferred liabilities and
credits) which in accordance with GAAP would be included in determining
total liabilities as shown on the liability side of a balance sheet, (b)
all obligations of such Person evidenced by bonds, debentures, promissory
notes, or similar evidences of indebtedness, (c) all other indebtedness of
such Person for borrowed money, and (d) all obligations of others, to the
extent any such obligation is secured by a Lien on the assets of such
Person (whether or not such Person has assumed or become liable for the
obligation secured by such Lien).
11
<PAGE> 17
"Insolvency Proceeding" shall mean application (whether voluntary or
instituted by another Person) for or the consent to the appointment of a
receiver, trustee, conservator, custodian, or liquidator of any Person or
of all or a substantial part of the Property of such Person, or the filing
of a petition (whether voluntary or instituted by another Person)
commencing a case under Title 11 of the United States Code, seeking
liquidation, reorganization, or rearrangement or taking advantage of any
bankruptcy, insolvency, debtor's relief, or other similar law of the
United States or any other jurisdiction.
"Insolvent" or "Insolvency" shall mean, with respect to any
Multiemployer Plan, that such Plan is insolvent within the meaning of such
term as used in Section 4245 of ERISA.
"Intellectual Property" shall mean patents, patent applications,
trademarks, tradenames, copyrights, technology, know-how, and processes.
"Interest Expense" shall mean, for any period, the total interest
expense (including interest expense attributable to capitalized leases) of
the Guarantor and its Subsidiaries for such period, determined on a
consolidated basis and in accordance with GAAP.
"Interest Period" shall mean, subject to the limitations set forth
in Section 2.3, with respect to any LIBO Rate Loan, a period commencing on
the date such Loan is made or converted from a Loan of another type
pursuant to this Agreement or the last day of the next preceding Interest
Period with respect to such Loan and ending on the numerically
corresponding day in the calendar month that is one, two, three, six, or,
subject to availability as determined by the Lenders, twelve months
thereafter, as the Borrowers may request in the Borrowing Request for such
Loan.
"Investment" shall mean, as to any Person, any stock, bond, note or
other evidence of Debt or any other security (other than current trade and
customer accounts) of, investment or partnership interest in or loan to,
such Person.
"L/C Exposure" shall mean, at any time, the aggregate maximum amount
available to be drawn under outstanding Letters of Credit at such time.
"Letter of Credit" shall mean any standby or documentary letter of
credit issued for the account of the Borrowers pursuant to Section 2.2.
"Letter of Credit Application" shall mean the standard letter of
credit application employed by the Agent, as the issuer of the Letters of
Credit, from time to time in connection with letters of credit.
12
<PAGE> 18
"Letter of Credit Payment" shall mean any payment made by the Agent
on behalf of the Lenders under a Letter of Credit, to the extent that such
payment has not been repaid by the Borrowers.
"LIBO Rate" shall mean, with respect to any Interest Period for any
LIBO Rate Loan, the rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) equal to the average of the offered quotations
appearing on Telerate Page 3750 (or if such Telerate Page shall not be
available, any successor or similar service selected by the Agent and the
Borrowers) as of approximately 11:00 a.m., London time, on the day two
Business Days prior to the first day of such Interest Period for Dollar
deposits in an amount comparable to the principal amount of such LIBO Rate
Loan and having a term comparable to the Interest Period for such LIBO
Rate Loan. If neither such Telerate Page 3750 nor any successor or similar
service is available, the term "LIBO Rate" shall mean, with respect to any
Interest Period for any LIBO Rate Loan, the rate per annum (rounded
upwards if necessary, to the nearest 1/16 of 1%) quoted by the Agent at
approximately 11:00 a.m., London time (or as soon thereafter as
practicable) two Business Days prior to the first day of the Interest
Period for such LIBO Rate Loan for the offering by the Agent to leading
banks in the London interbank market of Dollar deposits in an amount
comparable to the principal amount of such LIBO Rate Loan and having a
term comparable to the Interest Period for such LIBO Rate Loan.
"LIBO Rate Loan" shall mean any Loan or any portion of the Loan
Balance which the Borrowers have requested, in the initial Borrowing
Request for such Loan or a subsequent Borrowing Request for such portion
of the Loan Balance, bear interest at the Adjusted LIBO Rate and which is
permitted by the terms hereof to bear interest at the Adjusted LIBO Rate.
"Lien" shall mean any interest in Property securing an obligation
owed to, or constituting a claim by, a Person other than the owner of such
Property, whether such interest is based on common law, statute, or
contract, and including the lien or security interest arising from a
mortgage, ship mortgage, encumbrance, pledge, security agreement,
conditional sale or trust receipt, or a lease, consignment, or bailment
for security purposes (other than true leases or true consignments), liens
of mechanics, materialmen, and artisans, maritime liens and reservations,
exceptions, encroachments, easements, rights of way, covenants,
conditions, restrictions, leases, and other title exceptions and
encumbrances affecting Property which secure an obligation owed to, or
constitute a claim by, a Person other than the owner of such Property (for
the purpose of this Agreement, a Borrower shall be deemed to be the owner
of any Property which it has acquired or holds subject to a conditional
sale agreement, financing lease, or other arrangement pursuant to which
title to the Property has been retained by or vested in some other Person
for security purposes), and the filing or recording of any financing
statement or other security instrument in any public office.
13
<PAGE> 19
"Limitation Period" shall mean, with respect to any Lender, any
period while any amount remains owing on the Note payable to such Lender
and interest on such amount, calculated at the applicable interest rate,
plus any fees or other sums payable to such Lender under any Loan Document
and deemed to be interest under applicable law, would exceed the amount of
interest which would accrue at the Highest Lawful Rate.
"Loan" shall mean any loan made by any Lender to or for the benefit
of the Borrowers pursuant to this Agreement and, without duplication, any
payment made by the Agent as the issuing bank under a Letter of Credit.
"Loan Balance" shall mean, at any time, the aggregate outstanding
principal balance of the Notes at such time.
"Loan Documents" shall mean this Agreement, the Notes, the Guaranty,
the Letter of Credit Applications, the Letters of Credit, the Fee Letter,
the Security Instruments, and all other documents and instruments now or
hereafter delivered by any of the Borrowers, the Guarantor or any of their
respective Affiliates in favor or for the benefit of the Agent or any
Lender pursuant to the terms of or in connection with this Agreement, the
Notes, the Guaranty, the Letter of Credit Applications, the Letters of
Credit, the Fee Letter, or the Security Instruments, and all renewals,
extensions, amendments, supplements, and restatements thereof.
"Material Properties" shall mean the Oil and Gas Properties listed
on Exhibit VII.
"Material Adverse Effect" shall mean any material adverse effect on
the business, operations, Properties, condition (financial or otherwise),
or prospects of the Borrowers and the Guarantor taken as a whole;
provided, however, that an adverse decision in any or all of the Tennessee
Gas Disputes shall under no circumstances be deemed to constitute a
Material Adverse Effect.
"Maximum Facility Amount" shall mean the sum of the Facility Amounts
of all Lenders.
"Mortgaged Properties" shall mean all Oil and Gas Properties of KRI,
KCS Michigan, and KCS Marketing subject to a Lien in favor of the Agent to
secure the Obligations.
"Multiemployer Plan" shall mean a Plan which is a multiemployer plan
as defined in Section 4001(a)(3) of ERISA.
"Net Income" shall mean, for any period, the net income (or loss) of
the Guarantor and its Subsidiaries for such period, determined on a
consolidated basis and in accordance with GAAP.
14
<PAGE> 20
"Notes" shall mean, collectively, each of the promissory notes of
the Borrowers payable to a Lender in the amount of the Facility Amount of
such Lender, in the form attached hereto as Exhibit I, with appropriate
insertions, together with all renewals, extensions for any period,
increases, and rearrangements thereof.
"Notice of Termination" shall have the meaning assigned to such term
in Section 2.24.
"Obligations" shall mean, without duplication, (a) all Indebtedness
evidenced by the Notes, (b) the obligation of the Borrowers to provide to
or reimburse the Agent, as the issuer of Letters of Credit, or the
Lenders, as the case may be, for, amounts payable, paid, or incurred with
respect to Letters of Credit, (c) the undrawn, unexpired amount of all
outstanding Letters of Credit, (d) the obligation of the Borrowers for the
payment of fees and expenses pursuant to the Loan Documents, (e) the
obligations of the Guarantor under the Guaranty, (f) all amounts owing or
to be owing by any of the Borrowers under any Hedging Agreement now or
hereafter arising, and (g) all other obligations and liabilities of the
Borrowers or the Guarantor to the Agent and the Lenders, now existing or
hereafter incurred, under, arising out of or in connection with any Loan
Document, and to the extent that any of the foregoing includes or refers
to the payment of amounts deemed or constituting interest, only so much
thereof as shall have accrued, been earned and which remains unpaid at
each relevant time of determination.
"Oil and Gas Properties" shall mean fee, leasehold, or other
interests in or under mineral estates or oil, gas, and other liquid or
gaseous hydrocarbon leases with respect to Properties situated in the
United States or offshore from any State of the United States, including
overriding royalty and royalty interests, leasehold estate interests, net
profits interests, production payment interests, and mineral fee
interests, together with contracts executed in connection therewith and
all tenements, hereditaments, appurtenances, and Properties appertaining,
belonging, affixed, or incidental thereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA or any entity
succeeding to any or all of its functions under ERISA.
"Percentage Share" shall mean, as to each Lender, the percentage
such Lender's Facility Amount constitutes of the Maximum Facility Amount.
"Permitted Liens" shall mean (a) Liens for taxes, assessments, or
other governmental charges or levies not yet due or which (if foreclosure,
distraint, sale, or other similar proceedings shall not have been
initiated) are being contested in good faith by appropriate proceedings,
and such reserve as may be required by GAAP shall have been made therefor,
(b) Liens in connection with
15
<PAGE> 21
workers' compensation, unemployment insurance or other social security
(other than Liens created by Section 4068 of ERISA), old-age pension, or
public liability obligations which are not yet due or which are being
contested in good faith by appropriate proceedings, if such reserve as may
be required by GAAP shall have been made therefor, (c) Liens in favor of
Governmental Authorities, vendors, carriers, warehousemen, repairmen,
mechanics, workmen, and materialmen, and construction or similar Liens
arising by operation of law (including Liens securing statutory or
regulatory obligations) in the ordinary course of business in respect of
obligations that are not past-due or which are being contested in good
faith by appropriate proceedings, if such reserve as may be required by
GAAP shall have been made therefor, (d) Liens in favor of operators and
non-operators under joint operating agreements or similar contractual
arrangements arising in the ordinary course of the business of the
Borrowers or the Guarantor to secure amounts owing, which amounts are not
yet due or are being contested in good faith by appropriate proceedings,
if such reserve as may be required by GAAP shall have been made therefor,
(e) Liens under production sales agreements, division orders, operating
agreements, unitization and pooling orders, and other agreements customary
in the oil and gas business for processing, producing, transporting,
marketing, and exchanging produced hydrocarbons securing obligations not
constituting Indebtedness and provided that such Liens do not secure
obligations to deliver hydrocarbons at some future date without receiving
full payment therefor within 90 days of delivery, (f) the terms of the
instruments evidencing the Oil and Gas Properties of the Borrowers and
easements, rights of way, restrictions, and other similar encumbrances,
and minor defects in the chain of title which are customarily accepted in
the oil and gas industry (including defects noted in the title opinions
and reports furnished to and not objected to by the Agent prior to the
Closing Date), none of which interfere with the ordinary conduct of the
business of the Borrower or the Guarantor or materially detract from the
value or use of the Property to which they apply, (g) Liens in favor of
the Agent and other Liens expressly permitted under the Security
Instruments, (h) Liens securing the Indebtedness permitted under clauses
(f) and (g) of Section 6.1, provided that no Lien securing Indebtedness
permitted under Section 6.1(f) encumbers any Collateral, and (i) judgment
Liens arising by operation of law or as the result of the abstracting of a
judgment or similar action under the laws of any jurisdiction and not
giving rise to an Event of Default, in respect of judgments that are not
final and non-appealable judgments, so long as any appropriate legal
proceedings which may have been duly initiated for the review of such
judgment shall not have been finally terminated or the period within which
such proceeding may be initiated shall not have expired.
"Person" shall mean an individual, corporation, partnership, trust,
unincorporated organization, government, any agency or political
subdivision of any government, or any other form of entity.
"Plan" shall mean, at any time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrower, the Guarantor, or
any
16
<PAGE> 22
Commonly Controlled Entity is (or, if such plan were terminated at such
time, would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"Principal Office" shall mean the principal office of the Agent in
New York, New York, presently located at 425 Lexington Avenue, 7th Floor,
New York, New York 10017.
"Prohibited Transaction" shall have the meaning assigned to such
term in Section 406 of ERISA or Section 4975 of the Code.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.
"Prospectus" means the Offering Memorandum dated January 19, 1996
relating to the sale by the Guarantor of its 11% Senior Notes due 2003 in
the aggregate principal amount of $150,000,000.
"Qualified Swap Counterparty" shall mean (a) the Agent, any Lender
or an affiliate of the Agent or any Lender, (b) 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
$500,000,000, (c) a corporation (other than an Affiliate of any Borrower)
or other entity organized under the laws of any state of the United States
or the District of Columbia and rated either (i) A-2 or better by S&P's or
P-2 or better by Moody's, in the case of short-term debt obligations or
(ii) A or better by S&P in the case of unsecured long-term debt
obligations, or (d) a corporation or other entity (other than an Affiliate
of any Borrower) (i) organized under the laws of Canada or any province
thereof and rated R-1 (middle/low) (or the then equivalent grade) or
higher by DBRS or, if not then rated by DBRS, which is rated A-1 or the
then equivalent grade or higher by CBRS, or (ii) which has furnished any
Borrower a letter of credit, cash prepayment or other form of credit
enhancement reasonably acceptable to such Borrower.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System (or any successor), as amended or supplemented
from time to time.
"Regulatory Change" shall mean, with respect to any Lender, the
passage, adoption, institution, or modification of any federal, state,
local, or foreign Requirement of Law (including Regulation D), or any
interpretation, directive, or request (whether or not having the force of
law) of any Governmental Authority or monetary authority charged with the
enforcement, interpretation, or administration thereof, occurring after
the Closing Date and applying to a class of lenders including such Lender
or its Applicable Lending Office.
17
<PAGE> 23
"Release of Hazardous Substances" shall mean any emission, spill,
release, disposal, or discharge, except in accordance with a valid permit,
license, certificate, or approval of the relevant Governmental Authority,
of any Hazardous Substance into or upon (a) the air, (b) soils or any
improvements located thereon, (c) surface water or groundwater, or (d) the
sewer or septic system, or the waste treatment, storage, or disposal
system servicing any Property at any time owned, leased or operated by the
Guarantor or any of the Borrowers.
"Reorganization" shall mean, with respect to any Multiemployer Plan,
that such Plan is in reorganization within the meaning of such term in
Section 4241 of ERISA.
"Replacement Lenders" shall have the meaning assigned to such term
in Section 2.24.
"Reportable Event" shall mean any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty-day
notice period is waived under subsections .13, .14, .16, .18, .19 or .20
of PBGC Reg. ss.2615.
"Required Lenders" shall mean, at any time when no Loans are
outstanding, Lenders whose Percentage Shares total at least sixty-six and
two-thirds percent (66-2/3%), and at any time when any Loans are
outstanding, Lenders holding at least sixty-six and two-thirds percent (66
2/3%) of the Loan Balance (without regard to any sale of a participation
in any Loan).
"Required Payment" shall have the meaning assigned to such term in
Section 2.8.
"Requirement of Law" shall mean, as to any Person, any applicable
law, treaty, ordinance, order, judgment, rule, decree, regulation, or
determination of an arbitrator, court, or other Governmental Authority,
including rules, regulations, orders, and requirements for permits,
licenses, registrations, approvals, or authorizations, in each case as
such now exist or may be hereafter amended and are applicable to or
binding upon such Person or any of its Property or to which such Person or
any of its Property is subject.
"Reserve Report" shall mean each report provided by the Borrowers
pursuant to Section 5.4.
"Reserve Requirement" shall mean, for any Interest Period for any
LIBO Rate Loan, or for any day in computing the Adjusted CD Rate, the
average maximum rate at which reserves (including any marginal,
supplemental, or emergency reserves) are required to be maintained during
such Interest Period under Regulation D by member banks of the Federal
Reserve System in New York, with deposits exceeding one billion Dollars
against (a) in the case of any
18
<PAGE> 24
LIBO Rate Loan, "Eurocurrency liabilities" (as such term is used in
Regulation D) or (b) in the case of computing the Adjusted CD Rate, 30-day
nonpersonal Dollar time deposits in an amount approximately equal or
comparable to the aggregate amount of Base Rate Loans then outstanding.
Each determination by the Agent of the applicable Reserve Requirement
shall, in the absence of manifest error, be conclusive and binding.
"Responsible Officer" shall mean, as to any Borrower or the
Guarantor, any of the following Persons: James W. Christmas, Chief
Executive Officer; Henry A. Jurand, Vice President and Chief Financial
Officer; or Kathryn M. Kinnamon, Treasurer; and in any event, shall mean
no other Person or Persons except as modified pursuant to a certificate
sent to the Agent signed by a Responsible Officer of the Person with
respect to which the modification is to be effected, and in each such
event, only after the Agent has had a reasonable opportunity to act upon
such certification.
"Sales Period" shall mean each successive six-month period during
the term hereof, commencing with the six-month period beginning July 1,
1996.
"Security Instruments" shall mean the Existing Bank One Security
Instruments, the Existing Comerica Security Instruments, the security
instruments executed and delivered in satisfaction of the condition set
forth in Section 3.1(g), and all other documents and instruments at any
time executed as security for all or any portion of the Obligations, as
such instruments may be amended, restated, or supplemented from time to
time.
"Senior Note Indenture" shall mean the Indenture dated as of January
15, 1996, by and among the Guarantor, the Subsidiary Guarantors (as such
term is defined therein) named therein, and Fleet National Bank of
Connecticut, as Trustee, relating to the sale by the Guarantor of its 11%
Senior Notes due 2003 in the aggregate principal amount of
$150,000,000.00.
"Single Employer Plan" shall mean any Plan which is covered by Title
IV of ERISA, but which is not a Multiemployer Plan.
"Subordinated Debt" shall mean Indebtedness of any Borrower to the
Guarantor, or any Affiliate of the Guarantor which is not a borrower under
this Agreement, or any assignee of any such Person, which Indebtedness
shall be subordinated to the payment in full of the Obligations pursuant
to the terms of the Subordination Agreement.
"Subordination Agreement" shall mean the Subordination Agreement
dated the Closing Date executed by the Guarantor, as amended, restated, or
supplemented from time to time.
19
<PAGE> 25
"Subsidiary" shall mean, as to any Person, a corporation of which
shares of stock having ordinary voting power (other than stock having such
power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such corporation
are at the time owned, directly or indirectly through one or more
intermediaries, or both, by such Person.
"Sufficient Copies" shall mean that number of copies as shall
reasonably be requested from time to time by the Agent.
"Superfund Site" shall mean those sites listed on the Environmental
Protection Agency National Priority List and eligible for remedial action
or any comparable state registries or list in any state of the United
States.
"Tangible Net Worth" shall mean (a) total assets, as would be
reflected on a balance sheet of the Guarantor and its Subsidiaries
prepared on a consolidated basis and in accordance with GAAP, exclusive of
Intellectual Property, experimental or organization expenses, franchises,
licenses, permits, and other intangible assets, treasury stock, and
goodwill minus (b) total liabilities, as would be reflected on a balance
sheet of the Guarantor and its Subsidiaries prepared on a consolidated
basis and in accordance with GAAP.
"Taxes" shall have the meaning assigned to such term in Section
2.23.
"Tennessee Gas Disputes" shall mean (i) the litigation among the
parties concerning the interpretation of that certain Gas Purchase and
Sales Agreement dated January 16, 1979, by and among Tennessee Gas
Pipeline Company, National Exploration Company, Eton Partnership, and Gulf
Energy and Development Corporation, as heretofore amended or supplemented;
(ii) the declaratory judgment action brought by Tennessee Gas Pipeline
Company as described on page 48 of the Prospectus; (iii) the litigation
regarding claims of artificially enriched natural gas described on pages
48 and 49 of the Prospectus; and (iv) the royalty holders litigation
described on page 49 of the Prospectus.
"Terminated Lender" shall have the meaning assigned to such term in
Section 2.24.
"Termination Date" shall have the meaning assigned to such term in
Section 2.24.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the State of New York.
1.3 Undefined Financial Accounting Terms. Undefined financial
accounting terms used in this Agreement shall be defined according to GAAP at
the time in effect.
20
<PAGE> 26
1.4 References. References in this Agreement to Exhibit, Article, or
Section numbers shall be to Exhibits, Articles, or Sections of this Agreement,
unless expressly stated to the contrary. References in this Agreement to
"hereby," "herein," "hereinafter," "hereinabove," "hereinbelow," "hereof,"
"hereunder" and words of similar import shall be to this Agreement in its
entirety and not only to the particular Exhibit, Article, or Section in which
such reference appears. References in this Agreement to "includes" or
"including" shall mean "includes, without limitation," or "including, without
limitation," as the case may be. References in this Agreement to statutes,
sections, or regulations are to be construed as including all statutory or
regulatory provisions consolidating, amending, replacing, succeeding or
supplementing such statutes sections, or regulations.
1.5 Articles and Sections. This Agreement, for convenience only, has
been divided into Articles and Sections; and it is understood that the rights
and other legal relations of the parties hereto shall be determined from this
instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.
1.6 Number and Gender. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural; and
likewise, the plural shall be understood to include the singular. Definitions of
terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise indicated. Words
denoting sex shall be construed to include the masculine, feminine and neuter,
when such construction is appropriate.
1.7 Incorporation of Exhibits. The Exhibits attached to this
Agreement are incorporated herein and shall be considered a part of this
Agreement for all purposes.
1.8. Knowledge. As used herein "knowledge" or "knowledge and belief"
of a Borrower or of the Borrowers shall mean the knowledge of any officer of a
Borrower; provided, however, that in the case of any matter covered by Sections
4.14 and 5.6 relating to an Oil and Gas Property of a Borrower, such "knowledge"
or "knowledge and belief" shall mean (a) in the case of an Oil and Gas Property
operated by a Borrower, the knowledge of the highest ranking field personnel of
a Borrower assigned to such Property and (b) in the case of an Oil and Gas
Property of a Borrower that is not operated by such Borrower, the knowledge of
an operations manager having responsibility for such Property.
ARTICLE II
TERMS OF FACILITY
2.1 Revolving Line of Credit. (a) Upon the terms and conditions and
relying on the representations and warranties contained in this Agreement and
the other Loan Documents, each Lender severally agrees to make Loans during the
Commitment Period to or for the benefit of the Borrowers, or any combination of
them, in an aggregate principal amount not to exceed at any time outstanding the
lesser of the Facility Amount of such Lender or the Percentage Share of such
Lender of the Borrowing Base then in effect; provided, however, that
21
<PAGE> 27
(i) the Loan Balance plus the L/C Exposure shall not exceed at any time the
lesser of the Maximum Facility Amount or the Borrowing Base then in effect, and
(ii) the sum of the outstanding principal balance of all Loans by any Lender
plus the Percentage Share of such Lender of the L/C Exposure shall not exceed at
any time an amount equal to the Percentage Share of such Lender multiplied by
the lesser of the Maximum Facility Amount or the Borrowing Base then in effect.
Loans shall be made from time to time on any Business Day designated by the
Borrowers in a Borrowing Request.
(b) Subject to the terms of this Agreement, during the Commitment
Period, the Borrowers may borrow, repay, and reborrow and convert Loans of one
type or with one Interest Period into Loans of another type or with a different
Interest Period. Except for prepayments made pursuant to Section 2.12, each
borrowing, conversion, and prepayment of principal, in the case of Base Rate
Loans, shall be in an amount at least equal to $100,000 and in multiples of
$100,000 thereafter and, in the case of LIBO Rate Loans, shall be in an amount
at least equal to $1,000,000 and in multiples of $100,000 thereafter. Each
borrowing, prepayment, or conversion of or into a Loan of a different type or,
in the case of a LIBO Rate Loan, having a different Interest Period, shall be
deemed a separate borrowing, conversion, and prepayment for purposes of the
foregoing, one for each type of Loan or Interest Period. Anything in this
Agreement to the contrary notwithstanding, the aggregate principal amount of
LIBO Rate Loans having the same Interest Period shall be at least equal to
$1,000,000; and if any LIBO Rate Loan would otherwise be in a lesser principal
amount for any period, such Loan shall be a Base Rate Loan during such period.
(c) Not later than noon, Eastern Standard or Daylight Savings Time,
as the case may be, on the date specified for each borrowing, each Lender shall
make available to the Agent an amount equal to the Percentage Share of such
Lender of the borrowing to be made on such date, at an account designated by the
Agent, for the account of the Borrowers. The amount so received by the Agent
shall, subject to the terms and conditions hereof, be made available to the
Borrowers in immediately available funds by no later than 1:00 p.m. Eastern
Standard or Daylight Savings Time, as the case may be, in an account designated
from time to time by the Borrowers. All Loans by each Lender shall be maintained
at the Applicable Lending Office of such Lender and shall be evidenced by the
Note of such Lender.
(d) The failure of any Lender to make any Loan required to be made
by it hereunder shall not relieve any other Lender of its obligation to make any
Loan required to be made by it, and no Lender shall be responsible for the
failure of any other Lender to make any Loan.
2.2 Letter of Credit Facility. (a) Upon the terms and conditions and
relying on the representations and warranties contained in this Agreement, the
Agent, as issuing bank for the Lenders, agrees, from the date of this Agreement
until the date which is 30 days prior to the Commitment Termination Date, to
issue, on behalf of the Lenders in their respective Percentage Shares, Letters
of Credit for the account of the Borrowers, or any combination of them, and to
renew and extend such Letters of Credit. Letters of Credit shall be issued,
renewed, or extended from time to time on any Business Day designated by the
Borrowers following the receipt in accordance with the terms hereof by the Agent
of the written (or oral,
22
<PAGE> 28
confirmed promptly in writing) request by a Responsible Officer of each of the
Borrowers therefor and a Letter of Credit Application. Letters of Credit shall
be issued in such amounts as the Borrowers may request; provided, however, that
(i) no Letter of Credit shall have an expiration date which is more than 365
days after the issuance thereof or subsequent to one Business Day prior to the
Commitment Termination Date, (ii) the Loan Balance plus the L/C Exposure shall
not exceed at any time the lesser of the Maximum Facility Amount or the
Borrowing Base, (iii) the L/C Exposure shall not exceed at any time $20,000,000,
and (iv) no Letter of Credit shall be issued in an amount less than $50,000.
(b) Prior to any Letter of Credit Payment in respect of any Letter
of Credit, each Lender shall be deemed to be a participant through the Agent
with respect to the relevant Letter of Credit in the obligation of the Agent, as
the issuer of such Letter of Credit, in an amount equal to the Percentage Share
of such Lender of the maximum amount which is or at any time may become
available to be drawn thereunder. Upon delivery by such Lender of funds
requested pursuant to Section 2.2(c), such Lender shall be treated as having
purchased a participating interest in an amount equal to such funds delivered by
such Lender to the Agent in the obligation of the Borrowers to reimburse the
Agent, as the issuer of such Letter of Credit, for any amounts payable, paid, or
incurred by the Agent, as the issuer of such Letter of Credit, with respect to
such Letter of Credit.
(c) Each Lender shall be unconditionally and irrevocably liable,
without regard to the occurrence of any Default or Event of Default, to the
extent of the Percentage Share of such Lender at the time of issuance of each
Letter of Credit, to reimburse, on demand, the Agent, as the issuer of such
Letter of Credit, for the amount of each Letter of Credit Payment under such
Letter of Credit. Each Letter of Credit Payment shall be deemed to be a Base
Rate Loan by each Lender to the extent of funds delivered by such Lender to the
Agent with respect to such Letter of Credit Payment and shall to such extent be
deemed a Base Rate Loan under and shall be evidenced by the Note of such Lender.
In the event that a Default has occurred and is continuing under Sections 7.1(f)
or (g), an amount equal to any Letter of Credit Payment made after the
occurrence of such Default shall be payable by the Borrowers upon demand by the
Agent. Notwithstanding anything contained herein or any other Loan Document
(including any Letter of Credit Application), but subject to the provisions of
Section 2.12, neither the Agent as the issuing bank nor any Lender shall have
any right to require any Borrower to prepay any amounts for which the Agent as
the issuing bank or any Lender might become liable under any Letter of Credit.
(d) EACH LENDER AGREES TO INDEMNIFY THE AGENT, AS THE ISSUER OF EACH
LETTER OF CREDIT, AND THE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS-IN-FACT AND AFFILIATES OF THE AGENT (TO THE EXTENT NOT REIMBURSED BY
THE BORROWERS AND WITHOUT LIMITING THE OBLIGATION OF THE BORROWERS TO DO SO),
RATABLY ACCORDING TO THE PERCENTAGE SHARE OF SUCH LENDER AT THE TIME OF ISSUANCE
OF SUCH LETTER OF CREDIT, FROM AND AGAINST ANY AND ALL LIABILITIES, CLAIMS,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES AND DISBURSEMENTS OF ANY KIND WHATSOEVER WHICH MAY AT ANY TIME
(INCLUDING ANY TIME FOLLOWING THE PAYMENT AND PERFORMANCE OF ALL OBLIGATIONS AND
THE TERMINATION OF THIS AGREEMENT) BE IMPOSED ON, INCURRED BY OR ASSERTED
23
<PAGE> 29
AGAINST THE AGENT AS THE ISSUER OF SUCH LETTER OF CREDIT OR ANY OF ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES IN ANY WAY
RELATING TO OR ARISING OUT OF THIS AGREEMENT OR SUCH LETTER OF CREDIT OR ANY
ACTION TAKEN OR OMITTED BY THE AGENT AS THE ISSUER OF SUCH LETTER OF CREDIT OR
ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR
AFFILIATES UNDER OR IN CONNECTION WITH ANY OF THE FOREGOING, INCLUDING ANY
LIABILITIES, CLAIMS, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS IMPOSED, INCURRED OR
ASSERTED AS A RESULT OF THE NEGLIGENCE, WHETHER SOLE OR CONCURRENT, OF THE AGENT
AS THE ISSUER OF SUCH LETTER OF CREDIT OR ANY OF ITS OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES; PROVIDED THAT NO LENDER
(OTHER THAN THE AGENT AS THE ISSUER OF A LETTER OF CREDIT) SHALL BE LIABLE FOR
THE PAYMENT OF ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS RESULTING
SOLELY FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE AGENT AS THE
ISSUER OF A LETTER OF CREDIT. THE AGREEMENTS IN THIS SECTION 2.2(d) SHALL
SURVIVE THE PAYMENT AND PERFORMANCE OF ALL OBLIGATIONS AND THE TERMINATION OF
THIS AGREEMENT.
2.3 Limitations on Interest Periods. Each Interest Period selected
by the Borrowers (a) which commences on the last Business Day of a calendar
month (or any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month, (b) which would otherwise end on a day
which is not a Business Day shall end on the next succeeding Business Day (or,
if such next succeeding Business Day falls in the next succeeding calendar
month, on the next preceding Business Day), (c) which would otherwise end after
Final Maturity shall end on Final Maturity, and (d) shall have a duration of not
less than one month and, if any Interest Period would otherwise be a shorter
period, the relevant Loan shall be a Base Rate Loan during such period.
2.4 Limitation on Types of Loans. Anything herein to the contrary
notwithstanding, no more than ten separate Loans shall be outstanding at any one
time, with, for purposes of this Section, all Base Rate Loans constituting one
Loan, and all LIBO Rate Loans for the same Interest Period constituting one
Loan. Anything herein to the contrary notwithstanding, if, on or prior to the
determination of any interest rate for any LIBO Rate Loan for any Interest
Period therefor:
(a) the Agent determines (which determination shall be conclusive,
absent manifest error) that quotations of interest rates for the deposits
referred to in the definition of "LIBO Rate" in Section 1.2 are not being
provided in the relevant amounts or for the relevant maturities for
purposes of determining the rate of interest for such Loan as provided in
this Agreement; or
(b) the Agent or the Required Lenders determine (which determination
shall be conclusive, absent manifest error) that the rates of interest
referred to in the definition of "LIBO Rate" in Section 1.2 upon the basis
of which the rate of interest for such Loan for such Interest Period is to
be determined do not
24
<PAGE> 30
adequately cover the cost to the Lenders of making or maintaining such
Loan for such Interest Period,
then the Agent shall give the Borrowers and the Lenders prompt notice thereof;
and so long as such condition remains in effect, the Lenders shall be under no
obligation to make LIBO Rate Loans or to convert Base Rate Loans into LIBO Rate
Loans, and the Borrowers shall, on the last day of the then current Interest
Period for each outstanding LIBO Rate Loan, either prepay such LIBO Rate Loan or
convert such Loan into a Base Rate Loan in accordance with Section 2.13. During
the 30 days next succeeding the giving of such notice by the Agent to the
Borrowers, the Borrowers, the Agent and each of the Lenders shall negotiate in
good faith in order to arrive at a mutually satisfactory interest rate for the
rates of interest referred to in the definition "LIBO Rate" or "Adjusted LIBO
Rate" for proposed LIBO Rate Loans. If within such 30-day period the Borrowers,
the Agent and the Lenders shall agree in writing upon a substitute interest rate
and the effective date thereof, such substituted interest rate shall be
applicable to all requests by the Borrowers for proposed LIBO Rate Loans. During
any period when the borrowing of LIBO Rate Loans is suspended or when an
alternative interest rate is in force pursuant to this subsection, the Agent, in
consultation with the Lenders, shall periodically, at least once a month,
determine whether circumstances are such that the interest rates referred to in
the definitions of "LIBO Rate" or "Adjusted LIBO Rate" may again be determined.
If such a determination is made, the Agent shall forthwith give written notice
to the Borrowers and each Lender, whereupon the Agent, the Borrowers and the
Lenders shall begin redetermining the "LIBO Rate" and the "Adjusted LIBO Rate"
in accordance with the terms of the definitions thereof.
2.5 Use of Loan Proceeds and Letters of Credit. (a) As of the date
hereof, (i) principal indebtedness in the amount set forth in Exhibit X under
the heading "Existing Loan Balances" is outstanding under the Existing Bank One
Notes, and (ii) principal indebtedness in the amount set forth in Exhibit X
under the heading "Existing Loan Balances" is outstanding under the Existing
Comerica Notes. The Lenders shall purchase such indebtedness, together with all
accrued and unpaid interest thereon, such that the initial Loans hereunder shall
be in the aggregate amount of such purchased indebtedness. Such indebtedness
shall be renewed, extended, and rearranged pursuant to the terms of this
Agreement, the Notes, and the relevant Borrowing Request and shall for all
purposes be deemed a borrowing hereunder. Proceeds of all subsequent Loans shall
be used solely for general corporate purposes, working capital and acquisitions.
(b) Letters of Credit shall be used solely for general corporate
purposes; provided, however, no Letter of Credit may be used in lieu or in
support of stay or appeal bonds.
2.6 Interest. Subject to the terms of this Agreement (including
Section 2.19), interest on the Loans shall accrue and be payable at a rate per
annum equal to the Adjusted Base Rate for each Base Rate Loan and the Adjusted
LIBO Rate for each LIBO Rate Loan. Notwithstanding the foregoing, interest on
past-due principal and, to the extent permitted by applicable law, past-due
interest, shall accrue at the Default Rate and shall be payable upon demand by
the Agent at any time as to all or any portion of such interest. In the event
that the Borrower fails to select the duration of any Interest Period for any
LIBO Rate Loan within the
25
<PAGE> 31
time period and otherwise as provided herein, such Loan (if outstanding as a
LIBO Rate Loan) will be automatically converted into a Base Rate Loan on the
last day of the then current Interest Period for such Loan or (if outstanding as
a Base Rate Loan) will remain as, or (if not then outstanding) will be made as,
a Base Rate Loan. Interest provided for herein shall be calculated on unpaid
sums actually advanced and outstanding pursuant to the terms of this Agreement
and only for the period from the date or dates of such advances until repayment.
2.7 Repayment of Loans and Interest. Accrued and unpaid interest on
each outstanding Base Rate Loan shall be due and payable quarterly commencing on
the 31st day of December, 1996, and continuing on the last day of each third
calendar month thereafter while any Base Rate Loan remains outstanding, the
payment in each instance to be the amount of interest which has accrued and
remains unpaid in respect of the relevant Loan. Accrued and unpaid interest on
each outstanding LIBO Rate Loan shall be due and payable on the last day of the
Interest Period for such LIBO Rate Loan and, in the case of any Interest Period
in excess of three months, on the day of the third calendar month following the
commencement of such Interest Period corresponding to the day of the calendar
month on which such Interest Period commenced, the payment in each instance to
be the amount of interest which has accrued and remains unpaid in respect of the
relevant Loan. The Loan Balance, together with all accrued and unpaid interest
thereon, shall be due and payable at Final Maturity. At the time of making each
payment hereunder or under the Notes, the Borrowers shall specify to the Agent
the Loans or other amounts payable by the Borrowers hereunder to which such
payment is to be applied. In the event the Borrowers fail to so specify, or if
an Event of Default has occurred and is continuing, the Agent may apply such
payment as it may elect in its discretion and in accordance with the terms
hereof.
2.8 General Terms. (a) The outstanding principal balance of the Note
of each Lender reflected in the records of such Lender shall be deemed
rebuttably presumptive evidence of the principal amount owing on such Note. The
liability for payment of principal and interest evidenced by each Note shall be
limited to principal amounts actually advanced and outstanding pursuant to this
Agreement and interest on such amounts calculated in accordance with this
Agreement.
(b) Unless the Agent shall have been notified by a Lender or the
Borrowers prior to the date on which any of them is scheduled to make payment to
the Agent of (in the case of a Lender) the proceeds of a Loan to be made by such
Lender hereunder or (in the case of the Borrowers) a payment to the Agent for
the account of one or more of the Lenders hereunder (such payment, in either
case, being herein called the "Required Payment"), which notice shall be
effective upon receipt, that it does not intend to make the Required Payment to
the Agent, the Agent may assume that the Required Payment has been made and, in
reliance upon such assumption, may (but shall not be required to) make the
amount thereof available to the intended recipient on such date. If such Lender
or the Borrowers, as the case may be, have not in fact made the Required Payment
to the Agent, the recipient of such payment shall, on demand, repay to the Agent
for its account the amount so made available together with interest thereon in
respect of each day during the period commencing on the date such amount was so
made available by the Agent until the date the Agent recovers such amount at a
rate per annum
26
<PAGE> 32
equal to, in the case of a Lender as recipient, the Federal Funds Rate or, in
the case of the Borrowers as recipient, the Adjusted Base Rate.
2.9 Time, Place, and Method of Payments. All payments required
pursuant to this Agreement or the Notes shall be made without set-off or
counterclaim in Dollars and in immediately available funds. All payments by the
Borrowers shall be deemed received on the next Business Day following receipt if
such receipt is after 3:00 p.m., Eastern Standard or Daylight Savings Time, as
the case may be, on any Business Day, and shall be made to the Agent at the
Principal Office. Except as provided to the contrary herein, if the due date of
any payment hereunder or under any Note would otherwise fall on a day which is
not a Business Day, such date shall be extended to the next succeeding Business
Day, and interest shall be payable for any principal so extended for the period
of such extension.
2.10 Pro Rata Treatment; Adjustments. (a) Except to the extent
otherwise expressly provided herein, (i) each borrowing pursuant to this
Agreement shall be made from the Lenders pro rata in accordance with their
respective Percentage Shares, (ii) each payment by the Borrowers of fees shall
be made for the account of the Lenders pro rata in accordance with their
respective Percentage Shares, (iii) each payment of principal of Loans shall be
made for the account of the Lenders pro rata in accordance with their respective
shares of the Loan Balance, and (iv) each payment of interest on Loans shall be
made for the account of the Lenders pro rata in accordance with their respective
shares of the aggregate amount of interest due and payable to the Lenders.
(b) The Agent shall distribute all payments with respect to the
Obligations to the Lenders promptly upon receipt in like funds as received. In
the event that any payments made hereunder by the Borrowers at any particular
time are insufficient to satisfy in full the Obligations due and payable at such
time, such payments shall be applied (i) first, to fees and expenses due
pursuant to the terms of this Agreement or any other Loan Document, (ii) second,
to accrued interest, (iii) third, to the Loan Balance, and (iv) last, to any
other Obligations.
(c) If any Lender (for purposes of this Section, a "Benefitted
Lender") shall at any time receive any payment of all or part of its portion of
the Obligations, or receive any Collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in Sections 7.1(f) or 7.1(g), or otherwise) in an amount
greater than such Lender was entitled to receive pursuant to the terms hereof,
such Benefitted Lender shall purchase for cash from the other Lenders such
portion of the Obligations of such other Lenders, or shall provide such other
Lenders with the benefits of any such Collateral or the proceeds thereof, as
shall be necessary to cause such Benefitted Lender to share the excess payment
or benefits of such Collateral or proceeds with each of the Lenders according to
the terms hereof. If all or any portion of such excess payment or benefits is
thereafter recovered from such Benefitted Lender, such purchase shall be
rescinded and the purchase price and benefits returned by such Lender, to the
extent of such recovery, but without interest. The Borrower agrees that each
such Lender so purchasing a portion of the Obligations of another Lender may
exercise all rights of payment (including rights of set-off) with respect to
such portion as fully as if such Lender were the direct holder of such portion.
If any Lender ever receives, by voluntary payment, exercise of rights of set-off
or banker's lien, counterclaim,
27
<PAGE> 33
cross-action or otherwise, any funds of the Borrower to be applied to the
Obligations, or receives any proceeds by realization on or with respect to any
Collateral, all such funds and proceeds shall be forwarded immediately to the
Agent for distribution in accordance with the terms of this Agreement.
2.11 Borrowing Base Determinations. (a) The Borrowing Base as of the
Closing Date is agreed by the Borrowers and the Lenders to be $75,000,000.
(b) The Borrowing Base shall be redetermined by the Agent, with the
consent of the Lenders, semi-annually on the basis of information supplied by
the Borrowers in compliance with the provisions of this Agreement, including
Reserve Reports, and all other information available to the Agent and the
Lenders. In addition, the Agent, with the consent of the Lenders, shall, in the
normal course of business following a request of the Borrowers, redetermine the
Borrowing Base; provided, however, the Agent and the Lenders shall not be
obligated to respond to more than two (2) such requests during any calendar year
in addition to each scheduled semi-annual redetermination provided for above.
Notwithstanding the foregoing, the Agent, with the consent of the Lenders, may
at its discretion redetermine the Borrowing Base at any time and from time to
time.
(c) Each determination of the Borrowing Base shall be made within
forty-five (45) days of the Agent's receiving all of the information required
under this Agreement in connection therewith. Upon each determination of the
Borrowing Base, the Agent shall promptly, and in all events within such 45 days,
notify the Borrowers orally (confirming such notice promptly in writing) of such
determination and the Borrowing Base so communicated to the Borrowers shall
become effective upon such oral notification and shall remain in effect until
the next subsequent determination of the Borrowing Base.
(d) In connection with any redetermination of the Borrowing Base,
the Agent and each Lender shall evaluate the Mortgaged Properties in accordance
with their then existing customary lending procedures for evaluating oil and gas
reserves and related assets for loans of this type and borrowers similarly
situated. The Borrowing Base shall represent the determination by the Agent
based upon such evaluation by the Agent, with the consent of the Lenders, of the
value for loan purposes of the Mortgaged Properties, subject, in the case of any
increase in the Borrowing Base, to the credit approval processes of the Lenders
then in effect for loans of this type and borrowers similarly situated. In the
event that a group of Lenders constituting at least the Required Lenders are in
agreement as to the amount of any Borrowing Base redetermination but such amount
is not approved unanimously by all of the Lenders, then the Borrowing Base shall
be the amount as determined by such Required Lenders for a period of 60 days
from the date of notification of such Borrowing Base to the Borrowers pursuant
to Section 2.11(c). During such 60 day period or at any time thereafter, the
Borrowers may, at their election, terminate the Commitments of such dissenting
Lenders pursuant to the procedures set forth in Section 2.24. At the end of such
60 day period, the Borrowing Base shall be an amount agreed to by the Agent and
all of the Lenders. Furthermore, subject to the customary lending procedures and
credit approval processes referred to in the preceding sentence, each Borrower
acknowledges that the Agent and the Lenders have no obligation to increase the
Borrowing Base and may reduce the Borrowing Base, in either case, at any time or
as a result
28
<PAGE> 34
of any circumstance, and further acknowledges that the determination of the
Borrowing Base contains an equity cushion (market value in excess of loan
value), which is acknowledged by each Borrower to be essential for the adequate
protection of the Lenders.
2.12 Mandatory Prepayments. If at any time the sum of the Loan
Balance and the L/C Exposure exceeds the lesser of the Maximum Facility Amount
or the Borrowing Base then in effect, the Borrowers shall, within 30 days of
notice from the Agent of such occurrence, (a) prepay, or make arrangements
acceptable to the Required Lenders for the prepayment of, the amount of such
excess for application on the Loan Balance, (b) provide additional collateral,
of character and value satisfactory to the Required Lenders in their sole
discretion, to secure the Obligations by the execution and delivery to the Agent
of security instruments in form and substance satisfactory to the Agent, or (c)
effect any combination of the alternatives described in clauses (a) and (b) of
this Section and acceptable to the Required Lenders in their discretion. In the
event that a mandatory prepayment is required under this Section and the Loan
Balance is less than the amount required to be prepaid, the Borrowers shall
repay the entire Loan Balance and, in accordance with the provisions of the
relevant Letter of Credit Applications executed by the Borrowers or otherwise to
the satisfaction of the Agent, deposit with the Agent, as additional collateral
securing the Obligations, an amount of cash, in immediately available funds,
equal to the L/C Exposure minus the lesser of the Maximum Facility Amount or the
Borrowing Base. The cash deposited with the Agent in satisfaction of the
requirement provided in this Section may be invested at the express direction of
the Borrowers as to investment vehicle and maturity (which shall be no later
than the latest expiry date of any then outstanding Letter of Credit), for the
account of the Borrowers in cash or cash equivalent investments offered by or
through the Agent.
2.13 Voluntary Prepayments and Conversions of Loans. Subject to
applicable provisions of this Agreement, the Borrowers shall have the right at
any time or from time to time to prepay Loans and to convert Loans of one type
or with one Interest Period into Loans of another type or with a different
Interest Period; provided, however, that (a) the Borrowers shall give the Agent
notice of each such conversion of all or any portion of a LIBO Rate Loan no less
than three Business Days prior to conversion, (b) any LIBO Rate Loan may be
prepaid or converted only on the last day of an Interest Period for such Loan,
unless the Borrowers pay, within the time period set forth therefor in Section
2.21(e), the amount, if any, required to be paid under Section 2.21(e), (c) each
prepayment, in the case of Base Rate Loans, shall be in an amount not less than
$100,000 or incremental amounts of $100,000 in excess thereof or the Loan
Balance and, in the case of LIBO Rate Loans, shall be in an amount not less than
$1,000,000 or incremental amounts of $100,000 in excess thereof or the Loan
Balance, (d) the Borrower shall pay all accrued and unpaid interest on the
amounts prepaid or converted, and (e) no such prepayment or conversion shall
serve to postpone the repayment when due of any Obligation.
2.14 Commitment Fee. To compensate the Lenders for maintaining funds
available, the Borrowers shall pay to the Agent for the account of the Lenders a
fee in the amount of three-eighths of one percent (.375%) per annum, calculated
on the basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed (including the first day but excluding the last day), on the average
daily amount of the Available Commitment. Such accrued commitment fees shall be
payable on the 31st day of December, 1996, the last day of
29
<PAGE> 35
each third calendar month thereafter during the Commitment Period, and on the
Commitment Termination Date.
2.15 Letter of Credit Fee. The Borrower shall pay to the Agent for
the account of the Lenders a letter of credit fee in the amount of the
Applicable Margin for LIBO Rate Loans in effect at such time per annum,
calculated on the basis of a year of 360 days and actual days elapsed (including
the first day but excluding the last day), on the average daily amount of the
L/C Exposure. Accrued letter of credit fees shall be payable quarterly in
arrears on the 31st day of December, 1996, the last day of each third calendar
month thereafter during the Commitment Period, and at Final Maturity. The
Borrower shall pay to the Agent for its own account as the issuer of each Letter
of Credit, on the date of issuance or renewal of each Letter of Credit, an
issuing fee equal to one-eighth of one percent (.125%) per annum, calculated on
the basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed (including the first day but excluding the last day), on the face amount
of such Letter of Credit during the period for which such Letter of Credit is
issued or renewed. The Borrower also agrees to pay on demand to the Agent for
its own account as the issuer of the Letters of Credit its customary letter of
credit transactional fees and expenses, including amendment fees, payable with
respect to each Letter of Credit.
2.16 Other Fees. The Borrowers shall pay to the Agent for its own
account all fees owing or which may become owing under the Fee Letter as
provided therein; provided, however, the Agent shall pay to each Lender who is a
signatory to this Agreement as of the Closing Date a portion of the arrangement
fee payable under the Fee Letter in an amount equal to .05% of the Facility
Amount of such Lender.
2.17 Loans to Satisfy Obligations of Borrowers. The Lenders may,
with the consent of the Agent, but shall not be obligated to, make Loans for the
benefit of the Borrowers and apply proceeds thereof to the satisfaction of any
condition, warranty, representation, or covenant of the Borrowers or the
Guarantor contained in this Agreement or any other Loan Document. Such Loans
shall be evidenced by the Notes, shall bear interest at the Default Rate, and
shall be payable upon demand.
2.18 Right of Offset. Each Borrower hereby grants to the Agent and
each Lender (for the pro rata benefit of all Lenders) the right, exercisable at
such time as any Event of Default shall occur, of offset or banker's lien
against all funds of each Borrower now or hereafter or from time to time on
deposit with the Agent or such Lender, regardless of whether the exercise of any
such remedy would result in any penalty or loss of interest or profit with
respect to any withdrawal of funds deposited in a time deposit account prior to
the maturity thereof.
2.19 General Provisions Relating to Interest. (a) It is the
intention of the parties hereto to comply strictly with all applicable usury
laws. In this connection, there shall never be collected, charged, or received
on the sums advanced hereunder interest in excess of that which would accrue at
the Highest Lawful Rate.
30
<PAGE> 36
(b) Notwithstanding anything herein or in the Notes to the contrary,
during any Limitation Period, the interest rate to be charged on amounts
evidenced by the Notes shall be the Highest Lawful Rate, and the obligation, if
any, of each Borrower for the payment of fees or other charges deemed to be
interest under applicable law shall be suspended. During any period or periods
of time following a Limitation Period, to the extent permitted by applicable
law, the interest rate to be charged hereunder shall remain at the Highest
Lawful Rate until such time as there has been paid to the Agent and each Lender
(i) the amount of interest in excess of that accruing at the Highest Lawful Rate
that such Lender would have received during the Limitation Period had the
interest rate remained at the otherwise applicable rate, and (ii) all interest
and fees otherwise payable to the Agent and such Lender but for the effect of
such Limitation Period.
(c) If, under any circumstances, the aggregate amounts paid on the
Notes or under this Agreement or any other Loan Document include amounts which
by applicable law are deemed interest and which would exceed the amount
permitted if the Highest Lawful Rate were in effect, each Borrower stipulates
that such payment and collection will have been and will be deemed to have been,
to the extent permitted by applicable law, the result of mathematical error on
the part of such Borrower, the Agent, and the Lenders; and the party receiving
such excess shall promptly refund the amount of such excess (to the extent only
of such interest payments in excess of that which would have accrued and been
payable on the basis of the Highest Lawful Rate) upon discovery of such error by
such party or notice thereof from such Borrower. In the event that the maturity
of any Obligation is accelerated, by reason of an election by the Lenders or
otherwise, or in the event of any required or permitted prepayment, then the
consideration constituting interest under applicable law may never exceed the
Highest Lawful Rate, and excess amounts paid which by applicable law are deemed
interest, if any, shall be credited by the Agent and the Lenders on the
principal amount of the Obligations, or if the principal amount of the
Obligations shall have been paid in full, refunded to such Borrower.
(d) All sums paid, or agreed to be paid, to the Agent and the
Lenders for the use, forbearance and detention of the proceeds of any advance
hereunder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full term hereof until paid in
full so that the actual rate of interest is uniform but does not exceed the
Highest Lawful Rate throughout the full term hereof.
2.20 Obligations Absolute. Subject to the further provisions of this
Section, the Obligations of the Borrowers under this Article shall be absolute
and unconditional under any and all circumstances and irrespective of any
set-off, counterclaim, or defense to payment or performance which the Borrowers
may have or have had against the Agent, any Lender, or any beneficiary of any
Letter of Credit. Each Borrower agrees that none of the Agent or the Lenders
shall be responsible for, nor shall the Obligations be affected by, among other
things, (a) the validity or genuineness of documents or any endorsements thereon
presented in connection with any Letter of Credit, even if such documents shall
in fact prove to be in any and all respects invalid, fraudulent or forged, AND
EVEN IF DUE TO THE NEGLIGENCE, WHETHER SOLE OR CONCURRENT, OF THE AGENT OR ANY
LENDER, so long as the Agent, as the issuer of such Letter of Credit, has no
actual knowledge of any such invalidity, lack of genuineness, fraud, or forgery
prior to the presentment for payment of a corresponding Letter of Credit or
31
<PAGE> 37
any draft thereunder, or (b) any dispute between or among the Borrowers and any
beneficiary of any Letter of Credit or any other party to which any Letter of
Credit may be transferred, or any claims whatsoever of the Borrowers against any
beneficiary of any Letter of Credit or any such transferee, EVEN IF DUE TO THE
NEGLIGENCE, WHETHER SOLE OR CONCURRENT, OF THE AGENT OR ANY LENDER; provided, in
all respects, that the Agent, as the issuer of Letters of Credit, shall be
liable to the Borrowers to the extent, but only to the extent, of any damages
(other than punitive damages) suffered by the Borrowers as a result of the
willful misconduct or gross negligence of the Agent as the issuer of Letters of
Credit in determining whether documents presented under a Letter of Credit
complied with the terms of such Letter of Credit that resulted in either a
wrongful payment under such Letter of Credit or a wrongful dishonor of a claim
or draft properly presented under such Letter of Credit. In the absence of gross
negligence or willful misconduct by the Agent as the issuer of Letters of
Credit, the Agent shall not be liable for any error, omission, interruption or
delay, EVEN IF DUE TO THE NEGLIGENCE, WHETHER SOLE OR CONCURRENT, OF THE AGENT,
in transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit. The Agent, the Lenders,
and the Borrowers agree that any action taken or omitted by the Agent, as issuer
of any Letter of Credit, under or in connection with any Letter of Credit or the
related drafts or documents, EVEN IF DUE TO THE NEGLIGENCE, WHETHER SOLE OR
CONCURRENT, OF THE AGENT OR ANY LENDER, if done in the absence of gross
negligence or willful misconduct, shall be binding as among the Agent, as issuer
of such Letter of Credit or otherwise, the Lenders, and the Borrowers and shall
not put the Agent, as issuer of such Letter of Credit or otherwise, or any
Lender under any liability to the Borrowers; provided, however, that no such
action taken or omitted to be taken by the Agent shall be binding upon the
Borrowers as against any Person other than the Agent and the Lenders.
Notwithstanding any provision to the contrary in this Section 2.20 or elsewhere
in this Agreement, the Agent, as the issuer of the Letters of Credit, agrees to
exercise ordinary care in examining each document required to be presented
pursuant to each Letter of Credit to ascertain that each such document appears
on its face to comply with the terms thereof.
2.21 Yield Protection. (a) Without limiting the effect of the other
provisions of this Section (but without duplication), the Borrowers shall pay to
the Agent and each Lender from time to time, within five (5) Business Days of
receipt of the certificate provided for in Section 2.21(e), such amounts as the
Agent or such Lender may reasonably determine are necessary to compensate it for
any Additional Costs incurred by the Agent or such Lender.
(b) Without limiting the effect of the other provisions of this
Section (but without duplication), the Borrowers shall pay to each Lender from
time to time, within five Business Days of receipt of the certificate provided
for in Section 2.21(e), such amounts as such Lender may determine are necessary
to compensate such Lender for any actual costs incurred by such Lender
attributable to the maintenance by such Lender (or any Applicable Lending
Office), pursuant to any Regulatory Change, of capital (other than the Reserve
Requirement utilized in the determination of any Adjusted LIBO Rate or the
Adjusted CD Rate) in respect of its Commitment, such compensation to include an
amount equal to any reduction of the rate of return on assets or equity of such
Lender (or any Applicable Lending Office) to a level below that which such
Lender (or any Applicable Lending Office) could have achieved but for such
Regulatory Change.
32
<PAGE> 38
(c) Without limiting the effect of the other provisions of this
Section (but without duplication), in the event that any Regulatory Change or
the compliance by the Agent or any Lender therewith shall (i) impose, modify, or
hold applicable any reserve, special deposit, or similar requirement against any
Letter of Credit or obligation to issue Letters of Credit, or (ii) impose upon
the Agent or such Lender any other condition regarding any Letter of Credit or
obligation to issue Letters of Credit, and the result of any such event shall be
to increase the cost to the Agent or such Lender of issuing or maintaining any
Letter of Credit or obligation to issue Letters of Credit or any liability with
respect to Letter of Credit Payments, or to reduce any amount receivable in
connection therewith, then, within five Business Days of receipt of the
certificate provided for in Section 2.21(e), the Borrowers shall pay to the
Agent or such Lender, as the case may be, from time to time as specified by the
Agent or such Lender, the additional amounts indicated in such certificate as
sufficient to compensate the Agent or such Lender for such increased cost or
reduced amount receivable.
(d) Without limiting the effect of the other provisions of this
Section (but without duplication), the Borrowers shall pay to the Agent and each
Lender such amounts as shall be indicated in such certificate as sufficient to
compensate them for any loss, cost, or expense incurred by and as a result of:
(i) any payment, prepayment, or conversion by the Borrowers of a
LIBO Rate Loan on a date other than the last day of an
Interest Period for such Loan; or
(ii) any failure by the Borrowers to borrow a LIBO Rate Loan or to
convert a Base Rate Loan into a LIBO Rate Loan on the date for
such borrowing or conversion specified in the relevant
Borrowing Request;
such compensation to include with respect to any LIBO Rate Loan, an amount equal
to the excess, if any, of (A) the amount of interest which would have accrued on
the principal amount so paid, prepaid, converted, or not borrowed or converted
for the period from the date of such payment, prepayment, conversion, or failure
to borrow or convert to the last day of the then current Interest Period for
such Loan (or, in the case of a failure to borrow or convert, the Interest
Period for such Loan which would have commenced on the date of such failure to
borrow or convert) at the applicable rate of interest for such Loan provided for
herein over (B) the interest component of the amount the Agent or such Lender
bid in the London interbank market in respect of such Loan for Dollar deposits
of amounts comparable to such principal amount and maturities comparable to such
period, as reasonably determined by the Agent or such Lender.
(e) Determinations by the Agent or any Lender for purposes of this
Section of the effect of any Regulatory Change on capital maintained, its costs
or rate of return, maintaining Loans, issuing Letters of Credit, its obligation
to make Loans and issue Letters of Credit, or on amounts receivable by it in
respect of Loans, Letters of Credit, or such obligations, and the additional
amounts required to compensate the Agent and such Lender under this Section
shall be conclusive, absent manifest error, provided that such determinations
are
33
<PAGE> 39
made on a reasonable basis. The Agent or the relevant Lender shall furnish the
Borrowers with a certificate setting forth in reasonable detail the basis and
amount of increased costs incurred or reduced amounts receivable as a result of
any such event, and the statements set forth therein shall be conclusive, absent
manifest error. The Agent or the relevant Lender shall (i) notify the Borrowers,
as promptly as practicable after the Agent or such Lender obtains knowledge of
any Additional Costs or other sums payable pursuant to this Section and
determines to request compensation therefor, in respect of any event occurring
after the Closing Date which will entitle the Agent or such Lender to
compensation pursuant to this Section; provided that the Borrowers shall not be
obligated for the payment of any Additional Costs or other sums payable pursuant
to this Section to the extent such Additional Costs or other sums accrued more
than 90 days prior to the date upon which the Borrowers were given such notice;
and (ii) designate a different Applicable Lending Office for the Loans affected
by such event if such designation will avoid the need for or reduce the amount
of such compensation and will not, in the sole opinion of the Agent or such
Lender, be disadvantageous to the Agent or such Lender. Any compensation
requested by the Agent or any Lender pursuant to this Section shall be due and
payable within five Business Days of delivery of any such notice to the
Borrowers.
2.22 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to (a) honor its obligation to make LIBO Rate Loans,
or (b) maintain LIBO Rate Loans, then such Lender shall promptly notify the
Agent and the Borrowers thereof. The obligation of such Lender to make LIBO Rate
Loans and convert Base Rate Loans into LIBO Rate Loans shall then be suspended
until such time as such Lender may again make and maintain LIBO Rate Loans, and
the outstanding LIBO Rate Loans of such Lender shall be converted into Base Rate
Loans in accordance with Section 2.13; provided, however, each Lender shall use
reasonable efforts to designate a different Applicable Lending Office with
respect to any LIBO Rate Loan affected by the matters or circumstances described
in this Section to avoid the results provided in this Section if possible, so
long as such designation is not disadvantageous to the Lenders as determined by
them in their sole discretion.
2.23 Taxes. (a) All payments made by the Borrowers under this
Agreement shall be made free and clear of, and without reduction or withholding
for or on account of, present or future income, stamp or other taxes, levies,
imposts, duties, charges, fees, deductions or withholdings, hereafter imposed,
levied, collected, withheld or assessed by any Governmental Authority on the
basis of any change after the date hereof in any applicable treaty, law, rule,
guideline or regulations or in the interpretation or administration thereof,
excluding, in the case of the Agent and each Lender, income and franchise taxes
(whether based upon net income, capital or profits) imposed on the Agent or such
Lender (all such non-excluded taxes, levies, imposts, deductions, charges or
withholdings being hereinafter called "Taxes"). If any Taxes are required to be
withheld from any amounts payable to the Agent or any Lender hereunder or under
any other Loan Document, the amounts so payable to the Agent or such Lender
shall be increased to the extent necessary to yield to the Agent or such Lender
(after payment of all Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement and the
other Loan Documents. Whenever any Taxes are payable by the Borrowers, promptly
thereafter the Borrowers shall send to the Agent for its own account or for the
account of such Lender, as the case may be, a certified copy of an original
official
34
<PAGE> 40
receipt received by the Borrowers showing payment thereof. If any Borrower fails
to pay any Taxes when due to the appropriate taxing authority or fails to remit
to the Agent the required receipts or other required documentary evidence, such
Borrower shall indemnify the Agent and the Lenders for any incremental taxes,
interest or penalties that may become payable by the Agent or any Lender as a
result of any such failure. The agreements in this Section shall survive the
termination of this Agreement and the payment of all Obligations.
(b) Each Lender that is not incorporated under the laws of the
United States of America or a state thereof agrees that, on the date hereof or,
if it becomes a Lender in accordance with Section 9.1, on the date of the
applicable Assignment Agreement, it will, to the extent it may lawfully do so,
deliver to the Borrowers and the Agent two duly completed copies of United
States Internal Revenue Service Form W-8, 1001 or 4224 or any other applicable
form, as the case may be, certifying in each case that such Lender is entitled
to receive payments under any Loan Document, without deduction or withholding of
any United States federal income taxes. At the written request of the Borrowers,
each Lender which delivers to the Borrowers and the Agent a form pursuant to the
preceding sentence further undertakes to deliver to the Borrowers and the Agent
two further copies of such form, or successor applicable forms, or other manner
of certification, as the case may be, on or before the date that any such letter
or form expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent form previously delivered by it to the
Borrowers, and such extensions or renewals thereof as may reasonably be
requested by the Borrowers, certifying in the case of each such form that such
Lender is entitled to receive payments under any Loan Document without deduction
or withholding of any United States federal income taxes, unless in any such
case, an event (including any change in treaty, law or regulation) has occurred
prior to the date on which any such delivery would otherwise be required which
renders all such forms inapplicable or which would prevent such Lender from duly
completing and delivering any such form with respect to it and such Lender
advises the Borrowers that it is not capable of receiving payments without any
deduction or withholding of United States federal income tax.
2.24 Replacement Lenders. (a) If any Lender (i) has notified the
Borrowers of its incurring additional costs under Section 2.21 or the illegality
of LIBO Rate Loans under Section 2.22, (ii) has required the Borrowers to make
payments for Taxes under Section 2.23, (iii) has informed any Borrower of a
Regulatory Change in accordance with Section 2.25, or (iv) is not in agreement
with the amount of any Borrowing Base redetermination which a group of Lenders
constituting at least the Required Lenders has approved, then in any such event
the Borrowers may, unless such Lender has notified the Borrowers that the
circumstances giving rise to such notice no longer apply, terminate, in whole
but not in part, the Commitment of such Lender (other than the Agent) (the
"Terminated Lender") at any time upon five Business Days' prior written notice
to the Terminated Lender and the Agent (such notice referred to herein as a
"Notice of Termination").
(b) In order to effect the termination of the Commitment of the
Terminated Lender, the Borrowers shall (i) obtain an agreement with one or more
Lenders to increase their Commitments and/or (ii) request any one or more other
banking institutions to become a "Lender" in place and instead of such
Terminated Lender and agree to accept a Commitment; provided, however, that such
one or more other banking institutions are reasonably acceptable
35
<PAGE> 41
to the Agent and become parties by executing an Assignment Agreement (the
Lenders or other banking institutions that agree to accept in whole or in part
the Commitment of the Terminated Lender being referred to herein as the
"Replacement Lenders"), such that the aggregate increased and/or accepted
Facility Amounts of the Replacement Lenders under clauses (i) and (ii) above
equal the Facility Amount of the Terminated Lender.
(c) The Notice of Termination shall include the name of the
Terminated Lender, the date the termination will occur (the "Termination Date"),
the Replacement Lender or Replacement Lenders to which the Terminated Lender
will assign its Commitment, and, if there will be more than one Replacement
Lender, the portion of the Terminated Lender's Commitment to be assigned to each
Replacement Lender.
(d) On the Termination Date, (i) the Terminated Lender shall by
execution and delivery of an Assignment Agreement assign its Commitment to the
Replacement Lender or Replacement Lenders (pro rata, if there is more than one
Replacement Lender, in proportion to the portion of the Terminated Lender's
Commitment to be assigned to each Replacement Lender) indicated in the Notice of
Termination and shall assign to the Replacement Lender or Replacement Lenders
its Loan (if any) then outstanding pro rata as aforesaid), (ii) the Terminated
Lender shall endorse its Note, payable without recourse, representation or
warranty to the order of the Replacement Lender or Replacement Lenders (pro rata
as aforesaid), (iii) the Replacement Lender or Replacement Lenders shall
purchase the Note held by the Terminated Lender (pro rata as aforesaid) at a
price equal to the unpaid principal amount thereof plus interest and fees
accrued and unpaid to the Termination Date, (iv) the Borrowers shall, upon
request, execute and deliver, at their own expense, new Notes to the Replacement
Lenders in accordance with their respective interests, (v) the Borrowers shall,
upon request, pay any compensation due to the Terminated Lender pursuant to
Section 2.21, of which the Borrowers have received notice pursuant to Section
2.21(e) from the Terminated Lender within three (3) Business Days of receipt by
such Terminated Lender of a Notice of Termination, and (vi) the Replacement
Lender or Replacement Lenders will thereupon (pro rata as aforesaid) succeed to
and be substituted in all respects for the Terminated Lender from and after such
date with like effect as if becoming a Lender pursuant to the terms of Section
9.1(b), and the Terminated Lender will have the rights and benefits of an
assignor under Section 9.1(b). To the extent not in conflict, the terms of
Section 9.1(b) shall supplement the provisions of this Section.
2.25 Regulatory Change. In the event that by reason of any
Regulatory Change, any Lender (a) incurs Additional Costs based on or measured
by the excess above a specified level of the amount of a category of deposits or
other liabilities of such Lender which includes deposits by reference to which
the interest rate on any LIBO Rate Loan is determined as provided in this
Agreement or a category of extensions of credit or other assets of such Lender
which includes any LIBO Rate Loan, or (b) becomes subject to restrictions on the
amount of such a category of liabilities or assets which it may hold, then, at
the election of such Lender with notice to the Agent and the Borrowers setting
forth in reasonable detail a calculation of such Additional Costs or a
description of such restrictions, the obligation of such Lender to make LIBO
Rate Loans and to convert Base Rate Loans into LIBO Rate Loans shall be
suspended until such time as such Regulatory Change or other circumstance ceases
to be in effect, and all such
36
<PAGE> 42
outstanding LIBO Rate Loans shall be converted into Base Rate Loans in
accordance with Section 2.13.
ARTICLE III
CONDITIONS
3.1 Conditions Precedent to Initial Loan and Letter of Credit. The
Lenders shall have no obligation to make the initial Loan or issue the initial
Letter of Credit unless and until all matters incident to the consummation of
the transactions contemplated herein, including the review by the Agent or its
counsel of the title of the Borrowers to the Material Properties, shall be
satisfactory to the Agent and each Lender, and the Agent shall have received,
reviewed, and approved the following documents and other items, appropriately
executed when necessary and, where applicable, acknowledged by one or more
authorized officers of the Borrowers or the Guarantor, as the case may be, all
in form and substance satisfactory to the Agent and dated, where applicable, of
even date herewith or a date prior thereto and acceptable to the Agent:
(a) multiple counterparts of this Agreement, the Guaranty, the Bank
One Assignment, the Comerica Assignment, and the Subordination Agreement
as requested by the Agent;
(b) the Existing Bank One Notes and the Existing Comerica Notes,
endorsed payable to the Lenders;
(c) the Notes;
(d) copies of the Articles of Incorporation or Certificate of
Incorporation and all amendments thereto and the bylaws and all amendments
thereto of each Borrower and the Guarantor, accompanied by a certificate
issued by the secretary or an assistant secretary of each Borrower or the
Guarantor, as the case may be, to the effect that each such copy is
correct and complete;
(e) certificates of incumbency and signatures of all officers of
each Borrower and the Guarantor who are authorized to execute Loan
Documents on behalf of such entities, each such certificate being executed
by the secretary or an assistant secretary of each Borrower or the
Guarantor, as the case may be;
(f) copies of corporate resolutions approving the Loan Documents and
authorizing the transactions contemplated herein and therein, duly adopted
by the boards of directors of each Borrower and the Guarantor, accompanied
by certificates of the secretary or an assistant secretary of each
Borrower or the Guarantor, as the case may be, to the effect that such
copies are true and correct copies of resolutions duly adopted at a
meeting or by unanimous consent of the board of directors of each Borrower
or the Guarantor, as the case may be, and that such resolutions constitute
all the resolutions adopted with respect to such
37
<PAGE> 43
transactions, have not been amended, modified, or revoked in any respect,
and are in full force and effect as of the date of such certificate;
(g) multiple counterparts, as requested by the Agent, of the
following documents ratifying, amending, and restating the Existing Bank
One Security Instruments and the Existing Comerica Security Instruments
and creating, evidencing, perfecting, and otherwise establishing Liens in
favor of the Collateral Agent in and to the Collateral:
(i) Mortgage, Collateral Real Estate Mortgage, Deed of Trust,
Indenture, Security Agreement, Financing Statement and
Assignment of Production from KRI, KCS Michigan, and KCS
Marketing covering all Oil and Gas Properties of such
Borrowers in the States of Louisiana, Michigan, Mississippi,
Montana, North Dakota, Texas and Wyoming and all improvements,
personal property, and fixtures related thereto;
(ii) Financing Statements from KRI, KCS Michigan, and KCS Marketing
as debtors, constituent to the instrument described in clause
(i) above;
(iii) Mortgage, Indenture, Security Agreement, Financing Statement
and Assignment of Production from KRI covering all Oil and Gas
Properties of such Borrower in the State of Colorado and all
improvements, personal property, and fixtures related thereto;
(iv) Financing Statement from KRI, as debtor, constituent to the
instrument described clause (iii) above;
(v) Collateral Assignment of Documents, Liens, and Security
Interests (Security Agreement) from KCS Marketing covering the
Hawkins Oil Production and Delivery Agreement and all liens
and security interests securing the obligations of Hawkins Oil
of Michigan, Inc. to KCS Marketing thereunder;
(vi) Financing Statements from KCS Marketing as debtor, constituent
to the instrument described in clause (v) above;
38
<PAGE> 44
(vii) Collateral Assignment of Documents, Liens, and Security
Interests (Security Agreement) from KCS Marketing covering the
Hall-Houston Production and Delivery Agreement and all liens
and security interests securing the obligations of
Hall-Houston Oil Company to KCS Marketing thereunder;
(viii) Financing Statements from KCS Marketing as debtor,
constituent to the instrument described in clause (vii) above;
and
(ix) Financing Statement Changes from certain of the Borrowers, as
applicable, to amend the address of such Borrower, where
necessary, on financing statements assigned to the Agent by
Bank One pursuant to the Bank One Assignment and by Comerica
pursuant to the Comerica Assignment.
(h) certificates dated as of a recent date from the Secretary of
State or other appropriate Governmental Authority evidencing the existence
or qualification and good standing of the Borrowers and the Guarantor in
their respective jurisdictions of incorporation and in any other
jurisdictions where any of them is qualified to do business, except for
the States of Mississippi, North Dakota and Oklahoma;
(i) results of searches of the UCC Records of the Secretary of State
of the States of Alabama, Colorado, Delaware, Louisiana, Michigan,
Mississippi, Montana, New Jersey, New Mexico, North Dakota, Texas and
Wyoming from a source acceptable to the Agent and reflecting no Liens
against any of the Collateral as to which perfection of a Lien is
accomplished by the filing of a financing statement other than Liens in
favor of the Agent and other Permitted Liens;
(j) confirmation, acceptable to the Agent, of the title of KRI, KCS
Michigan, and KCS Marketing to the Material Properties, free and clear of
Liens other than Permitted Liens;
(k) results satisfactory to the Agent in its discretion of an
environmental questionnaire promulgated by the Agent and completed by the
Borrowers;
(l) all operating, lease, sublease, royalty, sales, exchange,
processing, farmout, bidding, pooling, unitization, communitization, and
other agreements relating to the Mortgaged Properties requested by the
Agent or any Lender;
(m) engineering reports covering the Mortgaged Properties;
39
<PAGE> 45
(n) the opinion of Orloff, Lowenbach, Stifelman & Siegel, P.A.,
counsel to the Borrowers and the Guarantor, in the form attached hereto as
Exhibit VIII, with such changes thereto as may be approved by the Agent;
(o) the opinion of special counsel in each of the States of
Colorado, Michigan, Montana, and Wyoming, in the form attached hereto as
Exhibit IX, with such changes thereto as may be approved by the Agent;
(p) certificates evidencing the insurance coverage required pursuant
to Section 5.16; and
(q) such other agreements, documents, instruments, opinions,
certificates, waivers, consents, and evidence as the Agent or any Lender
may reasonably request.
3.2 Conditions Precedent to Each Loan. The obligations of the
Lenders to make each Loan are subject to the satisfaction of the following
additional conditions precedent:
(a) the Borrowers shall have delivered to the Agent a Borrowing
Request at least the requisite time prior to the requested date or time
for the relevant Loan; and each statement or certification made in such
Borrowing Request shall be true and correct in all material respects on
the requested date for such Loan;
(b) no Default or Event of Default shall exist or will occur as a
result of the making of the requested Loan;
(c) no Material Adverse Effect shall have occurred;
(d) each of the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct and shall
be deemed to be repeated by the Borrowers as if made on the requested date
for such Loan, except for any such representations and warranties as are
expressly stated to be made as of a particular date which shall remain
true and correct as of the date made;
(e) the Guaranty and all of the Security Instruments shall be in
full force and effect and provide to the Lenders the security intended
thereby;
(f) neither the consummation of the transactions contemplated hereby
nor the making of such Loan shall contravene, violate, or conflict with
any Requirement of Law; and
(g) the Agent and each Lender shall have received the payment of all
fees payable by the Borrowers hereunder and the Agent shall have received
reimbursement from the Borrowers, or special legal counsel for the Agent
shall
40
<PAGE> 46
have received payment from the Borrowers, for (i) all reasonable fees and
expenses of counsel to the Agent for which each Borrower is responsible
pursuant to applicable provisions of this Agreement and for which invoices
have been presented as of or prior to the date of the relevant Loan, and
(ii) estimated fees charged by filing officers and other public officials
incurred or to be incurred in connection with the filing and recordation
of any Security Instruments, for which invoices have been presented as of
or prior to the date of the requested Loan.
3.3 Conditions Precedent to Issuance of Letters of Credit. The
obligation of the Agent, as the issuer of the Letters of Credit, to issue,
renew, or extend any Letter of Credit is subject to the satisfaction of the
following additional conditions precedent:
(a) the Borrowers shall have delivered to the Agent a written (or
oral, confirmed promptly in writing) request for the issuance, renewal, or
extension of a Letter of Credit at least three Business Days prior to the
requested issuance, renewal, or extension date and a Letter of Credit
Application at least one Business Day prior to the requested issuance
date; and each statement or certification made in such Letter of Credit
Application shall be true and correct in all material respects on the
requested date for the issuance of such Letter of Credit;
(b) no Default or Event of Default shall exist or will occur as a
result of the issuance, renewal, or extension of such Letter of Credit;
and
(c) the terms and provisions of the Letter of Credit or such renewal
or extension shall be reasonably satisfactory to the Agent, as the issuer
of the Letters of Credit.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this Agreement and
to extend credit to the Borrowers, each Borrower represents and warrants to the
Agent and each Lender (which representations and warranties shall survive the
delivery of the Notes) that:
4.1 Due Authorization. The execution and delivery by the Borrowers of
this Agreement and the borrowings hereunder, the execution and delivery by the
Borrowers of the Notes and the other Loan Documents, the repayment of the Notes
and interest and fees provided for in the Notes and this Agreement, and the
performance of all obligations of the Borrowers under the Loan Documents are
within the power of the Borrowers, have been duly authorized by all necessary
corporate action by the Borrowers, and do not and will not (a) require the
consent of any Governmental Authority to be obtained by any Borrower, (b)
contravene or conflict with any Requirement of Law applicable to any Borrower or
the articles or certificate of incorporation, bylaws, or other organizational or
governing documents of the Borrowers, (c) contravene or conflict with any
material indenture, instrument, or other agreement, or any
41
<PAGE> 47
indenture, instrument, or other agreement that, when aggregated with other such
agreements, is material, to which any Borrower is a party or by which any
Property of any Borrower may be presently bound or encumbered, except as could
not reasonably be expected to have a Material Adverse Effect, (d) contravene or
conflict with any indenture, instrument, or other agreement by which any item of
Collateral is bound or to which any such item of Collateral is subject, except
as could not reasonably be expected to have a Material Adverse Effect, or (e)
result in or require the creation or imposition of any Lien in, upon or of any
Property of any Borrower under any such indenture, instrument, or other
agreement, other than the Loan Documents.
4.2 Corporate Existence. Each Borrower is a corporation duly
organized, legally existing, and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and is in good
standing in all jurisdictions wherein the ownership of Property or the operation
of its business necessitates same, other than those jurisdictions wherein the
failure to so qualify will not have a Material Adverse Effect.
4.3 Valid and Binding Obligations. All Loan Documents to which each
Borrower is a party, when duly executed and delivered by such Borrower, will be
the legal, valid, and binding obligations of such Borrower, enforceable against
such Borrower in accordance with its respective terms except as limited by
bankruptcy, insolvency or similar laws affecting generally the rights of
creditors and general principles of equity, whether applied by a court of law or
equity.
4.4 Existing Indebtedness; No Defenses. As of the date hereof, (a)
the Borrowers are indebted under the Existing Bank One Notes and the Existing
Comerica Notes in the respective aggregate principal amounts set forth in
Exhibit X under the heading "Existing Loan Balances", and (b) the Borrowers have
no defenses to, rights of setoff against, claims or counterclaims with respect
to, and no default exists under or with respect to, any of the Existing Bank One
Loan Documents, Existing Comerica Loan Documents, or any Indebtedness or
obligation of the Borrowers evidenced thereby.
4.5 Security Instruments. The provisions of each Security Instrument
executed by KRI, KCS Michigan, or KCS Marketing are effective to create in favor
of the Agent, a legal, valid, and enforceable Lien in all right, title, and
interest of such Borrowers in the Collateral described therein, which Liens,
assuming the accomplishment of recording and filing in accordance with
applicable laws prior to the intervention of rights of other Persons, shall
constitute fully perfected first-priority Liens on all right, title, and
interest of KRI, KCS Michigan, and KCS Marketing in its Collateral described
therein except for Permitted Liens.
4.6 Title to Assets. Except as heretofore disclosed to the Agent in
writing, insofar as such Property constitutes real property or interests in real
property, each of the Borrowers has good and indefeasible title to all of its
Mortgaged Properties and all of its other Properties which are material, free
and clean of Liens, except Permitted Liens. With respect to Property which does
not constitute real property or an interest in real property, each of the
Borrowers owns all such other Properties which are material, free and clear of
all Liens, except Permitted Liens and Liens otherwise permitted under Section
6.3.
42
<PAGE> 48
4.7 Scope and Accuracy of Financial Statements. The Financial
Statements of the Guarantor and its Subsidiaries as of December 31, 1995 and
June 30, 1996 (subject, in the case of the Financial Statements as of June 30,
1996, to normal year-end audit adjustments), present fairly the financial
position and results of operations and cash flows of the Guarantor and its
Subsidiaries in accordance with GAAP as at the relevant point in time or for the
period indicated, as applicable. No event or circumstance has occurred since
December 31, 1995 or June 30, 1996, which could reasonably be expected to have a
Material Adverse Effect.
4.8 No Material Misstatements. All written estimates, projections and
forecasts furnished by or on behalf of the Borrowers or the Guarantor to the
Agent or any of the Lenders for purposes of or in connection with this
Agreement, or in connection with any extension of credit hereunder, were and
will be prepared on the basis of the good faith estimate of the Borrowers'
senior management concerning probable financial condition and performance based
on assumptions, data, tests or conditions believed to be reasonable or to
represent industry conditions existing at the time such estimates, projections
or forecasts were made. No other information, exhibit, statement, or report
furnished to the Agent or any Lender by or at the direction of the Borrowers or
the Guarantor in connection with this Agreement contains any material
misstatement of fact or omits to state a material fact or any fact necessary to
make the statements contained therein, in light of the circumstances in which
they were made, not misleading as of the date made or deemed made.
4.9 Liabilities, Litigation, and Restrictions. Other than as listed
under the heading "Liabilities" on Exhibit X, none of the Borrowers or the
Guarantor has any liabilities, direct, or contingent, which could reasonably be
expected to have a Material Adverse Effect. Except as set forth under the
heading "Litigation" on Exhibit X, no litigation or other action of any nature
is pending before any Governmental Authority or, to the best knowledge of such
Borrower, threatened, against or affecting (a) any Collateral, or, in the case
of Environmental Laws, any Property of any Borrower or any real Property of the
Guarantor, or the facilities located and the operations conducted thereon,
which, if determined adversely to such Borrower or the Guarantor, could
reasonably be expected to have a Material Adverse Effect, (b) any Borrower's or
the Guarantor's ability to enter into, execute, deliver or perform in any
material respect its obligations under the Loan Documents, (c) any Borrower or
the Guarantor which, if determined adversely to such Borrower or the Guarantor,
could reasonably be expected to result in any judgment or liability,
individually or when aggregated with all other such judgments or liabilities,
which could reasonably be expected to have a Material Adverse Effect and which
is not fully covered by insurance (exclusive of any deductible amount related to
such insurance, which deductible amount is customary for Persons engaged in
similar businesses), or (d) any Borrower or the Guarantor, which if determined
adversely to such Borrower or the Guarantor, could reasonably be expected to
result in any other Material Adverse Effect.
4.10 Authorizations; Consents. Except as expressly contemplated by
this Agreement, no authorization, consent, approval, exemption, franchise,
permit, or license of, or filing with, any Governmental Authority or any other
Person is required to be obtained by any Borrower to authorize, or is otherwise
required in connection with, the valid execution and delivery by the Borrowers
of the Loan Documents or any instrument contemplated hereby, the
43
<PAGE> 49
repayment by the Borrowers of the Notes and interest and fees provided in the
Notes and this Agreement, or the performance by the Borrowers of the
Obligations.
4.11 Compliance with Laws. Each Borrower and its Property, are in
compliance with all applicable Requirements of Law, including Environmental
Laws, the Natural Gas Policy Act of 1978, as amended, and ERISA, other than any
Requirements of Laws the failure with which to comply, individually or in the
aggregate, could reasonably be expected not to cause a Material Adverse Effect.
4.12 Default. Neither any Borrower nor the Guarantor is in default
of, and no event has occurred which, with the lapse of time or giving of notice,
or both, could result in such a default of, (i) any charter document or bylaws
of any Borrower or the Guarantor, or (ii) any agreement or obligation other than
an agreement or obligation evidencing or relating to Debt to which any Borrower
or the Guarantor is a party or by which any Property of any Borrower or the
Guarantor may be bound, pursuant to which the obligations of the Borrowers and
the Guarantor in the aggregate under any such agreement or obligation, or the
obligations secured thereby, exceed $2,500,000, except such as are being
contested in good faith and as to which such reserve as may be required by GAAP
shall have been made therefore.
4.13 ERISA. No Reportable Event has occurred with respect to any
Single Employer Plan, and each Single Employer Plan has complied with and been
administered in all material respects in accordance with applicable provisions
of ERISA and the Code. To the best knowledge of the Borrowers, (a) no Reportable
Event has occurred with respect to any Multiemployer Plan, and (b) each
Multiemployer Plan has complied with and been administered in all material
respects with applicable provisions of ERISA and the Code. Each Plan satisfied
the minimum funding requirements under ERISA and the Code as of the last annual
valuation date applicable thereto. Neither the Borrowers nor any Commonly
Controlled Entity has had a complete or partial withdrawal from any
Multiemployer Plan for which there is any withdrawal liability. As of the most
recent valuation date applicable to any Multiemployer Plan, neither the
Borrowers nor any Commonly Controlled Entity would become subject to any
liability under ERISA if the Borrower or such Commonly Controlled Entity were to
withdraw completely from such Multiemployer Plan. Neither any Borrower nor any
Commonly Controlled Entity has received notice that any Multiemployer Plan is
Insolvent or in Reorganization. To the best knowledge of the Borrowers, no such
Insolvency or Reorganization which could reasonably be expected to have a
Material Adverse Effect is likely to occur. Based upon GAAP existing as of the
date of this Agreement and current factual circumstances, the Borrowers have no
reason to believe that the annual cost during the term of this Agreement to the
Borrowers and all Commonly Controlled Entities for post-retirement benefits to
be provided to the current and former employees of the Borrowers and all
Commonly Controlled Entities under Plans which are welfare benefit plans (as
defined in Section 3(1) of ERISA) will, in the aggregate, have a Material
Adverse Effect.
4.14 Environmental Laws. To the best knowledge and belief of the
Borrowers, except for matters listed below in this Section 4.14 which could not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect, and except as described on Exhibit X under the heading
"Environmental Matters:"
44
<PAGE> 50
(a) no Property of any Borrower or real Property of the Guarantor is
currently on or has ever been on, any federal or state list of Superfund
Sites;
(b) no Hazardous Substances have been generated, transported, and/or
disposed of by any Borrower or the Guarantor at a site which was, at the
time of such generation, transportation, and/or disposal, or has since
become, a Superfund Site;
(c) except in accordance with applicable Requirements of Law or the
terms of a valid permit, license, certificate, or approval of the relevant
Governmental Authority, no Release of Hazardous Substances has occurred by
any Borrower or the Guarantor or from, affecting, or related to any
Property of any Borrower or any real Property of the Guarantor or the
facilities located and the operations conducted thereon; and
(d) no Environmental Complaint has been received by any Borrower or
the Guarantor.
4.15 Compliance with Federal Reserve Regulations. No transaction
contemplated by the Loan Documents is in violation of any regulations
promulgated by the Board of Governors of the Federal Reserve System, including
Regulations G, T, U, or X.
4.16 Investment Company Act Compliance. None of the Borrowers is, nor
is any Borrower directly or indirectly controlled by or acting on behalf of any
Person which is, an "investment company" or an "affiliated person" of an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
4.17 Public Utility Holding Company Act Compliance. No Borrower is a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
4.18 Proper Filing of Tax Returns; Payment of Taxes Due. Each
Borrower has duly and properly filed its United States income tax returns and
all other tax returns which are required to be filed and has paid all taxes
shown to be due thereon, except such as are being contested in good faith and as
to which adequate provisions and disclosures have been made and except such
returns of which the failure to file has not had or would not have a Material
Adverse Effect. The respective charges and reserves on the books of each
Borrower with respect to taxes and other governmental charges are adequate.
4.19 Refunds. Except as described on Exhibit X under the heading
"Refunds," to the best knowledge and belief of the Borrowers, no orders of,
proceedings pending before, or other requirements of, the Federal Energy
Regulatory Commission or any other Governmental Authority exist which could
reasonably be expected to result in the Borrowers being required to refund any
material portion of the proceeds received or to be received from the sale of
hydrocarbons constituting part of the Mortgaged Property.
45
<PAGE> 51
4.20 Gas Contracts. Except as described on Exhibit X under the
heading "Gas Contracts," as of the Closing Date, no Borrower (a) is obligated in
any material respect by virtue of any prepayment made under any contract
containing a "take-or-pay" or "prepayment" provision or under any similar
agreement to deliver hydrocarbons produced from or allocated to any of the
Mortgaged Property at some future date without receiving full payment therefor
within 90 days of delivery, and (b) has produced gas, in any material amount,
subject to, and neither any Borrower nor any of the Mortgaged Properties is
subject to, balancing rights of third parties or subject to balancing duties
under governmental requirements, except as to such matters for which such
Borrower has established monetary reserves adequate in amount to satisfy such
obligations.
4.21 Intellectual Property. Each Borrower owns or is licensed to use
all Intellectual Property necessary to conduct all business material to its
condition (financial or otherwise), business, or operations as such business is
currently conducted. No claim has been asserted or is pending by any Person with
respect to the use of any such Intellectual Property or challenging or
questioning the validity or effectiveness of any such Intellectual Property; and
each Borrower knows of no valid basis for any such claim. The use of such
Intellectual Property by each Borrower does not infringe on the rights of any
Person, except for such claims and infringements as are not, in the aggregate,
likely to have a Material Adverse Effect.
4.22 Labor Matters. Except as disclosed on Exhibit X under the
heading "Labor Matters," as of the Closing Date there are no collective
bargaining agreements covering the employees of any of the Borrowers or any
Affiliates of any of the Borrowers. None of such Persons has suffered any
strikes, walkouts, work stoppages or other material labor difficulty within the
last five years, other than those which could not reasonably be expected to have
a Material Adverse Effect.
4.23 Casualties or Taking of Property. Except as disclosed on Exhibit
X under the heading "Casualties," since June 30, 1996, no Material Adverse
Effect has occurred with respect to the business nor any Property of any
Borrower as a result of any fire, explosion, earthquake, flood, drought,
windstorm, accident, strike or other labor disturbance, embargo, requisition or
taking of Property, or cancellation of contracts, permits, or concessions by any
Governmental Authority, riot, activities of armed forces, or acts of God.
4.24 Locations of Borrowers. The principal place of business and
chief executive office of each Borrower is located at the address of such
Borrower set forth on the signature pages hereof or at such other location as
such Borrower may have, by proper written notice hereunder, advised the Agent,
provided that such other location is within a state in which appropriate
financing statements from such Borrower in favor of the Agent have been filed.
4.25 Subsidiaries. The Borrowers have no Subsidiaries other than
those described on Exhibit X under the heading "Subsidiaries." None of the
Borrowers is a general partner or joint venturer or has partnership or joint
venture interests in any Person.
46
<PAGE> 52
ARTICLE V
AFFIRMATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or any
Commitment exists, each Borrower shall:
5.1 Maintenance and Access to Records. Keep adequate records, in
accordance with GAAP, of all its transactions so that at any time, and from time
to time, its true and complete financial condition may be readily determined,
and promptly following the reasonable request of the Agent or any Lender, make
such records available at the Borrowers' places of business upon reasonable
prior notice, during normal business hours, for inspection by the Agent or any
Lender and, at the expense of such Borrower, allow the Agent or any Lender to
make and take away copies thereof.
5.2 Quarterly Financial Statements; Compliance Certificates. Deliver
to the Agent, to the extent not previously delivered by the Guarantor, on or
before the 45th day after the close of each of the first three quarterly periods
of each fiscal year of the Guarantor, Sufficient Copies of the unaudited
consolidated and consolidating Financial Statements of the Guarantor and its
Subsidiaries as at the close of such quarterly period and from the beginning of
such fiscal year to the end of such period, such Financial Statements to be
certified by a Responsible Officer of the Guarantor as having been prepared in
accordance with GAAP consistently applied and as a fair presentation of the
condition of the Guarantor and its Subsidiaries, subject to changes resulting
from normal year-end audit adjustments, and a Compliance Certificate.
5.3 Annual Financial Statements. Deliver to the Agent, to the extent
not previously delivered by the Guarantor, on or before the 90th day after the
close of each fiscal year of the Guarantor, Sufficient Copies of the annual
audited consolidated and consolidating Financial Statements of the Guarantor and
its Subsidiaries, and a Compliance Certificate.
5.4 Oil and Gas Reserve Reports. (a) Deliver to the Agent no later
than forty-five (45) days after the end of each fiscal year during the term of
this Agreement, Sufficient Copies of engineering reports in form and substance
reasonably satisfactory to the Agent, certified by any of the Persons listed
under the heading "Approved Petroleum Engineers" on Exhibit X or any other
nationally- or regionally-recognized independent consulting petroleum engineers
reasonably acceptable to the Agent as fairly and accurately setting forth, in
accordance with the principles set forth in the Standards Pertaining to the
Estimating and Auditing of Oil and Gas Reserves Information as at the time are
promulgated by the Society of Petroleum Engineers, (i) the proven and producing,
shut-in, behind-pipe, and undeveloped oil and gas reserves (separately
classified as such) attributable to the Mortgaged Properties as of December 31
of the year for which such reserve reports are furnished, (ii) the aggregate
present value of the future net income with respect to such Mortgaged
Properties, discounted at a stated per annum discount rate of proven and
producing reserves, (iii) projections of the annual rate of production, gross
income, and net income with respect to such proven and producing reserves,
47
<PAGE> 53
and (iv) information with respect to the "take-or-pay," "prepayment," and
material gas-balancing liabilities of the Borrowers.
(b) Deliver to the Agent no later than forty-five (45) days after
the end of each second quarterly period of each fiscal year during the term of
this Agreement, Sufficient Copies of engineering reports in form and substance
reasonably satisfactory to the Agent prepared by or under the supervision of the
chief petroleum engineer of the Borrowers evaluating the Mortgaged Properties as
of June 30 of the year for which such reserve reports are furnished and updating
the information provided in the reports pursuant to Section 5.4(a).
(c) Each of the reports provided pursuant to this Section shall be
submitted to the Agent together with such additional data concerning pricing,
quantities of production from the Mortgaged Properties, volumes of production
sold, purchasers of production, gross revenues, expenses, and such other
information and engineering and geological data with respect thereto as the
Agent may reasonably request.
5.5 Title Opinions; Title Defects. Promptly upon the written request
of the Agent made no more than once in any calendar year commencing with 1997,
furnish to the Agent at the election of the Borrowers either (a) clean landman
runsheets with respect to the Material Properties, (b) title opinions with
respect to any or all other Mortgaged Properties, in form and substance and by
counsel reasonably satisfactory to the Agent, or (c) other confirmation of title
reasonably acceptable to the Agent, covering Oil and Gas Properties constituting
not less than 75% of the then present value of the Mortgaged Properties,
determined in accordance with the most recent Reserve Reports provided to the
Agent in accordance with Section 5.4; and promptly, but in any event within 60
days after notice by the Agent of any defect which is material (in the
reasonable opinion of the Agent) in value, in the title of the Borrowers to any
of such Oil and Gas Properties, clear such title defects, and, in the event any
such title defects are not cured in a timely manner, the value of the affected
Oil and Gas Properties shall be excluded from the Borrowing Base, or at the
Borrowers' election, the Borrowers shall pay all related costs and fees incurred
by the Agent to cure such title defects.
5.6 Notices of Certain Events. Deliver to the Agent, to the extent
not previously delivered by the Guarantor, promptly upon having knowledge of the
occurrence of any of the following events or circumstances, a written statement
with respect thereto, signed by a Responsible Officer of each Borrower and
setting forth the relevant event or circumstance and the steps being taken by
such Borrower or the Guarantor with respect to such event or circumstance:
(a) any Default or Event of Default;
(b) any default or event of default under any contractual obligation
of any Borrower or the Guarantor, or any litigation, investigation, or
proceeding between any Borrower or the Guarantor and any Governmental
Authority which, in either case, if not cured or if adversely determined,
as the case may be, could reasonably be expected to have a Material
Adverse Effect;
48
<PAGE> 54
(c) any litigation or proceeding involving any Borrower or the
Guarantor as a defendant or in which any Property of any Borrower or the
Guarantor is subject to a claim and in which the amount of the claim
against any Borrower or the Guarantor is $1,000,000 or more and which is
not covered by insurance or in which injunctive or similar relief is
sought;
(d) the receipt by any Borrower or the Guarantor of any
Environmental Complaint which individually, or in the aggregate with any
other Environmental Complaints then outstanding relating to any matter,
relates to a matter which could reasonably be expected to have a Material
Adverse Effect;
(e) any actual, proposed, or threatened testing or other
investigation by any Governmental Authority or other Person concerning the
environmental condition of, or relating to, any Property of any Borrower
or any real Property of the Guarantor, or the facilities located and the
operations conducted thereon, following any allegation of a violation of
any Requirement of Law regarding any condition in each case which could
reasonably be expected to have a Material Adverse Effect;
(f) any of the following which could reasonably be expected to have
a Material Adverse Effect: any Release of Hazardous Substances by any
Borrower or the Guarantor or from, affecting, or related to any Property
of any Borrower or any real Property of the Guarantor, or the facilities
located and the operations conducted thereon, except in accordance with
applicable Requirements of Law or the terms of a valid permit, license,
certificate, or approval of the relevant Governmental Authority, or the
violation of any Environmental Law, or the revocation, suspension, or
forfeiture of or failure to renew, any permit, license, registration,
approval, or authorization;
(g) any Reportable Event or imminently expected Reportable Event
with respect to any Plan; any withdrawal from, or the termination,
Reorganization or Insolvency of, any Multiemployer Plan; the institution
of proceedings or the taking of any other action by the PBGC, any
Borrower, the Guarantor or any Commonly Controlled Entity or Multiemployer
Plan with respect to the withdrawal from, or the termination,
Reorganization or Insolvency of, any Single Employer Plan or Multiemployer
Plan; or any Prohibited Transaction in connection with any Plan or any
trust created thereunder and the action being taken by the Internal
Revenue Service with respect thereto; and
(h) any other event or condition which could reasonably be expected
to have a Material Adverse Effect.
5.7 Additional Information. Furnish to the Agent, to the extent not
previously furnished by the Guarantor, within five Business Days after any
material report (other than financial statements) or other communication is sent
by the Guarantor to its stockholders or filed by the Guarantor with the
Securities and Exchange Commission or any successor or analogous
49
<PAGE> 55
Governmental Authority, Sufficient Copies of such report or communication and,
promptly upon the request of the Agent, such additional financial or other
information concerning the assets, liabilities, operations, and transactions of
the Borrowers as the Agent may from time to time reasonably request; and notify
the Agent not less than ten Business Days prior to the occurrence of any
condition or event that may change the proper location for the filing of any
financing statement or other public notice or recording for the purpose of
perfecting a Lien in any Collateral, including any change in its name or the
location of its principal place of business or chief executive office; and upon
the request of the Agent, execute such additional Security Instruments as may be
necessary or appropriate in connection therewith.
5.8 Compliance with Laws. Except to the extent the failure to comply
or cause compliance would not have a Material Adverse Effect, (a) comply with
all Requirements of Law applicable to the Borrowers, including (i) the Natural
Gas Policy Act of 1978, as amended, (ii) ERISA, (iii) Environmental Laws, and
(iv) all permits, licenses, registrations, approvals, and authorizations (A)
related to any natural or environmental resource or media located on, above,
within, in the vicinity of, related to or affected by any Property of any
Borrower, (B) required for the performance of the operations of any Borrower, or
(C) applicable to the use, generation, handling, storage, treatment, transport,
or disposal of any Hazardous Substances; and (b) cause all employees, crew
members, agents, contractors, subcontractors, and future lessees (pursuant to
appropriate lease and other contractual provisions) of any Borrower, while such
Persons are acting within the scope of their relationship with such Borrower, to
comply with all such Requirements of Law as may be necessary or appropriate to
enable such Borrower to so comply.
5.9 Payment of Assessments and Charges. Pay all taxes, assessments,
governmental charges, rent, and other Indebtedness which, if unpaid, might
become a Lien against the Property of any Borrower, except any of the foregoing
being contested in good faith and as to which adequate reserve in accordance
with GAAP has been established or unless failure to pay would not have a
Material Adverse Effect.
5.10 Maintenance of Corporate Existence and Good Standing. (a)
Maintain its corporate existence and good standing in its jurisdiction of
incorporation and (b) maintain its corporate qualification and good standing in
all jurisdictions wherein the Property now owned or hereafter acquired or
business now or hereafter conducted by such Borrower necessitates same, unless
the failure to do so would not have a Material Adverse Effect.
5.11 Payment of Notes; Performance of Obligations. Pay the Notes
according to the reading, tenor, and effect thereof, as modified hereby, and do
and perform every act and discharge all of its other Obligations.
5.12 Further Assurances. Promptly after discovery thereof cure any
defects, errors, or omissions in the execution and delivery of any of the Loan
Documents and execute, acknowledge, and deliver to the Agent such other
assurances and instruments as shall, in the reasonable opinion of the Agent, be
necessary to fulfill the terms of the Loan Documents.
50
<PAGE> 56
5.13 Fees and Expenses. (a) Upon request by the Agent, promptly pay
to or reimburse the Agent or the Collateral Agent, as applicable, for all
reasonable third-party fees, out-of-pocket costs and expenses of the Agent and
the Collateral Agent in connection with the preparation, negotiation, execution,
delivery and enforcement of this Agreement and the other Loan Documents, and any
and all amendments, restatements and supplements thereof and thereto, the filing
and recordation of the Security Instruments, and the consummation of the
transactions contemplated by the Loan Documents, including reasonable fees and
expenses of legal counsel and auditors and accountants for the Agent and the
Collateral Agent, provided however, that no fees or expenses of petroleum
engineers and environmental, insurance and other consultants for the Agent or
the Collateral Agent shall be payable under this Section 5.13(a).
(b) Upon request by the Agent (which shall be made promptly after
any request by the Collateral Agent or any Lender), promptly pay (to the fullest
extent permitted by law) for all amounts reasonably expended, advanced, or
incurred during the continuance of an Event of Default by or on behalf of the
Agent, the Collateral Agent or any Lender: (i) to satisfy any obligation of the
Borrowers under any of the Loan Documents; (ii) to collect the Obligations;
(iii) to enforce the rights of the Agent, the Collateral Agent, and the Lenders
under any of the Loan Documents; (iv) to protect the Properties or business of
the Borrowers and the Guarantor, including the Collateral, which amounts shall
be deemed compensatory in nature and liquidated as to amount upon notice to the
Borrowers by the Agent and which amounts shall include all court costs and
reasonable fees and expenses of legal counsel, auditors and accountants,
petroleum engineers, and environmental and insurance consultants; (v) in
connection with the participation by the Agent and the Lenders as members of the
creditors' committee in a case commenced under any Insolvency Proceeding; (vi)
in connection with lifting the automatic stay prescribed in ss.362 Title 11 of
the United States Code; and (vii) in connection with any action pursuant to
ss.1129 Title 11 of the United States Code, all as shall be reasonably incurred
by the Agent, the Collateral Agent, and the Lenders during the continuance of an
Event of Default in connection with the collection of any sums due under the
Loan Documents, together with interest at the per annum interest rate equal to
the Default Rate on each such amount from the date of notification that the same
was expended, advanced, or incurred by the Agent, the Collateral Agent, or any
Lender until the date it is repaid to the Agent, the Collateral Agent, or such
Lender, with the obligations under this Section surviving the non-assumption of
this Agreement in a case commenced under any Insolvency Proceeding and being
binding upon each Borrower and/or a trustee, receiver, custodian, or liquidator
of such Borrower appointed in any such case.
5.14 Operation of Oil and Gas Properties. Develop, maintain, and
operate its Oil and Gas Properties in a prudent and workmanlike manner in
accordance with industry standards or make reasonable and customary efforts to
cause such Properties to be so operated.
5.15 Maintenance and Inspection of Properties. Use reasonable and
customary efforts to maintain or cause to be maintained all of its material
tangible Properties in good repair and condition, ordinary wear and tear
excepted; make all reasonably necessary replacements thereof and permit any
authorized representative of the Agent or any Lender to visit and inspect at any
reasonable time and upon reasonable notice any tangible Property of the
Borrowers;
51
<PAGE> 57
provided, however, that any expenses incurred in connection with any such visit
or inspection shall be reimbursed by the Borrowers if required under Section
5.13.
5.16 Maintenance of Insurance. Maintain insurance with respect to
its Properties and businesses against such liabilities, casualties, risks, and
contingencies as is customary in the relevant industry and sufficient to prevent
a Material Adverse Effect, all such insurance to be in amounts and from insurers
reasonably acceptable to the Agent and, within 30 days of the Closing Date for
property damage insurance covering Collateral maintained by the Borrowers,
naming the Agent as a loss payee as its interest may appear, and, upon any
renewal of any such insurance and at other times upon reasonable request by the
Agent, furnish to the Agent evidence, reasonably satisfactory to the Agent, of
the maintenance of such insurance. The Agent shall have the right to collect,
and the Borrower hereby assigns to the Agent, any and all monies that may become
payable under any policies of insurance by reason of damage, loss, or
destruction of any of the Collateral. In the event of any damage, loss, or
destruction for which insurance proceeds relating to Collateral exceed $500,000
or are $500,000 or less and a Default or an Event of Default has occurred and is
continuing, the Agent may, at its option, apply all such sums or any part
thereof received by it toward the payment of the Obligations, whether matured or
unmatured, application to be made first to interest and then to principal, and
shall deliver to the Borrower the balance, if any, after such application has
been made. The prepayment of any LIBO Rate Loan by the application of such
insurance proceeds shall not require the Borrowers to pay any penalty or
premium, including any yield protection amounts which otherwise would be payable
upon such prepayment under Section 2.21. In the event of any such damage, loss,
or destruction for which insurance proceeds are $500,000 or less, provided that
no Default or Event of Default has occurred and is continuing, the Agent shall
deliver any such proceeds received by it to the Borrower. In the event the Agent
receives insurance proceeds not attributable to Collateral or business
interruption, the Agent shall deliver any such proceeds to the Borrower.
5.17 Indemnification. Indemnify and hold the Agent, the Collateral
Agent and each of the Lenders and their respective shareholders, officers,
directors, employees, agents, attorneys-in-fact, and affiliates and each trustee
for the benefit of the Agent, the Collateral Agent, or the Lenders under any
Security Instrument harmless from and against any and all claims, losses,
damages, liabilities, fines, penalties, charges, administrative and judicial
proceedings and orders, judgments, remedial actions, requirements and
enforcement actions of any kind, and all costs and expenses incurred in
connection therewith (including reasonable attorneys' fees and expenses),
arising directly or indirectly, in whole or in part, from (a) the presence of
any Hazardous Substances on, under, or from any Property of each Borrower,
whether prior to or during the term hereof, (b) any activity carried on or
undertaken on or off any Property of such Borrower, whether prior to or during
the term hereof, and whether by such Borrower or any predecessor in title,
employee, agent, contractor, or subcontractor of such Borrower or any other
Person at any time occupying or present on such Property, in connection with the
handling, treatment, removal, storage, decontamination, cleanup, transportation,
or disposal of any Hazardous Substances at any time located or present on or
under such Property, (c) any residual contamination of any Hazardous Substance
on or under any Property of such Borrower, (d) any contamination of any Property
or natural resources arising in connection with the
52
<PAGE> 58
generation, use, handling, storage, transportation or disposal of any Hazardous
Substances by such Borrower or any employee, agent, contractor, or subcontractor
of such Borrower while such persons are acting within the scope of their
relationship with such Borrower, irrespective of whether any of such activities
were or will be undertaken in accordance with applicable Requirements of Law, or
(e) the performance and enforcement of any Loan Document, any allegation by any
beneficiary of a letter of credit of a wrongful dishonor by the Agent of a claim
or draft presented thereunder, or any other act or omission in connection with
or related to any Loan Document or the transactions contemplated thereby,
including any of the foregoing in this Section arising from negligence, whether
sole or concurrent, on the part of the Agent, the Collateral Agent, or any
Lender or any of their respective shareholders, officers, directors, employees,
agents, attorneys-in-fact, or affiliates or any trustee for the benefit of the
Agent, the Collateral Agent, or the Lenders under any Security Instrument;
provided, however, the foregoing clauses (a) through (e) shall not apply to any
claim, loss, damage, liability, fine, penalty, charge, proceeding, order,
judgment, action or requirement attributable to (i) the gross negligence or
willful misconduct of any Person to be indemnified or (ii) any action or
inaction of any Person to be indemnified subsequent to the exercise of ownership
rights or the taking of any foreclosure action with respect to any of the
Collateral and with respect to such Collateral such claim, loss, damage,
liability, fine, penalty, charge, proceeding, order, judgment, action or
requirement arises subsequent to the exercise of ownership rights or the taking
of any foreclosure action with respect to such Collateral, to the extent such
Person is a "person in control" under any Environmental Law. The foregoing
indemnity shall survive satisfaction of all Obligations and the termination of
this Agreement, unless all such Obligations have been satisfied wholly in cash
from the Borrowers and not by way of realization against any Collateral or the
conveyance of any Property in lieu thereof.
ARTICLE VI
NEGATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or any
Commitment exists, no Borrower will:
6.1 Indebtedness. Create, incur, assume, or suffer to exist any
Indebtedness, whether by way of loan or otherwise; provided, however, the
foregoing restriction shall not apply to (a) the Obligations, (b) unsecured
accounts payable incurred in the ordinary course of business, which are not
unpaid in excess of 60 days beyond invoice date or are being contested in good
faith and as to which such reserve as is required by GAAP has been made, (c) the
Subordinated Debt, (d) crude oil, natural gas, or other hydrocarbon floor,
collar, cap, price protection, or swap agreements, with a Qualified Swap
Counterparty, provided that such agreements shall not be entered into with
respect to Mortgaged Properties constituting more than 80% of the present value
of estimated future net revenues, computed using a discount factor of 10%, of
all proved developed producing Mortgaged Properties, (e) financial hedging
agreements (including interest rate swaps) entered into with a Qualified Swap
Counterparty, (f) Debt of the Borrowers not otherwise permitted under this
Section 6.1 which does not exceed at any one time
53
<PAGE> 59
the aggregate principal amount of $1,000,000, (g) Debt of all of the Borrowers
for purchase money indebtedness and equipment leases, which does not exceed at
any one time the aggregate outstanding principal amount of $1,000,000, and (h)
Debt in the original principal amount of $300,000 owing by KRI on its Worland,
Wyoming office building, and all replacements thereof, but not any renewals,
extensions or increases thereof.
6.2 Contingent Obligations. Create, incur, assume, or suffer to
exist any Contingent Obligation; provided, however, the foregoing restriction
shall not apply to (a) performance guarantees and performance, surety or other
bonds provided in the ordinary course of business, including guaranties and
letters of credit supporting such performance obligations, (b) trade credit
incurred or operating leases entered into in the ordinary course of business,
(c) guaranties and contribution obligations under the Senior Note Indenture, and
(d) endorsements of instruments for deposit or collection in the ordinary course
of business.
6.3 Liens. Create, incur, assume, or suffer to exist any Lien on any
of its Oil and Gas Properties or any other Property, whether now owned or
hereafter acquired; provided, however, the foregoing restrictions shall not
apply to (a) Permitted Liens, (b) landlord's Liens in any Property which is not
Collateral, (c) Liens existing on cash deposits in connection with Indebtedness
permitted in Section 6.1(d), (d) Liens securing the Indebtedness permitted in
Section 6.1(h), (e) Liens incurred in the ordinary course of business covering
deposit accounts in favor of the depository institution holding such accounts
and arising in connection with obligations of any Borrower arising from any such
accounts, and (f) Liens securing the payment or performance of tenders,
statutory or regulatory obligations, surety and appeal bonds, bids, government
contracts and leases, performance and return of money bonds and similar
obligations (other than for payment of Debt) and covering Property which is not
Collateral.
6.4 Negative Pledge Agreements. Create, enter into, execute, incur,
assume or permit to exist, or will permit any of its Subsidiaries to create,
enter into, execute, incur, assume or permit to exist, any contract, agreement
or understanding (other than the Loan Documents) which in any manner grants,
conveys, creates or imposes, or which in any way prohibits or restricts the
granting, conveying, creation or imposition of, any Lien on any Property of the
Borrowers, or which requires the consent of, or notice to, other Persons in
connection therewith; provided, however, the foregoing restrictions shall not
apply to (a) any of the foregoing as may be required under the Senior Note
Indenture, and (b) any of the foregoing with respect to any Liens permitted
pursuant to Section 6.3.
6.5 Sales of Assets. During each Sales Period, sell, transfer, or
otherwise dispose of, in one or any series of transactions, assets, whether now
owned or hereafter acquired, the aggregate value of all of which exceeds
$5,000,000 or enter into any agreement to do so; provided, however, the
foregoing restriction shall not apply to (a) the sale of hydrocarbons or
inventory in the ordinary course of business other than the sale of a production
payment and provided that no contract for the sale of hydrocarbons shall
obligate the Borrowers to deliver hydrocarbons produced from any of the
Mortgaged Property at some future date without receiving full payment therefor
within 90 days of delivery, or (b) the sale or other disposition of Property
destroyed, lost, worn out, damaged, or having only salvage value or no longer
used or useful in the business of such Borrower. For purposes of this Section
6.5, the
54
<PAGE> 60
value of any Oil and Gas Property shall be the discounted present value of such
Property as shown on the most recent Reserve Report delivered to the Agent
pursuant to this Agreement.
6.6 Leasebacks. Enter into any agreement to sell or transfer any
Property and thereafter rent or lease as lessee such Property or other Property
intended for the same use or purpose as the Property sold or transferred.
6.7 Loans; Advances; Investments. Except as permitted by Section
6.1, make or agree to make or allow to remain outstanding any loans or advances
to or acquire Investments in, or purchase or otherwise acquire all or
substantially all of the assets of any Person; provided, however, the foregoing
restrictions shall not apply to (a) advances or extensions of credit in the form
of accounts receivable incurred in the ordinary course of business and upon
terms common in the industry for such accounts receivable, (b) advances to
employees of the Borrower for the payment of expenses in the ordinary course of
business, (c) the purchase or acquisition of Oil and Gas Properties, (d)
Investments in the form of (i) debt securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof, with maturities of no more than one year from the date
of acquisition, (ii) commercial paper of a domestic issuer rated at the date of
acquisition at least P-2 by Moody's Investor Service, Inc. or A-2 by Standard &
Poor's Corporation and with maturities of no more than one year from the date of
acquisition, (iii) repurchase agreements covering debt securities or commercial
paper of the type permitted in this Section, certificates of deposit, demand
deposits, eurodollar time deposits, overnight bank deposits and bankers'
acceptances, with maturities of no more than one year from the date of
acquisition, issued by or acquired from or through the Agent, any Lender, or any
bank or trust company organized under the laws of the United States or any state
thereof and having capital surplus and undivided profits aggregating at least
$500,000,000, and (iv) currency exchange contracts entered into in the ordinary
course of business, (e) other short-term Investments similar in nature and
degree of risk to those described in clause (d) of this Section, or (f) loans or
advances to the Guarantor.
6.8 Dividends and Distributions. Declare, pay, or make, whether in
cash or Property of the Borrowers, any dividend or distribution on, or purchase,
redeem, or otherwise acquire for value, any share of any class of its capital
stock at any time that an Event of Default exists or will occur as the result of
the payment of such dividend or distribution; provided, however, the foregoing
restriction shall not apply to dividends paid in capital stock of the Borrowers.
6.9 Environmental Matters. Cause or permit any of its Property to be
in violation of any Environmental Law or do anything or permit anything to be
done that would subject any of its Property to be subject to any remedial
obligations under any Environmental Law, assuming disclosure to applicable
Governmental Authorities of all relevant facts, conditions, and circumstances,
except where the foregoing would not have a Material Adverse Effect.
6.10 Issuance of Stock; Changes in Corporate Structure. (a) Issue or
agree to issue additional shares of capital stock, in one or any series of
transactions, to any Person other than the Guarantor, or, in the case of KCS
Marketing, Proliq, Inc.; enter into any transaction
55
<PAGE> 61
of consolidation, merger, or amalgamation except with another Borrower or the
Guarantor; liquidate, wind up, or dissolve (or suffer any liquidation or
dissolution); (b) No Borrower will, or will permit any of its Subsidiaries to,
amend or otherwise modify its corporate charter or its corporate structure,
activities or nature, as applicable, in any manner that could reasonably be
expected to have a Material Adverse Effect on it.
6.11 Transactions with Affiliates. Directly or indirectly, enter
into any transaction (including the sale, lease, or exchange of Property or the
rendering of service) not otherwise permitted by this Agreement with any of its
Affiliates, other than upon fair and reasonable terms no less favorable than
could be obtained in an arm's length transaction with a Person which was not an
Affiliate.
6.12 Lines of Business. Expand, on its own or through any
Subsidiary, into any line of business other than those in which such Borrower is
engaged as of the date hereof.
6.13 ERISA Compliance. Permit any Plan maintained by it or any
Commonly Controlled Entity to (a) engage in any Prohibited Transaction, (b)
incur any "accumulated funding deficiency," as such term is defined in Section
302 of ERISA, or (c) terminate in a manner which could result in the imposition
of a Lien on any Property of the Borrower pursuant to Section 4068 of ERISA; or
assume an obligation to contribute to any Multiemployer Plan; or acquire any
Person or all or substantially all of the assets of any Person which has now or
has had at any time an obligation to contribute to any Multiemployer Plan.
6.14 Subordinated Debt. Materially amend or modify any of the terms
or provisions of any documents, notes, or agreements governing or evidencing the
Subordinated Debt, including any term or provision which accelerates, increases,
renews, or extends the Subordinated Debt, or, at any time following the
occurrence and during the continuance of any Event of Default, make any
prepayments or payments, whether in cash or other Property, on or with respect
to the Subordinated Debt.
6.15 Use of Proceeds. Permit the proceeds of any Loan or any Letter
of Credit to be used for any purpose other than as expressly permitted in
Section 2.5.
6.16 Subsidiaries. Create, organize or acquire any Subsidiary or
become a general partner, joint venturer or venturer in any Person or become or
assume any similar capacity in any Person which gives rise to such similar
general liability.
ARTICLE VII
EVENTS OF DEFAULT
7.1 Enumeration of Events of Default. Any of the following events
shall constitute an Event of Default:
56
<PAGE> 62
(a) (i) default shall be made in any payment of principal when due
under this Agreement or the Notes at Final Maturity or pursuant to Section
2.12, or (ii) in the event of a default in the payment when due of any
other sums payable under any Loan Document other than as set forth under
clause (i) hereof, such failure shall continue unremedied for a period of
five (5) days;
(b) default shall be made in the due observance or performance of
any obligation under Sections 5.4 or 5.5 of the Guaranty;
(c) default shall be made by any Borrower or the Guarantor in the
due observance or performance of any of their respective obligations under
the Loan Documents other than as described in Section 7.1(a) or 7.1(b) and
such default shall not have been remedied within 30 days after the earlier
of (i) receipt of written notice thereof by the Borrowers from the Agent,
or (ii) any Borrower or the Guarantor having or obtaining knowledge
thereof;
(d) any representation or warranty made by any Borrower or the
Guarantor in any of the Loan Documents proves to have been untrue in any
material respect as of the date the facts therein set forth were stated or
certified or deemed stated or certified;
(e) default(s) shall be made by any Borrower or the Guarantor (as
principal or guarantor or other surety) in the payment or performance of
any bond, debenture, note, or other Debt or under any credit agreement,
loan agreement, indenture, promissory note, or similar agreement or
instrument executed in connection with any of the foregoing in an
aggregate amount equal to or exceeding $2,500,000, and such default(s)
shall remain unremedied for in excess of the period of grace, if any, with
respect thereto, if the effect of such failure is that such Debt shall
have become immediately due and payable in full or is subject to becoming
immediately due and payable in full;
(f) any Borrower or the Guarantor shall (i) apply for or consent to
the appointment of a receiver, trustee, or liquidator of it or all or a
substantial part of its assets, (ii) file a voluntary petition commencing
an Insolvency Proceeding, (iii) make a general assignment for the benefit
of creditors, (iv) admit in writing its inability to pay, or generally not
be paying, its debts as they become due, or (v) file an answer admitting
the material allegations of a petition filed against it in any Insolvency
Proceeding;
(g) an order, judgment, or decree shall be entered against any
Borrower or the Guarantor by any court of competent jurisdiction or by any
other duly authorized authority, on the petition of a creditor or
otherwise, granting relief in any Insolvency Proceeding or approving a
petition seeking reorganization or an arrangement of its debts or
appointing a receiver, trustee, conservator, custodian, or liquidator of
it or all or any substantial part of its assets, and such order, judgment,
or decree shall not be dismissed or stayed within 60 days;
57
<PAGE> 63
(h) the levy against any significant portion of the Property of any
Borrower or the Guarantor, or any execution, garnishment, attachment,
sequestration, or other writ or similar proceeding involving an amount
which, if paid, would have a Material Adverse Effect and which is not
permanently dismissed, discharged or bonded within 30 days after the levy;
(i) a final and non-appealable order, judgment, or decree shall be
entered against any Borrower or the Guarantor for money damages and/or
Indebtedness due in an aggregate amount in excess of $2,500,000 and which
is not covered by independent third-party insurance as to which the
insurer does not dispute coverage, and such order, judgment, or decree
shall not be paid, dismissed or stayed within 30 days;
(j) any charges are filed or any other action or proceeding is
instituted by any Governmental Authority against any Borrower or the
Guarantor under the Racketeering Influence and Corrupt Organizations
Statute (18 U.S.C. ss.1961 et seq.), the result of which could reasonably
be expected to be the forfeiture or transfer of any material Property of
such Borrower or the Guarantor subject to a Lien in favor of the Agent
without (i) satisfaction or provision for satisfaction of such Lien, or
(ii) such forfeiture or transfer of such Property being expressly made
subject to such Lien;
(k) any Borrower or the Guarantor shall have concealed, removed, or
diverted, or permitted to be concealed, removed, or diverted, any part of
its Property, with intent to hinder, delay, or defraud its creditors or
any of them;
(l) any Person shall engage in any Prohibited Transaction involving
any Plan; any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan for
which an excise tax is due or would be due in the absence of a waiver; a
Reportable Event shall occur with respect to, or proceedings shall
commence to have a trustee appointed, or a trustee shall be appointed, to
administer or to terminate, any Single Employer Plan, which Reportable
Event or commencement of proceedings or appointment of a trustee is, in
the reasonable opinion of the Agent, likely to result in the termination
of such Plan for purposes of Title IV of ERISA; any Single Employer Plan
shall terminate for purposes of Title IV of ERISA; the Borrower, the
Guarantor or any Commonly Controlled Entity shall incur, or in the
reasonable opinion of the Agent, be likely to incur any liability in
connection with a withdrawal from, or the Insolvency or Reorganization of,
a Multiemployer Plan; or any other event or condition shall occur or exist
with respect to a Plan and the result of such events or conditions
referred to in this Section 7.1(l) could reasonably be expected to subject
the Borrower, the Guarantor or any Commonly Controlled Entity to any tax
(other than an excise tax under Section 4980 of the Code), penalty or
other liabilities which taken in the aggregate would have a Material
Adverse Effect and any such circumstance shall exist for in excess of 30
days;
58
<PAGE> 64
(m) any Security Instrument shall for any reason not, or cease to,
create valid and perfected first-priority Liens against the Collateral
purportedly covered thereby, subject to Permitted Liens, and which
Collateral has a value greater than $100,000, unless the Borrowers have
provided the Agent, within 30 days following written notice to the
Borrowers from the Agent, with additional Collateral having at least an
equivalent value and otherwise reasonably satisfactory to the Required
Lenders; and
(n) the Guarantor shall cease to own all of the outstanding capital
stock of any class issued by KRI, KCS Pipeline and KCS Michigan; or
Proliq, Inc. shall cease to own all of the outstanding capital stock of
any class issued by KCS Marketing.
7.2 Remedies. (a) Upon the occurrence of an Event of Default
specified in Sections 7.1(f) or 7.1(g), immediately and without notice, (i) all
Obligations shall automatically become immediately due and payable, without
presentment, demand, protest, notice of protest, default, or dishonor, notice of
intent to accelerate maturity, notice of acceleration of maturity, or other
notice of any kind, except as may be provided to the contrary elsewhere herein,
all of which are hereby expressly waived by each Borrower; (ii) the Commitments
shall immediately cease and terminate unless and until reinstated by the Agent
and the Lenders in writing; and (iii) with the oral consent of the Required
Lenders (confirmed promptly in writing), the Agent and each Lender are hereby
authorized at any time and from time to time, without notice to the Borrowers
(any such notice being expressly waived by each Borrower), to set-off and apply
any and all deposits (general or special, time or demand, provisional or final)
held by the Agent or such Lender and any and all other indebtedness at any time
owing by the Agent or such Lender to or for the credit or account of the
Borrowers against any and all of the Obligations.
(b) Upon the occurrence of any Event of Default other than those
specified in Sections 7.1(f) or 7.1(g), (i) the Agent may and, upon the request
of the Required Lenders, shall, by notice to the Borrowers, declare all
Obligations immediately due and payable, without presentment, demand, protest,
notice of protest, default, or dishonor, notice of intent to accelerate
maturity, notice of acceleration of maturity, or other notice of any kind,
except as may be provided to the contrary elsewhere herein, all of which are
hereby expressly waived by each Borrower; (ii) the Agent may and, upon the
request of the Required Lenders, shall, declare the Commitments terminated,
whereupon the Commitments shall immediately cease and terminate unless and until
reinstated by the Agent and the Lenders in writing; and (iii) with the oral
consent of the Required Lenders (confirmed promptly in writing), the Agent and
each Lender are hereby authorized at any time and from time to time, without
notice to the Borrowers (any such notice being expressly waived by each
Borrower), to set-off and apply any and all deposits (general or special, time
or demand, provisional or final) held by the Agent or such Lender and any and
all other indebtedness at any time owing by the Agent or such Lender to or for
the credit or account of the Borrowers against any and all of the Obligations.
(c) Upon the occurrence of any Event of Default, the Lenders, with
the oral consent of the Required Lenders (confirmed promptly in writing), and
the Agent, in accordance
59
<PAGE> 65
with the terms hereof, may, in addition to the foregoing in this Section,
exercise any or all of their rights and remedies provided by law or pursuant to
the Loan Documents.
ARTICLE VIII
THE AGENT
8.1 Appointment. Each Lender hereby designates and appoints CIBC as
the Agent and CIBC Inc. as the Collateral Agent under this Agreement and the
other Loan Documents. Each Lender authorizes the Agent and the Collateral Agent
to take such action on behalf of such Lender under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the Agent and the Collateral Agent by
the terms of this Agreement and the other Loan Documents, together with such
other powers as are reasonably incidental thereto. Notwithstanding any provision
to the contrary elsewhere in this Agreement or in any other Loan Document,
neither the Agent nor the Collateral Agent shall have any duties or
responsibilities except those expressly set forth herein or in any other Loan
Document or any fiduciary relationship with any Lender; and no implied
covenants, functions, responsibilities, duties, obligations, or liabilities on
the part of the Agent or the Collateral Agent shall be read into this Agreement
or any other Loan Document or otherwise exist against the Agent or the
Collateral Agent.
8.2 Delegation of Duties. Each of the Agent and the Collateral Agent
may execute any of its duties under this Agreement and the other Loan Documents
by or through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. Neither the Agent nor
the Collateral Agent shall be responsible for the negligence or misconduct of
any agents or attorneys-in-fact selected by it with reasonable care.
8.3 Exculpatory Provisions. Neither the Agent, the Collateral Agent,
nor any of their respective officers, directors, employees, agents,
attorneys-in-fact or affiliates shall be (a) required to initiate or conduct any
litigation or collection proceedings hereunder, except with the concurrence of
the Required Lenders and contribution by each Lender of its Percentage Share of
costs reasonably expected by the Agent or the Collateral Agent to be incurred in
connection therewith, (b) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except for gross negligence or willful misconduct of the
Agent, the Collateral Agent, or such Person), or (c) responsible in any manner
to any Lender for any recitals, statements, representations or warranties made
by the Borrowers or any officer thereof contained in this Agreement or any other
Loan Document or in any certificate, report, statement or other document
referred to or provided for in, or received by the Agent or the Collateral Agent
under or in connection with, this Agreement or any other Loan Document, or for
the value, validity, effectiveness, genuineness, enforceability or sufficiency
of this Agreement or any other Loan Document or for any failure of any Borrower
to perform its obligations hereunder or thereunder. Neither the Agent nor the
Collateral Agent shall be under any obligation to any Lender to ascertain or to
inquire as to the observance or performance of any of the agreements contained
in, or conditions
60
<PAGE> 66
of, this Agreement or any other Loan Document, or to inspect the properties,
books or records of the Borrowers.
8.4 Reliance by Agent. Each of the Agent and the Collateral Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
Note, writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, telecopy, telex or teletype message, statement, order or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons and upon advice
and statements of legal counsel (including counsel to the Borrowers),
independent accountants and other experts selected by the Agent or the
Collateral Agent. Each of the Agent and the Collateral Agent may deem and treat
the payee of any Note as the owner thereof for all purposes unless and until a
written notice of assignment, negotiation, or transfer thereof shall have been
received by the Agent. Each of the Agent and the Collateral Agent shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Loan Document unless it shall first receive such advice or concurrence of
the Required Lenders as it deems appropriate or of all of the Lenders if
required by any provision of this Agreement and contribution by each Lender of
its Percentage Share of costs reasonably expected by the Agent or the Collateral
Agent, as the case may be, to be incurred in connection therewith. Each of the
Agent and the Collateral Agent shall in all cases be fully protected in acting,
or in refraining from acting, under this Agreement and the other Loan Documents
in accordance with a request of the Required Lenders. Such request and any
action taken or failure to act pursuant thereto shall be binding upon the
Lenders and all future holders of the Notes. In no event shall either the Agent
or the Collateral Agent be required to take any action that exposes such agent
to personal liability or that is contrary to any Loan Document or applicable
Requirement of Law.
8.5 Notice of Default. Neither the Agent nor the Collateral Agent
shall be deemed to have knowledge or notice of the occurrence of any Default or
Event of Default unless such agent has received notice from a Lender or the
Borrowers referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default." In the event that
such agent receives such a notice, such agent shall promptly give notice thereof
to the Lenders. The Agent and the Collateral Agent shall take such action with
respect to such Default or Event of Default as shall be reasonably directed by
the Required Lenders; provided that unless and until the Agent and the
Collateral Agent shall have received such directions, subject to the provisions
of Section 7.2, each of the Agent and the Collateral Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders. In the event that the officer of the Agent or the
Collateral Agent primarily responsible for the lending relationship with the
Borrowers or the officer of any Lender primarily responsible for the lending
relationship with the Borrowers becomes aware that a Default or Event of Default
has occurred and is continuing, such agent or such Lender, as the case may be,
shall use its good faith efforts to inform the other Lenders and/or the other
agents, as the case may be, promptly of such occurrence. Notwithstanding the
preceding sentence, failure to comply with the preceding sentence shall not
result in any liability to the Agent, the Collateral Agent, or any Lender.
61
<PAGE> 67
8.6 Non-Reliance on Agent and Other Lenders. Each Lender expressly
acknowledges that neither the Agent, the Collateral Agent, any other Lender nor
any of their respective officers, directors, employees, agents,
attorneys-in-fact or affiliates has made any representation or warranty to such
Lender and that no act by the Agent, the Collateral Agent, or any other Lender
hereafter taken, including any review of the affairs of the Borrowers, shall be
deemed to constitute any representation or warranty by the Agent, the Collateral
Agent, or any Lender to any other Lender. Each Lender represents to the Agent
and the Collateral Agent that it has, independently and without reliance upon
the Agent, the Collateral Agent, or any other Lender, and based on such
documents and information as it has deemed appropriate, made its own appraisal
of and investigation into the business, operations, property, condition
(financial and otherwise) and creditworthiness of the Borrowers and the value of
the Collateral and other Properties of the Borrowers and has made its own
decision to enter into this Agreement. Each Lender also represents that it will,
independently and without reliance upon the Agent or the Collateral Agent or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement and the other
Loan Documents, and to make such investigation as it deems necessary to inform
itself as to the business, operations, property, condition (financial and
otherwise) and creditworthiness of the Borrowers and the value of the Collateral
and other Properties of the Borrowers. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the Agent or the
Collateral Agent hereunder, neither the Agent nor the Collateral Agent shall
have any duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, property, condition (financial
and otherwise), or creditworthiness of the Borrowers or the value of the
Collateral or other Properties of the Borrowers which may come into the
possession of the Agent, the Collateral Agent or any of their respective
officers, directors, employees, agents, attorneys-in-fact or affiliates.
8.7 Indemnification. EACH LENDER AGREES TO INDEMNIFY THE AGENT AND
THE COLLATERAL AGENT AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS-IN-FACT AND AFFILIATES (TO THE EXTENT NOT REIMBURSED BY THE BORROWERS
AND WITHOUT LIMITING THE OBLIGATION OF THE BORROWERS TO DO SO), RATABLY
ACCORDING TO THE PERCENTAGE SHARE OF SUCH LENDER, FROM AND AGAINST ANY AND ALL
LIABILITIES, CLAIMS, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS OF ANY KIND WHATSOEVER WHICH
MAY AT ANY TIME (INCLUDING ANY TIME FOLLOWING THE PAYMENT AND PERFORMANCE OF ALL
OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT) BE IMPOSED ON, INCURRED BY OR
ASSERTED AGAINST THE AGENT, THE COLLATERAL AGENT OR ANY OF THEIR RESPECTIVE
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES IN ANY
WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR
ANY OTHER DOCUMENT CONTEMPLATED OR REFERRED TO HEREIN OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR ANY ACTION TAKEN OR OMITTED BY THE AGENT, THE COLLATERAL
AGENT OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS-IN-FACT OR AFFILIATES UNDER OR IN CONNECTION WITH ANY OF THE
FOREGOING, INCLUDING ANY LIABILITIES, CLAIMS, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS IMPOSED,
INCURRED OR ASSERTED AS A RESULT OF THE NEGLIGENCE,
62
<PAGE> 68
WHETHER SOLE OR CONCURRENT, OF THE AGENT, THE COLLATERAL AGENT OR ANY OF THEIR
RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR
AFFILIATES; PROVIDED THAT NO LENDER SHALL BE LIABLE FOR THE PAYMENT OF ANY
PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS RESULTING SOLELY FROM THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE AGENT, THE COLLATERAL AGENT OR ANY
OF THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR
AFFILIATES. THE AGREEMENTS IN THIS SECTION SHALL SURVIVE THE PAYMENT AND
PERFORMANCE OF ALL OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT.
8.8 Restitution. Should the right of the Agent, the Collateral Agent
or any Lender to realize funds with respect to the Obligations be challenged and
any application of such funds to the Obligations be reversed, whether by
Governmental Authority or otherwise, or should the Borrowers otherwise be
entitled to a refund or return of funds distributed to the Lenders in connection
with the Obligations, the Agent, the Collateral Agent or such Lender, as the
case may be, shall promptly notify the Lenders of such fact. Not later than
Noon, Eastern Standard or Daylight Savings Time, as the case may be, of the
Business Day following such notice, each Lender shall pay to the Agent an amount
equal to the ratable share of such Lender of the funds required to be returned
to the Borrowers. The ratable share of each Lender shall be determined on the
basis of the percentage of the payment all or a portion of which is required to
be refunded originally distributed to such Lender, if such percentage can be
determined, or, if such percentage cannot be determined, on the basis of the
Percentage Share of such Lender. The Agent shall forward such funds to the
Borrowers or to the Lender required to return such funds. If any such amount due
to the Agent is made available by any Lender after Noon, Eastern Standard or
Daylight Savings Time, as the case may be, of the Business Day following such
notice, such Lender shall pay to the Agent (or the Lender required to return
funds to the Borrowers, as the case may be) for its own account interest on such
amount at a rate equal to the Federal Funds Rate for the period from and
including the date on which restitution to the Borrowers is made by the Agent
(or the Lender required to return funds to the Borrowers, as the case may be) to
but not including the date on which such Lender failing to timely forward its
share of funds required to be returned to the Borrowers shall have made its
ratable share of such funds available.
8.9 Agents in Individual Capacity. Each of the Agent and the
Collateral Agent and their affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Borrowers as though the
Agent and the Collateral Agent were not agents hereunder. With respect to any
Note issued to the Lender serving as the Collateral Agent, the Collateral Agent
shall have the same rights and powers under this Agreement as a Lender and may
exercise such rights and powers as though it were not the Collateral Agent. The
terms "Lender" and "Lenders" shall include the Collateral Agent in its
individual capacity.
8.10 Successor Agent. Provided that a successor agent has been
appointed and has accepted such appointment as provided below, the Agent or the
Collateral Agent may resign upon 30 days' notice to the Lenders and the
Borrowers. If the Agent or the Collateral Agent shall resign as an agent under
this Agreement and the other Loan Documents, Lenders for which the Percentage
Shares aggregate at least sixty-six and two-thirds percent (66-2/3%) shall
appoint
63
<PAGE> 69
from among the Lenders a successor agent or collateral agent, as the case may
be, for the Lenders, whereupon such successor agent shall succeed to the rights,
powers and duties of such agent. The term "Agent" or "Collateral Agent" shall
mean such successor agent effective upon its appointment. Upon written
acceptance by such successor agent (a copy of which shall be furnished to the
Borrowers), the rights, powers, and duties of the former agent as Agent or
Collateral Agent shall be terminated, without any other or further act or deed
on the part of such former agent or any of the parties to this Agreement or any
holders of the Notes. After the resignation of the Agent or the Collateral Agent
hereunder as an agent, the provisions of this Article VIII and Sections 2.2(d),
5.13, and 5.17 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was an agent under this Agreement and the other Loan
Documents.
8.11 Applicable Parties. The provisions of this Article are solely
for the benefit of the Agent, the Collateral Agent and the Lenders, and the
Borrowers shall not have any rights as a third party beneficiary or otherwise or
any obligations under any of the provisions of this Article. In performing
functions and duties hereunder and under the other Loan Documents, the Agent and
the Collateral Agent shall act solely as the agent of the Lenders and do not
assume, nor shall either be deemed to have assumed, any obligation or
relationship of trust or agency with or for the Borrowers or any legal
representative, successor, and assign of the Borrowers.
8.12 Release by Borrowers. Notwithstanding the assignment made and
evidenced by the Bank One Assignment and the Comerica Assignment and the
assumption by the Lenders of certain obligations and liabilities pursuant
thereto, each of the Borrowers hereby releases and discharges the Agent, the
Collateral Agent and the Lenders from all obligations, claims, losses, causes of
action, and liabilities, of whatsoever kind or nature heretofore accruing,
whether now known or unknown, arising under or in connection with any Existing
Bank One Loan Document and/or any Existing Comerica Loan Document or any act or
omission by any existing lender under or in connection with any Existing Bank
One Loan Document and/or Existing Comerica Loan Document; provided, however,
nothing set forth in this Section shall relieve the Agent, the Collateral Agent
or the Lenders from their respective obligations and liabilities under the Loan
Documents (other than such Assignments) to which each is a party.
ARTICLE IX
MISCELLANEOUS
9.1 Assignments; Participations. (a) The Borrowers may not assign
any of their rights or obligations under any Loan Document without the prior
consent of the Agent and the Lenders.
(b) With the consent of the Agent and the Borrowers (which consents
shall not be unreasonably withheld), any Lender may assign to one or more
assignees all or a portion of its rights and obligations under this Agreement
pursuant to an Assignment Agreement. Any such assignment shall be in the amount
of at least $10,000,000 (or any whole multiple of $1,000,000 in excess thereof),
and the assignee shall pay to the Agent a transfer fee in the amount of $3,500
64
<PAGE> 70
for each such assignment. Any such assignment shall become effective upon the
execution and delivery to the Agent of the Assignment Agreement and the consent
of the Agent and the Borrowers. Promptly following receipt of an executed
Assignment Agreement, the Agent shall send to the Borrowers a copy of such
executed Assignment Agreement. Promptly following receipt of such executed
Assignment Agreement, the Borrowers shall execute and deliver, at their own
expense, new Notes to the assignee and, if applicable, the assignor, in
accordance with their respective interests, whereupon the prior Notes of the
assignor and, if applicable, the assignee, shall be cancelled and returned to
the Borrowers. Upon the effectiveness of any assignment pursuant to this Section
9.1(b), the assignee shall become a "Lender," if not already a "Lender," for all
purposes of the Loan Documents, and the assignor shall be relieved of its
obligations hereunder from and after the date of such assignment to the extent
of such assignment. If the assignor no longer holds any rights or obligations
under this Agreement, such assignor shall cease to be a "Lender" hereunder,
except that its rights under Sections 2.20 and 5.18 shall not be affected. On
the last Business Day of each calendar quarter during which an assignment has
become effective pursuant to this Section 9.1(b), the Agent shall prepare a new
Exhibit IV giving effect to all such assignments effected during such month and
will promptly provide a copy thereof to the Borrowers and each Lender.
(c) Each Lender may transfer, grant, or assign participations in all
or any portion of its interests hereunder to any Person pursuant to this Section
9.1(c), provided that such Lender shall remain a "Lender" for all purposes of
this Agreement and the transferee of such participation shall not constitute a
"Lender" hereunder. In the case of any such participation, the participant shall
not have any rights under any Loan Document, the rights of the participant in
respect of such participation to be against the granting Lender as set forth in
the agreement with such Lender creating such participation, and all amounts
payable by the Borrower hereunder shall be determined as if such Lender had not
sold such participation. Each participation agreement shall provide that the
Lender that has sold or granted the participation shall retain the sole right to
take or refrain from taking any action under the Loan Documents, except that
such participation agreement may provide that such Lender shall not, without the
consent of the participant, agree to any amendment or waiver that would have the
effect, to the extent such participant would be affected thereby, of (i)
increasing the Commitment of such Lender, (ii) extending the Commitment
Termination Date, (iii) reducing the principal on the Loans, (iv) reducing the
rate of interest on the Loans or the Notes, (v) reducing the amount of such
Lender's participation in any fees payable pursuant to Sections 2.14 and 2.15,
(vi) extending the time of scheduled payment of any Obligation, or (vii)
releasing the Guaranty. All amounts payable to any Lender under Article 2 shall
be determined as if such Lender had not sold any participations. Each agreement
creating a participation must include an agreement by the participant to be
bound by the provisions of Section 9.9.
(d) The Lenders may furnish any information concerning the Borrowers
in the possession of the Lenders from time to time to assignees and participants
and prospective assignees and participants, provided that such Persons agree to
be bound by the provisions of Section 9.9.
(e) Notwithstanding anything in this Section to the contrary, any
Lender may assign and pledge all or any of its Notes or any interest therein to
any Federal Reserve Bank or
65
<PAGE> 71
the United States Treasury as collateral security pursuant to Regulation A of
the Board of Governors of the Federal Reserve System and any operating circular
issued by such Federal Reserve System and/or such Federal Reserve Bank. No such
assignment or pledge shall release the assigning or pledging Lender from its
obligations hereunder.
(f) Each Lender party to this Agreement on the Closing Date hereby
represents, and each Person that becomes a lender pursuant to an Assignment
Agreement will represent, and shall be deemed to have represented on becoming a
party to this Agreement, that it is a bank or other financial institution
regularly engaged in making or purchasing loans, that it will make or acquire
Loans hereunder for its own account in the ordinary course of its business, and
that it has capital surplus and undivided profits aggregating at least
$500,000,000.
(g) Notwithstanding any other provisions of this Section, no
transfer or assignment of the interests or obligations of any Lender or grant of
participations therein shall be permitted if such transfer, assignment, or grant
would require the Borrower to file a registration statement with the Securities
and Exchange Commission or any successor Governmental Authority or qualify the
Loans under the "Blue Sky" laws of any state.
9.2 Survival of Representations, Warranties, and Covenants. All
representations and warranties of the Borrowers and all covenants and agreements
herein made shall survive the execution and delivery of the Notes and the
Security Instruments and shall remain in force and effect so long as any
Obligation is outstanding or any Commitment exists.
9.3 Notices and Other Communications. Except as to oral notices
expressly authorized herein, which oral notices shall be confirmed in writing,
all notices, requests, and communications hereunder or in connection herewith or
with any other Loan Document shall be in writing (including by telecopy). Unless
otherwise expressly provided herein, any such notice, request, demand, or other
communication shall be deemed to have been duly given or made when delivered by
hand, or, in the case of delivery by mail, two Business Days after deposited in
the mail, certified mail, return receipt requested, postage prepaid, or, in the
case of telecopy notice, when receipt thereof is acknowledged orally or by
written confirmation report, addressed to each party at the "Address for
Notices" specified below its name on the signature pages hereof or at such other
address within the United States as shall be designated by such party in a
notice given to the Agent and the Borrowers.
9.4 Parties in Interest. Subject to the restrictions on changes in
corporate structure set forth in Section 6.10 and other applicable restrictions
contained herein, all covenants and agreements herein contained by or on behalf
of the Borrowers, the Agent, the Collateral Agent or the Lenders shall be
binding upon and inure to the benefit of the Borrowers, the Agent, the
Collateral Agent or the Lenders, as the case may be, and their respective legal
representatives, successors, and permitted assigns.
9.5 Rights of Third Parties. All provisions herein are imposed solely
and exclusively for the benefit of the Agent, the Collateral Agent the Lenders
and the Borrowers and their successors and permitted assigns. No other Person
shall have any right, benefit, priority,
66
<PAGE> 72
or interest hereunder or as a result hereof or have standing to require
satisfaction of provisions hereof in accordance with their terms.
9.6 No Waiver; Rights Cumulative. No course of dealing on the part
of the Agent, the Collateral Agent or the Lenders or their officers or
employees, nor any failure or delay by the Agent, the Collateral Agent or the
Lenders with respect to exercising any of their rights under any Loan Document
shall operate as a waiver thereof. The rights of the Agent, the Collateral Agent
and the Lenders under the Loan Documents shall be cumulative and the exercise or
partial exercise of any such right shall not preclude the exercise of any other
right. Neither the making of any Loan nor the issuance of a Letter of Credit
shall constitute a waiver of any of the covenants, warranties, or conditions of
the Borrowers contained herein. In the event any Borrower is unable to satisfy
any such covenant, warranty, or condition, neither the making of any Loan nor
the issuance of a Letter of Credit shall have the effect of precluding the Agent
or the Lenders from thereafter declaring such inability to be an Event of
Default as hereinabove provided.
9.7 Severability. In the event any one or more of the provisions
contained in any of the Loan Documents shall, for any reason, be held to be
invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provision of any Loan Document.
9.8 Amendments; Waivers. Neither this Agreement nor any of the other
Loan Documents nor any terms hereof or thereof may be amended, supplemented,
modified, or waived except in writing and in accordance with the provisions of
this Section. The Agent and the Borrowers may, from time to time with the
written consent of the Required Lenders, enter into written amendments,
supplements, or modifications to the Loan Documents for the purpose of adding
any provisions to this Agreement or the other Loan Documents or changing in any
manner the rights of the Lenders or the Borrowers hereunder or thereunder or
waiving, on such terms and conditions as the Agent may specify in such
instrument, any of the requirements of this Agreement or the other Loan
Documents or any Default or Event of Default and its consequences; provided,
however, that no such amendment, supplement, modification, or waiver shall (a)
extend the time of scheduled payment of any Obligation, change the rate of
interest thereon, extend the Commitment Termination Date or Final Maturity,
reduce any fee payable for the account of the Lenders hereunder, release any
Collateral, release the Guaranty, reduce the amount of any Obligation, increase
the Maximum Facility Amount, change the Borrowing Base except in accordance with
Section 2.11 or change any other provision applicable to the determination of
the Borrowing Base, amend, modify, or waive any provision of this Section or
Sections 2.11, 5.13, 5.17 or 8.10, change the percentage specified in the
definition of Required Lenders, or consent to the assignment or transfer by the
Borrowers of any of their rights or obligations under this Agreement or the
other Loan Documents, in any such case without the written consent of all
Lenders, (b) amend, modify, or waive any provision of Article VIII or the rights
or obligations of the Agent (including its rights and obligations as issuer of
the Letters of Credit) or the Collateral Agent without the written consent of
such agent, or (c) amend, modify, or waive any provision relating to any Hedging
Agreement without the written consent of the Lender party thereto or whose
affiliate is a party thereto. Any such amendment, supplement, modification, or
waiver shall apply equally to each of the Lenders and shall be binding upon the
67
<PAGE> 73
Borrowers, the Lenders, the Agent, and the Collateral Agent and all future
holders of the Notes. Notwithstanding the foregoing, during each Sales Period,
the Collateral Agent may, provided that no Default or Event of Default exists,
release items of Collateral sold by the Borrowers in accordance with Section
6.5. In the event of any waiver, the Borrowers, the Lenders, the Agent, and the
Collateral Agent shall be restored to their respective former positions and
rights hereunder and under the other Loan Documents, and any Default or Event of
Default waived shall be deemed to be cured and not continuing; but no such
waiver shall extend to any subsequent or other Default or Event of Default or
impair any right with respect thereto.
9.9 Confidentiality. In the event that any Borrower or the Guarantor
provides to the Agent, the Collateral Agent or the Lenders information belonging
to any Borrower or any Affiliate of the Borrowers, the Agent, the Collateral
Agent and the Lenders shall thereafter maintain such information in confidence.
This obligation of confidence shall not apply to such portions of the
information which (i) are in the public domain, (ii) hereafter become part of
the public domain without the Agent, the Collateral Agent or the Lenders
breaching their obligation of confidence herein or in any other Loan Document,
(iii) are previously known by the Agent, the Collateral Agent or the Lenders
from some source other than the Borrowers or any Affiliate of the Borrowers,
(iv) are hereafter developed by the Agent, the Collateral Agent or the Lenders
without using the information thus provided, (v) are hereafter obtained by or
available to the Agent, the Collateral Agent or the Lenders from a third party
who owes no obligation of confidence to the Borrowers or any Affiliate of the
Borrowers with respect to such information or through any other means other than
through disclosure by the Borrowers or any Affiliate of the Borrowers to the
Agent, the Collateral Agent or the Lenders, (vi) are disclosed with the
Borrower's consent, (vii) must be disclosed pursuant to any Requirement of Law,
(viii) as may be required by law or regulation or order of any Governmental
Authority in any judicial, arbitration or governmental proceeding or (ix) as may
be requested by any Governmental Authority pursuant to any bank examination or
audit; provided, however, that to the extent practicable and unless otherwise
prohibited by any Requirement of Law, any Person disclosing any non-public
information pursuant to clauses (vii) or (viii) shall endeavor in good faith to
give the Borrowers at least 5 days' prior written notice of such disclosure.
Further, the Agent, the Collateral Agent or a Lender may disclose any such
information to any other Lender or successor agent, any independent petroleum
engineers or consultants, any independent certified public accountants, any
legal counsel employed by such Person in connection with this Agreement or any
other Loan Document, including the enforcement or exercise of all rights and
remedies hereunder or thereunder, or any assignee or participant (including
prospective assignees and participants) in the Loans; provided, however, that
the Agent, the Collateral Agent or the Lenders impose on the Person to whom such
information is disclosed the same obligation to maintain the confidentiality of
such information as is imposed upon it hereunder and such Person agrees to be
bound by the terms hereof. Notwithstanding anything to the contrary provided
herein, this obligation of confidence shall cease three (3) years from the later
of (a) Final Maturity or (b) the date that all Obligations are paid or satisfied
in full or otherwise performed or discharged or deemed performed or discharged.
9.10 Controlling Agreement. In the event of a conflict between the
provisions of this Agreement and those of any other Loan Document, the
provisions of this Agreement shall control. Without limiting the generality of
the foregoing, no provision of any Letter of Credit
68
<PAGE> 74
Application, Security Instrument or other agreement or document executed in
connection herewith shall give the Agent or any Lender any rights that are
greater than the rights such Persons have under this Agreement with respect to
the same subject matter.
9.11 Governing Law. THIS AGREEMENT, THE NOTES AND THE GUARANTY SHALL
BE DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO
PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW.
9.12 Jurisdiction and Venue. ALL ACTIONS OR PROCEEDINGS WITH RESPECT
TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR
FROM THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE SOLE
DISCRETION AND ELECTION OF THE AGENT OR THE COLLATERAL AGENT, IN THE COURTS OF
THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN
DISTRICT OF NEW YORK. EACH BORROWER HEREBY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO
TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST
IT BY THE AGENT, THE COLLATERAL AGENT OR ANY LENDER IN ACCORDANCE WITH THIS
SECTION.
9.13 Appointment of Agent for Service of Process. Each Borrower
hereby irrevocably designates CT Corporation System, or such other corporate
process agent as is acceptable to the Agent, as the designee, appointee and
agent of such Borrower to receive, for and on behalf of such Borrower, service
of process out of any of the afore-mentioned courts in any legal action or
proceeding with respect to this Agreement, any other Loan Document or any
document related thereto. It is understood that a copy of such process served on
such agent will be promptly forwarded by mail to such Borrower at its address
specified below its name on the signature pages hereof, but the failure of such
Borrower to receive such copy shall not affect in any way the service of such
process. Each Borrower further irrevocably consents to the service of process of
any of the courts mentioned in Section 9.12 in any such action or proceeding by
the mailing of copies thereof by registered or certified mail, postage prepaid,
to such Borrower at such address, such service to become effective four days
after mailing. Nothing herein shall affect the right of the Agent or any Lender
to serve process in any other manner permitted by law.
9.14 Waiver of Rights to Jury Trial. THE BORROWERS, THE AGENT, THE
COLLATERAL AGENT, AND EACH LENDER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY,
IRREVOCABLY, AND UNCONDITIONALLY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY
ACTION, SUIT, PROCEEDING, COUNTERCLAIM, OR OTHER LITIGATION THAT RELATES TO OR
ARISES OUT OF ANY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE ACTS OR
OMISSIONS OF THE AGENT, THE COLLATERAL AGENT OR ANY LENDER IN THE ENFORCEMENT OF
ANY OF THE TERMS OR PROVISIONS OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR
OTHERWISE WITH RESPECT THERETO. THE PROVISIONS OF THIS SECTION ARE A MATERIAL
INDUCEMENT FOR THE AGENT, THE COLLATERAL AGENT AND THE LENDERS ENTERING INTO
THIS AGREEMENT.
69
<PAGE> 75
9.15 Integration. THIS AGREEMENT AMENDS, RESTATES, AND REPLACES THE
EXISTING BANK ONE CREDIT AGREEMENT AND THE EXISTING COMERICA CREDIT AGREEMENT
AND CONSTITUTES THE ENTIRE AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO
THE SUBJECT HEREOF AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN OR AMONG THE
PARTIES, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT HEREOF, INCLUDING THE
EXISTING BANK ONE CREDIT AGREEMENT AND THE EXISTING COMERICA CREDIT AGREEMENT.
FURTHERMORE, IN THIS REGARD, THIS AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS
REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH
PARTIES.
9.16 Counterparts. For the convenience of the parties, this Agreement
may be executed in multiple counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which together shall constitute one and the same agreement.
70
<PAGE> 76
IN WITNESS WHEREOF, this Agreement is executed effective as of the
date first above written.
BORROWERS:
KCS RESOURCES, INC.
By: __________________________________
Henry A. Jurand
Vice President
Address for Notices:
5555 San Felipe
Suite 1200
Houston, Texas 77027
Attention: Henry A. Jurand
Telecopy: (713) 964-9463
KCS PIPELINE SYSTEMS, INC.
By: __________________________________
Henry A. Jurand
Vice President
Address for Notices:
5555 San Felipe
Suite 1200
Houston, Texas 77027
Attention: Henry A. Jurand
Telecopy: (713) 964-9463
71
<PAGE> 77
KCS MICHIGAN RESOURCES, INC.
By: __________________________________
Henry A. Jurand
Vice President
Address for Notices:
5555 San Felipe
Suite 1200
Houston, Texas 77027
Attention: Henry A. Jurand
Telecopy: (713) 964-9463
KCS ENERGY MARKETING, INC.
By: __________________________________
Henry A. Jurand
Vice President
Address for Notices:
5555 San Felipe
Suite 1200
Houston, Texas 77027
Attention: Henry A. Jurand
Telecopy: (713) 964-9463
72
<PAGE> 78
AGENT:
CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY
By: __________________________________
Marybeth Ross
Authorized Signatory
Address for Notices:
425 Lexington Avenue
7th Floor
New York, New York 10017
Attention: Marybeth Ross
Syndications Group
Telecopy: (212) 856-3763
with copies to:
CANADIAN IMPERIAL BANK OF COMMERCE
909 Fannin, Suite 1200
Houston, Texas 77010
Attention: Dawn Tamborello
Telecopy: (713) 650-3727
73
<PAGE> 79
COLLATERAL AGENT AND A LENDER:
CIBC INC.
By: __________________________________
Marybeth Ross
Authorized Signatory
Applicable Lending Office
for Base Rate Loans and
LIBO Rate Loans:
425 Lexington Avenue
7th Floor
New York, New York 10017
Address for Notices:
425 Lexington Avenue
7th Floor
New York, New York 10017
Attention: Marybeth Ross
Telecopy: (212) 856-3763
with copies to:
CIBC INC.
909 Fannin, Suite 1200
Houston, Texas 77010
Attention: Dawn Tamborello
Telecopy: (713) 650-3727
74
<PAGE> 80
CO-AGENT AND A LENDER:
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By: __________________________________
Stephen M. Shatto
Vice President
Applicable Lending Office
for Base Rate Loans and
LIBO Rate Loans:
910 Travis
Houston, Texas 77002
Attention: Karen Smith
Telecopy: (713) 751-7894
Address for Notices:
910 Travis Street
Houston, Texas 77002
Attention: Stephen M. Shatto
Telecopy: (713) 751-3544
75
<PAGE> 81
CO-AGENT AND A LENDER:
NATIONSBANK OF TEXAS, N.A.
By: ___________________________________
Paul A. Squires
Senior Vice President
Applicable Lending Office
for Base Rate Loans and
LIBO Rate Loans:
901 Main Street, 14th Floor
Dallas, Texas 75283
Attention: Corporate Credit Services
Address for Notices:
901 Main Street, 14th Floor
Dallas, Texas 75283
Attention: Sharon Evans
Telecopy: (214) 508-2020
with copies to:
NATIONSBANK OF TEXAS, N.A.
700 Louisiana
8th Floor
Houston, Texas 77002
Attention: Paul A. Squires
Telecopy: (713) 247-6568
76
<PAGE> 82
LENDER:
COMERICA BANK-TEXAS
By: __________________________________
Daniel G. Steele
Senior Vice President
Applicable Lending Office
for Base Rate Loans and
LIBO Rate Loans:
1508 West Mockingbird
Dallas, Texas 75235
Address for Notices:
1601 Elm Street
Second Floor
Dallas, Texas 75202
Attention: Mark Fuqua
Telecopy: (214) 965-8990
with copies to:
COMERICA BANK-TEXAS
One Shell Plaza
910 Louisiana, Suite 410
Houston, Texas 77002
Attention: Daniel G. Steele
Telecopy: (713) 722-6550
77
<PAGE> 83
LENDER:
DEN NORSKE BANK ASA
By: __________________________________
William V. Moyer
Vice President
By: __________________________________
Printed Name: ________________________
Title: _______________________________
Applicable Lending Office
for Base Rate Loans and
LIBO Rate Loans:
200 Park Avenue, 31st Floor
New York, New York 10166-0396
Address for Notices:
200 Park Avenue, 31st Floor
New York, New York 10166-0396
Attention: Bill Trivedi
Telecopy: (212) 681-4123
with copies to:
DEN NORSKE BANK ASA
333 Clay Street, Suite 4890
Houston, Texas 77002
Attention: William V. Moyer
Telecopy: (713) 757-1167
78
<PAGE> 84
EXHIBIT I
[FORM OF NOTE]
PROMISSORY NOTE
$[______________] [____________], 1996
FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned ("Maker,"
whether one or more) promises to pay to the order of [______________] ("Payee"),
at the banking quarters of Canadian Imperial Bank of Commerce, New York Agency
(in its capacity as Agent for Payee and others under the Credit Agreement
referred to hereinafter, the "Agent"), the sum of [______________] DOLLARS
($[_________]), or so much thereof as may be advanced against this Note pursuant
to the Credit Agreement dated of even date herewith by and among Maker, Payee,
the Agent, the Collateral Agent, and the lenders signatory thereto from time to
time (as amended, restated, or supplemented from time to time, the "Credit
Agreement," defined terms from which are used herein with the meaning assigned
thereto in the Credit Agreement, unless expressly provided to the contrary
herein) and remains unpaid, together with interest at the rates and calculated
as provided in the Credit Agreement. If there is more than one party
constituting Maker hereunder, the liability of all such parties for full
performance under this Note shall be joint and several.
Reference is hereby made to the Credit Agreement for matters
governed thereby, including, without limitation, certain events which will
entitle the holder hereof to accelerate the maturity of all amounts due
hereunder.
This Note is issued pursuant to, is a "Note" under, and is payable
as provided in the Credit Agreement. Subject to compliance with applicable
provisions of the Credit Agreement, Maker may at any time pay the full amount or
any part of this Note without the payment of any premium or fee, but such
payment shall not, until this Note is fully paid and satisfied, excuse the
payment as it becomes due of any payment on this Note provided for in the Credit
Agreement.
This Note is issued, in whole or in part, in renewal and extension
of and substitution for, but not in novation or discharge of, the remaining
principal balance of the Existing Bank One Notes and the Existing Comerica
Notes.
Without being limited thereto or thereby, this Note is secured by
the Security Instruments.
I-i
<PAGE> 85
THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER, AND SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICT OF LAWS.
KCS RESOURCES, INC.
By: __________________________________
Printed Name: ________________________
Title: _______________________________
KCS PIPELINE SYSTEMS, INC.
By: __________________________________
Printed Name: ________________________
Title: _______________________________
KCS MICHIGAN RESOURCES, INC.
By: __________________________________
Printed Name: ________________________
Title: _______________________________
KCS ENERGY MARKETING, INC.
By: __________________________________
Printed Name: ________________________
Title: _______________________________
I-ii
<PAGE> 86
EXHIBIT II
FORM OF
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT (this "Agreement") is dated as of _______,
199__, by and between ______________________________ (the "Assignor") and
_________________________________ (the "Assignee").
RECITALS
A. The Assignor is a party to the Credit Agreement dated as of
____________, 1996 (as amended, restated or supplemented from time to time, the
"Credit Agreement") by and among KCS RESOURCES, INC., a Delaware corporation;
KCS PIPELINE SYSTEMS, INC., a Delaware corporation; KCS MICHIGAN RESOURCES,
INC., a Delaware corporation and KCS ENERGY MARKETING, INC., a New Jersey
corporation (collectively, the "Borrowers"), each of the lenders that is or
becomes a party thereto as provided in Section 9.1(b) or Section 2.24 of the
Credit Agreement (individually, together with its successors and such assigns, a
"Lender", and collectively, together with their successors and such assigns, the
"Lenders"), and CANADIAN IMPERIAL BANK OF COMMERCE, acting through its New York
agency (in its individual capacity, "CIBC") and as agent for the Lenders (in
such capacity, together with its successors in such capacity, the "Agent") and
CIBC INC., a Delaware corporation, as collateral agent for the Lenders.
B. The Assignor proposes to sell, assign and transfer to the Assignee,
and the Assignee proposes to purchase and assume from the Assignor, [all][a
portion] of the Assignor's Facility Amount, its outstanding Loans and its
Percentage Share of the outstanding LC Exposure, all on the terms and conditions
of this Agreement.
C. In consideration of the foregoing and the mutual agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. All capitalized terms used but not defined herein have
the respective meanings given to such terms in the Credit Agreement.
1.2 Other Definitions. As used herein, the following terms have the
following respective meanings:
II-i
<PAGE> 87
"Assigned Interest" shall mean all of Assignor's (in its capacity
as a "Lender") rights and obligations (i) under the Credit Agreement and
the other Loan Documents in respect of [all of] the [portion of the]
Facility Amount of the Assignor in the principal amount equal to $ ,
including, without limitation, any obligation to participate pro rata in
any L/C Exposure and (ii) to make Loans under its Commitment up to the
lesser of the Facility Amount referenced above or the Borrowing Base in
effect from time to time and any right to receive payments for the Loans
currently outstanding under its Commitment in the principal amount of $
(the "Loan Balance"), plus the interest and fees which will accrue from
and after the Assignment Date.
"Assignment Date" shall mean ______________, 199__.
ARTICLE II
SALE AND ASSIGNMENT
2.1 Sale and Assignment. On the terms and conditions set forth herein,
effective on and as of the Assignment Date, the Assignor hereby sells, assigns
and transfers to the Assignee, and the Assignee hereby purchases and assumes
from the Assignor, all of the right, title and interest of the Assignor in and
to, and all of the obligations of the Assignor in respect of, the Assigned
Interest. Such sale, assignment and transfer is without recourse and, except as
expressly provided in this Agreement, without representation or warranty.
2.2 Assumption of Obligations. The Assignee agrees with the Assignor (for
the express benefit of the Assignor and the Borrowers) that the Assignee will,
from and after the Assignment Date, assume and perform all of the obligations of
the Assignor in respect of the Assigned Interest. From and after the Assignment
Date for matters accruing or arising from and after the Assignment Date: (a) the
Assignor shall be released from the Assignor's obligations in respect of the
Assigned Interest, and (b) the Assignee shall be entitled to all of the
Assignor's rights, powers and privileges under the Credit Agreement and the
other Loan Documents in respect of the Assigned Interest.
2.3 Consent to Assignment. By executing this Agreement as provided below,
in accordance with Section 9.1(b) of the Credit Agreement, the Agent and each of
the Borrowers hereby acknowledges notice of the transactions contemplated by
this Agreement and consents to such transactions.
ARTICLE III
PAYMENTS
3.1 Payments. As consideration for the sale, assignment and transfer
contemplated by Section 2.1 hereof, the Assignee shall, on the Assignment Date,
assume Assignor's obligations in respect of the Assigned Interest and pay to the
Assignor an amount equal to the
II-ii
<PAGE> 88
Loan Balance, if any. An amount equal to all accrued and unpaid interest and
fees shall be paid to the Assignor as provided in Section 3.2 (iii) below.
Except as otherwise provided in this Agreement, all payments hereunder shall be
made in Dollars and in immediately available funds, without setoff, deduction or
counterclaim.
3.2 Allocation of Payments. The Assignor and the Assignee agree that (i)
the Assignor shall be entitled to any payments of principal with respect to the
Assigned Interest made prior to the Assignment Date, together with any interest
and fees with respect to the Assigned Interest accrued prior to the Assignment
Date, (ii) the Assignee shall be entitled to any payments of principal with
respect to the Assigned Interest made from and after the Assignment Date,
together with any and all interest and fees with respect to the Assigned
Interest accruing from and after the Assignment Date, and (iii) the Agent is
authorized and instructed to allocate payments received by it for account of the
Assignor and the Assignee as provided in the foregoing clauses. Each party
hereto agrees that it will hold any interest, fees or other amounts that it may
receive to which the other party hereto shall be entitled pursuant to the
preceding sentence for account of such other party and pay, in like money and
funds, any such amounts that it may receive to such other party promptly upon
receipt.
3.3 Delivery of Notes. Promptly following the receipt by the Assignor of
the consideration required to be paid under Section 3.1 hereof, the Assignor
shall, in the manner contemplated by Section 9.1(b) of the Credit Agreement, (i)
deliver to the Agent (or its counsel) the Note held by the Assignor and (ii)
notify the Agent to request that the Borrowers execute and deliver new Notes to
the Assignor, if the Assignor continues to be a Lender, and the Assignee, dated
the date of this Agreement in respective principal amounts equal to the
respective Facility Amounts of the Assignor (if appropriate) and the Assignee
after giving effect to the sale, assignment and transfer contemplated hereby.
3.4 Further Assurances. The Assignor and the Assignee hereby agree to
execute and deliver such other instruments, and take such other actions, as
either party may reasonably request in connection with the transactions
contemplated by this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 Conditions Precedent. The effectiveness of the sale, assignment and
transfer contemplated hereby is subject to the satisfaction of each of the
following conditions precedent:
(a) the execution and delivery of this Agreement by the Assignor and
the Assignee;
(b) the receipt by the Assignor of the payments required to be made
under Section 3.1 hereof; and
II-iii
<PAGE> 89
(c) the acknowledgment and consent by the Agent and the Borrowers
contemplated by Section 2.3 hereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of Assignor. The Assignor represents
and warrants to the Assignee as follows:
(a) it has all requisite power and authority, and has taken all
action necessary to execute and deliver this Agreement and to fulfill its
obligations under, and consummate the transactions contemplated by, this
Agreement;
(b) the execution, delivery and compliance with the terms hereof by
Assignor and the delivery of all instruments required to be delivered by
it hereunder do not and will not violate any Requirement of Law
applicable to it;
(c) this Agreement has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of the Assignor,
enforceable against it in accordance with its terms;
(d) all approvals and authorizations of, all filings with and all
actions by any Governmental Authority necessary for the validity or
enforceability of its obligations under this Agreement have been
obtained;
(e) the Assignor has good title to, and is the sole legal and
beneficial owner of, the Assigned Interest, free and clear of all Liens,
claims, participations or other charges of any nature whatsoever; and
(f) the transactions contemplated by this Agreement are commercial
banking transactions entered into in the ordinary course of the banking
business of the Assignor.
5.2 Disclaimer. Except as expressly provided in Section 5.1 hereof, the
Assignor does not make any representation or warranty, nor shall it have any
responsibility to the Assignee, with respect to the accuracy of any recitals,
statements, representations or warranties contained in the Credit Agreement or
in any other Loan Document or for the value, validity, effectiveness,
genuineness, execution, legality, enforceability or sufficiency of the Credit
Agreement, the Notes or any other Loan Document or for any failure by any
Borrower, the Guarantor or any other Person (other than Assignor) to perform any
of its obligations thereunder or for the existence, value, perfection or
priority of any collateral security or the financial or other condition of any
Borrower, the Guarantor or any other Person, or any other matter relating to the
Credit Agreement or any other Loan Document or any extension of credit
thereunder.
II-iv
<PAGE> 90
5.3 Representations and Warranties of Assignee. The Assignee represents
and warrants to the Assignor as follows:
(a) it has all requisite power and authority, and has taken all
action necessary to execute and deliver this Agreement and to fulfill its
obligations under, and consummate the transactions contemplated by, this
Agreement;
(b) the execution, delivery and compliance with the terms hereof by
Assignee and the delivery of all instruments required to be delivered by
it hereunder do not and will not violate any Requirement of Law
applicable to it;
(c) this Agreement has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of the Assignee,
enforceable against it in accordance with its terms;
(d) all approvals and authorizations of, all filings with and all
actions by any Governmental Authority necessary for the validity or
enforceability of its obligations under this Agreement have been
obtained;
(e) the Assignee has fully reviewed the terms of the Credit
Agreement and the other Loan Documents and has independently and without
reliance upon the Assignor, and based on such information as the Assignee
has deemed appropriate, made its own credit analysis and decision to
enter into this Agreement;
(f) if the Assignee is not incorporated under the laws of the
United Sates of America or a state thereof, the Assignee has
contemporaneously herewith delivered to the Agent and the Borrowers such
documents as are required by Section 2.23(b) of the Credit Agreement; and
(g) the transactions contemplated by this Agreement are commercial
banking transactions entered into in the ordinary course of the banking
business of the Assignee.
ARTICLE VI
MISCELLANEOUS
6.1 Notices. All notices and other communications provided for herein
(including, without limitation, any modifications of, or waivers, requests or
consents under, this Agreement) shall be given or made in writing (including,
without limitation, by telex or telecopy) to the intended recipient at its
"Address for Notices" specified below its name on the signature pages hereof or,
as to either party, at such other address as shall be designated by such party
in a notice to the other party.
II-v
<PAGE> 91
6.2 Amendment, Modification or Waiver. No provision of this Agreement may
be amended, modified or waived except by an instrument in writing signed by the
Assignor and the Assignee, and consented to by the Agent and the Borrowers.
6.3 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. The representations and warranties made herein by the
Assignee are also made for the benefit of the Agent, and the Assignee agrees
that the Agent is entitled to rely upon such representations and warranties.
6.4 Assignments. Neither party hereto may assign any of its rights or
obligations hereunder except in accordance with the terms of the Credit
Agreement.
6.5 Captions. The captions and section headings appearing herein are
included solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
6.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be identical and all of which, taken together,
shall constitute one and the same instrument, and each of the parties hereto may
execute this Agreement by signing any such counterpart.
6.7 Governing Law. THIS AGREEMENT (INCLUDING, BUT NOT LIMITED TO, THE
VALIDITY AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, OTHER THAN THE CONFLICT OF
LAWS RULES THEREOF.
6.8 Expenses. To the extent not paid by the Borrowers pursuant to the
terms of the Credit Agreement, each party hereto shall bear its own expenses in
connection with the execution, delivery and performance of this Agreement.
6.9 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment
Agreement to be executed and delivered as of the date first above written.
II-vi
<PAGE> 92
ASSIGNOR
________________________________________
By: ____________________________________
Name: __________________________________
Title: _________________________________
Address for Notices:
________________________________________
________________________________________
________________________________________
Telecopier No.: ________________________
Telephone No.: _________________________
Attention: _____________________________
ASSIGNEE
________________________________________
By: ____________________________________
Name: __________________________________
Title: _________________________________
Address for Notices:
________________________________________
________________________________________
________________________________________
Telecopier No.: ________________________
Telephone No.: _________________________
Attention: _____________________________
II-vii
<PAGE> 93
ACKNOWLEDGED AND CONSENTED TO:
Canadian Imperial Bank of Commerce,
acting through its New York Agency,
as Agent
By: __________________________________
Name: ________________________________
Title: _______________________________
KCS RESOURCES, INC.
By: __________________________________
Name: ________________________________
Title: _______________________________
KCS PIPELINE SYSTEMS, INC.
By: __________________________________
Name: ________________________________
Title: _______________________________
KCS MICHIGAN RESOURCES, INC.
By: __________________________________
Name: ________________________________
Title: _______________________________
KCS ENERGY MARKETING, INC.
By: __________________________________
Name: ________________________________
Title: _______________________________
II-viii
<PAGE> 94
EXHIBIT III
[FORM OF BORROWING REQUEST]
Canadian Imperial Bank of Commerce,
acting through its New York agency,
as Agent
425 Lexington Avenue, 7th Floor
New York, New York 10017
Attention: Marybeth Ross
Syndications Group
Telecopy: (212) 856-3763
Re: Credit Agreement dated as of ______________, 1996, by and among KCS
Resources, Inc., KCS Pipeline Systems, Inc., KCS Michigan Resources,
Inc., KCS Energy Marketing, Inc. (collectively, the "Borrowers"),
Canadian Imperial Bank of Commerce, acting through its New York
agency, as Agent, and the lenders signatory thereto from time to
time (as amended, restated, or supplemented from time to time, the
"Credit Agreement")
Ladies and Gentlemen:
Pursuant to the Credit Agreement, the Borrowers hereby make the
requests indicated below:
|_| 1. Loans
(a) Amount of new Loan: $_____________
(b) Requested funding date: ____________, 19
(c) $________________ of such Loan is to be a Base Rate Loan; and
$________________ of such Loan is to be a LIBO Rate Loan.
(d) Requested Interest Period for LIBO Rate Loan: ____ months.
|_| 2. Continuation or conversion of LIBO Rate Loan maturing on :
(a) Amount to be continued as a LIBO Rate Loan is
$______________________, with an Interest Period of _____ months;
and
(b) Amount to be converted to a Base Rate Loan is $________________.
III-i
<PAGE> 95
|_| 3. Conversion of Base Rate Loan:
(a) Requested conversion date: __________, 19__.
(b) Amount to be converted to a LIBO Rate Loan is $________, with an
Interest Period of _____ months.
Each of the undersigned certifies that [s]he is an authorized
officer of such Borrower and as such [s]he is authorized to execute this request
on behalf of such Borrower. The undersigned further represents, and warrants on
behalf of such Borrower that such Borrower is entitled to receive the requested
borrowing, continuation, or conversion under the terms and conditions of the
Credit Agreement and that no Default or Event of Default shall exist or will
occur as a result of the making of such requested borrowing, continuation, or
conversion.
Each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement.
Very truly yours,
KCS RESOURCES, INC.
By: ___________________________________
Printed Name: _________________________
Title: ________________________________
KCS PIPELINE SYSTEMS, INC.
By: ___________________________________
Printed Name: _________________________
Title: ________________________________
KCS MICHIGAN RESOURCES, INC.
By: ___________________________________
Printed Name: _________________________
Title: ________________________________
III-ii
<PAGE> 96
KCS ENERGY MARKETING, INC.
By: ___________________________________
Printed Name: _________________________
Title: ________________________________
III-iii
<PAGE> 97
EXHIBIT IV
FACILITY AMOUNTS
Facility
Name of Lender Percentage Share Amount
- -------------- ---------------- ------
CIBC INC. 25.3333334% $38,000,000
Bank One, Texas, National Association 21.3333333% $32,000,000
NationsBank of Texas, N.A. 21.3333333% $32,000,000
Comerica Bank-Texas 16.0000000% $24,000,000
Den norske Bank ASA 16.0000000% $24,000,000
IV-i
<PAGE> 98
EXHIBIT V
[FORM OF GUARANTY]
V-i
<PAGE> 99
EXHIBIT VI
[FORM OF COMPLIANCE CERTIFICATE]
____________, 19__
Canadian Imperial Bank of Commerce,
acting through its New York agency,
as Agent
425 Lexington Avenue, 7th Floor
New York, New York 10017
Attention: Marybeth Ross
Syndications Group
Telecopy: (212) 856-3763
Re: Credit Agreement dated as of _______, 1996, by and among KCS
Resources, Inc., KCS Pipeline Systems, Inc., KCS Michigan Resources,
Inc., KCS Energy Marketing, Inc. (collectively, the "Borrowers"),
Canadian Imperial Bank of Commerce, acting through its New York
agency, as Agent, and the lenders signatory thereto from time to
time (as amended, restated, or supplemented from time to time, the
"Credit Agreement")
Ladies and Gentlemen:
1. Pursuant to applicable requirements of the Credit Agreement, the
undersigned, each a Responsible Officer of a Borrower, hereby certify to you on
behalf of such Borrower the following information as true and correct as of the
date hereof or for the period indicated, as the case may be:
[(a) No Default or Event of Default exists as of the date hereof or has
occurred since the date of our previous certification to you, if any.]
[(a) The following Defaults or Events of Default exist as of the date
hereof or have occurred since the date of our previous certification to
you, if any, and the actions set forth below are being taken to remedy
such circumstances:]
2. Pursuant to applicable requirements of the Credit Agreement and
the Guaranty, the undersigned, a Responsible Officer of the Guarantor, hereby
certifies to you on behalf of the Guarantor that:
(a) As of the close of business on ________, no default exists under
Sections 5.4 or 5.5 of the Guaranty, as evidenced by the following:
VI-i
<PAGE> 100
(i) Section 5.4: Tangible Net Worth
Required Actual
-------- ------
Not less than $75,000,000 plus
50% of positive Net Income and
75% of net proceeds of equity offerings $__________
(ii) Section 5.5: Interest Coverage Ratio
Required Actual
-------- ------
Not less than 2.0 to 1.0 ______ to 1.0
(b) The Debt/EBITDA ratio, as of the close of business on
_________________________, is ____________ to 1.0.
Each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement.
Very truly yours,
KCS RESOURCES, INC.
By: ___________________________________
Printed Name: _________________________
Title: ________________________________
KCS PIPELINE SYSTEMS, INC.
By: ___________________________________
Printed Name: _________________________
Title: ________________________________
VI-ii
<PAGE> 101
KCS MICHIGAN RESOURCES, INC.
By: ___________________________________
Printed Name: _________________________
Title: ________________________________
KCS ENERGY MARKETING, INC.
By: ___________________________________
Printed Name: _________________________
Title: ________________________________
KCS ENERGY, INC.
By: ___________________________________
Printed Name: _________________________
Title: ________________________________
VI-iii
<PAGE> 102
EXHIBIT VII
MATERIAL PROPERTIES
- --------------------------------------------------------------------------------
County\Basin Field\Area Lease\Well
- --------------------------------------------------------------------------------
BIG HORN AINSWORTH AINSWORTH-UNIT NE SE 43F
- --------------------------------------------------------------------------------
BIG HORN GOLDEN EAGLE GOLDEN EAGLE 2 REENTRIES
- --------------------------------------------------------------------------------
BIG HORN GOLDEN EAGLE GOLDEN EAGLE UNIT 14 SE NW
14 TENS
- --------------------------------------------------------------------------------
BIG HORN GOLDEN EAGLE GOLDEN EAGLE UNIT NE SW 2
TENS
- --------------------------------------------------------------------------------
BIG HORN GOLDEN EAGLE GOLDEN EAGLE UNIT NW NW 7
PHOS
- --------------------------------------------------------------------------------
BIG HORN GRASS CREEK GRASS CREEK (CURTIS) UNIT
- --------------------------------------------------------------------------------
BIG HORN LITTLE GRASS CREEK LGC 1 15 NE NE
- --------------------------------------------------------------------------------
BIG HORN LITTLE GRASS CREEK LITTLE GRASS CR UNIT SW NW
- --------------------------------------------------------------------------------
BIG HORN LITTLE GRASS CREEK LITTLE GRASS CREEK 3 NE SE
- --------------------------------------------------------------------------------
BIG HORN MANDERSON MANDERSON 34-12
- --------------------------------------------------------------------------------
BIG HORN MANDERSON MANDERSON DEVELOPMENT
- --------------------------------------------------------------------------------
COLORADO, TX GLASSCOCK GLASSCOCK NO. 3 (PRAIRIE)
- --------------------------------------------------------------------------------
COLORADO, TX GLASSCOCK GLASSCOCK NO. 5
- --------------------------------------------------------------------------------
GOLIAD BEGO (WILCOX) BEGO GAS UNIT NO. 2
- --------------------------------------------------------------------------------
HARRIS, TX CYPRESS\LANGHAM JOSEY RANCH NO. 10
CR.(WILCOX)
- --------------------------------------------------------------------------------
HARRIS, TX CYPRESS\LANGHAM JOSEY RANCH NO. 3
CR.(WILCOX)
- --------------------------------------------------------------------------------
HARRIS, TX CYPRESS\LANGHAM JOSEY RANCH NO. 5
CR.(WILCOX)
- --------------------------------------------------------------------------------
HARRIS, TX CYPRESS\LANGHAM JOSEY RANCH NO. 8
CR.(WILCOX)
- --------------------------------------------------------------------------------
HARRIS, TX CYPRESS\LANGHAM JOSEY RANCH NO. 9
CR.(WILCOX)
- --------------------------------------------------------------------------------
VII-i
<PAGE> 103
- --------------------------------------------------------------------------------
HARRIS, TX CYPRESS\LANGHAM SWEENEY NO. 2
CR.(WILCOX)
- --------------------------------------------------------------------------------
IBERVILLE, LA LAUREL RIDGE CLAIBORNE PLANTATION NO. 2
- --------------------------------------------------------------------------------
LIMESTONE, TX OLETHA BAKER NO. 2
- --------------------------------------------------------------------------------
LIMESTONE, TX OLETHA BAKER NO. 3
- --------------------------------------------------------------------------------
GRAND MAYFIELD 28/21 PHOENIX 2-28 & 6-28D
TRAVERSE, MI
- --------------------------------------------------------------------------------
STARR BOB WEST (WILCOX) GUERRA GAS UNIT A NO. 1
- --------------------------------------------------------------------------------
STARR BOB WEST (WILCOX) GUERRA GAS UNIT A NO. 10
- --------------------------------------------------------------------------------
STARR BOB WEST (WILCOX) GUERRA GAS UNIT A NO. 13
- --------------------------------------------------------------------------------
STARR BOB WEST (WILCOX) GUERRA GAS UNIT A NO. 14
- --------------------------------------------------------------------------------
STARR BOB WEST (WILCOX) GUERRA GAS UNIT A NO. 15
- --------------------------------------------------------------------------------
STARR BOB WEST (WILCOX) GUERRA GAS UNIT A NO. 19
- --------------------------------------------------------------------------------
STARR BOB WEST (WILCOX) GUERRA GAS UNIT A NO. 2
- --------------------------------------------------------------------------------
STARR BOB WEST (WILCOX) GUERRA GAS UNIT A NO. 24
- --------------------------------------------------------------------------------
STARR BOB WEST (WILCOX) GUERRA GAS UNIT A NO. 3
- --------------------------------------------------------------------------------
STARR BOB WEST (WILCOX) GUERRA GAS UNIT A NO. 6
- --------------------------------------------------------------------------------
STARR BOB WEST (WILCOX) GUERRA GAS UNIT A NO. 7
- --------------------------------------------------------------------------------
STARR BOB WEST (WILCOX) GUERRA GAS UNIT A NO. 8
- --------------------------------------------------------------------------------
STARR BOB WEST (WILCOX) GUERRA GAS UNIT A NO. 9
- --------------------------------------------------------------------------------
STARR BOB WEST (WILCOX) GUERRA GAS UNIT B NO. 10
- --------------------------------------------------------------------------------
STARR BOB WEST (WILCOX) GUERRA GAS UNIT B NO. 11
- --------------------------------------------------------------------------------
STARR BOB WEST (WILCOX) GUERRA GAS UNIT B NO. 13
- --------------------------------------------------------------------------------
STARR BOB WEST (WILCOX) GUERRA GAS UNIT B NO. 2
- --------------------------------------------------------------------------------
STARR BOB WEST (WILCOX) GUERRA GAS UNIT B NO. 4
- --------------------------------------------------------------------------------
TENSAS, LA AUBREY BAGWELL NO. 1
- --------------------------------------------------------------------------------
TENSAS, LA WILSONIA (LWR BAGWELL NO. 3
TUSCALOOSA)
VII-ii
<PAGE> 104
- --------------------------------------------------------------------------------
TENSAS, LA WILSONIA (LWR RATCLIFF NO. 1
TUSCALOOSA)
- --------------------------------------------------------------------------------
ZAPATA, TX FALCON / BOB WEST -A- RAMIREZ-YZAGUIRRE UNIT
NO. 1
- --------------------------------------------------------------------------------
ZAPATA, TX FALCON / BOB WEST -A- RAMIREZ-YZAGUIRRE UNIT
NO. 2
- --------------------------------------------------------------------------------
ZAPATA, TX FALCON / BOB WEST -B- YZAGUIRRE, J. NO. 10
- --------------------------------------------------------------------------------
ZAPATA, TX FALCON / BOB WEST -B- YZAGUIRRE, J. NO. 11
- --------------------------------------------------------------------------------
ZAPATA, TX FALCON / BOB WEST -B- YZAGUIRRE, J. NO. 2
- --------------------------------------------------------------------------------
ZAPATA, TX FALCON / BOB WEST -B- YZAGUIRRE, J. NO. 3
- --------------------------------------------------------------------------------
ZAPATA, TX FALCON / BOB WEST -B- YZAGUIRRE, J. NO. 4
- --------------------------------------------------------------------------------
ZAPATA, TX FALCON / BOB WEST -B- YZAGUIRRE, J. NO. 5
- --------------------------------------------------------------------------------
ZAPATA, TX FALCON / BOB WEST -B- YZAGUIRRE, J. NO. 6
- --------------------------------------------------------------------------------
ZAPATA, TX FALCON / BOB WEST -B- YZAGUIRRE, J. NO. 7
- --------------------------------------------------------------------------------
ZAPATA, TX FALCON / BOB WEST -B- YZAGUIRRE, J. NO. 8
- --------------------------------------------------------------------------------
ZAPATA, TX FALCON / BOB WEST -B- YZAGUIRRE, J. NO. 9-ST
- --------------------------------------------------------------------------------
ZAPATA, TX FALCON / BOB WEST -B- YZAGUIRRE, J. NO. R-2
- --------------------------------------------------------------------------------
VII-iii
<PAGE> 105
EXHIBIT VIII
[FORM OF OPINION OF COUNSEL]
[Closing Date]
To each Lender party
to the Credit Agreement
referenced below and
Canadian Imperial Bank
of Commerce, as Agent
Re: Credit Agreement dated as of ____________, 1996, by and among KCS
Resources, Inc., KCS Pipeline Systems, Inc., KCS Michigan Resources,
Inc., KCS Energy Marketing, Inc. (collectively, the "Borrowers"),
Canadian Imperial Bank of Commerce, as Agent, CIBC Inc., and the
lenders party thereto from time to time (the "Credit Agreement")
Ladies and Gentlemen:
We have acted as counsel to the Borrowers and KCS Energy, Inc. (the
"Guarantor") in connection with the transactions contemplated in the Credit
Agreement. This Opinion is delivered pursuant to Section 3.1(n) of the Credit
Agreement, and the Agent and the Lenders are hereby authorized to rely upon this
Opinion in connection with the transactions contemplated in the Credit
Agreement. Each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement.
In our representation of the Borrowers and the Guarantor, we have
examined an executed counterpart of each of the following (the "Loan
Documents"):
(1) the Credit Agreement;
(2) the Notes;
(3) the Guaranty;
(4) Mortgage, Deed of Trust, Indenture, Security Agreement,
Assignment of Production, and Financing Statement dated of even date
herewith from KCS Resources, Inc., KCS Michigan Resources, Inc. and KCS
Energy Marketing, Inc. in favor of the Agent (the "Mortgage"); and
(5) Non-Standard Financing Statements constituent to the Mortgage.
VIII-i
<PAGE> 106
We have also examined the originals, or copies certified to our
satisfaction, of such other records of the Borrowers and the Guarantor,
certificates of public officials and officers of the Borrowers and the
Guarantor, agreements, instruments, and documents as we have deemed necessary as
a basis for the opinions hereinafter expressed.
In making such examinations, we have, with your permission, assumed:
a) the genuineness of all signatures to the Loan Documents other
than those of the Borrowers and the Guarantor;
b) the authenticity of all documents submitted to us as originals
and the conformity with the originals of all documents submitted to us as
copies;
c) the Agent and each Lender is authorized and has the power to
enter into and perform its obligations under the Credit Agreement;
d) the due authorization, execution, and delivery of all Loan
Documents by each party thereto other than the Borrowers and the
Guarantor; and
e) Each Borrower has title to all of its Property covered or
affected by the Mortgage.
Based upon the foregoing and subject to the qualifications set forth
herein, we are of the opinion that:
A. Each of the Borrowers and the Guarantor is a corporation duly
organized, legally existing, and in good standing under the laws of its
state of incorporation and is duly qualified as a foreign corporation and
is in good standing in all jurisdictions wherein the ownership of Property
or the operation of its business necessitates same.
B. The execution and delivery by the Borrowers of the Credit
Agreement and the borrowings thereunder, the execution and delivery by the
Borrowers of the other Loan Documents to which each Borrower is a party,
and the payment and performance of all obligations of the Borrowers
thereunder are within the power of each Borrower, have been duly
authorized by all necessary corporate action, and do not (a) require the
consent of any Governmental Authority, (b) contravene or conflict with any
Requirement of Law or the articles or certificate of incorporation,
bylaws, or other organizational or governing documents of the Borrowers,
(c) to our knowledge after due inquiry, contravene or conflict with any
indenture, instrument, or other agreement to which any Borrower is a party
or by which any Property of any Borrower may be presently bound or
encumbered, or (d) result in or require the creation or imposition of any
Lien upon any Property of the Borrowers other than as contemplated by the
Loan Documents.
VIII-ii
<PAGE> 107
C. The execution and delivery of the Guaranty and the other Loan
Documents executed by the Guarantor and the performance of all Obligations
of the Guarantor thereunder are within the power of the Guarantor, have
been duly authorized by all necessary corporate action, and do not (a)
require the consent of any Governmental Authority, (b) contravene or
conflict with any Requirement of Law or the articles or certificate of
incorporation, bylaws, or other organizational or governing documents of
the Guarantor, (c) to our knowledge after due inquiry, contravene or
conflict with any indenture, instrument, or other agreement to which the
Guarantor is a party or by which any Property of the Guarantor may be
presently bound or encumbered, or (d) result in or require the creation or
imposition of any Lien upon any Property of the Guarantor other than as
contemplated by the Loan Documents.
D. The Loan Documents to which each Borrower is a party constitute
legal, valid, and binding obligations of such Borrower, enforceable
against such Borrower in accordance with their respective terms.
E. The Loan Documents to which the Guarantor is a party constitute
legal, valid, and binding obligations of the Guarantor, enforceable
against the Guarantor in accordance with their respective terms.
F. To our knowledge after due inquiry, except as disclosed in
Exhibit IX to the Credit Agreement, no litigation or other action of any
nature affecting the Borrowers or the Guarantor is pending before any
Governmental Authority or threatened against the Borrowers or the
Guarantor. To our knowledge after due inquiry, no unusual or unduly
burdensome restriction, restraint, or hazard exists by contract,
Requirement of Law, or otherwise relative to the business or operations of
the Borrowers or the Guarantor or the ownership and operation of any
Properties of the Borrowers or the Guarantor other than such as relate
generally to Persons engaged in business activities similar to those
conducted by the Borrowers or the Guarantor, as the case may be.
G. No authorization, consent, approval, exemption, franchise, permit
or license of, or filing (other than filing of Security Instruments in
appropriate filing offices) with, any Governmental Authority or any other
Person is required to authorize or is otherwise required in connection
with the valid execution and delivery by the Borrowers and the Guarantor
of the Loan Documents or any instrument contemplated thereby, or the
payment or performance by the Borrowers and the Guarantor of the
Obligations.
H. No transaction contemplated by the Loan Documents is in violation
of any regulations promulgated by the Board of Governors of the Federal
Reserve System, including, without limitation, Regulations G, T, U, or X.
I. No Borrower is, nor is any Borrower directly or indirectly
controlled by or acting on behalf of any Person which is, an "investment
VIII-iii
<PAGE> 108
company" or an "affiliated person" of an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
J. No Borrower is a "holding company," or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company,"
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
The opinions expressed herein are subject to the following qualifications
and limitations:
We are licensed to practice law only in the State of New Jersey and
other jurisdictions whose laws are not applicable to the opinions
expressed herein; accordingly, the foregoing opinions are limited solely
to the laws of the State of New Jersey, applicable United States federal
law, and the corporation laws of the State of Delaware.
The validity, binding effect, and enforceability of the Loan
Documents may be limited or affected by bankruptcy, insolvency,
moratorium, reorganization, or other similar laws affecting rights of
creditors generally, including, without limitation, statutes or rules of
law which limit the effect of waivers of rights by a debtor or grantor;
provided, however, that the limitations and other effects of such statutes
or rules of law upon the validity and binding effect of the Loan Documents
should not differ materially from the limitations and other effects of
such statutes or rules of law upon the validity and binding effect of
credit agreements, promissory notes, guaranties, and security instruments
generally.
The enforceability of the respective obligations of the Borrowers
and the Guarantor under the Loan Documents is subject to general
principles of equity (whether such enforceability is considered in a suit
in equity or at law).
This Opinion is furnished by us solely for the benefit of the Agent
and the Lenders in connection with the transactions contemplated by the Loan
Documents and is not to be quoted in whole or in part or otherwise referred to
or disclosed in any other transaction.
Very truly yours,
VIII-iv
<PAGE> 109
EXHIBIT IX
[FORM OF OPINION OF LOCAL COUNSEL]
[Closing Date]
To each Lender party
to the Credit Agreement
referenced below and
Canadian Imperial Bank
of Commerce, as Agent
Re: Credit Agreement dated as of ______________, 1996, by and among KCS
Resources, Inc., KCS Pipeline Systems, Inc., KCS Michigan Resources,
Inc., KCS Energy Marketing, Inc. (collectively, the "Borrowers"),
Canadian Imperial Bank of Commerce, as Agent, CIBC Inc., as
Collateral Agent, and the lenders party thereto from time to time
(the "Credit Agreement")
Ladies and Gentlemen:
We have acted as special counsel in the State of [________________]
(the "State") to each of the lenders from time to time party to the Credit
Agreement (the "Lenders"), Canadian Imperial Bank of Commerce, as Agent for the
Lenders (the "Agent"), and CIBC Inc., as Collateral Agent for the Lenders (the
"Collateral Agent") in connection with the transactions contemplated in the Loan
Documents described below which were executed pursuant to the Credit Agreement.
In such capacity, we furnish this Opinion with the intention and understanding
that it is to be relied upon by the Agent, the Collateral Agent and the Lenders
in the closing of the transactions contemplated in the Credit Agreement.
In our representation of the Borrowers, we have examined an executed
counterpart of each of the following (the "Loan Documents"):
(1) Assignment of Notes, Liens, Security Interests and Other Rights
dated of even date herewith from Bank One, Texas, National Association
("Bank One"), CIBC Inc. and Den norske Bank AS to the Lenders (the "Bank
One Assignment");
(2) Non-Standard Assignment of Financing Statements constituent to
the Bank One Assignment (the "Bank One Financing Statement Assignments");
IX-i
<PAGE> 110
(3) Assignment of Notes, Liens, Security Interests and Other Rights
dated of even date herewith from Comerica Bank-Texas ("Comerica"), and Den
norske Bank AS to the Lenders (the "Comerica Assignment");
(4) Non-Standard Assignment of Financing Statements constituent to
the Comerica Assignment (the "Comerica Financing Statement Assignments");
(5) Mortgage, Deed of Trust, Indenture, Security Agreement,
Financing Statement, and Assignment of Production dated of even date
herewith from KCS Resources, Inc., KCS Michigan Resources, Inc. and KCS
Energy Marketing, Inc. in favor of the Collateral Agent (the "Mortgage");
and
(6) Non-Standard Financing Statements constituent to the Mortgage
(the "Financing Statements").
In making such examination, we have, with your permission, assumed:
a) the genuineness of all signatures to the Loan Documents;
b) the authenticity of all documents submitted to us as originals
and the conformity with the originals of all documents submitted to us as
copies;
c) each party to any Loan Document is authorized and has the power
to enter into and perform its obligations under such Loan Document;
d) the due authorization, execution, and delivery of all Loan
Documents by each party thereto;
e) each of the mortgagors under the Mortgage is a duly organized and
validly existing corporation under the laws of its state of incorporation;
f) the mortgagors under the Mortgage have title to all Mortgaged
Property (as such term is defined in the Mortgage and so used herein)
situated in the State.
Based upon the foregoing and subject to the qualifications set forth
herein, we are of the opinion that:
1. No consent, approval, or other authorization of, or filing or
registration (other than as described in paragraphs 11 and 12 hereof)
with, any court, governmental agency, commission, or other authority of
the State or any subdivision thereof is required for the due execution and
delivery of the Loan Documents or for the enforceability, performance, or
observance of the terms thereof.
IX-ii
<PAGE> 111
2. The execution and delivery by the Borrowers of each Loan Document
to which it is a party, compliance with the provisions thereof, and the
consummation of the transactions contemplated thereby will not conflict
with or result in a violation of any law or governmental rule or
regulation of the State or any subdivision thereof.
3. The execution and delivery by Bank One and Comerica and the other
assignors thereunder of each Loan Document to which it is a party,
compliance with the provisions thereof, and the consummation of the
transactions contemplated thereby will not conflict with or result in a
violation of any law or governmental rule or regulation of the State or
any subdivision thereof.
4. The Loan Documents to which each Borrower is a party constitute
legal, valid, and binding obligations of such Borrower, enforceable
against such Borrower in accordance with their respective terms.
5. The Bank One Assignment and the Bank One Financing Statement
Assignments constitute legal, valid, and binding obligations of Bank One
and the other assignors thereunder, enforceable against such Person in
accordance with their respective terms.
6. The Comerica Assignment and the Comerica Financing Statement
Assignments constitute legal, valid, and binding obligations of Comerica
and the other assignors thereunder, enforceable against such Person in
accordance with their respective terms.
7. The forms of the Bank One Assignment, the Bank One Financing
Statement Assignments, the Comerica Assignment and the Comerica Financing
Statement Assignments satisfy all applicable requirements of the State and
are legally sufficient under the laws of the State to enable the
Collateral Agent to realize the practical benefits purported to be
afforded by such Loan Documents.
8. The forms of the Mortgage and the Financing Statements and the
description of the Mortgaged Property situated in the State satisfy all
applicable laws of the State and are legally sufficient under the laws of
the State to enable the Collateral Agent to realize the practical benefits
purported to be afforded by such Loan Documents.
9. The Mortgage (a) creates a lien upon and a security interest in
all Mortgaged Property situated in the State to secure the Indebtedness
(as such term is defined in the Mortgage and so used herein), and (b)
provides for nonjudicial foreclosure remedies customarily used in the
State.
10. The Loan Documents are in satisfactory form for filing and
recording in the offices described below.
IX-iii
<PAGE> 112
11. The filing and/or recording, as the case may be, of (a) the Bank
One Assignment in each office in the State in which the Existing Bank One
Security Instruments were filed, (b) the Bank One Financing Statement
Assignments in each office in the State in which the original financing
statements described therein were filed, (c) the Comerica Assignment in
each office in the State in which the Existing Comerica Security
Instruments were filed, (d) the Comerica Financing Statement Assignments
in each office in the State in which the original financing statements
described therein were filed, are the only recordings of filings in the
State necessary in connection with the transfer of the liens, security
interests, and other rights transferred by the Bank One Assignment and the
Comerica Assignment. No other documents or instruments need be recorded,
registered, or filed in any public office in the State in connection with
the transfer made by the Bank One Assignment and the Comerica Assignment,
for the validity and enforceability of the Bank One Assignment and the
Comerica Assignment, or to permit the Collateral Agent to enforce in the
State its rights under the Bank One Assignment, the Existing Bank One
Security Instruments, the Comerica Assignment or the Existing Comerica
Security Instruments.
12. The filing and/or recording, as the case may be, of (a) the
Mortgage in the office of the county clerk of each county in the State in
which any portion of the Mortgaged Property is located and as a financing
statement in the office of the Secretary of State of the State, and (b)
the Financing Statements in the Uniform Commercial Code records in each
county in the State in which any portion of the Mortgaged Property is
located are the only recordings or filings in the State necessary to
perfect the liens and security interests in the Mortgaged Property created
by the Mortgage or to permit the Collateral Agent to enforce in the State
its rights under the Mortgage. No subsequent filing, refiling, recording,
or re-recording will be required in the State in order to continue the
perfection of the liens and security interests created by the Mortgage
except that (a) a continuation statement must be filed with respect to the
Mortgage filed as a financing statement in the office of the Secretary of
State of the State and with respect to the Financing Statements in the
Uniform Commercial Code records in each county in the State in which any
portion of the Mortgaged Property is located, each within six months prior
to the expiration of five years from the date of the relevant initial
financing statement filing, (b) a subsequent continuation statement must
be filed within six months prior to the expiration of each subsequent
five-year period from the date of each initial financing statement filing,
and (c) amendments or supplements to the Mortgage filed as a financing
statement and the Financing Statements and/or additional financing
statements may be required to be filed in the event of a change in the
name, identity, or structure of any Borrower or in the event the financing
statement filing otherwise becomes inaccurate or incomplete.
13. No state or local mortgage recording tax, stamp tax, or other
similar fee, tax, or governmental charge (other than statutory filing and
recording fees to be paid upon filing) is required to be paid to the State
or any subdivision
IX-iv
<PAGE> 113
thereof in connection with the execution, delivery, filing, or recording
of any of the Loan Documents or the consummation of the transactions
contemplated therein.
14. It is not necessary for the Agent, the Collateral Agent, or any
Lender to qualify to do business in the State or file in the State any
designation for service of process or reports solely by reason of the
interests conveyed or assigned to it or for its benefit under the
Mortgage, nor will such conveyances or assignments alone result in the
imposition upon the Agent, the Collateral Agent, or any Lender of any
taxes by the State or by any subdivision thereof, including, without
limitation, franchise, license, tax on interest received or income taxes,
other than recording and filing fees in connection with the filings
referred to in paragraphs 11 and 12 above and taxes which the Agent, the
Collateral Agent, or a Lender may owe in the event it becomes the actual
and record owner of any Mortgaged Property situated in the State.
15. The foreclosure of, or exercise of the power of sale under, the
Mortgage will not in any manner restrict, affect or impair the liability
of the Borrowers with respect to the Indebtedness or the rights and
remedies of the Collateral Agent with respect to the foreclosure or
enforcement of any other security interests or liens securing the
Indebtedness to the extent any deficiency remains unpaid after application
to the Indebtedness of the proceeds of such foreclosure or the exercise of
such power of sale.
16. The priority of the liens and security interests created by the
Mortgage with respect to Indebtedness incurred by the Borrowers on or
before the date on which the Mortgage is filed in the appropriate
recording offices referred to hereinabove will be determined by the date
of such filings. The priority of the lien created by the Mortgage with
respect to Indebtedness incurred by the Borrowers after the date the
Mortgage is recorded will be determined by the dates the Mortgage is
filed.
17. The priority of the lien created by the Mortgage will not be
affected by any prepayment of a portion, but less than all, of the
Indebtedness, or any reduction or increase of the outstanding amount of
the Indebtedness from time to time.
18. The limitations period for enforcement of the Mortgage in the
State is __________.
The opinions expressed herein are subject to the following qualifications
and limitations:
We are licensed to practice law only in the State and other
jurisdictions whose laws are not applicable to the opinions expressed
herein; accordingly, the foregoing opinions are limited solely to the laws
of the State and applicable United States federal law.
IX-v
<PAGE> 114
The validity, binding effect, and enforceability of the Loan
Documents may be limited or affected by bankruptcy, insolvency,
moratorium, reorganization, or other similar laws affecting rights of
creditors generally, including, without limitation, statutes or rules of
law which limit the effect of waivers of rights by a debtor or grantor;
provided, however, that the limitations and other effects of such statutes
or rules of law upon the validity and binding effect of the Loan Documents
should not differ materially from the limitations and other effects of
such statutes or rules of law upon the validity and binding effect of
assignments and security instruments generally.
The enforceability of the respective obligations of the Borrowers
under the Loan Documents to which they are a party is subject to general
principles of equity (whether such enforceability is considered in a suit
in equity or at law).
This Opinion is furnished by us solely for the benefit of the Agent,
the Collateral Agent, and the Lenders in connection with the transactions
contemplated by the Loan Documents and is not to be quoted in whole or in part
or otherwise referred to or disclosed in any other transaction.
Very truly yours,
IX-vi
<PAGE> 115
EXHIBIT X
DISCLOSURES
Section 2.5 Existing Loan Balances
Existing Bank One Notes Existing Comerica Notes
----------------------- -----------------------
$4,500,000 $18,000,000
Section 4.9 Liabilities
None
Litigation
None
Section 4.14 Environmental Matters
None
Section 4.19 Refunds
None
Section 4.20 Gas Contracts
None
Section 4.22 Labor Matters
None
Section 4.23 Casualties
None
X-i
<PAGE> 116
Section 4.25 Subsidiaries of Borrowers
Enercorp Gas Marketing, Inc., a subsidiary of KCS
Pipeline
Subsidiaries of Guarantor
KCS Resources
KCS Pipeline
KCS Michigan
KCS Energy Risk Management, Inc.
KCS Power Marketing, Inc.
Proliq, Inc.
National Enerdrill Corporation
Section 5.4 Approved Petroleum Engineers
H.J. Gruy & Associates, Inc.
R.A. Lenser and Associates, Inc.
Netherland, Sewell & Associates, Inc.
Ryder Scott Company
X-ii
<PAGE> 1
- --------------------------------------------------------------------------------
EXHIBIT 10(x)
GUARANTY
BY
KCS ENERGY, INC.
IN FAVOR OF
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY, AS AGENT
Dated as of September ___, 1996
---------------------------------------------------------
CREDIT FACILITY TO KCS RESOURCES, INC.,
KCS PIPELINE SYSTEMS, INC., KCS MICHIGAN RESOURCES, INC.,
AND KCS ENERGY MARKETING, INC.
---------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS AND INTERPRETATION........................... 2
1.1 Terms Defined Above...................................... 2
1.2 Terms Defined in Credit Agreement........................ 2
1.3 Additional Defined Terms................................. 2
1.4 Undefined Financial Accounting Terms..................... 2
1.5 References............................................... 2
1.6 Articles and Sections.................................... 2
1.7 Number and Gender........................................ 2
1.8 Knowledge................................................ 3
ARTICLE II GUARANTY................................................. 3
2.1 Guaranty................................................. 3
2.2 Absolute, Complete, and Continuing Guaranty.............. 3
2.3 Liability Not Impaired................................... 3
2.4 Primary Liability........................................ 4
2.5 Security; Additional Guarantees.......................... 4
2.6 Waivers.................................................. 4
2.7 Pursuit of Remedies...................................... 4
2.8 Status of Borrowers...................................... 5
2.9 Independent Review; Solvency............................. 5
2.10 Enforcement Costs........................................ 5
ARTICLE III REPRESENTATIONS AND WARRANTIES........................... 5
3.1 Due Authorization........................................ 5
3.2 Corporate Existence...................................... 6
3.3 Valid and Binding Obligations............................ 6
3.4 Scope and Accuracy of Financial Statements............... 6
3.5 No Material Misstatements................................ 6
3.6 Litigation............................................... 6
3.7 Default.................................................. 7
3.8 ERISA.................................................... 7
3.9 Proper Filing of Tax Returns; Payment of Taxes Due....... 7
3.10 Authorizations; Consents................................. 8
3.11 Compliance with Federal Reserve Regulations.............. 8
3.12 Investment Company Act Compliance........................ 8
3.13 Public Utility Holding Company Act Compliance............ 8
3.14 Subsidiaries............................................. 8
ARTICLE IV AFFIRMATIVE COVENANTS.................................... 8
4.1 Maintenance and Access to Records........................ 8
4.2 Quarterly Financial Statements; Compliance Certificates.. 9
4.3 Annual Financial Statements.............................. 9
- i -
<PAGE> 3
4.5 Notices of Certain Events................................ 9
4.6 Additional Information................................... 10
4.7 Maintenance of Corporate Existence and Good Standing..... 11
4.8 Compliance with Laws..................................... 11
4.9 Payment of Assessments and Charges....................... 11
4.10 Indemnification.......................................... 11
4.11 Further Assurances....................................... 12
ARTICLE V NEGATIVE COVENANTS....................................... 12
5.1 Dividends and Distributions.............................. 12
5.2 Changes in Corporate Structure........................... 13
5.3 Transactions with Affiliates............................. 13
5.4 Tangible Net Worth....................................... 13
5.5 Interest Coverage Ratio.................................. 13
5.6 Partnerships and Joint Ventures.......................... 13
5.7 Lines of Business........................................ 13
ARTICLE VI MISCELLANEOUS............................................ 13
6.1 Survival of Representations, Warranties, and Covenants... 13
6.2 Notices and Other Communications......................... 13
6.3 Parties in Interest...................................... 14
6.4 Rights of Third Parties.................................. 14
6.5 No Waiver; Rights Cumulative............................. 15
6.6 Severability............................................. 15
6.7 Amendments; Waivers...................................... 15
6.8 Review of Guaranty....................................... 15
6.9 Payments................................................. 15
6.10 Governing Law............................................ 15
6.11 Jurisdiction and Venue................................... 15
6.12 Appointment of Agent for Service of Process.............. 15
6.13 Waiver of Rights to Jury Trial........................... 16
6.15 Confidentiality.......................................... 16
- ii -
<PAGE> 4
GUARANTY
This GUARANTY (this "Guaranty") dated effective as of September __,
1996, is by KCS Energy, Inc., a Delaware corporation (the "Guarantor") in favor
of the lenders party to the Credit Agreement (as such term is defined below)
from time to time (together with their respective successors and assigns as
permitted pursuant to the Credit Agreement referred to below, the "Lenders"),
and Canadian Imperial Bank of Commerce, a Canadian chartered bank, acting
through its New York Agency, as agent for the Lenders pursuant to the Credit
Agreement (in such capacity, together with its successors in such capacity
pursuant to the terms of the Credit Agreement, the "Agent").
W I T N E S S E T H :
WHEREAS, pursuant to the terms and conditions of the Credit Agreement
dated of even date herewith by and among KCS Resources, Inc. ("KRI"), a Delaware
corporation, KCS Pipeline Systems, Inc. ("KCS Pipeline"), a Delaware
corporation, KCS Michigan Resources, Inc. ("KCS Michigan"), a Delaware
corporation, and KCS Energy Marketing, Inc. ("KCS Marketing"), a New Jersey
corporation (each individually a "Borrower" and collectively, the "Borrowers"),
the Agent, CIBC Inc., as Collateral Agent (the "Collateral Agent"), and the
Lenders (as such agreement may be amended, restated, or supplemented from time
to time, the "Credit Agreement"), the Lenders have agreed to extend credit to or
for the benefit of the Borrowers;
WHEREAS, the Guarantor has heretofore executed that certain Guaranty
dated March 15, 1994, in favor of Bank One, Texas, National Association ("Bank
One") (as heretofore amended, restated, or supplemented, the "Prior Bank One
Guaranty"), guaranteeing all Indebtedness of KRI and KCS Pipeline to the lenders
under the Existing Bank One Credit Agreement (as such term is defined in the
Credit Agreement);
WHEREAS, the Guarantor has heretofore executed that certain Guaranty
dated November 28, 1995 in favor of Comerica Bank-Texas, as agent ("Comerica")
(as heretofore amended, restated, or supplemented, the "Prior Comerica
Guaranty"), guaranteeing all Indebtedness of KCS Michigan and KCS Marketing to
the lenders under the Existing Comerica Credit Agreement (as such term is
defined in the Credit Agreement);
WHEREAS, the Guarantor, as the ultimate sole shareholder of the
Borrowers, will derive substantial direct and indirect benefits from the
extension of credit to the Borrowers pursuant to the Credit Agreement; and
WHEREAS, pursuant to the Credit Agreement and as an inducement to the
Lenders to extend credit to the Borrowers pursuant to the Credit Agreement, the
Guarantor has agreed to execute this Guaranty in favor of the Agent for the
benefit of the Lenders;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree that the Prior Bank One
Guaranty and the Prior
<PAGE> 5
Comerica Guaranty are each hereby amended and restated in their entirety
respectively to read as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above. As used in this Guaranty, each of the terms
"Agent," "Bank One," "Borrower," "Borrowers," "Collateral Agent," "Comerica,"
"Credit Agreement," "Guarantor," "Guaranty," "KCS Marketing," "KCS Michigan,"
"KCS Pipeline," "KRI," "Lenders," "Prior Bank One Guaranty," and "Prior Comerica
Guaranty" shall have the meaning assigned to such term hereinabove.
1.2 Terms Defined in Credit Agreement. Each capitalized term used
but not defined herein shall have the meaning assigned to such term in the
Credit Agreement.
1.3 Additional Defined Terms. As used in this Guaranty, each of the
following terms shall have the meaning assigned thereto in this Section, unless
the context otherwise requires:
"Guaranteed Indebtedness" shall mean the Indebtedness and other
obligations as to which payment is guaranteed by the Guarantor hereunder
pursuant to Section 2.1.
"Subsidiaries" shall mean all Subsidiaries (as defined in the Credit
Agreement) of the Guarantor.
1.4 Undefined Financial Accounting Terms. Undefined financial
accounting terms used in this Guaranty shall have the meanings assigned to such
terms according to GAAP.
1.5 References. The words "hereby," "herein," "hereinabove,"
"hereinafter," "hereinbelow," "hereof," "hereunder," and words of similar import
when used in this Guaranty shall refer to this Guaranty as a whole and not to
any particular Article, Section, or provision of this Guaranty. References in
this Guaranty to Article or Section numbers are to such Articles or Sections of
this Guaranty unless otherwise specified. References in this Agreement to
"includes" or "including" shall mean "includes, without limitation," or
"including, without limitation," as the case may be.
1.6 Articles and Sections. This Guaranty, for convenience only, has
been divided into Articles and Sections; and it is understood that the rights
and other legal relations of the parties hereto shall be determined from this
instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.
1.7 Number and Gender. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural; and
likewise, the plural shall be
2
<PAGE> 6
understood to include the singular. Words denoting sex shall be construed to
include the masculine, feminine and neuter, when such construction is
appropriate. Definitions of terms defined in the singular or plural shall be
equally applicable to the plural or singular, as the case may be, unless
otherwise indicated.
1.8 Knowledge. As used herein "knowledge" or "knowledge and belief"
of the Guarantor shall mean the knowledge of any officer of the Guarantor.
ARTICLE II
GUARANTY
2.1 Guaranty. The Guarantor unconditionally guarantees to the Agent
and the Lenders the prompt payment and performance when due (whether at stated
maturity, by acceleration, or otherwise) of the Obligations.
2.2 Absolute, Complete, and Continuing Guaranty. This is an
absolute, complete, and continuing Guaranty; and no notice of the Obligations,
the making of any Loans, the issuance of any Letter of Credit, the making of any
Letter of Credit Payment, or any extension of credit now or hereafter contracted
by or extended to the Borrowers need be given to the Guarantor. The grant of any
Liens by the Guarantor shall not in anyway limit or be construed as limiting the
Agent or the Collateral Agent to collect payment of any liability of the
Guarantor incurred hereby from the Collateral, but it is expressly understood
and provided that the liability of the Guarantor hereunder shall constitute the
absolute and unconditional obligation of the Guarantor. The Borrowers and the
Lenders may, in accordance with the terms of the Credit Agreement, rearrange,
extend, increase and/or renew all or any portion of the Obligations without
notice to the Guarantor; and in such event, the Guarantor shall remain fully
bound hereunder for payment of the Guaranteed Indebtedness. The obligations of
the Guarantor hereunder shall not be released, impaired, or diminished by any
amendment, modification, or alteration of any Loan Document, except as may be
expressly provided in any such amendment, modification, or alteration. The
Guarantor shall remain liable under this Guaranty regardless of whether the
Borrowers or any other guarantor be found not liable on all or any part of the
Obligations for any reason, including, without limitation, insanity, minority,
disability, bankruptcy, insolvency, death, liquidation, or dissolution, even
though rendering all or any part of the Obligations void, unenforceable, or
uncollectible as against the Borrowers or any other guarantor. This Guaranty
shall continue to be effective or shall be reinstated, as the case may be, if at
any time any payment of any of the Guaranteed Indebtedness is rescinded or must
otherwise be returned by the Agent or any Lender upon the insolvency,
bankruptcy, or reorganization of the Borrowers or otherwise, all as though such
payment had not been made and will, thereupon, guarantee payment of such amount
as to which refund or restitution has been made, together with interest accruing
thereon subsequent to the date of refund or restitution at the applicable rate
under the Credit Agreement and collection costs and fees (including, without
limitation, reasonable attorneys' fees) applicable thereto.
2.3 Liability Not Impaired. The liabilities and obligations of the
Guarantor hereunder shall not be affected or impaired by (a) the failure of the
Agent, the Collateral Agent
3
<PAGE> 7
or any other Person to exercise diligence or reasonable care in the
preservation, protection, or other handling or treatment of all or any part of
the Collateral, (b) the failure of any Lien intended to be granted or created to
secure all or any part of the Obligations to be properly perfected or created or
the unenforceability of any Lien for any other reason, or (c) the subordination
of any such Lien to any other Lien.
2.4 Primary Liability. The liability of the Guarantor for the
payment of the Guaranteed Indebtedness shall be primary and not secondary.
2.5 Security; Additional Guarantees. The Guarantor authorizes the
Agent and the Lenders, without notice to or demand upon the Guarantor and
without affecting the liability of the Guarantor hereunder, (a) to take and hold
security voluntarily provided by any Person as security for the payment of all
or any portion of the Guaranteed Indebtedness and the other Obligations, and to
exchange, enforce, waive, and/or release any such security; (b) to apply such
security and direct the order or manner of sale thereof as the Agent, the
Collateral Agent or the Lenders in their discretion may determine; and (c) to
obtain a guaranty of all or any portion of the Guaranteed Indebtedness and the
other Obligations from any one or more other Persons and to enforce, waive,
rearrange, modify, limit, or release at any time or times such other Persons
from their obligations under such guaranties, whether with or without
consideration.
2.6 Waivers. The Guarantor waives any right to require the Agent,
the Collateral Agent or any Lender to (a) proceed against the Borrowers or make
any effort at the collection of the Guaranteed Indebtedness from the Borrowers
or any other guarantor or Person liable for all or any part of the Guaranteed
Indebtedness, (b) proceed against or exhaust any collateral securing the
Guaranteed Indebtedness, or (c) pursue any other remedy in the power of the
Agent, the Collateral Agent or any Lender. The Guarantor further waives any and
all rights and remedies of suretyship. The Guarantor waives any defense arising
by reason of any disability, lack of corporate authority or power, or other
defense of the Borrowers or any other guarantor of all or any part of the
Obligations. The Guarantor expressly waives all notices of any kind, presentment
for payment, demand for payment, protest, notice of protest, notice of intent to
accelerate maturity, notice of acceleration of maturity, dishonor, diligence,
notice of any amendment of any Loan Document, notice of any adverse change in
the financial condition of the Borrowers, notice of any adjustment, indulgence,
forbearance, or compromise that might be granted or given by the Agent, the
Collateral Agent or any Lender to the Borrowers, and notice of acceptance of
this Guaranty, acceptance on the part of the Agent being conclusively presumed
by its request for this Guaranty and the delivery of this Guaranty to the Agent.
The liability and obligations of the Guarantor hereunder shall not be affected
or impaired by any action or inaction by the Agent, the Collateral Agent or any
Lender in regard to any matter waived or notice of which is waived by the
Guarantor in this Guaranty.
2.7 Pursuit of Remedies. The Agent, the Collateral Agent and the
Lenders may pursue any remedy without altering the obligations of the Guarantor
hereunder and without liability to the Guarantor, even though the pursuit of
such remedy may result in the loss by the Guarantor of rights of subrogation or
to proceed against others for reimbursement or contribution or any other right.
4
<PAGE> 8
2.8 Status of Borrowers. Should the status of the Borrowers change
in any way, as a result of reorganization or dissolution, any sale, lease, or
transfer of any or all of the assets of the Borrowers, any change in the
shareholders, partners, or members of the Borrowers or otherwise, this Guaranty
shall continue and shall cover the Guaranteed Indebtedness under the new status.
This Section shall not, however, be construed to authorize any action by the
Borrowers otherwise prohibited under the Credit Agreement or any other Loan
Document.
2.9 Independent Review; Solvency. The Guarantor is familiar with and
has independently reviewed the books and records regarding the financial
condition of the Borrowers and is familiar with the value of any and all
property intended as Collateral; however, the Guarantor is not relying on such
financial condition or such Collateral as an inducement to enter into this
Guaranty. The Guarantor acknowledges that it is not relying on any
representations (oral or otherwise) of the Agent, the Collateral Agent, any
Lender or any other Person except as may be expressly described in this
Guaranty. As of the date hereof, and after giving effect to this Guaranty and
the contingent obligations evidenced hereby, the Guarantor is and will be
solvent, and has and will have Property which, valued fairly, exceed the
obligations, debts, and liabilities of the Guarantor, and has and will have
Property sufficient to satisfy, repay, and discharge the same.
2.10 Enforcement Costs. If the Guaranteed Indebtedness is not paid
by the Guarantor when due, as required herein, and this Guaranty is placed in
the hands of an attorney for collection or is enforced by suit or through
probate or bankruptcy court or through any other judicial proceedings, the
Guarantor shall pay to the Agent an amount equal to the reasonable attorneys'
fees and collection costs incurred by the Agent, the Collateral Agent or any
Lender in the collection of the Guaranteed Indebtedness.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
To induce the Agent, the Collateral Agent and the Lenders to enter
into the Credit Agreement and to make Loans to or for the benefit of and to
issue Letters of Credit for the account of the Borrowers, the Guarantor
represents and warrants to the Agent (which representations and warranties shall
survive the delivery of this Guaranty and the other Loan Documents) that:
3.1 Due Authorization. The execution and delivery by the Guarantor
of this Guaranty and each other Loan Document to which the Guarantor is a party
and the performance of all obligations of the Guarantor hereunder and thereunder
are within the power of the Guarantor, have been duly authorized by all
necessary corporate action, and do not and will not (a) require the consent of
any Governmental Authority to be obtained by the Guarantor, (b) contravene or
conflict with any Requirement of Law applicable to the Guarantor or the articles
or certificate of incorporation, bylaws, or other organizational or governing
documents of the Guarantor, (c) contravene or conflict with any material
indenture, instrument, or other agreement, or any indenture, instrument, or
other agreement that, when aggregated with other such agreements, is material,
to which the Guarantor is a party or by which any Property of the
5
<PAGE> 9
Guarantor may be presently bound or encumbered, except as could not reasonably
be expected to have a Material Adverse Effect, or (d) result in or require the
creation or imposition of any Lien in, upon or of any Property of the Guarantor
under any such indenture, instrument, or other agreement, other than such Loan
Documents.
3.2 Corporate Existence. The Guarantor is a corporation duly
organized, legally existing, and in good standing under the laws of the State of
Delaware and is duly qualified as a foreign corporation and is in good standing
in all jurisdictions wherein the ownership of Property or the operation of its
business necessitates same, other than those jurisdictions wherein the failure
to so qualify will not have a Material Adverse Effect.
3.3 Valid and Binding Obligations. This Guaranty and each other Loan
Document to which the Guarantor is a party, when duly executed and delivered by
the Guarantor, will be the legal, valid, and binding obligation of the
Guarantor, enforceable against the Guarantor in accordance with its respective
terms except as limited by bankruptcy, insolvency, or similar laws affecting
generally the rights of creditors and general principles of equity, whether
applied by a court of law or equity.
3.4 Scope and Accuracy of Financial Statements. The Financial
Statements of the Guarantor and its Subsidiaries as of December 31, 1995 and
June 30, 1996 (subject, in the case of the Financial Statements as of June 30,
1996, to normal year-end audit adjustments), present fairly the financial
position and results of operations and cash flows of the Guarantor and its
Subsidiaries in accordance with GAAP as at the relevant point in time or for the
period indicated, as applicable. No event or circumstance has occurred since
December 31, 1995 or June 30, 1996 which could reasonably be expected to have a
Material Adverse Effect.
3.5 No Material Misstatements. All written estimates, projections
and forecasts furnished by or on behalf of the Guarantor to the Agent, the
Collateral Agent or any of the Lenders for purposes of or in connection with
this Guaranty, or in connection with any extension of credit under the Credit
Agreement, were and will be prepared on the basis of the good faith estimate of
the Guarantor's senior management concerning probable financial condition and
performance based on assumptions, data, tests or conditions believed to be
reasonable or to represent industry conditions existing at the time such
estimates, projections or forecasts were made. No other information, exhibit,
statement, or report furnished to the Agent, the Collateral Agent or any Lender
by or at the direction of the Guarantor in connection with this Guaranty or any
other Loan Document contains any material misstatement of fact or omits to state
a material fact or any fact necessary to make the statements contained therein,
in light of the circumstances in which they were made, not misleading as of the
date made or deemed made.
3.6 Litigation. Except as set forth under the heading "Litigation"
on Exhibit X to the Credit Agreement, no litigation or other action of any
nature is pending before any Governmental Authority or, to the best knowledge of
the Guarantor, threatened, against or affecting (a) any Collateral, or, in the
case of Environmental Laws, any real Property of the Guarantor or the facilities
located and the operations conducted thereon, which, if determined adversely to
the Guarantor, could reasonably be expected to have a Material Adverse Effect,
(b) the Guarantor's ability to enter into, execute, deliver or perform in any
material respect its obligations under the Loan Documents to which it is a
party, (c) the Guarantor, which, if
6
<PAGE> 10
determined adversely to the Guarantor, could reasonably be expected to result in
any judgment or liability, individually or when aggregated with all other such
judgments or liabilities, which could reasonably be expected to have a Material
Adverse Effect and which is not fully covered by insurance (exclusive of any
deductible amount related to such insurance, which deductible amount is
customary for Persons engaged in similar businesses), or (d) the Guarantor,
which if determined adversely to the Guarantor, could reasonably be expected to
result in any other Material Adverse Effect.
3.7 Default. Neither any Borrower nor the Guarantor is in default
of, and no event has occurred which, with the lapse of time or giving of notice,
or both, could result in such a default of, (i) any charter document or bylaws
of any Borrower or the Guarantor, or (ii) any agreement or obligation other than
an agreement or obligation evidencing or relating to Debt to which any Borrower
or the Guarantor is a party or by which any Property of any Borrower or the
Guarantor may be bound, pursuant to which the obligations of the Guarantor and
the Borrowers in the aggregate under any of such agreements, or the obligations
secured thereby, exceed $2,500,000, except such as are being contested in good
faith and as to which such reserve as may be required by GAAP shall have been
made therefor.
3.8 ERISA. No Reportable Event has occurred with respect to any
Single Employer Plan, and each Single Employer Plan has complied with and been
administered in all material respects in accordance with applicable provisions
of ERISA and the Code. To the best knowledge of the Guarantor, (a) no Reportable
Event has occurred with respect to any Multiemployer Plan, and (b) each
Multiemployer Plan has complied with and been administered in all material
respects with applicable provisions of ERISA and the Code. Each Plan satisfied
the minimum funding requirements under ERISA and the Code as of the last annual
valuation date applicable thereto. Neither the Guarantor nor any Commonly
Controlled Entity has had a complete or partial withdrawal from any
Multiemployer Plan for which there is any withdrawal liability. As of the most
recent valuation date applicable to any Multiemployer Plan, neither the
Guarantor nor any Commonly Controlled Entity would become subject to any
liability under ERISA if the Guarantor or such Commonly Controlled Entity were
to withdraw completely from such Multiemployer Plan. Neither the Guarantor nor
any Commonly Controlled Entity has received notice that any Multiemployer Plan
is Insolvent or in Reorganization. To the best knowledge of the Guarantor, no
such Insolvency or Reorganization which could reasonably be expected to have a
Material Adverse Effect is likely to occur. Based upon GAAP existing as of the
date of this Guaranty and current factual circumstances, the Guarantor has no
reason to believe that the annual cost during the term of this Guaranty to the
Guarantor and all Commonly Controlled Entities for post-retirement benefits to
be provided to the current and former employees of the Guarantor and all
Commonly Controlled Entities under Plans which are welfare benefit plans (as
defined in Section 3(1) of ERISA) will, in the aggregate, have a Material
Adverse Effect.
3.9 Proper Filing of Tax Returns; Payment of Taxes Due. The
Guarantor has duly and properly filed its United States income tax returns and
all other tax returns which are required to be filed and has paid all taxes
shown to be due thereon, except such as are being contested in good faith and as
to which adequate provisions and disclosures have been made and except such
returns of which the failure to file has not had or would not have a Material
Adverse
7
<PAGE> 11
Effect. The respective charges and reserves on the books of the Guarantor with
respect to taxes and other governmental charges are adequate.
3.10 Authorizations; Consents. Except as expressly contemplated by
the Loan Documents, no authorization, consent, approval, exemption, franchise,
permit, or license of, or filing with, any Governmental Authority or any other
Person is required to be obtained by the Guarantor to authorize, or is otherwise
required in connection with, the valid execution and delivery by the Guarantor
of this Guaranty or any other Loan Document or the payment and performance by
the Guarantor of the Guaranteed Indebtedness.
3.11 Compliance with Federal Reserve Regulations. No transaction
contemplated by the Loan Documents is in violation of any regulations
promulgated by the Board of Governors of the Federal Reserve System, including
Regulations G, T, U, or X.
3.12 Investment Company Act Compliance. The Guarantor is not, nor is
the Guarantor directly or indirectly controlled by or acting on behalf of any
Person which is, an "investment company" or an "affiliated person" of an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
3.13 Public Utility Holding Company Act Compliance. The Guarantor is
not a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
3.14 Subsidiaries. As of the Closing Date, the Guarantor has no
Subsidiaries other than those described on Exhibit X to the Credit Agreement
under the heading "Subsidiaries." The Guarantor is not a general partner or
joint venturer or has partnership or joint venture interests in any Person.
ARTICLE IV
AFFIRMATIVE COVENANTS
Unless agreed in writing by the Agent to the contrary, the Guarantor
covenants, so long as any Obligation remains outstanding or unpaid or any
Commitment exists, to:
4.1 Maintenance and Access to Records. Keep adequate records, in
accordance with GAAP, of all its transactions so that at any time, and from time
to time, its true and complete financial condition may be readily determined,
and promptly following the reasonable request of the Agent, the Collateral Agent
or any Lender, make such records available at the Guarantor's place of business
upon reasonable prior notice, during normal business hours, for inspection by
the Agent, the Collateral Agent or any Lender and, at the expense of the
Guarantor, allow the Agent, the Collateral Agent or any Lender to make and take
away copies thereof.
8
<PAGE> 12
4.2 Quarterly Financial Statements; Compliance Certificates. Deliver
to the Agent, to the extent not previously delivered by any Borrower, on or
before the 45th day after the close of each of the first three quarterly periods
of each fiscal year of the Guarantor, Sufficient Copies of the unaudited
consolidated and consolidating Financial Statements of the Guarantor and its
Subsidiaries as at the close of such quarterly period and from the beginning of
such fiscal year to the end of such period, such Financial Statements to be
certified by a Responsible Officer of the Guarantor as having been prepared in
accordance with GAAP consistently applied and as a fair presentation of the
condition of the Guarantor and its Subsidiaries, subject to changes resulting
from normal year-end audit adjustments, and a Compliance Certificate.
4.3 Annual Financial Statements. Deliver to the Agent, to the extent
not previously delivered by any Borrower, on or before the 90th day after the
close of each fiscal year of the Guarantor, Sufficient Copies of the annual
audited consolidated and consolidating Financial Statements of the Guarantor and
its Subsidiaries, and a Compliance Certificate.
4.4 Projected Budget. Deliver to the Agent as soon as available and
in any event on or before the 90th day after the close of each (a) fiscal year,
Sufficient Copies of a projected budget for the Guarantor and its Subsidiaries
on a consolidated basis for (i) the current fiscal year, prepared in a six-month
analysis, and (ii) the five (5) fiscal years then commencing, prepared in a
year-by-year analysis, and (b) second quarterly period of each fiscal year,
Sufficient Copies of (i) a revised projected budget for the operations of the
Guarantor and its Subsidiaries on a consolidated basis for the second six (6)
months of such fiscal year, and (ii) a report of actual operations of the
Guarantor and its Subsidiaries on a consolidated basis for the first six (6)
months of such fiscal year, reflecting in comparative form, the original
projected budget for such period and the numbers related to such projected
budget based upon actual operations.
4.5 Notices of Certain Events. Deliver to the Agent, to the extent
not previously delivered by any Borrower, promptly upon having knowledge
thereof, a written statement with respect to the occurrence of any of the
following events or circumstances, signed by a Responsible Officer of the
Guarantor and setting forth the relevant event or circumstance and the steps
being taken by the Guarantor or any Subsidiary with respect to such event or
circumstance:
(a) any Default or Event of Default;
(b) any default or event of default under any contractual obligation
of the Guarantor or any Subsidiary, or any litigation, investigation, or
proceeding between the Guarantor or any Subsidiary and any Governmental
Authority which, in either case, if not cured or if adversely determined,
as the case may be, could reasonably be expected to have a Material
Adverse Effect;
(c) any litigation or proceeding involving the Guarantor or any
Subsidiary as a defendant or in which any Property of the Guarantor or any
Subsidiary is subject to a claim and in which the amount of the claim
against the Guarantor or any
9
<PAGE> 13
Subsidiary is $1,000,000 or more and which is not covered by insurance or
in which injunctive or similar relief is sought;
(d) the receipt by the Guarantor of any Environmental Complaint
which individually, or in the aggregate with any other Environmental
Complaints then outstanding relating to any matter, relates to a matter
which could reasonably be expected to have a Material Adverse Effect;
(e) any actual, proposed, or threatened testing or other
investigation by any Governmental Authority or other Person concerning the
environmental condition of, or relating to, any Property of any Borrower
or any real Property of the Guarantor and the facilities located and the
operations conducted thereon following any allegation of a violation of
any Requirement of Law regarding any condition in each case which could
reasonably be expected to have a Material Adverse Effect;
(f) any of the following which could reasonably be expected to have
a Material Adverse Effect: any Release of Hazardous Substances by any
Borrower or the Guarantor or from, affecting, or related to any Property
of any Borrower or any real Property of the Guarantor and the facilities
located and the operations conducted thereon except in accordance with
applicable Requirements of Law or the terms of a valid permit, license,
certificate, or approval of the relevant Governmental Authority, or the
violation of any Environmental Law, or the revocation, suspension, or
forfeiture of or failure to renew, any permit, license, registration,
approval, or authorization;
(g) any Reportable Event or imminently expected Reportable Event
with respect to any Plan; any withdrawal from, or the termination,
Reorganization or Insolvency of, any Multiemployer Plan; the institution
of proceedings or the taking of any other action by PBGC, the Guarantor,
or any Commonly Controlled Entity or Multiemployer Plan with respect to
the withdrawal from or the termination, Reorganization or Insolvency of,
any Single Employer Plan or Multiemployer Plan; or any Prohibited
Transaction in connection with any Plan or any trust created thereunder
and the action being taken by the Internal Revenue Service with respect
thereto;
(h) the creation, organization or acquisition of any Subsidiary,
direct or indirect, of the Guarantor; and
(i) any other event or condition which could reasonably be expected
to cause a Material Adverse Effect.
4.6 Additional Information. Furnish to the Agent, to the extent not
previously furnished by any Borrower, within five Business Days after any
material report (other than financial statements) or other communication is sent
by the Guarantor to its stockholders or filed by the Guarantor with the
Securities and Exchange Commission or any successor or analogous Governmental
Authority, copies of such report or communication and, promptly upon the request
of the Agent, such additional financial or other information concerning the
assets, liabilities,
10
<PAGE> 14
operations, and transactions of the Guarantor and the Borrowers as the Agent may
from time to time reasonably request.
4.7 Maintenance of Corporate Existence and Good Standing. (a)
Maintain its corporate existence and good standing in its jurisdiction of
incorporation and (b) maintain its corporate qualification and good standing in
all jurisdictions wherein the Property now owned or hereafter acquired or
business now or hereafter conducted by the Guarantor necessitates same, unless
the failure to do so would not have a Material Adverse Effect.
4.8 Compliance with Laws. Except to the extent the failure to comply
or cause compliance would not have a Material Adverse Effect, comply with all
applicable Requirements of Law.
4.9 Payment of Assessments and Charges. Pay all taxes, assessments,
governmental charges, rent, and other Indebtedness which, if unpaid, might
become a Lien against the Property of the Guarantor, except any of the foregoing
being contested in good faith and as to which adequate reserve in accordance
with GAAP has been established or unless failure to pay would not have a
Material Adverse Effect.
4.10 Indemnification. Indemnify and hold the Agent, the Collateral
Agent, and each Lender and their respective shareholders, officers, directors,
employees, agents, attorneys-in-fact, and affiliates and each trustee for the
benefit of the Agent, the Collateral Agent, or the Lenders under any Security
Instrument harmless from and against any and all claims, losses, damages,
liabilities, fines, penalties, charges, administrative and judicial proceedings
and orders, judgments, remedial actions, requirements and enforcement actions of
any kind, and all costs and expenses incurred in connection therewith
(including, without limitation, reasonable attorneys' fees and expenses),
arising directly or indirectly, in whole or in part, from (a) the presence of
any Hazardous Substances on, under, or from the Property of the Guarantor or any
Subsidiary, whether prior to or during the term hereof, (b) any activity carried
on or undertaken on or off the Property of the Guarantor or any Subsidiary,
whether prior to or during the term hereof, and whether by the Guarantor or any
Subsidiary or any predecessor in title, employee, agent, contractor, or
subcontractor of the Guarantor or any Subsidiary or any predecessor in title, or
any other Person at any time occupying or present on such Property, in
connection with the handling, treatment, removal, storage, decontamination,
cleanup, transportation, or disposal of any Hazardous Substances at any time
located or present on or under such Property, (c) any residual contamination of
any Hazardous Substance on or under the Property of the Guarantor or any
Subsidiary, (d) any contamination of any Property or natural resources arising
in connection with the generation, use, handling, storage, transportation, or
disposal of any Hazardous Substances by the Guarantor or any Subsidiary or any
employee, agent, contractor, or subcontractor of the Guarantor or any Subsidiary
while such persons are acting within the scope of their relationship with the
Guarantor or any Subsidiary, irrespective of whether any of such activities were
or will be undertaken in accordance with applicable Requirements of Law, or (e)
the performance and enforcement of any Loan Document, any allegation by any
beneficiary of a letter of credit of a wrongful dishonor by the Agent of a claim
or draft presented thereunder, or any other act or omission in connection with
or related to any Loan Document or the transactions contemplated thereby,
11
<PAGE> 15
including, without limitation, any of the foregoing arising from negligence,
whether sole or concurrent, on the part of the Agent, the Collateral Agent or
any Lender or any of their respective shareholders, officers, directors,
employees, agents, attorneys-in-fact, or affiliates or any trustee for the
benefit of the Agent, the Collateral Agent or the Lenders under any Security
Instrument; provided, however, the foregoing clauses (a) through (e) shall not
apply to any claim, loss, damage, liability, fine, penalty, charge, proceeding,
order, judgment, action or requirement attributable to (i) the gross negligence
or wilful misconduct of any Person to be indemnified, or (ii) any action or
inaction of any Person to be indemnified subsequent to the exercise of ownership
rights or the taking of any foreclosure action with respect to any Collateral
and with respect to such Collateral such claim, loss, damage, liability, fine,
penalty, charge, proceeding, order, judgment, action or requirement arises
subsequent to the exercise of ownership rights or the taking of any foreclosure
action with respect to such Collateral, to the extent such Person is a "person
in control" under any Environmental Law. The foregoing indemnity shall survive
satisfaction of the Guaranteed Indebtedness and all other Obligations and the
termination of this Guaranty and the Credit Agreement, unless all Obligations
have been satisfied wholly in cash from the Guarantor or the Borrowers and not
by way of realization against any Collateral or the conveyance of any Property
in lieu thereof.
4.11 Further Assurances. Promptly after discovery thereof cure or
cause to be cured any defects, errors, or omissions in the execution and
delivery of any of the Loan Documents executed by the Guarantor, and execute,
acknowledge, and deliver to the Agent or cause to be executed, acknowledged, and
delivered to the Agent such other assurances and instruments as shall, in the
opinion of the Agent, be necessary to fulfill the terms of the Loan Documents.
ARTICLE V
NEGATIVE COVENANTS
Unless agreed in writing by the Agent to the contrary, so long as
any Obligation remains outstanding or unpaid or any Commitment exists, the
Guarantor will not:
5.1 Dividends and Distributions. (a) Declare, pay, or make, whether
in cash or other Property, any dividend or distribution on, or purchase, redeem,
or otherwise acquire for value, any share of any class of its capital stock at
any time that a Default or Event of Default exists or will occur as the result
of the payment of such dividend or distribution; provided, however, the
foregoing restriction shall not apply to dividends or distributions paid in
capital stock of the Guarantor or options, warrants or other rights to purchase
such capital stock.
(b) Declare, pay, or make, whether in cash or other Property,
dividends or distributions on any share of any class of its capital stock in an
aggregate amount exceeding 50% of Net Income for the period from September 30,
1993 to such time; provided that no such dividend or distribution shall be
declared, paid or made when to do so would result in (i) a violation of Delaware
law as in effect from time to time, (ii) a violation of Section 5.1(a), or
12
<PAGE> 16
(iii) a Default or Event of Default, provided, however, the foregoing
restriction shall not apply to dividends or distributions paid in capital stock
of the Guarantor or options, warrants or other rights to purchase such capital
stock.
5.2 Changes in Corporate Structure. Enter into any transaction of
consolidation, merger, or amalgamation unless the Guarantor is the surviving
party and no Default will occur due to such transaction; or liquidate, wind up,
or dissolve (or suffer any liquidation or dissolution); or permit any Borrower
to do any of the foregoing in this Section.
5.3 Transactions with Affiliates. Directly or indirectly, enter into
any material transaction (including the sale, lease, or exchange of Property or
the rendering of service) with any of its Affiliates, other than upon fair and
reasonable terms no less favorable than could be obtained in an arm's length
transaction with a Person which was not an Affiliate, or permit any Borrower to
do so.
5.4 Tangible Net Worth. Permit Tangible Net Worth as of the close of
any fiscal quarter to be less than $75,000,000 plus 50% of positive Net Income
and 75% of the net proceeds from any offering by the Guarantor or any of its
Subsidiaries of capital stock or rights to acquire capital stock in each
quarter, beginning with the quarter commencing on April 1, 1996.
5.5 Interest Coverage Ratio. Permit, as of the close of any fiscal
quarter, the ratio of (a) EBITDA for the preceding four fiscal quarters
(including the quarter just ended) to (b) Interest Expense for the preceding
four fiscal quarters to be less than 2.0 to 1.0.
5.6 Partnerships and Joint Ventures. Become a general partner, joint
venturer or venturer in any Person or become or assume any similar capacity in
any Person which gives rise to such similar general liability.
5.7 Lines of Business. Expand, on its own or through any Subsidiary,
into any line of business other than those permitted by the Senior Note
Indenture.
ARTICLE VI
MISCELLANEOUS
6.1 Survival of Representations, Warranties, and Covenants. All
representations and warranties of the Guarantor and all covenants and agreements
herein made shall survive the making of the Loans and the issuance of the
Letters of Credit and shall remain in force and effect so long as any Obligation
is outstanding or any Commitment exists.
6.2 Notices and Other Communications. Except as to oral notices
expressly authorized herein, which oral notices shall be confirmed in writing,
all notices, requests, and communications hereunder or in connection herewith or
with any other Loan Document shall be in writing (including by telecopy). Unless
otherwise expressly provided herein, any such notice, request, demand, or other
communication shall be deemed to have been duly given or made
13
<PAGE> 17
when delivered by hand, or, in the case of delivery by mail, two Business Days
after deposited in the mail, certified mail, return receipt requested, postage
prepaid, or, in the case of telecopy notice, when receipt thereof is
acknowledged orally or by written confirmation report, addressed as follows:
(a) if to the Agent, the Collateral Agent or any Lender, to:
Canadian Imperial Bank of Commerce, New York Agency
425 Lexington Avenue, 7th Floor
New York, New York 10017
Attention: Marybeth Ross
Syndications Group
Telecopy: (212) 856-3763
with copies to:
Canadian Imperial Bank of Commerce
909 Fannin, Suite 1200
Houston, Texas 77010
Attention: Dawn Tamborello
Telecopy: (713) 650-3727
(b) if to the Guarantor, to:
KCS Energy, Inc.
379 Thornall Street
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (908) 603-8960
Any party may, by proper written notice hereunder to the other,
change the individuals or addresses (within the United States) to which such
notices to it shall thereafter be sent.
6.3 Parties in Interest. Subject to any applicable restrictions
contained herein, all covenants and agreements herein contained by or on behalf
of the Guarantor or the Agent shall be binding upon and inure to the benefit of
the Guarantor, the Agent, the Collateral Agent or the Lenders, as the case may
be, and their respective legal representatives, successors, and assigns as
permitted pursuant to the Credit Agreement.
6.4 Rights of Third Parties. All provisions herein are imposed
solely and exclusively for the benefit of the Guarantor, the Agent, the
Collateral Agent and the Lenders and their successors and assigns. No other
Person shall have any right, benefit, priority, or interest hereunder or as a
result hereof or have standing to require satisfaction of provisions hereof in
accordance with their terms.
14
<PAGE> 18
6.5 No Waiver; Rights Cumulative. No course of dealing on the part
of the Agent, the Collateral Agent or any Lender, their officers or employees,
nor any failure or delay by the Agent, the Collateral Agent or any Lender with
respect to exercising any of its rights under any Loan Document shall operate as
a waiver thereof. The rights of the Agent, the Collateral Agent and the Lenders
under the Loan Documents shall be cumulative and the exercise or partial
exercise of any such right shall not preclude the exercise of any other right.
6.6 Severability. In the event any one or more of the provisions
contained in any of the Loan Documents shall, for any reason, be held to be
invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provision of any Loan Document.
6.7 Amendments; Waivers. Neither this Guaranty nor any provision
hereof may be amended, waived, discharged, or terminated orally, but only by an
instrument in writing signed by the Agent and the Guarantor and the Agent shall
obtain all consents of the Required Lenders or all Lenders, as may be required
under the Credit Agreement in connection with such amendment or waiver.
6.8 Review of Guaranty. This Guaranty was reviewed by the Guarantor,
and the Guarantor acknowledges and agrees that it understands fully all of the
terms of this Guaranty and the consequences and implications of its execution of
this Guaranty and has been afforded an opportunity to have this Guaranty
reviewed by an attorney and such other Persons as desired and to discuss the
terms, consequences, and implications of this Guaranty with such attorney and
other Persons.
6.9 Payments. All amounts becoming payable by the Guarantor under
this Guaranty shall be payable to the Agent at the address of the Agent set
forth hereinabove.
6.10 Governing Law. This Guaranty shall be deemed to be a contract
made under and shall be construed in accordance with and governed by the laws of
the State of New York without giving effect to principles thereof relating to
conflicts of law.
6.11 Jurisdiction and Venue. All actions or proceedings with respect
to, arising directly or indirectly in connection with, out of, related to, or
from this Guaranty or any other Loan Document to which the Guarantor is a party
may be litigated, at the sole discretion and election of the Agent, in the
courts of the State of New York or of the United States of America for the
Southern District of New York. The Guarantor hereby submits to the non-exclusive
jurisdiction of the aforesaid courts and hereby waives any rights it may have to
transfer or change the jurisdiction or venue of any litigation brought against
it by the Agent, the Collateral Agent or any Lender in accordance with this
Section.
6.12 Appointment of Agent for Service of Process. The Guarantor
hereby irrevocably designates CT Corporation System, or such other corporate
process agent as is acceptable to the Agent, as the designee, appointee and
agent of the Guarantor to receive, for and on behalf of the Guarantor, service
of process out of any of the aforementioned courts in any legal action or
proceeding with respect to this Guaranty or any Loan Document to which the
Guarantor is a party. It is understood that a copy of such process served on
such agent will
15
<PAGE> 19
be promptly forwarded by mail to the Guarantor at its address specified below
its name on the signature pages hereof, but the failure of the Guarantor to
receive such copy shall not affect in any way the service of such process. The
Guarantor further irrevocably consents to the service of process of any of the
courts mentioned in Section 6.11 in any such action or proceeding by the mailing
of copies thereof by registered or certified mail, postage prepaid, to the
Guarantor at such address, such service to become effective four days after
mailing. Nothing herein shall affect the right of the Agent, the Collateral
Agent or any Lender to serve process in any other manner permitted by law.
6.13 Waiver of Rights to Jury Trial. The Guarantor, the Agent, the
Collateral Agent and each Lender hereby knowingly, voluntarily, intentionally,
irrevocably, and unconditionally waive all rights to trial by jury in any
action, suit, proceeding, counterclaim, or other litigation that relates to or
arises out of any of this Guaranty or any other Loan Document or the acts or
omissions of the Agent, the Collateral Agent or any Lender in the enforcement of
any of the terms or provisions of this Guaranty or any other Loan Document or
otherwise with respect thereto. The provisions of this section are a material
inducement for the Agent, the Collateral Agent and the Lenders entering into the
Credit Agreement.
6.14 Entire Agreement. This Guaranty amends, restates and replaces
the Prior Bank One Guaranty and the Prior Comerica Guaranty and constitutes the
entire agreement between the parties hereto with respect to the subject hereof
and shall supersede any prior agreements, whether written or oral, between the
parties hereto relating to the subject hereof. Furthermore, in this regard, this
Guaranty and the other written Loan Documents represent, collectively, the final
agreement among the parties thereto and may not be contradicted by evidence of
prior, contemporaneous, or subsequent oral agreements of such parties. There are
no unwritten oral agreements among such parties.
6.15 Confidentiality. In the event that the Guarantor or any
Borrower provides to the Agent, the Collateral Agent, or the Lenders information
belonging to the Guarantor or any Affiliate of the Guarantor, the Agent, the
Collateral Agent, and the Lenders shall thereafter maintain such information in
confidence. This obligation of confidence shall not apply to such portions of
the information which (i) are in the public domain, (ii) hereafter become part
of the public domain without the Agent, the Collateral Agent, or the Lenders
breaching their obligation of confidence herein or in any other Loan Document,
(iii) are previously known by the Agent, the Collateral Agent, or the Lenders
from some source other than the Guarantor or any Affiliate of the Guarantor,
(iv) are hereafter developed by the Agent, the Collateral Agent, or the Lenders
without using the information thus provided, (v) are hereafter obtained by or
available to the Agent, the Collateral Agent, or the Lenders from a third party
who owes no obligation of confidence to the Guarantor or any Affiliate of the
Guarantor with respect to such information or through any other means other than
through disclosure by the Guarantor or any Affiliate of the Guarantor to the
Agent, the Collateral Agent, or the Lenders, (vi) are disclosed with the
Guarantor's consent; (vii) must be disclosed pursuant to any Requirement of Law;
(viii) as may be required by law or regulation or order of any Governmental
Authority in any judicial, arbitration or governmental proceeding or (ix) as may
be requested by any Governmental Authority pursuant to any bank examination or
audit; provided, however, that to the extent practicable and unless otherwise
prohibited by any Requirement of Law, any Person disclosing
16
<PAGE> 20
any non-public information pursuant to clauses (vii) or (viii) shall endeavor in
good faith to give the Guarantor at least 5 days' prior written notice of such
disclosure. Further, the Agent, the Collateral Agent or a Lender may disclose
any such information to any other Lender or successor agent, any independent
petroleum engineers or consultants, any independent certified public
accountants, any legal counsel employed by such Person in connection with this
Guaranty or any other Loan Document, including the enforcement or exercise of
all rights and remedies hereunder or thereunder, or any assignee or participant
(including prospective assignees and participants) in the Loans; provided,
however, that the Agent, the Collateral Agent, or the Lenders impose on the
Person to whom such information is disclosed the same obligation to maintain the
confidentiality of such information as is imposed upon it hereunder and such
Person agrees to be bound by the terms hereof. Notwithstanding anything to the
contrary provided herein, this obligation of confidence shall cease three (3)
years from the later of (a) Final Maturity or (b) the date that all Obligations
are paid or satisfied in full or otherwise performed or discharged or deemed
performed or discharged.
IN WITNESS WHEREOF, this Guaranty is executed as of the date first
above written.
KCS ENERGY, INC.
By: ___________________________
Henry A. Jurand
Vice President
(Signatures Continued on next Page)
17
<PAGE> 21
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY, AS AGENT
By: ___________________________
Marybeth Ross
Authorized Signatory
18
<PAGE> 1
EXHIBIT 10(xii)
================================================================================
CREDIT AGREEMENT
AMONG
KCS MEDALLION RESOURCES, INC.,
KCS ENERGY, INC.,
KCS ENERGY SERVICES, INC.,
MEDALLION GAS SERVICES, INC., and
GED ENERGY SERVICES, INC.
CANADIAN IMPERIAL BANK OF COMMERCE,
NEW YORK AGENCY, AS AGENT,
CIBC INC., AS COLLATERAL AGENT,
AND
THE LENDERS SIGNATORY HERETO
JANUARY 2, 1997
- --------------------------------------------------------------------------------
REVOLVING LINE OF CREDIT OF UP TO $150,000,000
WITH LETTER OF CREDIT SUBFACILITY
$30,000,000 TERM LOAN
- --------------------------------------------------------------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above............................................. 1
1.2 Additional Defined Terms........................................ 1
1.3 Undefined Financial Accounting Terms............................ 21
1.4 References...................................................... 21
1.5 Articles and Sections........................................... 22
1.6 Number and Gender............................................... 22
1.7 Incorporation of Exhibits....................................... 22
1.8. Knowledge....................................................... 22
ARTICLE II TERMS OF FACILITIES
2.1 Revolving Loans................................................. 22
2.2 Letter of Credit Facility....................................... 23
2.3 Term Loans...................................................... 25
2.4 Limitations on Interest Periods................................. 26
2.5 Limitation on Types of Loans.................................... 26
2.6 Use of Loan Proceeds and Letters of Credit...................... 27
2.7 Interest........................................................ 27
2.8 Repayment of Loans and Interest................................. 27
2.9 General Terms................................................... 28
2.10 Time, Place, and Method of Payments............................. 28
2.11 Pro Rata Treatment; Adjustments................................. 28
2.12 Borrowing Base Determinations................................... 29
2.13 Mandatory Prepayments........................................... 30
2.14 Voluntary Prepayments and Conversions of Loans.................. 31
2.15 Commitment Fee.................................................. 32
2.16 Letter of Credit Fee............................................ 32
2.17 Other Fees...................................................... 32
2.18 Loans to Satisfy Obligations of Borrowers....................... 32
2.19 Right of Offset................................................. 32
2.20 General Provisions Relating to Interest......................... 33
2.21 Obligations Absolute............................................ 33
2.22 Yield Protection................................................ 34
2.23 Illegality...................................................... 36
2.24 Taxes........................................................... 36
2.25 Replacement Lenders............................................. 37
2.26 Regulatory Change............................................... 38
2.27 Non-Recourse to KCS............................................. 39
-i-
<PAGE> 3
ARTICLE III CONDITIONS
3.1 Conditions Precedent to Initial Loan and Letter of Credit....... 39
3.2 Conditions Precedent to Each Revolving Loan..................... 42
3.3 Conditions Precedent to Issuance of Letters of Credit........... 43
ARTICLE IV REPRESENTATIONS AND WARRANTIES
4.1 Due Authorization............................................... 43
4.2 Corporate Existence............................................. 44
4.3 Valid and Binding Obligations................................... 44
4.4 Existing Indebtedness; No Defenses.............................. 44
4.5 Security Instruments............................................ 44
4.6 Title to Assets................................................. 44
4.7 Scope and Accuracy of Financial Statements...................... 44
4.8 No Material Misstatements....................................... 44
4.9 Liabilities and Litigation...................................... 45
4.10 Authorizations; Consents........................................ 45
4.11 Compliance with Laws............................................ 45
4.12 Default......................................................... 45
4.13 ERISA........................................................... 46
4.14 Environmental Laws.............................................. 46
4.15 Compliance with Federal Reserve Regulations..................... 47
4.16 Investment Company Act Compliance............................... 47
4.17 Public Utility Holding Company Act Compliance................... 47
4.18 Proper Filing of Tax Returns; Payment of Taxes Due.............. 47
4.19 Refunds......................................................... 47
4.20 Gas Contracts................................................... 47
4.21 Intellectual Property........................................... 47
4.22 Labor Matters................................................... 48
4.23 Casualties or Taking of Property................................ 48
4.24 Locations of Borrower........................................... 48
4.25 Subsidiaries.................................................... 48
ARTICLE V AFFIRMATIVE COVENANTS
5.1 Maintenance and Access to Records............................... 48
5.2 Quarterly Financial Statements; Compliance Certificates......... 48
5.3 Annual Financial Statements..................................... 49
5.4 Oil and Gas Reserve Reports......................... 49
5.5 Title Opinions; Title Defects................................... 49
5.6 Notices of Certain Events....................................... 50
5.7 Additional Information.......................................... 51
5.8 Compliance with Laws............................................ 51
5.9 Payment of Assessments and Charges.............................. 52
5.10 Maintenance of Corporate Existence and Good Standing............ 52
5.11 Payment of Notes; Performance of Obligations.................... 52
-ii-
<PAGE> 4
5.12 Further Assurances.............................................. 52
5.13 Fees and Expenses............................................... 52
5.14 Operation of Oil and Gas Properties............................. 53
5.15 Maintenance and Inspection of Properties........................ 53
5.16 Maintenance of Insurance........................................ 53
5.17 Indemnification................................................. 54
ARTICLE VI NEGATIVE COVENANTS
6.1 Indebtedness.................................................... 55
6.2 Contingent Obligations.......................................... 55
6.3 Liens........................................................... 55
6.4 Negative Pledge Agreements...................................... 56
6.5 Sales of Assets................................................. 56
6.6 Leasebacks...................................................... 56
6.7 Loans; Advances; Investments.................................... 56
6.8 Dividends and Distributions..................................... 57
6.9 Environmental Matters........................................... 57
6.10 Issuance of Stock; Changes in Corporate Structure............... 57
6.11 Transactions with Affiliates.................................... 57
6.12 Lines of Business............................................... 57
6.13 ERISA Compliance................................................ 57
6.14 Use of Proceeds................................................. 58
6.15 Subsidiaries.................................................... 58
6.16 Tangible Net Worth of KCS Medallion............................. 58
6.17 Interest Coverage Ratio of KCS Medallion........................ 58
6.18 Tangible Net Worth of KCS....................................... 58
6.19 Interest Coverage Ratio of KCS.................................. 58
ARTICLE VII EVENTS OF DEFAULT
7.1 Enumeration of Events of Default................................ 58
7.2 Remedies........................................................ 61
ARTICLE VIII THE AGENT
8.1 Appointment..................................................... 62
8.2 Delegation of Duties............................................ 62
8.3 Exculpatory Provisions.......................................... 62
8.4 Reliance by Agent............................................... 62
8.5 Notice of Default............................................... 63
8.6 Non-Reliance on Agent and Other Lenders......................... 63
8.7 Indemnification................................................. 64
8.8 Restitution..................................................... 65
8.9 Agents in Individual Capacity................................... 65
8.10 Successor Agent................................................. 65
8.11 Applicable Parties.............................................. 66
-iii-
<PAGE> 5
ARTICLE IX MISCELLANEOUS
9.1 Assignments; Participations..................................... 66
9.2 Survival of Representations, Warranties, and Covenants.......... 67
9.3 Notices and Other Communications................................ 68
9.4 Parties in Interest............................................. 68
9.5 Rights of Third Parties......................................... 68
9.6 No Waiver; Rights Cumulative.................................... 68
9.7 Severability.................................................... 68
9.8 Amendments; Waivers............................................. 69
9.9 Confidentiality................................................. 69
9.10 Controlling Agreement........................................... 70
9.11 Governing Law................................................... 70
9.12 Jurisdiction and Venue.......................................... 70
9.13 Appointment of Agent for Service of Process..................... 71
9.14 Waiver of Rights to Jury Trial.................................. 71
9.15 Integration..................................................... 71
9.16 Counterparts.................................................... 71
LIST OF EXHIBITS
Exhibit I - Form of Revolving Note
Exhibit II - Form of Term Note
Exhibit III - Form of Assignment Agreement
Exhibit IV - Form of Borrowing Request
Exhibit V - Facility Amounts
Exhibit VI - Form of Compliance Certificate
Exhibit VII - Material Properties
Exhibit VIII - Form of Opinion of Counsel
Exhibit IX - Form of Opinion of Local Counsel
Exhibit X - Disclosures
Exhibit XI - Form of Stock Pledge Agreement
-iv-
<PAGE> 6
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and entered into effective as of the
2nd day of January, 1997, by and among KCS MEDALLION RESOURCES, INC., a Delaware
corporation (formerly known as InterCoast Oil and Gas Company) ("KCS
Medallion"), KCS ENERGY, INC., a Delaware corporation ("KCS"), KCS ENERGY
SERVICES, INC., a Delaware corporation ("KCS Energy Services"), MEDALLION GAS
SERVICES, INC., an Oklahoma corporation (formerly known as InterCoast Gas
Services Company) ("Medallion Gas Services") and GED ENERGY SERVICES, INC., a
Delaware corporation ("GED Energy" and together with KCS Medallion, KCS, KCS
Energy Services, KCS Gas Services, each individually a "Borrower" and
collectively, the "Borrowers"), each lender that is a signatory hereto or
becomes a party hereto as provided in Sections 9.1 or 2.24 (individually,
together with its successors and such assigns, a "Lender" and, collectively,
together with their respective successors and such assigns, the "Lenders"),
CANADIAN IMPERIAL BANK OF COMMERCE, a Canadian chartered bank, acting through
its New York Agency (in its individual capacity, "CIBC"), as agent for the
Lenders (in such capacity, together with its successors in such capacity
pursuant to the terms hereof, the "Agent"), and CIBC INC., a Delaware
corporation (in its individual capacity, "CIBC Inc.", as collateral agent for
the Lenders (in such capacity, together with its successors in such capacity
pursuant to the terms hereof, the "Collateral Agent").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements herein
contained, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above. As used in this Agreement, the terms
"Agent," "Borrower," "CIBC," "CIBC Inc.," "Collateral Agent," "GED Energy,"
"KCS," "KCS Energy Services," "KCS Medallion," "Lender," "Lenders," and
"Medallion Gas Services," shall have the meaning assigned to them hereinabove.
1.2 Additional Defined Terms. As used in this Agreement, each of the
following terms shall have the meaning assigned thereto in this Section, unless
the context otherwise requires:
"Additional Costs" shall mean actual costs which any Lender
reasonably determines have been incurred and are attributable to its
obligation to make or its making or maintaining any LIBO Rate Loan or
issuing or participating in Letters of Credit, or any reduction in any
amount receivable by such Lender in respect of any such obligation or any
LIBO Rate Loan or Letter of Credit, in each case resulting from any
Regulatory Change which (a) changes the basis of taxation of any amounts
payable to such Lender under this Agreement or any Note in respect
<PAGE> 7
of any LIBO Rate Loan or Letter of Credit (other than taxes imposed on or
calculated on the basis of the overall net income, capital or profit of
such Lender or its Applicable Lending Office for any such LIBO Rate Loan
or for issuing or participating in any Letter of Credit), (b) imposes or
modifies any reserve, special deposit, minimum capital, capital ratio, or
similar requirements (other than the Reserve Requirement utilized in the
determination of the Adjusted LIBO Rate for such Loan) relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities of, such Lender (including LIBO Rate Loans and Dollar deposits
in the London interbank market in connection with LIBO Rate Loans), or the
Commitment of such Lender, or (c) imposes any other condition affecting
this Agreement or any Note or any of such extensions of credit,
liabilities, or Commitments.
"Adjusted Base Rate" shall mean, for any day and any Base Rate Loan,
an interest rate per annum equal to the sum of (a) the greater of (i) the
Base Rate for such day, (ii) the Adjusted CD Rate for such day plus
one-half of one percent (1/2%), or (iii) the Federal Funds Rate for such
day plus one percent (1%) plus (b) the Applicable Margin for such Base
Rate Loan, such rate to be computed on the basis of a year of 365 or 366
days, as the case may be, and actual days elapsed (including the first day
but excluding the last day) during the period for which payable, but in no
event shall such rate exceed the Highest Lawful Rate.
"Adjusted CD Rate" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by
the Agent to be equal to the sum of (a) the quotient of (i) the CD Rate
for such day divided by (ii) 1 minus the Reserve Requirement plus (b) the
Assessment Rate.
"Adjusted LIBO Rate" shall mean, for any Interest Period for any
LIBO Rate Loan, an interest rate per annum (rounded upwards, if necessary,
to the nearest 1/100 of 1%) determined by the Agent to be equal to the sum
of (a) the quotient of (i) the sum of the LIBO Rate for such Interest
Period for such LIBO Rate Loan divided by (ii) 1 minus the Reserve
Requirement for such Loan for such Interest Period plus (b) the Applicable
Margin for such LIBO Rate Loan, such rate to be computed on the basis of a
year of 360 days and actual days elapsed (including the first day but
excluding the last day) during the period for which payable, but in no
event shall such rate exceed the Highest Lawful Rate.
"Adjustment Date" shall mean the second Business Day following
receipt by the Agent of both (a) the Financial Statements required to be
delivered pursuant to Sections 5.2 or 5.3, as the case may be, for the
most recently completed fiscal period and (b) the Compliance Certificate
required to be delivered pursuant to such Sections with respect to such
fiscal period.
"Affiliate" shall mean any Person directly or indirectly controlled
by, controlling, or under common control with, any of the Borrowers and
includes any Subsidiary of any of the Borrowers and any "affiliate" of any
of the Borrowers within the meaning of Reg. ss.240.12b-2 of the Securities
Exchange Act
2
<PAGE> 8
of 1934, as amended, with "control," as used in this definition, meaning
possession, directly or indirectly, of the power to direct or cause the
direction of management, policies or action through ownership of voting
securities, contract, voting trust, or membership in management or in the
group appointing or electing management or otherwise through formal or
informal arrangements or business relationships.
"Affiliate Credit Agreement" shall mean that certain Credit
Agreement by and among KCS Resources, Inc., KCS Pipeline Systems, Inc.,
KCS Michigan Resources, Inc., KCS Energy Marketing, Inc., Canadian
Imperial Bank of Commerce, New York Agency as Agent, CIBC Inc. as
Collateral Agent, certain Co-agents, and other lenders named therein,
dated September 25, 1996, as such agreement may be amended from time to
time.
"Agreement" shall mean this Credit Agreement, as amended, restated,
or supplemented from time to time.
"Applicable Lending Office" shall mean, for each Lender and type of
Loan, the lending office of such Lender (or an affiliate of such Lender)
designated for such type of Loan on the signature pages hereof or such
other office of such Lender (or an affiliate of such Lender) as such
Lender may from time to time specify to the Agent and the Borrowers as the
office by which its Loans of such type are to be made and maintained.
"Applicable Margin" shall mean, (a) as to each Base Rate Loan and
each LIBO Rate Loan, an amount equal to the percentage set forth in the
grid below (the "Grid") for such type of Loan and determined to be the
applicable percentage pursuant to the Debt to KCS EBITDA ratio as
reflected in the most recent Financial Statements of KCS and its
Subsidiaries furnished to the Agent pursuant to Section 5.2 or 5.3 and
reported in the Compliance Certificate delivered therewith, which
Applicable Margin shall change as necessary effective on each Adjustment
Date:
=======================================================================
Debt/EBITDA Ratio LIBO Rate Loan Base Rate Loan
Applicable Margin Applicable Margin
-----------------------------------------------------------------------
Less than or equal to 1.50 0.75% 0%
-----------------------------------------------------------------------
Greater than or equal to 1.51 0.875 0%
but less than 2.01
-----------------------------------------------------------------------
Greater than or equal to 2.01 1.0% 0%
but less than 2.51
-----------------------------------------------------------------------
Greater than or equal to 2.51 1.25% 0.25%
but less than 3.01
-----------------------------------------------------------------------
Greater than 3.00 1.625% 0.625%
=======================================================================
3
<PAGE> 9
provided, however, from the period from the Closing Date through the date
KCS is to provide the Agent with financial statements for the fiscal year
ending December 31, 1997, as required by Section 5.2, the Applicable
Margin shall be calculated from time to time on a pro-forma basis by
substituting for each period for which the KCS Medallion EBITDA is not
included in the consolidated Financial Statements of KCS, the KCS
Medallion EBITDA for such period in the immediately preceding fiscal year;
provided further, however, at all times during which any principal or
accrued interest remains outstanding under the Term Notes, or the Term
Credit Commitment is outstanding the Applicable Margin shall be 2.25% in
the case of LIBO Rate Loans and 1.25% in the case of Base Rate Loans;
provided, further, (i) if such Financial Statements and related Compliance
Certificate are not delivered when due, without giving effect to any
applicable cure period, and the Applicable Margin increases from that
previously in effect as a result of the delivery of such Financial
Statements and Compliance Certificate, then the Applicable Margin during
the period from the date upon which such Financial Statements and
Compliance Certificate were required to be delivered, without giving
effect to any applicable cure period, until the date upon which they
actually are delivered shall, except as otherwise provided in clause
(iii), be the Applicable Margin as so increased; (ii) if such Financial
Statements and Compliance Certificate are delivered after the date such
Financial Statements and Compliance Certificate were required to be
delivered and the Applicable Margin decreases from that previously in
effect as a result of the delivery of such Financial Statements and
Compliance Certificate, then such decrease in the Applicable Margin shall
not become applicable until the date upon which such Financial Statements
and Compliance Certificate actually are delivered; and (iii) if such
Financial Statements and Compliance Certificate are not delivered prior to
the date upon which the resultant Default shall become an Event of
Default, then, effective upon such Default becoming an Event of Default,
for the period from the date upon which such Financial Statements and
Compliance Certificate were required to be delivered, after the expiration
of the applicable cure period, until two Business Days following the date
upon which they actually are delivered, the Applicable Margin shall be (A)
at all times during which any principal or accrued interest remains
outstanding under the Term Notes or the Term Credit Commitment is
outstanding, 2.25% in the case of LIBO Rate Loans and 1.25% in the case of
Base Rate Loans or (B) if no principal or accrued interest is outstanding
on the Term Notes and the Term Credit Commitment is not outstanding,
1.625% in the case of LIBO Rate Loans and 0.625%, in the case of Base Rate
Loans; and
"Assessment Rate" shall mean, at any time, the rate (rounded
upwards, if necessary, to the nearest 1/100 of 1%) then charged by the
Federal Deposit Insurance Corporation (or any successor) to the Agent for
deposit insurance for Dollar time deposits with the Agent at the Principal
Office as determined by the Agent. The Assessment Rate determined by the
Agent, in the absence of manifest error, shall be conclusive and binding.
4
<PAGE> 10
"Assignment Agreement" shall mean an Assignment Agreement,
substantially in the form of Exhibit III, with appropriate insertions.
"Available Revolving Credit Commitment" shall mean, at any time, an
amount equal to the remainder, if any, of (a) the lesser of the Revolving
Credit Commitment Amount or the Borrowing Base in effect at such time
minus (b) Revolving Obligations at such time.
"Available Term Credit Commitment" shall mean, at any time, an
amount equal to the remainder, if any, of (a) the Term Credit Commitment
Amount minus (b) the Term Obligations at such time.
"Base Rate" shall mean the interest rate announced or published by
the Agent from time to time as its general reference rate of interest,
which Base Rate shall change upon each change in such announced or
published general reference interest rate and which Base Rate may not be
the lowest interest rate charged by the Agent.
"Base Rate Loan" shall mean any Loan or any portion of the Loan
Balance which the Borrowers have requested, in the initial Borrowing
Request for such Loan or a subsequent Borrowing Request for such portion
of the Loan Balance, bear interest at the Adjusted Base Rate or which,
pursuant to the terms hereof, is otherwise required to bear interest at
the Adjusted Base Rate.
"Benefitted Lender" shall have the meaning assigned to such term in
Section 2.11(c).
"Borrowing Base" shall mean, at any time, the amount determined in
accordance with Section 2.12.
"Borrowing Request" shall mean each written request, in
substantially the form attached hereto as Exhibit IV, by the Borrowers to
the Agent for a borrowing or conversion pursuant to Sections 2.1 or 2.14,
each of which shall:
(a) be signed by a Responsible Officer of each of the
Borrowers;
(b) specify the amount and type of Loan requested or to be
converted and the date of the borrowing or conversion (which shall
be a Business Day);
(c) when requesting a Base Rate Loan, be delivered to the
Agent no later than 11:30 a.m., Eastern Standard or Daylight Savings
Time, as the case may be, on the Business Day of the requested
borrowing or conversion; and
5
<PAGE> 11
(d) when requesting a LIBO Rate Loan, be delivered to the
Agent no later than 12 noon, Eastern Standard or Daylight Savings
Time, as the case may be, the third Business Day preceding the
requested borrowing or conversion and designate the Interest Period
requested with respect to such Loan.
"Business Day" shall mean a day other than a day when commercial
banks are authorized or required to close in the State of New York and,
with respect to all requests, notices, and determinations in connection
with, and payments of principal and interest on, LIBO Rate Loans, which is
also a day for trading by and between banks in Dollar deposits in the
London interbank market.
"CBRS" shall mean C.B.R.S. Inc., carrying on business as "Canadian
Bond Rating Service," and its successors.
"CD Rate" shall mean, for any day relative to any determination of
the Adjusted Base Rate for any Base Rate Loan, the rate of interest per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
determined by the Agent to be the average of the bid rates quoted to the
Agent in the New York City secondary market at approximately 10:00 a.m.
New York time (or as soon thereafter as practicable) initially, on the day
such Base Rate Loan is made, and thereafter, from time to time as the
Agent may select, by two (2) certificate of deposit dealers of recognized
standing selected by the Agent, for the purchase at face value of 30-day
certificates of deposit in an amount approximately equal or comparable to
the amount of such Base Rate Loan. Each determination by the Agent of the
CD Rate shall, in the absence of manifest error, be conclusive and
binding.
"Closing Date" shall mean the effective date of this Agreement.
"Code" shall mean the United States Internal Revenue Code of 1986,
as amended from time to time.
"Collateral" shall mean the Mortgaged Properties, the Properties
described in the Security Instruments referenced in Sections 3.1(c) and
3.1(g) hereof, and any other Property now or at any time subject to a Lien
to secure the payment or performance of all or any portion of the
Obligations.
"Commitments" shall mean (i) the several obligations of the Lenders
to make Revolving Loans to or for the benefit of the Borrowers pursuant to
Section 2.1, (ii) the several obligations of such Lenders to participate
in Letters of Credit pursuant to Section 2.2, and (iii) the several
obligations of such Lenders to make Term Loans to or for the benefit of
Borrowers pursuant to Section 2.3.
"Commonly Controlled Entity" shall mean any Person which is under
common control with the Borrowers, within the meaning of Section 4001 of
ERISA.
6
<PAGE> 12
"Compliance Certificate" shall mean each certificate, substantially
in the form attached hereto as Exhibit VI, executed by a Responsible
Officer of each of the Borrowers, and furnished to the Agent from time to
time in accordance with the terms hereof.
"Contingent Obligation" shall mean, as to any Person, any obligation
of such Person guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends, or other obligations of any other Person (for purposes
of this definition, a "primary obligation") in any manner, whether
directly or indirectly, including any obligation of such Person,
regardless of whether such obligation is contingent, (a) to purchase any
primary obligation or any Property constituting direct or indirect
security therefor, (b) to advance or supply funds (i) for the purchase or
payment of any primary obligation, or (ii) to maintain working or equity
capital of any other Person in respect of any primary obligation, or
otherwise to maintain the net worth or solvency of any other Person, (c)
to purchase Property, securities or services primarily for the purpose of
assuring the owner of any primary obligation of the ability of the Person
primarily liable for such primary obligation to make payment thereof, or
(d) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof, with the amount of any
Contingent Obligation being deemed to be equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined
by such Person in good faith.
"DBRS" shall mean Dominion Bond Rating Service Limited and its
successors.
"Debt" shall mean Indebtedness of the KCS Medallion Group or KCS and
its Subsidiaries, as the case may be, on a consolidated basis, for
borrowed money.
"Debt Securities" shall mean any and all certificates, notes,
debentures, convertible debentures or any other evidence of indebtedness
of one or more members of the KCS Medallion Group or KCS or any of its
Subsidiaries issued in any public or private offering.
"Default" shall mean any event or occurrence which with the lapse of
time or the giving of notice or both would become an Event of Default.
"Default Rate" shall mean a per annum interest rate equal to the
Base Rate from time to time in effect plus two percent (2%), such rate to
be computed on the basis of a year of 365 or 366 days, as the case may be,
and actual days elapsed (including the first day but excluding the last
day) during the period for which payable, but in no event shall such rate
exceed the Highest Lawful Rate.
7
<PAGE> 13
"Dollars" and "$" shall mean dollars in lawful currency of the
United States of America.
"Environmental Complaint" shall mean any written or oral complaint,
order, directive, claim, citation, notice of environmental report or
investigation by any Governmental Authority or any other Person with
respect to (a) air emissions from any Property at any time owned, leased
or operated by any of the Borrowers, (b) spills, releases, or discharges
of Hazardous Substances to soils, any improvements located thereon,
surface water, groundwater, or the sewer, septic, waste treatment,
storage, or disposal systems servicing any Property at any time owned,
leased or operated by any of the Borrowers, (c) solid or liquid waste
disposal of Hazardous Substances at any Property at any time owned, leased
or operated by any of the Borrowers or affecting any Property of any of
the Borrowers or any real Property of any of the Borrowers or the
facilities located and the operations conducted thereon, (d) the use,
generation, storage, transportation, or disposal of any Hazardous
Substance by any of the Borrowers or affecting any Property of any of the
Borrowers or any real Property of any of the Borrowers or the facilities
located and the operations conducted thereon, or (e) other environmental,
health, or safety matters affecting any Property at any time owned, leased
or operated by any of the Borrowers or the business conducted thereon or
any real Property at any time owned, leased or operated by any of the
Borrowers or the facilities located and the operations conducted thereon.
"Environmental Laws" shall mean (a) the following federal laws as
they may be cited, referenced, and amended from time to time: the Clean
Air Act, the Clean Water Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Endangered Species Act, the Hazardous
Materials Transportation Act of 1986, the Occupational Safety and Health
Act, the Oil Pollution Act of 1990, the Resource Conservation and Recovery
Act of 1976, the Safe Drinking Water Act, the Superfund Amendments and
Reauthorization Act, and the Toxic Substances Control Act; (b) any and all
equivalent environmental statutes of any state in which Property at any
time owned, leased or operated by any Borrower is situated, as they may be
cited, referenced and amended from time to time; (c) any rules or
regulations promulgated under or adopted pursuant to the above federal and
state laws; and (d) any other equivalent federal, state, or local statute
or any requirement, rule, regulation, code, ordinance, or order adopted
pursuant thereto, including those relating to the generation,
transportation, treatment, storage, recycling, disposal, handling, or
release of Hazardous Substances.
"Equity Securities" shall mean any and all certificates, capital
stock, preferred stock, convertible debentures or any other securities
evidencing ownership of equity in KCS or any of its Subsidiaries issued in
any public or private offering.
8
<PAGE> 14
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations thereunder and
published interpretations thereof.
"Event of Default" shall mean any of the events specified in Section
7.1.
"Federal Funds Rate" shall mean, for any day, a rate of interest per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to
the weighted average of the rates on overnight federal funds transactions
with members of the Federal Reserve System arranged by federal funds
brokers on such day, as published by the Federal Reserve Bank of New York,
on the Business Day next succeeding such day, provided that (a) if the day
for which such rate is to be determined is not a Business Day, the Federal
Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding
Business Day, and (b) if such rate is not so published for any day, the
Federal Funds Rate for such day shall be the average rate charged to the
Agent on such day on such transactions as determined by the Agent.
"Fee Letter" shall mean the letter agreement dated as of January 2,
1997, from CIBC to the Borrowers concerning certain fees in connection
with the transactions contemplated hereby, and any agreements or
instruments executed in connection therewith, as amended, restated, or
supplemented from time to time.
"Final Maturity" shall mean in the case of Revolving Loans,
September 30, 2000 and in the case of Term Loans, March 31, 1997.
"Financial Statements" shall mean statements of the financial
condition as at the point in time and for the period indicated and
consisting in all cases of at least a balance sheet and related statements
of operations and cash flows, and in each year-end financial statement a
statement of common stock and other stockholders' or partners' equity,
and, when required by applicable provisions of this Agreement to be
audited, accompanied by the unqualified certification of a
nationally-recognized firm of independent certified public accountants or
other independent certified public accountants reasonably acceptable to
the Agent and footnotes to any of the foregoing, all of which, unless
otherwise indicated, shall be prepared in accordance with GAAP
consistently applied (subject to normal year-end audit adjustments with
respect to Financial Statements prepared as at a point in time other than
year-end) and in comparative form with respect to the corresponding period
of the preceding fiscal period.
"GAAP" shall mean generally accepted accounting principles
established by the Financial Accounting Standards Board or the American
Institute of Certified Public Accountants and in effect in the United
States from time to time.
"Governmental Authority" shall mean any nation, country,
commonwealth, territory, government, state, county, parish, municipality,
or other political
9
<PAGE> 15
subdivision and any entity exercising executive, legislative, judicial,
regulatory, or administrative functions of or pertaining to government.
"Hazardous Substances" shall mean flammables, explosives,
radioactive materials, hazardous wastes, asbestos or any material
containing asbestos, polychlorinated biphenyls (PCBs), petroleum,
petroleum products, associated oil or natural gas exploration, production,
and development wastes, or any substances defined as "hazardous
substances," "hazardous materials," "hazardous wastes," or "toxic
substances" under the Comprehensive Environmental Response, Compensation
and Liability Act, as amended, the Superfund Amendments and
Reauthorization Act, as amended, the Hazardous Materials Transportation
Act, as amended, the Resource Conservation and Recovery Act, as amended,
the Toxic Substances Control Act, as amended, or any other Requirement of
Law.
"Hedging Agreement" shall mean (a) any interest rate or currency
swap, rate cap, rate floor, rate collar, forward agreement, or other
exchange or rate protection agreement with the Agent, any Lender, or any
affiliate of the Agent, or any Lender or any option with respect to any
such transaction and (b) any swap agreement, cap, floor, collar, exchange
transaction, forward agreement, or other exchange or protection agreement
with the Agent, any Lender, or any affiliate of the Agent or any Lender
relating to hydrocarbons or any option with respect to any such
transaction.
"Highest Lawful Rate" shall mean, with respect to each Lender, the
maximum non-usurious interest rate, if any (or, if the context so
requires, an amount calculated at such rate), that at any time or from
time to time may be contracted for, taken, reserved, charged, or received
under laws applicable to such Lender, as such laws are presently in effect
or, to the extent allowed by applicable law, as such laws which may
hereafter be in effect and which allow a higher maximum non-usurious
interest rate than such laws now allow.
"Indebtedness" shall mean, as to any Person, without duplication,
(a) all liabilities (excluding reserves for deferred income taxes,
deferred compensation liabilities, and other deferred liabilities and
credits) which in accordance with GAAP would be included in determining
total liabilities as shown on the liability side of a balance sheet, (b)
all obligations of such Person evidenced by bonds, debentures, promissory
notes, or similar evidences of indebtedness, (c) all other indebtedness of
such Person for borrowed money, and (d) all obligations of others, to the
extent any such obligation is secured by a Lien on the assets of such
Person (whether or not such Person has assumed or become liable for the
obligation secured by such Lien).
"Insolvency Proceeding" shall mean application (whether voluntary or
instituted by another Person) for or the consent to the appointment of a
receiver, trustee, conservator, custodian, or liquidator of any Person or
of all or a substantial part of the Property of such Person, or the filing
of a petition (whether voluntary or instituted by another Person)
commencing a case under Title 11 of
10
<PAGE> 16
the United States Code, seeking liquidation, reorganization, or
rearrangement or taking advantage of any bankruptcy, insolvency, debtor's
relief, or other similar law of the United States or any other
jurisdiction.
"Insolvent" or "Insolvency" shall mean, with respect to any
Multiemployer Plan, that such Plan is insolvent within the meaning of such
term as used in Section 4245 of ERISA.
"Intellectual Property" shall mean patents, patent applications,
trademarks, tradenames, copyrights, technology, know-how, and processes.
"Interest Coverage Ratio" means, as of the close of any fiscal
quarter, the ratio of (a) KCS EBITDA, or KCS Medallion EBITDA, as the case
may be, for the preceding four fiscal quarters (including the quarter just
ended), to (b) applicable Interest Expense for such preceding four fiscal
quarters.
"Interest Expense" shall mean, for any period, the total interest
expense (including interest expense attributable to capitalized leases) of
the KCS Medallion Group or KCS and its Subsidiaries, as the case may be,
for such period, determined on a consolidated basis and in accordance with
GAAP.
"Interest Period" shall mean, subject to the limitations set forth
in Section 2.4, with respect to any LIBO Rate Loan, a period commencing on
the date such Loan is made or converted from a Loan of another type
pursuant to this Agreement or the last day of the next preceding Interest
Period with respect to such Loan and ending on the numerically
corresponding day in the calendar month that is one, two, three, six, or,
subject to availability as determined by the Lenders, twelve months
thereafter, as the Borrowers may request in the Borrowing Request for such
Loan.
"Investment" shall mean, as to any Person, any stock, bond, note or
other evidence of Debt or any other security (other than current trade and
customer accounts) of, investment or partnership interest in or loan to,
such Person.
"KCS EBITDA" shall mean, for any period, Net Income of KCS and its
Subsidiaries for such period plus Interest Expense, federal and state
income taxes, depreciation, amortization, and other non-cash expenses for
such period deducted in the determination of Net Income for such period.
"KCS Medallion EBITDA" shall mean, for any period, Net Income of the
KCS Medallion Group for such period plus Interest Expense, federal and
state income taxes, depreciation, amortization, and other non-cash
expenses for such period deducted in the determination of Net Income for
such period.
"KCS Medallion Group" shall mean KCS Medallion, KCS Energy Services,
Medallion Gas Services, GED Energy and each of their respective
Subsidiaries.
11
<PAGE> 17
"L/C Exposure" shall mean, at any time, the aggregate maximum amount
available to be drawn under outstanding Letters of Credit at such time.
"Letter of Credit" shall mean any standby or documentary letter of
credit issued for the account of any of the Borrowers pursuant to Section
2.2.
"Letter of Credit Application" shall mean the standard letter of
credit application employed by the Agent, as the issuer of the Letters of
Credit, from time to time in connection with letters of credit.
"Letter of Credit Payment" shall mean any payment made by the Agent
on behalf of the Lenders under a Letter of Credit, to the extent that such
payment has not been repaid by the Borrowers.
"LIBO Rate" shall mean, with respect to any Interest Period for any
LIBO Rate Loan, the rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) equal to the average of the offered quotations
appearing on Telerate Page 3750 (or if such Telerate Page shall not be
available, any successor or similar service selected by the Agent and the
Borrowers) as of approximately 11:00 a.m., London time, on the day two
Business Days prior to the first day of such Interest Period for Dollar
deposits in an amount comparable to the principal amount of such LIBO Rate
Loan and having a term comparable to the Interest Period for such LIBO
Rate Loan. If neither such Telerate Page 3750 nor any successor or similar
service is available, the term "LIBO Rate" shall mean, with respect to any
Interest Period for any LIBO Rate Loan, the rate per annum (rounded
upwards if necessary, to the nearest 1/16 of 1%) quoted by the Agent at
approximately 11:00 a.m., London time (or as soon thereafter as
practicable) two Business Days prior to the first day of the Interest
Period for such LIBO Rate Loan for the offering by the Agent to leading
banks in the London interbank market of Dollar deposits in an amount
comparable to the principal amount of such LIBO Rate Loan and having a
term comparable to the Interest Period for such LIBO Rate Loan.
"LIBO Rate Loan" shall mean any Loan or any portion of the Loan
Balance which a Borrower has requested, in the initial Borrowing Request
for such Loan or a subsequent Borrowing Request for such portion of the
Loan Balance, bear interest at the Adjusted LIBO Rate and which is
permitted by the terms hereof to bear interest at the Adjusted LIBO Rate.
"Lien" shall mean any interest in Property securing an obligation
owed to, or constituting a claim by, a Person other than the owner of such
Property, whether such interest is based on common law, statute, or
contract, and including the lien or security interest arising from a
mortgage, ship mortgage, encumbrance, pledge, security agreement,
conditional sale or trust receipt, or a lease, consignment, or bailment
for security purposes (other than true leases or true consignments), liens
of mechanics, materialmen, and artisans, maritime liens and reservations,
exceptions, encroachments, easements, rights of way,
12
<PAGE> 18
covenants, conditions, restrictions, leases, and other title exceptions
and encumbrances affecting Property which secure an obligation owed to, or
constitute a claim by, a Person other than the owner of such Property (for
the purpose of this Agreement, Borrower shall be deemed to be the owner of
any Property which it has acquired or holds subject to a conditional sale
agreement, financing lease, or other arrangement pursuant to which title
to the Property has been retained by or vested in some other Person for
security purposes), and the filing or recording of any financing statement
or other security instrument in any public office.
"Limitation Period" shall mean, with respect to any Lender, any
period while any amount remains owing on the Note payable to such Lender
and interest on such amount, calculated at the applicable interest rate,
plus any fees or other sums payable to such Lender under any Loan Document
and deemed to be interest under applicable law, would exceed the amount of
interest which would accrue at the Highest Lawful Rate.
"Loan" shall mean a Base Rate Loan or a LIBO Rate Loan made by any
Lender to or for the benefit of the Borrowers pursuant to this Agreement,
each of which is a "type" of Loan hereunder, outstanding as either a
Revolving Loan or a Term Loan and, without duplication, any payment made
by the Agent as the issuing bank under a Letter of Credit.
"Loan Balance" shall mean, in the case of Revolving Loans, at any
time, the aggregate outstanding principal balance of the Revolving Notes
at such time and in the case of Term Loans, at any time, the aggregate
outstanding principal balance of the Term Notes at such time.
"Loan Documents" shall mean this Agreement, the Notes, the Letter of
Credit Applications, the Letters of Credit, the Fee Letter, the Security
Instruments, and all other documents and instruments now or hereafter
delivered by any of the Borrowers or any of their respective Affiliates in
favor or for the benefit of the Agent or any Lender pursuant to the terms
of or in connection with this Agreement, the Notes, the Letter of Credit
Applications, the Letters of Credit, the Fee Letter, or the Security
Instruments, and all renewals, extensions, amendments, supplements, and
restatements thereof.
"Material Properties" shall mean the Oil and Gas Properties listed
on Exhibit VII.
"Material Adverse Effect" shall mean in the sole reasonable
determination of the Agent, the occurrence or existence of any material
adverse effect on the business, operations, Properties, condition
(financial or otherwise), or prospects of (i) the KCS Medallion Group, or
(ii) KCS and its Subsidiaries, in each case, taken as a whole.
13
<PAGE> 19
"Mortgaged Properties" shall mean all Oil and Gas Properties of KCS
Medallion or any Substitute Mortgagor subject to a Lien in favor of the
Agent to secure the Obligations.
"Multiemployer Plan" shall mean a Plan which is a multiemployer plan
as defined in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds" means, for any Transfer, the cash proceeds
(including any cash payments actually received as a deferred payment of
principal pursuant to a note, installment receivable, purchase price
adjustment receivable or otherwise) of such Transfer net of (i) all legal
fees, accountant fees, investment banking fees, brokerage fees, finders
fees, survey costs, title insurance premiums, required debt payments
(other than of Obligations) and other customary fees, costs and expenses
actually incurred, paid or made in connection therewith, (ii) taxes or
other governmental fees or charges paid or payable as a result thereof and
(iii) reasonable reserves for purchase price adjustments.
"Net Income" shall mean, for any period, the net income (or loss) of
the KCS Medallion Group or KCS and its Subsidiaries, as the case may be,
for such period, determined on a consolidated basis and in accordance with
GAAP, consistently applied.
"Note or Notes" shall mean, individually or collectively, as
applicable, each of the Revolving Notes and the Term Notes.
"Notice of Termination" shall have the meaning assigned to such term
in Section 2.24.
"Obligations" shall mean, without duplication, (a) all Indebtedness
evidenced by the Notes, (b) the obligation of the Borrowers to provide to
or reimburse the Agent, as the issuer of Letters of Credit, or the
Lenders, as the case may be, for, amounts payable, paid, or incurred with
respect to Letters of Credit, (c) the undrawn, unexpired amount of all
outstanding Letters of Credit, (d) the obligation of the Borrowers for the
payment of fees and expenses pursuant to the Loan Documents, (e) all
amounts owing or to be owing by any of the Borrowers under any Hedging
Agreement now or hereafter arising, and (f) all other obligations and
liabilities of the Borrowers to the Agent and the Lenders, now existing or
hereafter incurred, under, arising out of or in connection with any Loan
Document, and to the extent that any of the foregoing includes or refers
to the payment of amounts deemed or constituting interest, only so much
thereof as shall have accrued, been earned and which remains unpaid at
each relevant time of determination.
"Oil and Gas Properties" shall mean fee, leasehold, or other
interests in or under mineral estates or oil, gas, and other liquid or
gaseous hydrocarbon leases with respect to Properties situated in the
United States or offshore from any State of the United States, including
overriding royalty and royalty interests,
14
<PAGE> 20
leasehold estate interests, net profits interests, production payment
interests, and mineral fee interests, together with contracts executed in
connection therewith and all tenements, hereditaments, appurtenances, and
Properties appertaining, belonging, affixed, or incidental thereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA or any entity
succeeding to any or all of its functions under ERISA.
"Percentage Share" shall mean, as to each Lender, the percentage
such Lender's Facility Amount constitutes of the Maximum Facility Amount.
"Permitted Liens" shall mean (a) Liens for taxes, assessments, or
other governmental charges or levies not yet due or which (if foreclosure,
distraint, sale, or other similar proceedings shall not have been
initiated) are being contested in good faith by appropriate proceedings,
and such reserve as may be required by GAAP shall have been made therefor,
(b) Liens in connection with workers' compensation, unemployment insurance
or other social security (other than Liens created by Section 4068 of
ERISA), old-age pension, or public liability obligations which are not yet
due or which are being contested in good faith by appropriate proceedings,
if such reserve as may be required by GAAP shall have been made therefor,
(c) Liens in favor of Governmental Authorities, vendors, carriers,
warehousemen, repairmen, mechanics, workmen, and materialmen, and
construction or similar Liens arising by operation of law (including Liens
securing statutory or regulatory obligations) in the ordinary course of
business in respect of obligations that are not past-due or which are
being contested in good faith by appropriate proceedings, if such reserve
as may be required by GAAP shall have been made therefor, (d) Liens in
favor of operators and non-operators under joint operating agreements or
similar contractual arrangements arising in the ordinary course of the
business of the Borrowers to secure amounts owing, which amounts are not
yet due or are being contested in good faith by appropriate proceedings,
if such reserve as may be required by GAAP shall have been made therefor,
(e) Liens under production sales agreements, division orders, operating
agreements, unitization and pooling orders, and other agreements customary
in the oil and gas business for processing, producing, transporting,
marketing, and exchanging produced hydrocarbons securing obligations not
constituting Indebtedness and provided that such Liens do not secure
obligations to deliver hydrocarbons at some future date without receiving
full payment therefor within 90 days of delivery, (f) the terms of the
instruments evidencing the Oil and Gas Properties of the Borrowers, the
documents listed under the heading "Permitted Encumbrances" as Exhibit A
to the Security Instruments, and easements, rights of way, restrictions,
and other similar encumbrances, and minor defects in the chain of title
which are customarily accepted in the oil and gas industry (including
defects noted in the title opinions and reports furnished to and not
objected to by the Agent prior to the Closing Date), none of which
interfere with the ordinary conduct of the business of the Borrowers or
materially detract from the value or use of the Property to which they
apply, (g) Liens in favor of the Agent and other
15
<PAGE> 21
Liens expressly permitted under the Security Instruments, (h) Liens
securing the Indebtedness permitted under clauses (f) and (g) of Section
6.1, provided that no Lien securing Indebtedness permitted under Section
6.1(f) encumbers any Collateral, and (i) judgment Liens arising by
operation of law or as the result of the abstracting of a judgment or
similar action under the laws of any jurisdiction and not giving rise to
an Event of Default, in respect of judgments that are not final and
non-appealable judgments, so long as any appropriate legal proceedings
which may have been duly initiated for the review of such judgment shall
not have been finally terminated or the period within which such
proceeding may be initiated shall not have expired.
"Person" shall mean an individual, corporation, partnership, trust,
unincorporated organization, government, any agency or political
subdivision of any government, or any other form of entity.
"Plan" shall mean, at any time, any employee benefit plan which is
covered by ERISA and in respect of which any of the Borrowers or any
Commonly Controlled Entity is (or, if such plan were terminated at such
time, would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"Principal Office" shall mean the principal office of the Agent in
New York, New York, presently located at 425 Lexington Avenue, 7th Floor,
New York, New York 10017.
"Prohibited Transaction" shall have the meaning assigned to such
term in Section 406 of ERISA or Section 4975 of the Code.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.
"Qualified Swap Counterparty" shall mean (a) the Agent, any Lender
or an affiliate of the Agent or any Lender, (b) 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
$500,000,000, (c) a corporation (other than an Affiliate of any Borrower)
or other entity organized under the laws of any state of the United States
or the District of Columbia and rated either (i) A-2 or better by S&P's or
P-2 or better by Moody's, in the case of short-term debt obligations or
(ii) A or better by S&P in the case of unsecured long-term debt
obligations, or (d) a corporation or other entity (other than an Affiliate
of any Borrower) (i) organized under the laws of Canada or any province
thereof and rated R-1 (middle/low) (or the then equivalent grade) or
higher by DBRS or, if not then rated by DBRS, which is rated A-1 or the
then equivalent grade or higher by CBRS, or (ii) which has furnished any
Borrower a letter of credit, cash prepayment or other form of credit
enhancement reasonably acceptable to any Borrower.
16
<PAGE> 22
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System (or any successor), as amended or supplemented
from time to time.
"Regulatory Change" shall mean, with respect to any Lender, the
passage, adoption, institution, or modification of any federal, state,
local, or foreign Requirement of Law (including Regulation D), or any
interpretation, directive, or request (whether or not having the force of
law) of any Governmental Authority or monetary authority charged with the
enforcement, interpretation, or administration thereof, occurring after
the Closing Date and applying to a class of lenders including such Lender
or its Applicable Lending Office.
"Release of Hazardous Substances" shall mean any emission, spill,
release, disposal, or discharge, except in accordance with a valid permit,
license, certificate, or approval of the relevant Governmental Authority,
of any Hazardous Substance into or upon (a) the air, (b) soils or any
improvements located thereon, (c) surface water or groundwater, or (d) the
sewer or septic system, or the waste treatment, storage, or disposal
system servicing any Property at any time owned, leased or operated by any
of the Borrowers.
"Reorganization" shall mean, with respect to any Multiemployer Plan,
that such Plan is in reorganization within the meaning of such term in
Section 4241 of ERISA.
"Replacement Lenders" shall have the meaning assigned to such term
in Section 2.24.
"Reportable Event" shall mean any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty-day
notice period is waived under subsections .13, .14, .16, .18, .19 or .20
of PBGC Reg.
ss.2615.
"Required Lenders" shall mean, at any time when no Loans are
outstanding, Lenders whose Percentage Shares total at least sixty-six and
two-thirds percent (66-2/3%), and at any time when any Loans are
outstanding, Lenders holding at least sixty-six and two-thirds percent (66
2/3%) of the Loan Balance (without regard to any sale of a participation
in any Loan).
"Required Payment" shall have the meaning assigned to such term in
Section 2.9.
"Requirement of Law" shall mean, as to any Person, any applicable
law, treaty, ordinance, order, judgment, rule, decree, regulation, or
determination of an arbitrator, court, or other Governmental Authority,
including rules, regulations, orders, and requirements for permits,
licenses, registrations, approvals, or authorizations, in each case as
such now exist or may be hereafter
17
<PAGE> 23
amended and are applicable to or binding upon such Person or any of its
Property or to which such Person or any of its Property is subject.
"Reserve Report" shall mean each report provided by KCS Medallion
pursuant to Section 5.4.
"Reserve Requirement" shall mean, for any Interest Period for any
LIBO Rate Loan, or for any day in computing the Adjusted CD Rate, the
average maximum rate at which reserves (including any marginal,
supplemental, or emergency reserves) are required to be maintained during
such Interest Period under Regulation D by member banks of the Federal
Reserve System in New York, with deposits exceeding one billion Dollars
against (a) in the case of any LIBO Rate Loan, "Eurocurrency liabilities"
(as such term is used in Regulation D) or (b) in the case of computing the
Adjusted CD Rate, 30-day nonpersonal Dollar time deposits in an amount
approximately equal or comparable to the aggregate amount of Base Rate
Loans then outstanding. Each determination by the Agent of the applicable
Reserve Requirement shall, in the absence of manifest error, be conclusive
and binding.
"Responsible Officer" shall mean, as to any Borrower, any of the
following Persons: James W. Christmas, Chief Executive Officer; Henry A.
Jurand, Vice President and Chief Financial Officer; or Kathryn M.
Kinnamon, Treasurer; and in any event, shall mean no other Person or
Persons except as modified pursuant to a certificate sent to the Agent
signed by a Responsible Officer of the Person with respect to which the
modification is to be effected, and in each such event, only after the
Agent has had a reasonable opportunity to act upon such certification.
"Revolving Credit Commitment" shall mean, relative to any Lender,
such Lender's obligations to make Revolving Loans and participate in
Letters of Credit pursuant to Sections 2.1 and 2.2.
"Revolving Credit Commitment Amount" shall mean an amount equal to
$150,000,000, as such amount may be reduced from time to time pursuant to
the terms of this Agreement.
"Revolving Credit Commitment Period" shall mean the period from and
including the Closing Date to but not including the Revolving Credit
Commitment Termination Date.
"Revolving Credit Commitment Termination Date" shall mean
September 30, 2000.
"Revolving Credit Facility Amount" shall mean, for each Lender, the
amount set forth opposite the name of such Lender on Exhibit V under the
caption "Revolving Credit Facility Amount," as modified to reflect
assignments permitted by Sections 9.1 and 2.25 or otherwise pursuant to
the terms hereof.
18
<PAGE> 24
"Revolving Loan" shall mean the revolving loans defined in Section
2.1.
"Revolving Notes" shall mean certain promissory notes of the
Borrower as defined in Section 2.1 payable to a Lender in the amount of
the Revolving Credit Facility Amount of such Lender in the form attached
hereto as Exhibit I with appropriate insertions together with all
renewals, extensions for any period, increases and rearrangements thereof.
"Revolving Obligations" shall mean the sum of the Loan Balance of
all Revolving Loans and L/C Exposure.
"Sales Period" shall mean each successive six-month period during
the term hereof, commencing with the six-month period beginning July 1,
1996.
"Security Instruments" shall mean the security instruments executed
and delivered in satisfaction of the condition set forth in Section 3.1(c)
and 3.1(g), and all other documents and instruments at any time executed
as security for all or any portion of the Obligations, as such instruments
may be amended, restated, or supplemented from time to time.
"Senior Note Indenture" shall mean the Indenture dated as of January
15, 1996, by and among KCS, the Subsidiary Guarantors (as such term is
defined therein) named therein, and Fleet National Bank of Connecticut, as
Trustee, relating to the sale by the Guarantor of its 11% Senior Notes due
2003 in the aggregate principal amount of $150,000,000.00.
"Single Employer Plan" shall mean any Plan which is covered by Title
IV of ERISA, but which is not a Multiemployer Plan.
"Stock Pledge Agreement" shall mean the Stock Pledge Agreement dated
as of the Closing date executed by KCS in favor of the Collateral Agent in
substantially the Form of Exhibit XI.
"Stock Purchase Agreement" shall mean that certain agreement dated
as of November 14, 1996 by and among KCS, InterCoast Energy Company and
InterCoast Gas Services Company pursuant to which the KCS agrees to
purchase the outstanding capital stock of KCS Medallion, Medallion Gas
Services and GED Energy Services.
"Subsidiary" shall mean, as to any Person, a corporation of which
shares of stock having ordinary voting power (other than stock having such
power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such corporation
are at the time owned, directly or indirectly through one or more
intermediaries, or both, by such Person.
"Substitute Mortgagor" shall have the meaning as provided in Section
3.1.
19
<PAGE> 25
"Sufficient Copies" shall mean that number of copies as shall
reasonably be requested from time to time by the Agent.
"Superfund Site" shall mean those sites listed on the Environmental
Protection Agency National Priority List and eligible for remedial action
or any comparable state registries or list in any state of the United
States.
"Tangible Net Worth" shall mean (a) total assets, as would be
reflected on a balance sheet of the KCS Medallion Group or KCS and its
Subsidiaries, as the case may be, prepared on a consolidated basis and in
accordance with GAAP, exclusive of Intellectual Property, experimental or
organization expenses, franchises, licenses, permits, and other intangible
assets, treasury stock, and goodwill minus (b) total liabilities, as would
be reflected on a balance sheet of the KCS Medallion Group or KCS and its
Subsidiaries, as the case may be, prepared on a consolidated basis and in
accordance with GAAP.
"Taxes" shall have the meaning assigned to such term in Section
2.24.
"Term Commitment Period" shall mean the period from and including
the Closing Date to but not including the Term Credit Commitment
Termination Date.
"Term Credit Commitment" shall mean relative to any Lender, such
Lender's obligations to make Term Loans pursuant to Section 2.3.
"Term Credit Commitment Amount" shall mean $30,000,000, as such
amount may be reduced pursuant to the terms of this Agreement.
"Term Credit Commitment Termination Date" shall mean the Final
Maturity of the Term Notes or (ii) March 31, 1997.
"Term Credit Facility Amount" shall mean, for each Lender, the
amount set forth opposite the name of such Lender on Exhibit V under the
caption "Term Credit Facility Amounts," as modified to reflect assignments
permitted by Sections 9.1 and 2.25 or otherwise pursuant to the terms
hereof.
"Term Loan" shall mean the term loans defined in Section 2.3.
"Term Notes" shall mean certain promissory notes of the Borrowers as
defined in Section 2.3 payable to a Lender in the amount of the Term
Credit Facility Amount of such Lender in the form attached hereto as
Exhibit II with appropriate insertions together with all renewals,
extensions for any period, increases and rearrangements thereof.
"Term Obligations" shall mean the sum of the Loan Balances of all
Term Loans.
20
<PAGE> 26
"Terminated Lender" shall have the meaning assigned to such term in
Section 2.25.
"Termination Date" shall have the meaning assigned to such term in
Section 2.25.
"Total Facility Amount" shall mean, for each Lender, the sum of the
Revolving Credit Facility Amount and the Term Credit Facility Amount, set
forth opposite the name of such Lender on Exhibit V under the caption
"Facility Amounts", as modified to reflect assignments permitted by
Sections 9.1 and 2.25 or otherwise pursuant to the terms hereof.
"Transfer" means a sale, transfer, conveyance, assignment or other
disposition of Property (or a series of related dispositions), including,
without limitation, any transfer pursuant to an option to purchase, any
sale or assignment (with or without recourse) of any accounts receivable
and any sale and leaseback of assets and transfers made pursuant to the
rights under any title guaranty agreement, but excluding (i) any
involuntary transfer of Property by operation of law and any transfers of
Property pursuant to any casualty or theft with respect to such Property,
(ii) the sale of hydrocarbons or inventory in the ordinary course of
business other than the sale of a production payment, and (iii) the sale
or other disposition of Property destroyed, lost, worn out, damaged, or
having only salvage value or no longer used or useful in the business of
such Borrower.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the State of New York.
"Zapata County Litigation" shall mean the cases styled Tennessee Gas
Pipeline v. KCS Resources, Inc., Case No. 3448, In the District Court 49th
Judicial District, Zapata County, Texas and (ii) Tennessee Gas Pipeline
Company v. KCS Resources, Inc., Tesoro E&P Company, and Coastal Oil & Gas
Corporation, Case No. 3510, in the District Court, 49th Judicial District,
Zapata County, Texas.
1.3 Undefined Financial Accounting Terms. Undefined financial
accounting terms used in this Agreement shall be defined according to GAAP at
the time in effect.
1.4 References. References in this Agreement to Exhibit, Article, or
Section numbers shall be to Exhibits, Articles, or Sections of this Agreement,
unless expressly stated to the contrary. References in this Agreement to
"hereby," "herein," "hereinafter," "hereinabove," "hereinbelow," "hereof,"
"hereunder" and words of similar import shall be to this Agreement in its
entirety and not only to the particular Exhibit, Article, or Section in which
such reference appears. References in this Agreement to "includes" or
"including" shall mean "includes, without limitation," or "including, without
limitation," as the case may be. References in this Agreement to statutes,
sections, or regulations are to be construed as including all statutory or
regulatory provisions consolidating, amending, replacing, succeeding or
supplementing such statutes sections, or regulations.
21
<PAGE> 27
1.5 Articles and Sections. This Agreement, for convenience only, has
been divided into Articles and Sections; and it is understood that the rights
and other legal relations of the parties hereto shall be determined from this
instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.
1.6 Number and Gender. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural; and
likewise, the plural shall be understood to include the singular. Definitions of
terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise indicated. Words
denoting sex shall be construed to include the masculine, feminine and neuter,
when such construction is appropriate.
1.7 Incorporation of Exhibits. The Exhibits attached to this
Agreement are incorporated herein and shall be considered a part of this
Agreement for all purposes.
1.8. Knowledge. As used herein "knowledge" or "knowledge and belief"
of a Borrower shall mean the knowledge of any officer of such Borrower;
provided, however, that in the case of any matter covered by Sections 4.14 and
5.6 relating to an Oil and Gas Property of KCS Medallion, such "knowledge" or
"knowledge and belief" shall mean (a) in the case of an Oil and Gas Property
operated by KCS Medallion, the knowledge of the highest ranking field personnel
of KCS Medallion assigned to such Property and (b) in the case of an Oil and Gas
Property of KCS Medallion that is not operated by KCS Medallion, the knowledge
of an operations manager having responsibility for such Property.
ARTICLE II
TERMS OF FACILITIES
2.1 Revolving Loans. (a) Upon the terms and conditions and relying on
the representations and warranties contained in this Agreement and the other
Loan Documents, each Lender severally agrees to make Loans (each a "Revolving
Loan") during the Commitment Period on a revolving basis to or for the benefit
of the Borrowers, or any combination of them, in an aggregate principal amount
not to exceed at any time outstanding the lesser of the Revolving Credit
Facility Amount of such Lender or the Percentage Share of such Lender of the
Borrowing Base then in effect (for each Lender, its "Revolving Credit
Commitment"); provided, however, that (i) Revolving Obligations shall not exceed
at any time the lesser of the Revolving Credit Commitment Amount or the
Borrowing Base then in effect, and (ii) the sum of the outstanding principal
balance of all Revolving Loans by any Lender plus the Percentage Share of such
Lender of the L/C Exposure shall not exceed at any time an amount equal to the
Percentage Share of such Lender multiplied by the lesser of the Revolving Credit
Commitment Amount or the Borrowing Base then in effect. Revolving Loans shall be
made from time to time on any Business Day designated by the Borrowers in a
Borrowing Request.
(b) Subject to the terms of this Agreement, during the Revolving
Credit Commitment Period, the Borrowers may borrow, repay, and reborrow and
convert Revolving
22
<PAGE> 28
Loans of one type or with one Interest Period into Revolving Loans of another
type or with a different Interest Period. Except for prepayments made pursuant
to Section 2.13, each borrowing, conversion, and prepayment of principal, in the
case of Base Rate Loans, shall be in an amount at least equal to $100,000 and in
multiples of $100,000 thereafter and, in the case of LIBO Rate Loans, shall be
in an amount at least equal to $1,000,000 and in multiples of $100,000
thereafter. Each borrowing, prepayment, or conversion of or into a Revolving
Loan of a different type or, in the case of a LIBO Rate Revolving Loan, having a
different Interest Period, shall be deemed a separate borrowing, conversion, and
prepayment for purposes of the foregoing, one for each type of Revolving Loan or
Interest Period. Anything in this Agreement to the contrary notwithstanding, the
aggregate principal amount of LIBO Rate Revolving Loans having the same Interest
Period shall be at least equal to $1,000,000; and if any LIBO Rate Revolving
Loan would otherwise be in a lesser principal amount for any period, such
Revolving Loan shall be a Base Rate Revolving Loan during such period.
(c) Not later than noon, Eastern Standard or Daylight Savings Time,
as the case may be, on the date specified for each borrowing, each Lender shall
make available to the Agent an amount equal to the Percentage Share of such
Lender of the borrowing to be made on such date, at an account designated by the
Agent, for the account of the Borrower. The amount so received by the Agent
shall, subject to the terms and conditions hereof, be made available to the
Borrowers in immediately available funds by no later than 1:00 p.m. Eastern
Standard or Daylight Savings Time, as the case may be, in an account designated
from time to time by the Borrowers. All Revolving Loans by each Lender shall be
maintained at the Applicable Lending Office of such Lender and shall be
evidenced by the Revolving Note of such Lender.
(d) The failure of any Lender to make any Revolving Loan required to
be made by it hereunder shall not relieve any other Lender of its obligation to
make any Revolving Loan required to be made by it, and no Lender shall be
responsible for the failure of any other Lender to make any Loan.
2.2 Letter of Credit Facility. (a) Upon the terms and conditions and
relying on the representations and warranties contained in this Agreement, the
Agent, as issuing bank for the Lenders, agrees, from the date of this Agreement
until the date which is 30 days prior to the Revolving Commitment Termination
Date, to issue, on behalf of the Lenders in their respective Percentage Shares,
Letters of Credit for the account of the Borrowers, or any combination of them,
and to renew and extend such Letters of Credit. Letters of Credit shall be
issued, renewed, or extended from time to time on any Business Day designated by
the Borrowers following the receipt in accordance with the terms hereof by the
Agent of the written (or oral, confirmed promptly in writing) request by a
Responsible Officer of each of the Borrowers therefor and a Letter of Credit
Application. Letters of Credit shall be issued in such amounts as the Borrowers
may request; provided, however, that (i) no Letter of Credit shall have an
expiration date which is more than 365 days after the issuance thereof or
subsequent to one Business Day prior to the Revolving Commitment Termination
Date, (ii) Revolving Obligations shall not exceed at any time the lesser of the
Revolving Credit Commitment Amount or the Borrowing Base, (iii) the L/C Exposure
shall not exceed at any time $15,000,000, and (iv) no Letter of Credit shall be
issued in an amount less than $50,000.
23
<PAGE> 29
(b) Prior to any Letter of Credit Payment in respect of any Letter
of Credit, each Lender shall be deemed to be a participant through the Agent
with respect to the relevant Letter of Credit in the obligation of the Agent, as
the issuer of such Letter of Credit, in an amount equal to the Percentage Share
of such Lender of the maximum amount which is or at any time may become
available to be drawn thereunder. Upon delivery by such Lender of funds
requested pursuant to Section 2.2(c), such Lender shall be treated as having
purchased a participating interest in an amount equal to such funds delivered by
such Lender to the Agent in the obligation of the Borrowers to reimburse the
Agent, as the issuer of such Letter of Credit, for any amounts payable, paid, or
incurred by the Agent, as the issuer of such Letter of Credit, with respect to
such Letter of Credit.
(c) Each Lender shall be unconditionally and irrevocably liable,
without regard to the occurrence of any Default or Event of Default, to the
extent of the Percentage Share of such Lender at the time of issuance of each
Letter of Credit, to reimburse, on demand, the Agent, as the issuer of such
Letter of Credit, for the amount of each Letter of Credit Payment under such
Letter of Credit. Each Letter of Credit Payment shall be deemed to be a Base
Rate Revolving Loan by each Lender to the extent of funds delivered by such
Lender to the Agent with respect to such Letter of Credit Payment and shall to
such extent be deemed a Base Rate Revolving Loan under and shall be evidenced by
the Revolving Note of such Lender. In the event that a Default has occurred and
is continuing under Sections 7.1(f) or (g), an amount equal to any Letter of
Credit Payment made after the occurrence of such Default shall be payable by the
Borrowers upon demand by the Agent. Notwithstanding anything contained herein or
any other Loan Document (including any Letter of Credit Application), but
subject to the provisions of Section 2.13, neither the Agent as the issuing bank
nor any Lender shall have any right to require any Borrower to prepay any
amounts for which the Agent as the issuing bank or any Lender might become
liable under any Letter of Credit.
(d) EACH LENDER AGREES TO INDEMNIFY THE AGENT, AS THE ISSUER OF EACH
LETTER OF CREDIT, AND THE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS-IN-FACT AND AFFILIATES OF THE AGENT (TO THE EXTENT NOT REIMBURSED BY
THE BORROWERS AND WITHOUT LIMITING THE OBLIGATION OF THE BORROWERS TO DO SO),
RATABLY ACCORDING TO THE PERCENTAGE SHARE OF SUCH LENDER AT THE TIME OF ISSUANCE
OF SUCH LETTER OF CREDIT, FROM AND AGAINST ANY AND ALL LIABILITIES, CLAIMS,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES AND DISBURSEMENTS OF ANY KIND WHATSOEVER WHICH MAY AT ANY TIME
(INCLUDING ANY TIME FOLLOWING THE PAYMENT AND PERFORMANCE OF ALL OBLIGATIONS AND
THE TERMINATION OF THIS AGREEMENT) BE IMPOSED ON, INCURRED BY OR ASSERTED
AGAINST THE AGENT AS THE ISSUER OF SUCH LETTER OF CREDIT OR ANY OF ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES IN ANY WAY
RELATING TO OR ARISING OUT OF THIS AGREEMENT OR SUCH LETTER OF CREDIT OR ANY
ACTION TAKEN OR OMITTED BY THE AGENT AS THE ISSUER OF SUCH LETTER OF CREDIT OR
ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR
AFFILIATES UNDER OR IN CONNECTION WITH ANY OF THE FOREGOING, INCLUDING ANY
LIABILITIES, CLAIMS, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS IMPOSED, INCURRED OR
ASSERTED AS A RESULT OF THE NEGLIGENCE, WHETHER SOLE OR CONCURRENT, OF THE AGENT
AS THE ISSUER OF SUCH LETTER OF CREDIT OR ANY OF ITS OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS,
24
<PAGE> 30
ATTORNEYS-IN-FACT OR AFFILIATES; PROVIDED THAT NO LENDER (OTHER THAN THE AGENT
AS THE ISSUER OF A LETTER OF CREDIT) SHALL BE LIABLE FOR THE PAYMENT OF ANY
PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS RESULTING SOLELY FROM THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE AGENT AS THE ISSUER OF A LETTER OF
CREDIT. THE AGREEMENTS IN THIS SECTION 2.2(d) SHALL SURVIVE THE PAYMENT AND
PERFORMANCE OF ALL OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT.
2.3 Term Loans. (a) Upon the terms and conditions and relying on the
representations and warranties contained in this Agreement and the other Loan
Documents, each Lender severally agrees to make Term Loans (each a "Term Loan")
to the Borrowers during the Term Commitment Period in an aggregate amount not to
exceed its Percentage Share of the Term Credit Commitment Amount (for each
Lender, its "Term Loan Commitment"). The Term Loans shall be made ratably by the
Lenders in proportion to their respective Percentage Shares. No Lender shall be
permitted or required to make any Term Loan if, after giving effect thereto, the
aggregate principal amount of such Term Loan would exceed the Percentage Share
of such Lender of the Term Credit Commitment Amount. Term Loans may be advanced
in one or more tranches, each of which shall be in an amount not less than
$10,000,000. No more than three such tranches shall be available to the
Borrowers. Except as provided in subsection (b) of this Section 2.3, the Term
Loan Commitment shall be permanently reduced in the amount of any prepayment on
the Term Loans and such amount shall not be available for reborrowing. Term
Loans shall be made from time to time as herein provided on any Business Day
designated by the Borrowers in a Borrowing Request.
(b) Subject to the terms of this Agreement, during the Term
Commitment Period, the Borrowers may borrow, repay and convert Term Loans of one
type or with one Interest Period into Term Loans of another type or with a
different Interest Period. Each such borrowing, conversion, and prepayment of
principal shall be in an amount not less than the Loan Balance.
(c) Not later than noon, Eastern Standard or Daylight Savings Time,
as the case may be, on the date specified for each such borrowing, each Lender
shall make available to the Agent an amount equal to the Percentage Share of
such Lender of the borrowing to be made on such date, at an account designated
by the Agent, for the account of the Borrower. The amount so received by the
Agent shall, subject to the terms and conditions hereof, be made available to
the Borrowers in immediately available funds by no later than 1:00 p.m. Eastern
Standard or Daylight Savings Time, as the case may be, in an account designated
from time to time by the Borrower. All Term Loans by each Lender shall be
maintained at the Applicable Lending Office of such Lender and shall be
evidenced by the Term Note of such Lender.
(d) The failure of any Lender to make any Term Loan required to be
made by it hereunder shall not relieve any other Lender of its obligation to
make any Term Loan required to be made by it, and no Lender shall be responsible
for the failure of any other Lender to make any Term Loan.
(e) The Borrowers shall have the right at any time and from time to
time, upon three (3) Business Days' prior and irrevocable written notice to the
Agent, to terminate or
25
<PAGE> 31
reduce the Term Credit Commitments without premium or penalty, in whole or in
part, any partial termination to be (i) in an amount not less than $5,000,000 as
determined by the Borrower and in integral multiples of $1,000,000, and (ii)
allocated ratably among the Lenders in proportion to their respective Term
Credit Commitments; provided, that the Term Credit Commitment Amount may not be
reduced to an amount less than the Loan Balance of the Term Loans. The Agent
shall give prompt notice to each Lender of any termination or reduction of the
Term Credit Commitment. Any termination of the Term Credit Commitment pursuant
to this Section 2.3(e) is permanent and may not be revoked.
2.4 Limitations on Interest Periods. Each Interest Period selected by
the Borrowers (a) which commences on the last Business Day of a calendar month
(or any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month, (b) which would otherwise end on a day
which is not a Business Day shall end on the next succeeding Business Day (or,
if such next succeeding Business Day falls in the next succeeding calendar
month, on the next preceding Business Day), (c) which would otherwise end after
Final Maturity shall end on Final Maturity, and (d) shall have a duration of not
less than one month and, if any Interest Period would otherwise be a shorter
period, the relevant Loan shall be a Base Rate Loan during such period.
2.5 Limitation on Types of Loans. Borrowings of both Revolving Loans
and Term Loans may be outstanding as either Base Rate Loans or LIBO Rate Loans
as selected by Borrowers. Anything herein to the contrary notwithstanding, no
more than ten separate Loans shall be outstanding at any one time, with, for
purposes of this Section, all Base Rate Loans constituting one Loan, and all
LIBO Rate Loans for the same Interest Period constituting one Loan. Anything
herein to the contrary notwithstanding, if, on or prior to the determination of
any interest rate for any LIBO Rate Loan for any Interest Period therefor:
(a) the Agent determines (which determination shall be conclusive,
absent manifest error) that quotations of interest rates for the deposits
referred to in the definition of "LIBO Rate" in Section 1.2 are not being
provided in the relevant amounts or for the relevant maturities for
purposes of determining the rate of interest for such Loan as provided in
this Agreement; or
(b) the Agent or the Required Lenders determine (which determination
shall be conclusive, absent manifest error) that the rates of interest
referred to in the definition of "LIBO Rate" in Section 1.2 upon the basis
of which the rate of interest for such Loan for such Interest Period is to
be determined do not adequately cover the cost to the Lenders of making or
maintaining such Loan for such Interest Period,
then the Agent shall give the Borrowers and the Lenders prompt notice thereof;
and so long as such condition remains in effect, the Lenders shall be under no
obligation to make LIBO Rate Loans or to convert Base Rate Loans into LIBO Rate
Loans, and the Borrowers shall, on the last day of the then current Interest
Period for each outstanding LIBO Rate Loan, either prepay such LIBO Rate Loan or
convert such Loan into a Base Rate Loan in accordance with Section 2.14. During
the 30 days next succeeding the giving of such notice by the Agent to the
Borrowers,
26
<PAGE> 32
the Borrowers, the Agent and each of the Lenders shall negotiate in good faith
in order to arrive at a mutually satisfactory interest rate for the rates of
interest referred to in the definition "LIBO Rate" or "Adjusted LIBO Rate" for
proposed LIBO Rate Loans. If within such 30-day period the Borrowers, the Agent
and the Lenders shall agree in writing upon a substitute interest rate and the
effective date thereof, such substituted interest rate shall be applicable to
all requests by the Borrowers for proposed LIBO Rate Loans. During any period
when the borrowing of LIBO Rate Loans is suspended or when an alternative
interest rate is in force pursuant to this subsection, the Agent, in
consultation with the Lenders, shall periodically, at least once a month,
determine whether circumstances are such that the interest rates referred to in
the definitions of "LIBO Rate" or "Adjusted LIBO Rate" may again be determined.
If such a determination is made, the Agent shall forthwith give written notice
to the Borrowers and each Lender, whereupon the Agent, the Borrowers and the
Lenders shall begin redetermining the "LIBO Rate" and the "Adjusted LIBO Rate"
in accordance with the terms of the definitions thereof.
2.6 Use of Loan Proceeds and Letters of Credit. (a) Proceeds of all
Loans shall be used solely by the Borrowers to enable KCS to pay the purchase
price for the acquisition of KCS Medallion, Medallion Gas Services, Inc. and GED
Energy Services, for general corporate purposes, acquisitions and working
capital.
(b) Letters of Credit shall be used solely by the Borrowers for
general corporate purposes.
2.7 Interest. Subject to the terms of this Agreement (including
Section 2.20), interest on the Loans shall accrue and be payable at a rate per
annum equal to the Adjusted Base Rate for each Base Rate Loan and the Adjusted
LIBO Rate for each LIBO Rate Loan. Notwithstanding the foregoing, interest on
past-due principal and, to the extent permitted by applicable law, past-due
interest, shall accrue at the Default Rate and shall be payable upon demand by
the Agent at any time as to all or any portion of such interest. In the event
that the Borrower fails to select the duration of any Interest Period for any
LIBO Rate Loan within the time period and otherwise as provided herein, such
Loan (if outstanding as a LIBO Rate Loan) will be automatically converted into a
Base Rate Loan on the last day of the then current Interest Period for such Loan
or (if outstanding as a Base Rate Loan) will remain as, or (if not then
outstanding) will be made as, a Base Rate Loan. Interest provided for herein
shall be calculated on unpaid sums actually advanced and outstanding pursuant to
the terms of this Agreement and only for the period from the date or dates of
such advances until repayment.
2.8 Repayment of Loans and Interest. Accrued and unpaid interest on
each outstanding Base Rate Loan shall be due and payable quarterly commencing on
the 31st day of March, 1997, and continuing on the last day of each third
calendar month thereafter while any Base Rate Loan remains outstanding, the
payment in each instance to be the amount of interest which has accrued and
remains unpaid in respect of the relevant Loan. Accrued and unpaid interest on
each outstanding LIBO Rate Loan shall be due and payable on the last day of the
Interest Period for such LIBO Rate Loan and, in the case of any Interest Period
in excess of three months, on the day of the third calendar month following the
commencement of such Interest Period corresponding to the day of the calendar
month on which such Interest Period commenced, the payment in each instance to
be the amount of interest which has accrued and remains unpaid in respect of the
relevant Loan. The Loan Balance of all Revolving Loans,
27
<PAGE> 33
together with all accrued and unpaid interest thereon, shall be due and payable
at Final Maturity of the Revolving Loans. The Loan Balance of all Term Loans,
together with all accrued and unpaid interest thereon, shall be due and payable
at Final Maturity of the Term Loans. At the time of making each payment
hereunder or under the Notes, the Borrowers shall specify to the Agent the Loans
or other amounts payable by the Borrowers hereunder to which such payment is to
be applied. In the event the Borrowers fail to so specify, or if an Event of
Default has occurred and is continuing, the Agent may apply such payment as it
may elect in its discretion and in accordance with the terms hereof.
2.9 General Terms. (a) The outstanding principal balance of the Notes
of each Lender reflected in the records of such Lender shall be deemed
rebuttably presumptive evidence of the principal amount owing on such Notes. The
liability for payment of principal and interest evidenced by each such Note
shall be limited to principal amounts actually advanced and outstanding pursuant
to this Agreement and interest on such amounts calculated in accordance with
this Agreement.
(b) Unless the Agent shall have been notified by a Lender or the
Borrowers prior to the date on which any of them is scheduled to make payment to
the Agent of (in the case of a Lender) the proceeds of a Loan to be made by such
Lender hereunder or (in the case of the Borrowers) a payment to the Agent for
the account of one or more of the Lenders hereunder (such payment, in either
case, being herein called the "Required Payment"), which notice shall be
effective upon receipt, that it does not intend to make the Required Payment to
the Agent, the Agent may assume that the Required Payment has been made and, in
reliance upon such assumption, may (but shall not be required to) make the
amount thereof available to the intended recipient on such date. If such Lender
or the Borrowers, as the case may be, have not in fact made the Required Payment
to the Agent, the recipient of such payment shall, on demand, repay to the Agent
for its account the amount so made available together with interest thereon in
respect of each day during the period commencing on the date such amount was so
made available by the Agent until the date the Agent recovers such amount at a
rate per annum equal to, in the case of a Lender as recipient, the Federal Funds
Rate or, in the case of the Borrowers as recipient, the Adjusted Base Rate.
2.10 Time, Place, and Method of Payments. All payments required
pursuant to this Agreement or the Notes shall be made without set-off or
counterclaim in Dollars and in immediately available funds. All payments by the
Borrowers shall be deemed received on the next Business Day following receipt if
such receipt is after 3:00 p.m., Eastern Standard or Daylight Savings Time, as
the case may be, on any Business Day, and shall be made to the Agent at the
Principal Office. Except as provided to the contrary herein, if the due date of
any payment hereunder or under any Note would otherwise fall on a day which is
not a Business Day, such date shall be extended to the next succeeding Business
Day, and interest shall be payable for any principal so extended for the period
of such extension.
2.11 Pro Rata Treatment; Adjustments. (a) Except to the extent
otherwise expressly provided herein, (i) each borrowing pursuant to this
Agreement shall be made from the Lenders pro rata in accordance with their
respective Percentage Shares, (ii) each payment by the Borrowers of fees shall
be made for the account of the Lenders pro rata in accordance with their
respective Percentage Shares, (iii) each payment of principal of Loans shall be
made
28
<PAGE> 34
for the account of the Lenders pro rata in accordance with their respective
shares of the Loan Balance, and (iv) each payment of interest on Loans shall be
made for the account of the Lenders pro rata in accordance with their respective
shares of the aggregate amount of interest due and payable to the Lenders.
(b) The Agent shall distribute all payments with respect to the
Obligations to the Lenders promptly upon receipt in like funds as received. In
the event that any payments made hereunder by the Borrowers at any particular
time are insufficient to satisfy in full the Obligations due and payable at such
time, such payments shall be applied (i) first, to fees and expenses due
pursuant to the terms of this Agreement or any other Loan Document, (ii) second,
to accrued interest, (iii) third, to the Loan Balance of the Term Loans, and
(iv) last, to any other Obligations.
(c) If any Lender (for purposes of this Section, a "Benefitted
Lender") shall at any time receive any payment of all or part of its portion of
the Obligations, or receive any Collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in Sections 7.1(f) or 7.1(g), or otherwise) in an amount
greater than such Lender was entitled to receive pursuant to the terms hereof,
such Benefitted Lender shall purchase for cash from the other Lenders such
portion of the Obligations of such other Lenders, or shall provide such other
Lenders with the benefits of any such Collateral or the proceeds thereof, as
shall be necessary to cause such Benefitted Lender to share the excess payment
or benefits of such Collateral or proceeds with each of the Lenders according to
the terms hereof. If all or any portion of such excess payment or benefits is
thereafter recovered from such Benefitted Lender, such purchase shall be
rescinded and the purchase price and benefits returned by such Lender, to the
extent of such recovery, but without interest. The Borrower agrees that each
such Lender so purchasing a portion of the Obligations of another Lender may
exercise all rights of payment (including rights of set-off) with respect to
such portion as fully as if such Lender were the direct holder of such portion.
If any Lender ever receives, by voluntary payment, exercise of rights of set-off
or banker's lien, counterclaim, cross-action or otherwise, any funds of the
Borrower to be applied to the Obligations, or receives any proceeds by
realization on or with respect to any Collateral, all such funds and proceeds
shall be forwarded immediately to the Agent for distribution in accordance with
the terms of this Agreement.
2.12 Borrowing Base Determinations. (a) The Borrowing Base as of the
Closing Date is agreed by the Borrowers and the Lenders to be $105,000,000.
(b) The Borrowing Base shall be redetermined by the Agent, with the
consent of the Lenders, semi-annually commencing June 30, 1997 on the basis of
information supplied by the Borrowers in compliance with the provisions of this
Agreement, including Reserve Reports, and all other information available to the
Agent and the Lenders. In addition, the Agent, with the consent of the Lenders,
shall, in the normal course of business following a request of the Borrowers,
redetermine the Borrowing Base; provided, however, the Agent and the Lenders
shall not be obligated to respond to more than two (2) such requests during any
calendar year in addition to each scheduled semi-annual redetermination provided
for above. Notwithstanding the foregoing, the Agent, with the consent of the
Lenders, may at its discretion redetermine the Borrowing Base at any time and
from time to time.
29
<PAGE> 35
(c) Each determination of the Borrowing Base shall be made within
forty-five (45) days of the Agent's receiving all of the information required
under this Agreement in connection therewith. Upon each determination of the
Borrowing Base, the Agent shall promptly, and in all events within such 45 days,
notify the Borrowers orally (confirming such notice promptly in writing) of such
determination and the Borrowing Base so communicated to the Borrowers shall
become effective upon such oral notification and shall remain in effect until
the next subsequent determination of the Borrowing Base.
(d) In connection with any redetermination of the Borrowing Base,
the Agent and each Lender shall evaluate the Mortgaged Properties in accordance
with their then existing customary lending procedures for evaluating oil and gas
reserves and related assets for loans of this type and borrowers similarly
situated. The Borrowing Base shall represent the determination by the Agent
based upon such evaluation by the Agent, with the consent of the Lenders, of the
value for loan purposes of the Mortgaged Properties, subject, in the case of any
increase in the Borrowing Base, to the credit approval processes of the Lenders
then in effect for loans of this type and borrowers similarly situated. In the
event that a group of Lenders constituting at least the Required Lenders are in
agreement as to the amount of any Borrowing Base redetermination but such amount
is not approved unanimously by all of the Lenders, then the Borrowing Base shall
be the amount as determined by such Required Lenders for a period of 60 days
from the date of notification of such Borrowing Base to the Borrowers pursuant
to Section 2.12(c). During such 60 day period or at any time thereafter, the
Borrowers may, at their election, terminate the Commitments of such dissenting
Lenders pursuant to the procedures set forth in Section 2.25. At the end of such
60 day period, the Borrowing Base shall be an amount agreed to by the Agent and
all of the Lenders. Furthermore, subject to the customary lending procedures and
credit approval processes referred to in the preceding sentence, each Borrower
acknowledges that the Agent and the Lenders have no obligation to increase the
Borrowing Base and may reduce the Borrowing Base, in either case, at any time or
as a result of any circumstance, and further acknowledges that the determination
of the Borrowing Base contains an equity cushion (market value in excess of loan
value), which is acknowledged by each Borrower to be essential for the adequate
protection of the Lenders.
2.13 Mandatory Prepayments. (a) If at any time the Revolving
Obligations exceed the lesser of the Revolving Credit Commitment Amount or the
Borrowing Base then in effect, the Borrowers shall, within 30 days of notice
from the Agent of such occurrence, (a) prepay, or make arrangements acceptable
to the Required Lenders for the prepayment of, the amount of such excess for
application on the Loan Balance, (b) provide additional collateral, of character
and value satisfactory to the Required Lenders in their sole discretion, to
secure the Obligations by the execution and delivery to the Agent of security
instruments in form and substance satisfactory to the Agent, or (c) effect any
combination of the alternatives described in clauses (a) and (b) of this Section
and acceptable to the Required Lenders in their discretion. In the event that a
mandatory prepayment is required under this Section and the Loan Balance is less
than the amount required to be prepaid, the Borrowers shall repay the entire
Loan Balance and, in accordance with the provisions of the relevant Letter of
Credit Applications executed by the Borrowers or otherwise to the satisfaction
of the Agent, deposit with the Agent, as additional collateral securing the
Obligations, an amount of cash, in immediately available funds, equal to the L/C
Exposure minus the lesser of the Revolving Credit Commitment Amount or the
Borrowing Base. The cash deposited with the Agent in satisfaction of the
requirement provided
30
<PAGE> 36
in this Section may be invested at the express direction of the Borrowers as to
investment vehicle and maturity (which shall be no later than the latest expiry
date of any then outstanding Letter of Credit), for the account of the Borrowers
in cash or cash equivalent investments offered by or through the Agent.
(b) Within thirty (30) days after receipt by any Borrower or any of
its Subsidiaries of Net Cash Proceeds from any Transfer of any Property in
excess in the aggregate in any fiscal year of $1,000,000, such Borrower shall
make a mandatory prepayment of the Term Loans in an amount equal to such Net
Cash Proceeds. Within ten (10) days after receipt by any Borrower of the
proceeds of any offering of Equity Securities or Debt Securities, the Borrower
shall make a mandatory prepayment of the Term Loan in an amount equal to the
lesser of the Net Cash Proceeds thereof or the unpaid principal balance of the
Term Loans. Amounts prepaid on Term Loans may not be reborrowed. Each prepayment
pursuant to this Section 2.13(b) shall be accompanied by a payment of all
accrued and unpaid interest on the Term Loans prepaid and any applicable fees
and funding losses pursuant to Section 2.22.
(c) Whenever the Shareholders (as defined in the Stock Purchase
Agreement) shall elect pursuant to Section 9.1 or Section 9.2 of the Stock
Purchase Agreement to cause a Property or Affected Property (as defined therein)
to be conveyed to the Shareholders, the Borrower receiving payment in
consideration for such conveyance shall make a mandatory prepayment in the
amount of such payment, less any related expenses incurred by such Borrower, for
application to the Term Obligations, if any, and if no Term Obligations are
outstanding, to the Revolving Obligations. Contemporaneously with the Borrower's
execution and delivery of the assignment pursuant to either Section 9.1 or
Section 9.2, the Agent or the Collateral Agent, as appropriate, shall execute an
instrument (the "Discharge") in recordable form effective in the reasonable
opinion of Borrower's counsel to release and discharge all of the Liens
affecting the property conveyed which then exist in favor of the Collateral
Agent. The Discharge shall be delivered in escrow to the attorney for such
Borrower, who shall be authorized to deliver the Discharge to the Shareholders
when such attorney has evidence that the required mandatory prepayment has been
sent to the Agent.
2.14 Voluntary Prepayments and Conversions of Loans. Subject to
applicable provisions of this Agreement, the Borrowers shall have the right at
any time or from time to time to prepay Loans and to convert Loans of one type
or with one Interest Period into Loans of another type or with a different
Interest Period; provided, however, that (a) the Borrowers shall give the Agent
notice of each such conversion of all or any portion of a LIBO Rate Loan no less
than three Business Days prior to conversion, (b) any LIBO Rate Loan may be
prepaid or converted only on the last day of an Interest Period for such Loan,
unless the Borrowers pay, within the time period set forth therefor in Section
2.22(e), the amount, if any, required to be paid under Section 2.22(e), (c) each
prepayment, in the case of Base Rate Loans, shall be in an amount not less than
$100,000 or incremental amounts of $100,000 in excess thereof or the Loan
Balance of such Loans and, in the case of LIBO Rate Loans, shall be in an amount
not less than $1,000,000 or incremental amounts of $100,000 in excess thereof or
the Loan Balance of such Loans, (d) the Borrower shall pay all accrued and
unpaid interest on the amounts prepaid or converted, and (e) no such prepayment
or conversion shall serve to postpone the repayment when due of any Obligation.
31
<PAGE> 37
2.15 Commitment Fee. To compensate the Lenders for maintaining funds
available, the Borrowers shall pay to the Agent for the account of the Lenders a
fee in the amount of three-eighths of one percent (.375%) per annum, calculated
on the basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed (including the first day but excluding the last day), on the average
daily amount of the sum of (a) the Available Revolving Commitment and (b) the
Available Term Commitment. Such accrued commitment fees shall be payable on the
31st day of March, 1997, the last day of each third calendar month thereafter
during the Revolving Credit Commitment Period, and on the Revolving Credit
Commitment Termination Date.
2.16 Letter of Credit Fee. The Borrowers shall pay to the Agent for
the account of the Lenders a letter of credit fee in the amount of the
Applicable Margin for LIBO Rate Loans in effect at such time per annum,
calculated on the basis of a year of 360 days and actual days elapsed (including
the first day but excluding the last day), on the average daily amount of the
L/C Exposure. Accrued letter of credit fees shall be payable quarterly in
arrears on the 31st day of March, 1997, the last day of each third calendar
month thereafter during the Revolving Credit Commitment Period, and at Final
Maturity of the Revolving Loans. The Borrower shall pay to the Agent for its own
account as the issuer of each Letter of Credit, on the date of issuance or
renewal of each Letter of Credit, an issuing fee equal to one-eighth of one
percent (.125%) per annum, calculated on the basis of a year of 365 or 366 days,
as the case may be, and actual days elapsed (including the first day but
excluding the last day), on the face amount of such Letter of Credit during the
period for which such Letter of Credit is issued or renewed. The Borrowers also
agree to pay on demand to the Agent for its own account as the issuer of the
Letters of Credit its customary letter of credit transactional fees and
expenses, including amendment fees, payable with respect to each Letter of
Credit.
2.17 Other Fees. The Borrowers shall pay to the Agent for its own
account all fees owing or which may become owing under the Fee Letter as
provided therein.
2.18 Loans to Satisfy Obligations of Borrowers. The Lenders may, with
the consent of the Agent, but shall not be obligated to, make Loans for the
benefit of the Borrowers and apply proceeds thereof to the satisfaction of any
condition, warranty, representation, or covenant of the Borrowers contained in
this Agreement or any other Loan Document. Such Loans shall be evidenced by the
Notes, shall bear interest at the Default Rate, and shall be payable upon
demand.
2.19 Right of Offset. The Borrowers hereby grant to the Agent and
each Lender (for the pro rata benefit of all Lenders) the right, exercisable at
such time as any Event of Default shall occur, of offset or banker's lien
against all funds of the Borrowers now or hereafter or from time to time on
deposit with the Agent or such Lender, regardless of whether the exercise of any
such remedy would result in any penalty or loss of interest or profit with
respect to any withdrawal of funds deposited in a time deposit account prior to
the maturity thereof.
2.20 General Provisions Relating to Interest. (a) It is the intention
of the parties hereto to comply strictly with all applicable usury laws. In this
connection, there shall never be collected, charged, or received on the sums
advanced hereunder interest in excess of that which would accrue at the Highest
Lawful Rate.
32
<PAGE> 38
(b) Notwithstanding anything herein or in the Notes to the contrary,
during any Limitation Period, the interest rate to be charged on amounts
evidenced by the Notes shall be the Highest Lawful Rate, and the obligation, if
any, of each Borrower for the payment of fees or other charges deemed to be
interest under applicable law shall be suspended. During any period or periods
of time following a Limitation Period, to the extent permitted by applicable
law, the interest rate to be charged hereunder shall remain at the Highest
Lawful Rate until such time as there has been paid to the Agent and each Lender
(i) the amount of interest in excess of that accruing at the Highest Lawful Rate
that such Lender would have received during the Limitation Period had the
interest rate remained at the otherwise applicable rate, and (ii) all interest
and fees otherwise payable to the Agent and such Lender but for the effect of
such Limitation Period.
(c) If, under any circumstances, the aggregate amounts paid on the
Notes or under this Agreement or any other Loan Document include amounts which
by applicable law are deemed interest and which would exceed the amount
permitted if the Highest Lawful Rate were in effect, each Borrower stipulates
that such payment and collection will have been and will be deemed to have been,
to the extent permitted by applicable law, the result of mathematical error on
the part of such Borrower, the Agent, and the Lenders; and the party receiving
such excess shall promptly refund the amount of such excess (to the extent only
of such interest payments in excess of that which would have accrued and been
payable on the basis of the Highest Lawful Rate) upon discovery of such error by
such party or notice thereof from such Borrower. In the event that the maturity
of any Obligation is accelerated, by reason of an election by the Lenders or
otherwise, or in the event of any required or permitted prepayment, then the
consideration constituting interest under applicable law may never exceed the
Highest Lawful Rate, and excess amounts paid which by applicable law are deemed
interest, if any, shall be credited by the Agent and the Lenders on the
principal amount of the Obligations, or if the principal amount of the
Obligations shall have been paid in full, refunded to such Borrower.
(d) All sums paid, or agreed to be paid, to the Agent and the
Lenders for the use, forbearance and detention of the proceeds of any advance
hereunder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full term hereof until paid in
full so that the actual rate of interest is uniform but does not exceed the
Highest Lawful Rate throughout the full term hereof.
2.21 Obligations Absolute. Subject to the further provisions of this
Section, the Obligations of the Borrowers under this Article shall be absolute
and unconditional under any and all circumstances and irrespective of any
set-off, counterclaim, or defense to payment or performance which the Borrowers
may have or have had against the Agent, any Lender, or any beneficiary of any
Letter of Credit. Each Borrower agrees that none of the Agent or the Lenders
shall be responsible for, nor shall the Obligations be affected by, among other
things, (a) the validity or genuineness of documents or any endorsements thereon
presented in connection with any Letter of Credit, even if such documents shall
in fact prove to be in any and all respects invalid, fraudulent or forged, AND
EVEN IF DUE TO THE NEGLIGENCE, WHETHER SOLE OR CONCURRENT, OF THE AGENT OR ANY
LENDER, so long as the Agent, as the issuer of such Letter of Credit, has no
actual knowledge of any such invalidity, lack of genuineness, fraud, or forgery
prior to the presentment for payment of a corresponding Letter of Credit or any
draft thereunder, or (b) any dispute between or among the Borrowers and any
beneficiary
33
<PAGE> 39
of any Letter of Credit or any other party to which any Letter of Credit may be
transferred, or any claims whatsoever of the Borrowers against any beneficiary
of any Letter of Credit or any such transferee, EVEN IF DUE TO THE NEGLIGENCE,
WHETHER SOLE OR CONCURRENT, OF THE AGENT OR ANY LENDER; provided, in all
respects, that the Agent, as the issuer of Letters of Credit, shall be liable to
the Borrowers to the extent, but only to the extent, of any damages (other than
punitive damages) suffered by the Borrowers as a result of the willful
misconduct or gross negligence of the Agent as the issuer of Letters of Credit
in determining whether documents presented under a Letter of Credit complied
with the terms of such Letter of Credit that resulted in either a wrongful
payment under such Letter of Credit or a wrongful dishonor of a claim or draft
properly presented under such Letter of Credit. In the absence of gross
negligence or willful misconduct by the Agent as the issuer of Letters of
Credit, the Agent shall not be liable for any error, omission, interruption or
delay, EVEN IF DUE TO THE NEGLIGENCE, WHETHER SOLE OR CONCURRENT, OF THE AGENT,
in transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit. The Agent, the Lenders,
and the Borrowers agree that any action taken or omitted by the Agent, as issuer
of any Letter of Credit, under or in connection with any Letter of Credit or the
related drafts or documents, EVEN IF DUE TO THE NEGLIGENCE, WHETHER SOLE OR
CONCURRENT, OF THE AGENT OR ANY LENDER, if done in the absence of gross
negligence or willful misconduct, shall be binding as among the Agent, as issuer
of such Letter of Credit or otherwise, the Lenders, and the Borrowers and shall
not put the Agent, as issuer of such Letter of Credit or otherwise, or any
Lender under any liability to the Borrowers; provided, however, that no such
action taken or omitted to be taken by the Agent shall be binding upon the
Borrowers as against any Person other than the Agent and the Lenders.
Notwithstanding any provision to the contrary in this Section 2.21 or elsewhere
in this Agreement, the Agent, as the issuer of the Letters of Credit, agrees to
exercise ordinary care in examining each document required to be presented
pursuant to each Letter of Credit to ascertain that each such document appears
on its face to comply with the terms thereof.
2.22 Yield Protection. (a) Without limiting the effect of the other
provisions of this Section (but without duplication), the Borrowers shall pay to
the Agent and each Lender from time to time, within five (5) Business Days of
receipt of the certificate provided for in Section 2.22(e), such amounts as the
Agent or such Lender may reasonably determine are necessary to compensate it for
any Additional Costs incurred by the Agent or such Lender.
(b) Without limiting the effect of the other provisions of this
Section (but without duplication), the Borrowers shall pay to each Lender from
time to time, within five Business Days of receipt of the certificate provided
for in Section 2.22(e), such amounts as such Lender may determine are necessary
to compensate such Lender for any actual costs incurred by such Lender
attributable to the maintenance by such Lender (or any Applicable Lending
Office), pursuant to any Regulatory Change, of capital (other than the Reserve
Requirement utilized in the determination of any Adjusted LIBO Rate or the
Adjusted CD Rate) in respect of its Commitments, such compensation to include an
amount equal to any reduction of the rate of return on assets or equity of such
Lender (or any Applicable Lending Office) to a level below that which such
Lender (or any Applicable Lending Office) could have achieved but for such
Regulatory Change.
34
<PAGE> 40
(c) Without limiting the effect of the other provisions of this
Section (but without duplication), in the event that any Regulatory Change or
the compliance by the Agent or any Lender therewith shall (i) impose, modify, or
hold applicable any reserve, special deposit, or similar requirement against any
Letter of Credit or obligation to issue Letters of Credit, or (ii) impose upon
the Agent or such Lender any other condition regarding any Letter of Credit or
obligation to issue Letters of Credit, and the result of any such event shall be
to increase the cost to the Agent or such Lender of issuing or maintaining any
Letter of Credit or obligation to issue Letters of Credit or any liability with
respect to Letter of Credit Payments, or to reduce any amount receivable in
connection therewith, then, within five Business Days of receipt of the
certificate provided for in Section 2.22(e), the Borrowers shall pay to the
Agent or such Lender, as the case may be, from time to time as specified by the
Agent or such Lender, the additional amounts indicated in such certificate as
sufficient to compensate the Agent or such Lender for such increased cost or
reduced amount receivable.
(d) Without limiting the effect of the other provisions of this
Section (but without duplication), the Borrowers shall pay to the Agent and each
Lender such amounts as shall be indicated in such certificate as sufficient to
compensate them for any loss, cost, or expense incurred by and as a result of:
(i) any payment, prepayment, or conversion by the Borrowers of a
LIBO Rate Loan on a date other than the last day of an
Interest Period for such Loan; or
(ii) any failure by the Borrowers to borrow a LIBO Rate Loan or to
convert a Base Rate Loan into a LIBO Rate Loan on the date for
such borrowing or conversion specified in the relevant
Borrowing Request;
such compensation to include with respect to any LIBO Rate Loan, an amount equal
to the excess, if any, of (A) the amount of interest which would have accrued on
the principal amount so paid, prepaid, converted, or not borrowed or converted
for the period from the date of such payment, prepayment, conversion, or failure
to borrow or convert to the last day of the then current Interest Period for
such Loan (or, in the case of a failure to borrow or convert, the Interest
Period for such Loan which would have commenced on the date of such failure to
borrow or convert) at the applicable rate of interest for such Loan provided for
herein over (B) the interest component of the amount the Agent or such Lender
bid in the London interbank market in respect of such Loan for Dollar deposits
of amounts comparable to such principal amount and maturities comparable to such
period, as reasonably determined by the Agent or such Lender.
(e) Determinations by the Agent or any Lender for purposes of this
Section of the effect of any Regulatory Change on capital maintained, its costs
or rate of return, maintaining Loans, issuing Letters of Credit, its obligation
to make Loans and issue Letters of Credit, or on amounts receivable by it in
respect of Loans, Letters of Credit, or such obligations, and the additional
amounts required to compensate the Agent and such Lender under this Section
shall be conclusive, absent manifest error, provided that such determinations
are made on a reasonable basis. The Agent or the relevant Lender shall furnish
the Borrowers with
35
<PAGE> 41
a certificate setting forth in reasonable detail the basis and amount of
increased costs incurred or reduced amounts receivable as a result of any such
event, and the statements set forth therein shall be conclusive, absent manifest
error. The Agent or the relevant Lender shall (i) notify the Borrowers, as
promptly as practicable after the Agent or such Lender obtains knowledge of any
Additional Costs or other sums payable pursuant to this Section and determines
to request compensation therefor, in respect of any event occurring after the
Closing Date which will entitle the Agent or such Lender to compensation
pursuant to this Section; provided that the Borrowers shall not be obligated for
the payment of any Additional Costs or other sums payable pursuant to this
Section to the extent such Additional Costs or other sums accrued more than 90
days prior to the date upon which the Borrowers were given such notice; and (ii)
designate a different Applicable Lending Office for the Loans affected by such
event if such designation will avoid the need for or reduce the amount of such
compensation and will not, in the sole opinion of the Agent or such Lender, be
disadvantageous to the Agent or such Lender. Any compensation requested by the
Agent or any Lender pursuant to this Section shall be due and payable within
five Business Days of delivery of any such notice to the Borrowers.
2.23 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to (a) honor its obligation to make LIBO Rate Loans,
or (b) maintain LIBO Rate Loans, then such Lender shall promptly notify the
Agent and the Borrowers thereof. The obligation of such Lender to make LIBO Rate
Loans and convert Base Rate Loans into LIBO Rate Loans shall then be suspended
until such time as such Lender may again make and maintain LIBO Rate Loans, and
the outstanding LIBO Rate Loans of such Lender shall be converted into Base Rate
Loans in accordance with Section 2.14; provided, however, each Lender shall use
reasonable efforts to designate a different Applicable Lending Office with
respect to any LIBO Rate Loan affected by the matters or circumstances described
in this Section to avoid the results provided in this Section if possible, so
long as such designation is not disadvantageous to the Lenders as determined by
them in their sole discretion.
2.24 Taxes. (a) All payments made by the Borrowers under this
Agreement shall be made free and clear of, and without reduction or withholding
for or on account of, present or future income, stamp or other taxes, levies,
imposts, duties, charges, fees, deductions or withholdings, hereafter imposed,
levied, collected, withheld or assessed by any Governmental Authority on the
basis of any change after the date hereof in any applicable treaty, law, rule,
guideline or regulations or in the interpretation or administration thereof,
excluding, in the case of the Agent and each Lender, income and franchise taxes
(whether based upon net income, capital or profits) imposed on the Agent or such
Lender (all such non-excluded taxes, levies, imposts, deductions, charges or
withholdings being hereinafter called "Taxes"). If any Taxes are required to be
withheld from any amounts payable to the Agent or any Lender hereunder or under
any other Loan Document, the amounts so payable to the Agent or such Lender
shall be increased to the extent necessary to yield to the Agent or such Lender
(after payment of all Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement and the
other Loan Documents. Whenever any Taxes are payable by the Borrowers, promptly
thereafter the Borrowers shall send to the Agent for its own account or for the
account of such Lender, as the case may be, a certified copy of an original
official receipt received by the Borrowers showing payment thereof. If any
Borrower fails to pay any Taxes when due to the appropriate taxing authority or
fails to remit to the Agent the required
36
<PAGE> 42
receipts or other required documentary evidence, such Borrower shall indemnify
the Agent and the Lenders for any incremental taxes, interest or penalties that
may become payable by the Agent or any Lender as a result of any such failure.
The agreements in this Section shall survive the termination of this Agreement
and the payment of all Obligations.
(b) Each Lender that is not incorporated under the laws of the
United States of America or a state thereof agrees that, on the date hereof or,
if it becomes a Lender in accordance with Section 9.1, on the date of the
applicable Assignment Agreement, it will, to the extent it may lawfully do so,
deliver to the Borrowers and the Agent two duly completed copies of United
States Internal Revenue Service Form W-8, 1001 or 4224 or any other applicable
form, as the case may be, certifying in each case that such Lender is entitled
to receive payments under any Loan Document, without deduction or withholding of
any United States federal income taxes. At the written request of the Borrowers,
each Lender which delivers to the Borrowers and the Agent a form pursuant to the
preceding sentence further undertakes to deliver to the Borrowers and the Agent
two further copies of such form, or successor applicable forms, or other manner
of certification, as the case may be, on or before the date that any such letter
or form expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent form previously delivered by it to the
Borrowers, and such extensions or renewals thereof as may reasonably be
requested by the Borrowers, certifying in the case of each such form that such
Lender is entitled to receive payments under any Loan Document without deduction
or withholding of any United States federal income taxes, unless in any such
case, an event (including any change in treaty, law or regulation) has occurred
prior to the date on which any such delivery would otherwise be required which
renders all such forms inapplicable or which would prevent such Lender from duly
completing and delivering any such form with respect to it and such Lender
advises the Borrowers that it is not capable of receiving payments without any
deduction or withholding of United States federal income tax.
2.25 Replacement Lenders. (a) If any Lender (i) has notified the
Borrowers of its incurring additional costs under Section 2.22 or the illegality
of LIBO Rate Loans under Section 2.23, (ii) has required the Borrowers to make
payments for Taxes under Section 2.24, (iii) has informed any Borrower of a
Regulatory Change in accordance with Section 2.26, or (iv) is not in agreement
with the amount of any Borrowing Base redetermination which a group of Lenders
constituting at least the Required Lenders has approved, then in any such event
the Borrowers may, unless such Lender has notified the Borrowers that the
circumstances giving rise to such notice no longer apply, terminate, in whole
but not in part, the Commitments of such Lender (other than the Agent) (the
"Terminated Lender") at any time upon five Business Days' prior written notice
to the Terminated Lender and the Agent (such notice referred to herein as a
"Notice of Termination").
(b) In order to effect the termination of the Commitments of the
Terminated Lender, the Borrowers shall (i) obtain an agreement with one or more
Lenders to increase their Commitments and/or (ii) request any one or more other
banking institutions to become a "Lender" in place and instead of such
Terminated Lender and agree to accept its Commitments; provided, however, that
such one or more other banking institutions are reasonably acceptable to the
Agent and become parties by executing an Assignment Agreement (the Lenders or
other banking institutions that agree to accept in whole or in part the
Commitments of the Terminated Lender being referred to herein as the
"Replacement Lenders"), such that the aggregate
37
<PAGE> 43
increased and/or accepted Total Facility Amounts of the Replacement Lenders
under clauses (i) and (ii) above equal the Total Facility Amount of the
Terminated Lender.
(c) The Notice of Termination shall include the name of the
Terminated Lender, the date the termination will occur (the "Termination Date"),
the Replacement Lender or Replacement Lenders to which the Terminated Lender
will assign its Commitments, and, if there will be more than one Replacement
Lender, the portion of the Terminated Lender's Commitments to be assigned to
each Replacement Lender.
(d) On the Termination Date, (i) the Terminated Lender shall by
execution and delivery of an Assignment Agreement assign its Commitments to the
Replacement Lender or Replacement Lenders (pro rata, if there is more than one
Replacement Lender, in proportion to the portion of the Terminated Lender's
Commitments to be assigned to each Replacement Lender) indicated in the Notice
of Termination and shall assign to the Replacement Lender or Replacement Lenders
its Loans (if any) then outstanding pro rata as aforesaid), (ii) the Terminated
Lender shall endorse its Notes, payable without recourse, representation or
warranty to the order of the Replacement Lender or Replacement Lenders (pro rata
as aforesaid), (iii) the Replacement Lender or Replacement Lenders shall
purchase the Notes held by the Terminated Lender (pro rata as aforesaid) at a
price equal to the unpaid principal amount thereof plus interest and fees
accrued and unpaid to the Termination Date, (iv) the Borrowers shall, upon
request, execute and deliver, at its own expense, new Notes to the Replacement
Lenders in accordance with their respective interests, (v) the Borrowers shall,
upon request, pay any compensation due to the Terminated Lender pursuant to
Section 2.22, of which the Borrowers shall have received notice pursuant to
Section 2.22(e) from the Terminated Lender within three (3) Business Days of
receipt by such Terminated Lender of a Notice of Termination, and (vi) the
Replacement Lender or Replacement Lenders will thereupon (pro rata as aforesaid)
succeed to and be substituted in all respects for the Terminated Lender from and
after such date with like effect as if becoming a Lender pursuant to the terms
of Section 9.1(b), and the Terminated Lender will have the rights and benefits
of an assignor under Section 9.1(b). To the extent not in conflict, the terms of
Section 9.1(b) shall supplement the provisions of this Section.
2.26 Regulatory Change. In the event that by reason of any Regulatory
Change, any Lender (a) incurs Additional Costs based on or measured by the
excess above a specified level of the amount of a category of deposits or other
liabilities of such Lender which includes deposits by reference to which the
interest rate on any LIBO Rate Loan is determined as provided in this Agreement
or a category of extensions of credit or other assets of such Lender which
includes any LIBO Rate Loan, or (b) becomes subject to restrictions on the
amount of such a category of liabilities or assets which it may hold, then, at
the election of such Lender with notice to the Agent and the Borrowers setting
forth in reasonable detail a calculation of such Additional Costs or a
description of such restrictions, the obligation of such Lender to make LIBO
Rate Loans and to convert Base Rate Loans into LIBO Rate Loans shall be
suspended until such time as such Regulatory Change or other circumstance ceases
to be in effect, and all such outstanding LIBO Rate Loans shall be converted
into Base Rate Loans in accordance with Section 2.14.
2.27 Non-Recourse to KCS. Notwithstanding any other provision of this
Agreement, the Notes or any of the other Loan Documents executed and delivered
by KCS in
38
<PAGE> 44
connection with or as security for the Obligations, except as expressly
hereinafter provided in this Section 2.27, KCS shall not be liable for payment
of amounts owing under and pursuant to the Obligations and the sole recourse of
the Agent and the Lenders for satisfaction of the Obligations with respect to
KCS shall be the liens, security interests and agreements created and granted by
KCS pursuant to the Stock Pledge Agreement and any other collateral security
documents to which KCS is now or may be a party to in the future. It is
expressly understood and agreed that (i) the Stock Pledge Agreement and (ii)
Section 4.7 of the Credit Agreement contain various warranties, representations,
covenants and/or agreements made by KCS. To the extent that a breach of any of
such warranties, representations, covenants and/or agreements is or becomes an
Event of Default or otherwise gives rise to rights or actions (other than claims
of personal liability against KCS) by the Agent and the Lenders, the aforesaid
lack of personal liability shall not limit, modify, diminish or negate any such
right or actions, including without limitation (i) those relating to foreclosure
of liens, and/or security interests created pursuant to the Loan Documents and
(ii) those relating to enforcement of such personal liability as may exist for
breach of warranty or representation made in the Stock Pledge Agreement or
Section 4.7 of the Credit Agreement, fraud or defalcation.
ARTICLE III
CONDITIONS
3.1 Conditions Precedent to Initial Loan and Letter of Credit. The
Lenders shall have no obligation to make the initial Loans or issue the initial
Letter of Credit unless and until all matters incident to the consummation of
the transactions contemplated herein, including the review by the Agent or its
counsel of the title of KCS Medallion (or if consented to in writing by the
Agent, any other Borrower, any such Borrower being referred to as a "Substitute
Mortgagor") to the Material Properties, shall be satisfactory to the Agent and
each Lender, and the Agent shall have received, reviewed, and approved the
following documents and other items, appropriately executed when necessary and,
where applicable, acknowledged by one or more authorized officers of the
Borrowers, all in form and substance satisfactory to the Agent and dated, where
applicable, of even date herewith or a date prior thereto and acceptable to the
Agent:
(a) multiple counterparts of this Agreement as requested by the
Agent;
(b) the Notes;
(c) The duly executed Stock Pledge Agreement from KCS creating,
evidencing, perfecting and otherwise establishing Liens in favor of the
Collateral Agent in and to all issued and outstanding shares of Borrowers
other than KCS and KCS Energy Services, together with the delivery to the
Collateral Agent of all of the pledged securities described therein
necessary to effectuate and perfect such stock pledge, accompanied by an
executed and undated stock power in blank, or such other instrument, as
may be required under applicable law to perfect the pledge;
39
<PAGE> 45
(d) copies of the Articles of Incorporation or Certificate of
Incorporation and all amendments thereto and the bylaws and all amendments
thereto of each Borrower, accompanied by a certificate issued by the
secretary or an assistant secretary of each Borrower, as the case may be,
to the effect that each such copy is correct and complete;
(e) certificates of incumbency and signatures of all officers of
each Borrower who are authorized to execute Loan Documents on behalf of
such entities, each such certificate being executed by the secretary or an
assistant secretary of each Borrower;
(f) copies of corporate resolutions approving the Loan Documents and
authorizing the transactions contemplated herein and therein, duly adopted
by the boards of directors of each Borrower accompanied by certificates of
the secretary or an assistant secretary of each Borrower, as the case may
be, to the effect that such copies are true and correct copies of
resolutions duly adopted at a meeting or by unanimous consent of the board
of directors of each Borrower, as the case may be, and that such
resolutions constitute all the resolutions adopted with respect to such
transactions, have not been amended, modified, or revoked in any respect,
and are in full force and effect as of the date of such certificate;
(g) multiple counterparts, as requested by the Agent, of the
following documents, creating, evidencing, perfecting, and otherwise
establishing Liens in favor of the Collateral Agent in and to the
Collateral:
(i) Open-End Line of Credit Mortgage, Deed of Trust, Indenture,
Security Agreement, Financing Statement and Assignment of
Production from KCS Medallion or any Substitute Mortgagor (or
other similar security instrument, agreement or assignment
required to perfect a Lien in and to the Material Properties
in a given state) covering all Material Properties of KCS
Medallion or any Substitute Mortgagor in the States of
California, Colorado, Louisiana, Mississippi, Montana, New
Mexico, Oklahoma, Texas and Wyoming and all improvements,
personal property, and fixtures related thereto; and
(ii) Financing Statements from KCS Medallion or any Substitute
Mortgagor as debtor, constituent to the instrument described
in clause (i) above.
(h) certificates dated as of a recent date from the Secretary of
State or other appropriate Governmental Authority evidencing the existence
or qualification and good standing of the Borrowers in their respective
jurisdiction
40
<PAGE> 46
of incorporation and in any other jurisdictions where any of them is
qualified to do business;
(i) results of searches of the UCC Records of the Secretary of State
of the States of California, Colorado, Louisiana, Mississippi, Montana,
New Mexico, Oklahoma, Texas and Wyoming from a source acceptable to the
Agent and reflecting no Liens against any of the Collateral as to which
perfection of a Lien is accomplished by the filing of a financing
statement other than Liens in favor of the Agent and other Permitted
Liens;
(j) confirmation, acceptable to the Agent, of the title of Borrower
or any Substitute Mortgagor to the Material Properties, free and clear of
Liens other than Permitted Liens;
(k) results satisfactory to the Agent in its discretion of a review
of the environmental reports furnished to the Agent by Borrowers;
(l) all operating, lease, sublease, royalty, sales, exchange,
processing, farmout, bidding, pooling, unitization, communitization, and
other agreements relating to the Mortgaged Properties requested by the
Agent or any Lender;
(m) engineering reports covering the Mortgaged Properties;
(n) the opinion of Orloff, Lowenbach, Stifelman & Siegel, P.A.,
counsel to the Borrowers, in the form attached hereto as Exhibit VIII,
with such changes thereto as may be approved by the Agent;
(o) the opinion of special counsel in each of the States of
California, Colorado, Louisiana, Mississippi, Montana, New Mexico, Ohio,
North Dakota, Oklahoma, Texas, Utah and Wyoming, in the form attached
hereto as Exhibit IX, with such changes thereto as may be approved by the
Agent;
(p) certificates evidencing the insurance coverage required pursuant
to Section 5.16; and
(q) such other agreements, documents, instruments, opinions,
certificates, waivers, consents, and evidence as the Agent or any Lender
may reasonably request.
(r) copies of the executed Settlement Agreement and Release (the
"Settlement Agreement" dated effective January 1, 1997 by and between KCS
Resources, Inc. and Tennessee Gas Pipeline Company, certified by the
Secretary or Assistant Secretary of KCS to be correct and complete,
together with evidence satisfactory to Agent in its sole discretion, that
the Joint Motions to Dismiss the Zapata County Litigation as provided in
paragraph 2 of the Settlement Agreement and in the form provided pursuant
to Exhibit "C" thereof has either been irrevocably and irretrievably
transmitted to the Zapata County, Texas District
41
<PAGE> 47
Clerk for delivery to the Court in which such cases are pending or the
Court has signed orders dismissing the Zapata County Litigation as
requested in such Joint Motions to Dismiss.
3.2 Conditions Precedent to Each Revolving Loan. The obligations of
the Lenders to make each Revolving Loan are subject to the satisfaction of the
following additional conditions precedent:
(a) the Borrowers shall have delivered to the Agent a Borrowing
Request at least the requisite time prior to the requested date or time
for the relevant Loan; and each statement or certification made in such
Borrowing Request shall be true and correct in all material respects on
the requested date for such Revolving Loan;
(b) no Default or Event of Default shall exist or will occur as a
result of the making of the requested Revolving Loan;
(c) no Material Adverse Effect shall have occurred;
(d) each of the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct and shall
be deemed to be repeated by the Borrowers as if made on the requested date
for such Revolving Loan, except for any such representations and
warranties as are expressly stated to be made as of a particular date
which shall remain true and correct as of the date made;
(e) the Security Instruments shall be in full force and effect and
provide to the Lenders the security intended thereby;
(f) neither the consummation of the transactions contemplated hereby
nor the making of such Revolving Loan shall contravene, violate, or
conflict with any Requirement of Law; and
(g) the Agent and each Lender shall have received the payment of all
fees payable by the Borrowers hereunder and the Agent shall have received
reimbursement from the Borrowers, or special legal counsel for the Agent
shall have received payment from the Borrowers, for (i) all reasonable
fees and expenses of counsel to the Agent for which the Borrowers are
responsible pursuant to applicable provisions of this Agreement and for
which invoices have been presented as of or prior to the date of the
relevant Loan, and (ii) estimated fees charged by filing officers and
other public officials incurred or to be incurred in connection with the
filing and recordation of any Security Instruments, for which invoices
have been presented as of or prior to the date of the requested Loan.
42
<PAGE> 48
3.3 Conditions Precedent to Issuance of Letters of Credit. The
obligation of the Agent, as the issuer of the Letters of Credit, to issue,
renew, or extend any Letter of Credit is subject to the satisfaction of the
following additional conditions precedent:
(a) the Borrowers shall have delivered to the Agent a written (or
oral, confirmed promptly in writing) request for the issuance, renewal, or
extension of a Letter of Credit at least three Business Days prior to the
requested issuance, renewal, or extension date and a Letter of Credit
Application at least one Business Day prior to the requested issuance
date; and each statement or certification made in such Letter of Credit
Application shall be true and correct in all material respects on the
requested date for the issuance of such Letter of Credit;
(b) no Default or Event of Default shall exist or will occur as a
result of the issuance, renewal, or extension of such Letter of Credit;
and
(c) the terms and provisions of the Letter of Credit or such renewal
or extension shall be reasonably satisfactory to the Agent, as the issuer
of the Letters of Credit.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this Agreement and
to extend credit to the Borrowers, each Borrower represents and warrants to the
Agent and each Lender (which representations and warranties shall survive the
delivery of the Notes) that:
4.1 Due Authorization. The execution and delivery by the Borrowers of
this Agreement and the borrowings hereunder, the execution and delivery by the
Borrowers of the Notes and the other Loan Documents, the repayment of the Notes
and interest and fees provided for in the Notes and this Agreement, and the
performance of all obligations of the Borrowers under the Loan Documents are
within the power of the Borrowers, have been duly authorized by all necessary
corporate action by the Borrowers, and do not and will not (a) require the
consent of any Governmental Authority to be obtained by any Borrower, (b)
contravene or conflict with any Requirement of Law applicable to any Borrower or
the articles or certificate of incorporation, bylaws, or other organizational or
governing documents of the Borrowers, (c) contravene or conflict with any
material indenture, instrument, or other agreement, or any indenture,
instrument, or other agreement that, when aggregated with other such agreements,
is material, to which any Borrower is a party or by which any Property of any
Borrower may be presently bound or encumbered, except as could not reasonably be
expected to have a Material Adverse Effect, (d) contravene or conflict with any
indenture, instrument, or other agreement by which any item of Collateral is
bound or to which any such item of Collateral is subject, except as could not
reasonably be expected to have a Material Adverse Effect, or (e) result in or
require the creation or imposition of any Lien in, upon or of any Property of
any Borrower under any such indenture, instrument, or other agreement, other
than the Loan Documents.
43
<PAGE> 49
4.2 Corporate Existence. Each Borrower is a corporation duly
organized, legally existing, and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and is in good
standing in all jurisdictions wherein the ownership of Property or the operation
of its business necessitates same, other than those jurisdictions wherein the
failure to so qualify will not have a Material Adverse Effect.
4.3 Valid and Binding Obligations. All Loan Documents to which each
Borrower is a party, when duly executed and delivered by such Borrower, will be
the legal, valid, and binding obligations of the Borrower, enforceable against
such Borrower in accordance with its respective terms except as limited by
bankruptcy, insolvency or similar laws affecting generally the rights of
creditors and general principles of equity, whether applied by a court of law or
equity.
4.4 Existing Indebtedness; No Defenses. As of the date hereof, (a)
the Borrowers are indebted in the aggregate principal amounts set forth in
Exhibit X under the heading "Existing Loan Balances", and (b) the Borrowers have
no defenses to, rights of setoff against, claims or counterclaims with respect
to, and no default exists under or with respect to any Indebtedness or
obligation of the Borrowers evidenced thereby.
4.5 Security Instruments. The provisions of each Security Instrument
executed by any Borrower is effective to create in favor of the Agent, a legal,
valid, and enforceable Lien in all right, title, and interest of such Borrower
in the Collateral described therein, which Liens, assuming the accomplishment of
recording and filing in accordance with applicable laws prior to the
intervention of rights of other Persons, shall constitute fully perfected
first-priority Liens on all right, title, and interest of such Borrower in the
Collateral described therein except for Permitted Liens.
4.6 Title to Assets. Except as heretofore disclosed to the Agent in
writing, insofar as such Property constitutes real property or interests in real
property, each of the Borrowers has good and indefeasible title to all of its
Mortgaged Properties and all of its other Properties which are material, free
and clear of Liens, except Permitted Liens. With respect to Property which does
not constitute real property or an interest in real property, each of the
Borrowers owns all such other Properties which are material, free and clear of
all Liens, except Permitted Liens and Liens otherwise permitted under Section
6.3.
4.7 Scope and Accuracy of Financial Statements. The Financial
Statements of KCS and its Subsidiaries as of December 31, 1995 and September 30,
1996 (subject, in the case of the Financial Statements as of September 30, 1996,
to normal year-end audit adjustments), present fairly the financial position and
results of operations and cash flows of KCS and its Subsidiaries in accordance
with GAAP as at the relevant point in time or for the period indicated, as
applicable. No event or circumstance has occurred since December 31, 1995 or
September 30, 1996, which could reasonably be expected to have a Material
Adverse Effect on KCS or KCS Medallion except the verdict in and the settlement
of the Zapata County Litigation.
4.8 No Material Misstatements. All written estimates, projections and
forecasts furnished by or on behalf of the Borrowers to the Agent or any of the
Lenders for
44
<PAGE> 50
purposes of or in connection with this Agreement, or in connection with any
extension of credit hereunder, were and will be prepared on the basis of the
good faith estimate of the Borrower's senior management concerning probable
financial condition and performance based on assumptions, data, tests or
conditions believed to be reasonable or to represent industry conditions
existing at the time such estimates, projections or forecasts were made. No
other information, exhibit, statement, or report furnished to the Agent or any
Lender by or at the direction of the Borrowers in connection with this Agreement
contains any material misstatement of fact or omits to state a material fact or
any fact necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading as of the date made or
deemed made.
4.9 Liabilities and Litigation. Other than as listed under the
heading "Liabilities" on Exhibit X, the Borrowers have no liabilities, direct,
or contingent, which could reasonably be expected to have a Material Adverse
Effect on KCS or KCS Medallion. Except as set forth under the heading
"Litigation" on Exhibit X, no litigation or other action of any nature is
pending before any Governmental Authority or, to the best knowledge of such
Borrowers, threatened, against or affecting (a) any Collateral, or, in the case
of Environmental Laws, any Property of any Borrower, or the facilities located
and the operations conducted thereon, which, if determined adversely to such
Borrower, could reasonably be expected to have a Material Adverse Effect on KCS
or KCS Medallion, (b) any Borrower's ability to enter into, execute, deliver or
perform in any material respect its obligations under the Loan Documents, (c)
any Borrower which, if determined adversely to such Borrower, could reasonably
be expected to result in any judgment or liability, individually or when
aggregated with all other such judgments or liabilities, which could reasonably
be expected to have a Material Adverse Effect on KCS or KCS Medallion and which
is not fully covered by insurance (exclusive of any deductible amount related to
such insurance, which deductible amount is customary for Persons engaged in
similar businesses), or (d) any Borrower, which if determined adversely to such
Borrower, could reasonably be expected to result in any other Material Adverse
Effect on KCS or KCS Medallion.
4.10 Authorizations; Consents. Except as expressly contemplated by
this Agreement, no authorization, consent, approval, exemption, franchise,
permit, or license of, or filing with, any Governmental Authority or any other
Person is required to be obtained by any Borrower to authorize, or is otherwise
required in connection with, the valid execution and delivery by the Borrowers
of the Loan Documents or any instrument contemplated hereby, the repayment by
the Borrowers of the Notes and interest and fees provided in the Notes and this
Agreement, or the performance by the Borrowers of the Obligations.
4.11 Compliance with Laws. Each Borrower and its Property, are in
compliance with all applicable Requirements of Law, including Environmental
Laws, the Natural Gas Policy Act of 1978, as amended, and ERISA, other than any
Requirements of Laws the failure with which to comply, individually or in the
aggregate, could reasonably be expected not to cause a Material Adverse Effect.
4.12 Default. None of the Borrowers is in default of, and no event
has occurred which, with the lapse of time or giving of notice, or both, could
result in such a default of, (i) any charter document or bylaws of any Borrower,
or (ii) any agreement or obligation other than
45
<PAGE> 51
an agreement or obligation evidencing or relating to Debt to which any Borrower
is a party or by which any Property of any Borrower may be bound, pursuant to
which the obligations of the Borrowers in the aggregate under any such agreement
or obligation, or the obligations secured thereby, exceed $2,500,000, except
such as are being contested in good faith and as to which such reserve as may be
required by GAAP shall have been made therefore.
4.13 ERISA. No Reportable Event has occurred with respect to any
Single Employer Plan, and each Single Employer Plan has complied with and been
administered in all material respects in accordance with applicable provisions
of ERISA and the Code. To the best knowledge of the Borrowers, (a) no Reportable
Event has occurred with respect to any Multiemployer Plan, and (b) each
Multiemployer Plan has complied with and been administered in all material
respects with applicable provisions of ERISA and the Code. Each Plan satisfied
the minimum funding requirements under ERISA and the Code as of the last annual
valuation date applicable thereto. Neither the Borrowers nor any Commonly
Controlled Entity has had a complete or partial withdrawal from any
Multiemployer Plan for which there is any withdrawal liability. As of the most
recent valuation date applicable to any Multiemployer Plan, neither the
Borrowers nor any Commonly Controlled Entity would become subject to any
liability under ERISA if the Borrower or such Commonly Controlled Entity were to
withdraw completely from such Multiemployer Plan. Neither any Borrower nor any
Commonly Controlled Entity has received notice that any Multiemployer Plan is
Insolvent or in Reorganization. To the best knowledge of the Borrowers, no such
Insolvency or Reorganization which could reasonably be expected to have a
Material Adverse Effect is likely to occur. Based upon GAAP existing as of the
date of this Agreement and current factual circumstances, the Borrowers have no
reason to believe that the annual cost during the term of this Agreement to the
Borrowers and all Commonly Controlled Entities for post-retirement benefits to
be provided to the current and former employees of the Borrowers and all
Commonly Controlled Entities under Plans which are welfare benefit plans (as
defined in Section 3(1) of ERISA) will, in the aggregate, have a Material
Adverse Effect.
4.14 Environmental Laws. To the best knowledge and belief of the
Borrowers, except for matters listed below in this Section 4.14 which could not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect, and except as described on Exhibit X under the heading
"Environmental Matters:"
(a) no Property of any Borrower is currently on or has ever been on,
any federal or state list of Superfund Sites;
(b) no Hazardous Substances have been generated, transported, and/or
disposed of by any Borrower at a site which was, at the time of such
generation, transportation, and/or disposal, or has since become, a
Superfund Site;
(c) except in accordance with applicable Requirements of Law or the
terms of a valid permit, license, certificate, or approval of the relevant
Governmental Authority, no Release of Hazardous Substances has occurred by
any Borrower or from, affecting, or related to any Property of any
Borrower or the facilities located and the operations conducted thereon;
and
46
<PAGE> 52
(d) no Environmental Complaint has been received by any Borrower.
4.15 Compliance with Federal Reserve Regulations. No transaction
contemplated by the Loan Documents is in violation of any regulations
promulgated by the Board of Governors of the Federal Reserve System, including
Regulations G, T, U, or X.
4.16 Investment Company Act Compliance. None of the Borrowers is, nor
is any Borrower directly or indirectly controlled by or acting on behalf of any
Person which is, an "investment company" or an "affiliated person" of an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
4.17 Public Utility Holding Company Act Compliance. No Borrower is a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
4.18 Proper Filing of Tax Returns; Payment of Taxes Due. Each
Borrower has duly and properly filed its United States income tax returns and
all other tax returns which are required to be filed and has paid all taxes
shown to be due thereon, except such as are being contested in good faith and as
to which adequate provisions and disclosures have been made and except such
returns of which the failure to file has not had or would not have a Material
Adverse Effect. The respective charges and reserves on the books of the Borrower
with respect to taxes and other governmental charges are adequate.
4.19 Refunds. Except as described on Exhibit X under the heading
"Refunds," to the best knowledge and belief of the Borrowers, no orders of,
proceedings pending before, or other requirements of, the Federal Energy
Regulatory Commission or any other Governmental Authority exist which could
reasonably be expected to result in the Borrower being required to refund any
material portion of the proceeds received or to be received from the sale of
hydrocarbons constituting part of the Mortgaged Property.
4.20 Gas Contracts. Except as described on Exhibit X under the
heading "Gas Contracts," as of the Closing Date, no Borrower (a) is obligated in
any material respect by virtue of any prepayment made under any contract
containing a "take-or-pay" or "prepayment" provision or under any similar
agreement to deliver hydrocarbons produced from or allocated to any of the
Mortgaged Property at some future date without receiving full payment therefor
within 90 days of delivery, and (b) has not produced gas, in any material
amount, subject to, and neither any Borrower nor any of the Mortgaged Properties
is subject to, balancing rights of third parties or subject to balancing duties
under governmental requirements, except as to such matters for which such
Borrower has established monetary reserves adequate in amount to satisfy such
obligations.
4.21 Intellectual Property. Each Borrower owns or is licensed to use
all Intellectual Property necessary to conduct all business material to its
condition (financial or otherwise), business, or operations as such business is
currently conducted. No claim has been asserted or is pending by any Person with
respect to the use of any such Intellectual Property or challenging or
questioning the validity or effectiveness of any such Intellectual Property; and
47
<PAGE> 53
each Borrower knows of no valid basis for any such claim. The use of such
Intellectual Property by each Borrower does not infringe on the rights of any
Person, except for such claims and infringements as are not, in the aggregate,
likely to have a Material Adverse Effect.
4.22 Labor Matters. Except as disclosed on Exhibit X under the
heading "Labor Matters," as of the Closing Date there are no collective
bargaining agreements covering the employees of any of the Borrowers or any
Affiliates of any of the Borrowers. None of such Persons has suffered any
strikes, walkouts, work stoppages or other material labor difficulty within the
last five years, other than those which could not reasonably be expected to have
a Material Adverse Effect.
4.23 Casualties or Taking of Property. Except as disclosed on Exhibit
X under the heading "Casualties," since June 30, 1996, no Material Adverse
Effect has occurred with respect to the business nor any Property of any
Borrower as a result of any fire, explosion, earthquake, flood, drought,
windstorm, accident, strike or other labor disturbance, embargo, requisition or
taking of Property, or cancellation of contracts, permits, or concessions by any
Governmental Authority, riot, activities of armed forces, or acts of God.
4.24 Locations of Borrower. The principal place of business and chief
executive office of each Borrower is located at the address of such Borrower set
forth on the signature pages hereof or at such other location as such Borrower
may have, by proper written notice hereunder, advised the Agent, provided that
such other location is within a state in which appropriate financing statements
from such Borrower in favor of the Agent have been filed.
4.25 Subsidiaries. The Borrowers have no Subsidiaries other than
those described on Exhibit X under the heading "Subsidiaries." None of the
Borrowers is a general partner or joint venturer or has partnership or joint
venture interests in any Person other than those described in Exhibit X.
ARTICLE V
AFFIRMATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or any
Commitments exist, the Borrowers shall:
5.1 Maintenance and Access to Records. Keep adequate records, in
accordance with GAAP, of all its transactions so that at any time, and from time
to time, its true and complete financial condition may be readily determined,
and promptly following the reasonable request of the Agent or any Lender, make
such records available at the Borrowers' places of business upon reasonable
prior notice, during normal business hours, for inspection by the Agent or any
Lender and, at the expense of such Borrower, allow the Agent or any Lender to
make and take away copies thereof.
5.2 Quarterly Financial Statements; Compliance Certificates. Deliver
to the Agent, on or before the 45th day after the close of each of the first
three quarterly periods of
48
<PAGE> 54
each fiscal year of KCS, Sufficient Copies of the unaudited consolidated and
consolidating Financial Statements of KCS and its Subsidiaries as at the close
of such quarterly period and from the beginning of such fiscal year to the end
of such period, such Financial Statements to be certified by a Responsible
Officer of KCS as having been prepared in accordance with GAAP consistently
applied and as a fair presentation of the condition of KCS and its Subsidiaries,
subject to changes resulting from normal year-end audit adjustments, and a
Compliance Certificate from KCS.
5.3 Annual Financial Statements. Deliver to the Agent, on or before
the 90th day after the close of each fiscal year of KCS, Sufficient Copies of
the annual audited consolidated and consolidating Financial Statements of KCS
and its Subsidiaries, and a Compliance Certificate from KCS.
5.4 Oil and Gas Reserve Reports. (a) Deliver to the Agent no later
than forty-five (45) days after the end of each fiscal year during the term of
this Agreement, Sufficient Copies of engineering reports in form and substance
reasonably satisfactory to the Agent, certified by any of the Persons listed
under the heading "Approved Petroleum Engineers" on Exhibit X or any other
nationally- or regionally-recognized independent consulting petroleum engineers
reasonably acceptable to the Agent as fairly and accurately setting forth, in
accordance with the principles set forth in the Standards Pertaining to the
Estimating and Auditing of Oil and Gas Reserves Information as at the time are
promulgated by the Society of Petroleum Engineers, (i) the proven and producing,
shut-in, behind-pipe, and undeveloped oil and gas reserves (separately
classified as such) attributable to the Mortgaged Properties as of December 31
of the year for which such reserve reports are furnished, (ii) the aggregate
present value of the future net income with respect to such Mortgaged
Properties, discounted at a stated per annum discount rate of proven and
producing reserves, (iii) projections of the annual rate of production, gross
income, and net income with respect to such proven and producing reserves, and
(iv) information with respect to the "take-or-pay," "prepayment," and material
gas-balancing liabilities of the Borrowers.
(b) Deliver to the Agent no later than forty-five (45) days after
the end of each second quarterly period of each fiscal year during the term of
this Agreement, Sufficient Copies of engineering reports in form and substance
reasonably satisfactory to the Agent prepared by or under the supervision of the
chief petroleum engineer of the Borrowers evaluating the Mortgaged Properties as
of June 30 of the year for which such reserve reports are furnished and updating
the information provided in the reports pursuant to Section 5.4(a).
(c) Each of the reports provided pursuant to this Section shall be
submitted to the Agent together with such additional data concerning pricing,
quantities of production from the Mortgaged Properties, volumes of production
sold, purchasers of production, gross revenues, expenses, and such other
information and engineering and geological data with respect thereto as the
Agent may reasonably request.
5.5 Title Opinions; Title Defects. Promptly upon the written request
of the Agent made no more than once in any calendar year commencing with 1997,
furnish to the Agent at the election of the Borrowers either (a) clean landman
runsheets with respect to the Material Properties, (b) title opinions with
respect to any or all other Mortgaged Properties, in
49
<PAGE> 55
form and substance and by counsel reasonably satisfactory to the Agent, or (c)
other confirmation of title reasonably acceptable to the Agent, covering Oil and
Gas Properties constituting not less than 75% of the then present value of the
Mortgaged Properties, determined in accordance with the most recent Reserve
Reports provided to the Agent in accordance with Section 5.4; and promptly, but
in any event within 60 days after notice by the Agent of any defect which is
material (in the reasonable opinion of the Agent) in value, in the title of the
Borrowers to any of such Oil and Gas Properties, clear such title defects, and,
in the event any such title defects are not cured in a timely manner, the value
of the affected Oil and Gas Properties shall be excluded from the Borrowing
Base, or at the Borrowers' election, the Borrowers shall pay all related costs
and fees incurred by the Agent to cure such title defects.
5.6 Notices of Certain Events. Deliver to the Agent, promptly upon
having knowledge of the occurrence of any of the following events or
circumstances, a written statement with respect thereto, signed by a Responsible
Officer of each Borrower and setting forth the relevant event or circumstance
and the steps being taken by such Borrower with respect to such event or
circumstance:
(a) any Default or Event of Default;
(b) any default or event of default under any contractual obligation
of any Borrower, or any litigation, investigation, or proceeding between
any Borrower and any Governmental Authority which, in either case, if not
cured or if adversely determined, as the case may be, could reasonably be
expected to have a Material Adverse Effect;
(c) any litigation or proceeding involving any Borrower as a
defendant or in which any Property of any Borrower is subject to a claim
and in which the amount of the claim against any Borrower is $1,000,000 or
more and which is not covered by insurance or in which injunctive or
similar relief is sought;
(d) the receipt by any Borrower of any Environmental Complaint which
individually, or in the aggregate with any other Environmental Complaints
then outstanding relating to any matter, relates to a matter which could
reasonably be expected to have a Material Adverse Effect;
(e) any actual, proposed, or threatened testing or other
investigation by any Governmental Authority or other Person concerning the
environmental condition of, or relating to, any Property of any Borrower,
or the facilities located and the operations conducted thereon, following
any allegation of a violation of any Requirement of Law regarding any
condition in each case which could reasonably be expected to have a
Material Adverse Effect;
(f) any of the following which could reasonably be expected to have
a Material Adverse Effect: any Release of Hazardous Substances by any
Borrower or from, affecting, or related to any Property of any Borrower,
or the facilities located and the operations conducted thereon, except in
accordance with applicable Requirements of Law or the terms of a valid
permit, license,
50
<PAGE> 56
certificate, or approval of the relevant Governmental Authority, or the
violation of any Environmental Law, or the revocation, suspension, or
forfeiture of or failure to renew, any permit, license, registration,
approval, or authorization;
(g) any Reportable Event or imminently expected Reportable Event
with respect to any Plan; any withdrawal from, or the termination,
Reorganization or Insolvency of, any Multiemployer Plan; the institution
of proceedings or the taking of any other action by the PBGC, any
Borrower, any Commonly Controlled Entity or Multiemployer Plan with
respect to the withdrawal from, or the termination, Reorganization or
Insolvency of, any Single Employer Plan or Multiemployer Plan; or any
Prohibited Transaction in connection with any Plan or any trust created
thereunder and the action being taken by the Internal Revenue Service with
respect thereto; and
(h) any other event or condition which could reasonably be expected
to have a Material Adverse Effect.
5.7 Additional Information. Furnish to the Agent, (a) to the extent
not previously furnished by KCS, within five Business Days after any material
report (other than financial statements) or other communication is sent by KCS
to its stockholders or filed by KCS with the Securities and Exchange Commission
or any successor or analogous Governmental Authority, Sufficient Copies of such
report or communication and, promptly upon the request of the Agent, (b) such
additional financial or other information concerning the assets, liabilities,
operations, and transactions of the Borrowers as the Agent may from time to time
reasonably request including without limitation, all such information that KCS
may have or receive with respect to the Collateral and (c) not less than ten
Business Days prior to the occurrence of any condition or event that may change
the proper location for the filing of any financing statement or other public
notice or recording for the purpose of perfecting a Lien in any Collateral,
including any change in its name or the location of its principal place of
business or chief executive office; and upon the request of the Agent, execute
such additional Security Instruments as may be necessary or appropriate in
connection therewith.
5.8 Compliance with Laws. Except to the extent the failure to comply
or cause compliance would not have a Material Adverse Effect, (a) comply with
all Requirements of Law applicable to the Borrowers, including (i) the Natural
Gas Policy Act of 1978, as amended, (ii) ERISA, (iii) Environmental Laws, and
(iv) all permits, licenses, registrations, approvals, and authorizations (A)
related to any natural or environmental resource or media located on, above,
within, in the vicinity of, related to or affected by any Property of any
Borrower, (B) required for the performance of the operations of any Borrower, or
(C) applicable to the use, generation, handling, storage, treatment, transport,
or disposal of any Hazardous Substances; and (b) cause all employees, crew
members, agents, contractors, subcontractors, and future lessees (pursuant to
appropriate lease and other contractual provisions) of any Borrower, while such
Persons are acting within the scope of their relationship with such Borrower, to
comply with all such Requirements of Law as may be necessary or appropriate to
enable such Borrower to so comply.
51
<PAGE> 57
5.9 Payment of Assessments and Charges. Pay all taxes, assessments,
governmental charges, rent, and other Indebtedness which, if unpaid, might
become a Lien against the Property of any Borrower, except any of the foregoing
being contested in good faith and as to which adequate reserve in accordance
with GAAP has been established or unless failure to pay would not have a
Material Adverse Effect.
5.10 Maintenance of Corporate Existence and Good Standing. (a)
Maintain its corporate existence and good standing in its jurisdiction of
incorporation and (b) maintain its corporate qualification and good standing in
all jurisdictions wherein the Property now owned or hereafter acquired or
business now or hereafter conducted by such Borrower necessitates same, unless
the failure to do so would not have a Material Adverse Effect.
5.11 Payment of Notes; Performance of Obligations. Pay the Notes
according to the reading, tenor, and effect thereof, as modified hereby, and do
and perform every act and discharge all of its other Obligations.
5.12 Further Assurances. Promptly after discovery thereof cure any
defects, errors, or omissions in the execution and delivery of any of the Loan
Documents and execute, acknowledge, and deliver to the Agent such other
assurances and instruments as shall, in the reasonable opinion of the Agent, be
necessary to fulfill the terms of the Loan Documents.
5.13 Fees and Expenses. (a) Upon request by the Agent, promptly pay
to or reimburse the Agent or the Collateral Agent, as applicable, for all
reasonable third-party fees, out-of-pocket costs and expenses of the Agent and
the Collateral Agent in connection with the preparation, negotiation, execution,
delivery and enforcement of this Agreement and the other Loan Documents, and any
and all amendments, restatements and supplements thereof and thereto, the filing
and recordation of the Security Instruments, and the consummation of the
transactions contemplated by the Loan Documents, including reasonable fees and
expenses of legal counsel and auditors and accountants for the Agent and the
Collateral Agent, provided however, that no fees or expenses of petroleum
engineers and environmental, insurance and other consultants for the Agent or
the Collateral Agent shall be payable under this Section 5.13(a).
(b) Upon request by the Agent (which shall be made promptly after
any request by the Collateral Agent or any Lender), promptly pay (to the fullest
extent permitted by law) for all amounts reasonably expended, advanced, or
incurred during the continuance of an Event of Default by or on behalf of the
Agent, the Collateral Agent or any Lender: (i) to satisfy any obligation of the
Borrowers under any of the Loan Documents; (ii) to collect the Obligations;
(iii) to enforce the rights of the Agent, the Collateral Agent, and the Lenders
under any of the Loan Documents; (iv) to protect the Properties or business of
the Borrowers, including the Collateral, which amounts shall be deemed
compensatory in nature and liquidated as to amount upon notice to the Borrowers
by the Agent and which amounts shall include all court costs and reasonable fees
and expenses of legal counsel, auditors and accountants, petroleum engineers,
and environmental and insurance consultants; (v) in connection with the
participation by the Agent and the Lenders as members of the creditors'
committee in a case commenced under any Insolvency Proceeding; (vi) in
connection with lifting the automatic stay prescribed in ss.362 Title 11 of the
United States Code; and (vii) in connection with any action
52
<PAGE> 58
pursuant to ss.1129 Title 11 of the United States Code, all as shall be
reasonably incurred by the Agent, the Collateral Agent, and the Lenders during
the continuance of an Event of Default in connection with the collection of any
sums due under the Loan Documents, together with interest at the per annum
interest rate equal to the Default Rate on each such amount from the date of
notification that the same was expended, advanced, or incurred by the Agent, the
Collateral Agent, or any Lender until the date it is repaid to the Agent, the
Collateral Agent, or such Lender, with the obligations under this Section
surviving the non-assumption of this Agreement in a case commenced under any
Insolvency Proceeding and being binding upon the Borrower and/or a trustee,
receiver, custodian, or liquidator of the Borrower appointed in any such case.
5.14 Operation of Oil and Gas Properties. Develop, maintain, and
operate its Oil and Gas Properties in a prudent and workmanlike manner in
accordance with industry standards or make reasonable and customary efforts to
cause such Properties to be so operated.
5.15 Maintenance and Inspection of Properties. Use reasonable and
customary efforts to maintain or cause to be maintained all of its material
tangible Properties in good repair and condition, ordinary wear and tear
excepted; make all reasonably necessary replacements thereof and permit any
authorized representative of the Agent or any Lender to visit and inspect at any
reasonable time and upon reasonable notice any tangible Property of the
Borrowers; provided, however, that any expenses incurred in connection with any
such visit or inspection shall be reimbursed by the Borrowers if required under
Section 5.13.
5.16 Maintenance of Insurance. Maintain insurance with respect to its
Properties and businesses against such liabilities, casualties, risks, and
contingencies as is customary in the relevant industry and sufficient to prevent
a Material Adverse Effect, all such insurance to be in amounts and from insurers
reasonably acceptable to the Collateral Agent and, within 30 days of the Closing
Date for property damage insurance covering Collateral maintained by the
Borrowers, naming the Collateral Agent as a loss payee as its interest may
appear, and, upon any renewal of any such insurance and at other times upon
reasonable request by the Collateral Agent, furnish to the Collateral Agent
evidence, reasonably satisfactory to the Collateral Agent, of the maintenance of
such insurance. The Collateral Agent shall have the right to collect, and the
Borrower hereby assigns to the Collateral Agent, any and all monies that may
become payable under any policies of insurance by reason of damage, loss, or
destruction of any of the Collateral. In the event of any damage, loss, or
destruction for which insurance proceeds relating to Collateral exceed $500,000
or are $500,000 or less and a Default or an Event of Default has occurred and is
continuing, the Collateral Agent may, at its option, apply all such sums or any
part thereof received by it toward the payment of the Obligations, whether
matured or unmatured, application to be made first to interest and then to
principal, and shall deliver to the Borrower the balance, if any, after such
application has been made. The prepayment of any LIBO Rate Loan by the
application of such insurance proceeds shall not require the Borrowers to pay
any penalty or premium, including any yield protection amounts which otherwise
would be payable upon such prepayment under Section 2.22. In the event of any
such damage, loss, or destruction for which insurance proceeds are $500,000 or
less, provided that no Default or Event of Default has occurred and is
continuing, the Collateral Agent shall deliver any such proceeds received by it
to the Borrower. In the event the Collateral Agent receives insurance proceeds
not attributable to Collateral or business interruption, the Collateral Agent
shall deliver any such proceeds to the Borrower.
53
<PAGE> 59
5.17 Indemnification. Indemnify and hold the Agent, the Collateral
Agent and each of the Lenders and their respective shareholders, officers,
directors, employees, agents, attorneys-in-fact, and affiliates and each trustee
for the benefit of the Agent, the Collateral Agent, or the Lenders under any
Security Instrument harmless from and against any and all claims, losses,
damages, liabilities, fines, penalties, charges, administrative and judicial
proceedings and orders, judgments, remedial actions, requirements and
enforcement actions of any kind, and all costs and expenses incurred in
connection therewith (including reasonable attorneys' fees and expenses),
arising directly or indirectly, in whole or in part, from (a) the presence of
any Hazardous Substances on, under, or from any Property of each Borrower,
whether prior to or during the term hereof, (b) any activity carried on or
undertaken on or off any Property of such Borrower, whether prior to or during
the term hereof, and whether by such Borrower or any predecessor in title,
employee, agent, contractor, or subcontractor of such Borrower or any other
Person at any time occupying or present on such Property, in connection with the
handling, treatment, removal, storage, decontamination, cleanup, transportation,
or disposal of any Hazardous Substances at any time located or present on or
under such Property, (c) any residual contamination of any Hazardous Substance
on or under any Property of such Borrower, (d) any contamination of any Property
or natural resources arising in connection with the generation, use, handling,
storage, transportation or disposal of any Hazardous Substances by such Borrower
or any employee, agent, contractor, or subcontractor of such Borrower while such
persons are acting within the scope of their relationship with such Borrower,
irrespective of whether any of such activities were or will be undertaken in
accordance with applicable Requirements of Law, or (e) the performance and
enforcement of any Loan Document, any allegation by any beneficiary of a letter
of credit of a wrongful dishonor by the Agent of a claim or draft presented
thereunder, or any other act or omission in connection with or related to any
Loan Document or the transactions contemplated thereby, including any of the
foregoing in this Section arising from negligence, whether sole or concurrent,
on the part of the Agent, the Collateral Agent, or any Lender or any of their
respective shareholders, officers, directors, employees, agents,
attorneys-in-fact, or affiliates or any trustee for the benefit of the Agent,
the Collateral Agent, or the Lenders under any Security Instrument; provided,
however, the foregoing clauses (a) through (e) shall not apply to any claim,
loss, damage, liability, fine, penalty, charge, proceeding, order, judgment,
action or requirement attributable to (i) the gross negligence or willful
misconduct of any Person to be indemnified or (ii) any action or inaction of any
Person to be indemnified subsequent to the exercise of ownership rights or the
taking of any foreclosure action with respect to any of the Collateral and with
respect to such Collateral such claim, loss, damage, liability, fine, penalty,
charge, proceeding, order, judgment, action or requirement arises subsequent to
the exercise of ownership rights or the taking of any foreclosure action with
respect to such Collateral, to the extent such Person is a "person in control"
under any Environmental Law. The foregoing indemnity shall survive satisfaction
of all Obligations and the termination of this Agreement, unless all such
Obligations have been satisfied wholly in cash from the Borrowers and not by way
of realization against any Collateral or the conveyance of any Property in lieu
thereof.
54
<PAGE> 60
ARTICLE VI
NEGATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or any
Commitments exist, the Borrowers will not:
6.1 Indebtedness. Create, incur, assume, or suffer to exist any
Indebtedness, whether by way of loan or otherwise; provided, however, the
foregoing restriction shall not apply to (a) the Obligations, (b) unsecured
accounts payable incurred in the ordinary course of business, which are not
unpaid in excess of 60 days beyond invoice date or are being contested in good
faith and as to which such reserve as is required by GAAP has been made, (c)
indebtedness owed by KCS to any of its Subsidiaries or any Subsidiary of KCS to
KCS or to any other Subsidiary of KCS, provided, in each case, that any such
indebtedness is payable on demand, is duly entered on the books and records of
each such Person and is not subordinated in right of payment to any other
indebtedness of such Person except pursuant to the Subordination Agreement dated
September 15, 1996 made by KCS, CIBC, KCS Resources, Inc., KCS Pipeline Systems,
Inc., KCS Pipeline Systems, Inc., KCS Michigan Resources, Inc., and KCS Energy
Marketing, Inc., (d) crude oil, natural gas, or other hydrocarbon floor, collar,
cap, price protection, or swap agreements, with a Qualified Swap Counterparty,
provided that such agreements shall not be entered into with respect to
Mortgaged Properties constituting more than 80% of the present value of
estimated future net revenues, computed using a discount factor of 10%, of all
proved developed producing Mortgaged Properties, (e) financial hedging
agreements (including interest rate swaps) entered into with a Qualified Swap
Counterparty, (f) Debt of the Borrowers not otherwise permitted under this
Section 6.1 which does not exceed at any one time the aggregate principal amount
of $1,000,000, and (g) Debt of all of the Borrowers for purchase money
indebtedness and equipment leases, which does not exceed at any one time the
aggregate outstanding principal amount of $1,000,000.
6.2 Contingent Obligations. Create, incur, assume, or suffer to exist
any Contingent Obligation; provided, however, the foregoing restriction shall
not apply to (a) performance guarantees and performance, surety or other bonds
provided in the ordinary course of business, including guaranties and letters of
credit supporting such performance obligations, (b) trade credit incurred or
operating leases entered into in the ordinary course of business, (c) guaranties
and contribution obligations under the Senior Note Indenture, and (d)
endorsements of instruments for deposit or collection in the ordinary course of
business.
6.3 Liens. Create, incur, assume, or suffer to exist any Lien on any
of its Oil and Gas Properties or any other Property, whether now owned or
hereafter acquired; provided, however, the foregoing restrictions shall not
apply to (a) Permitted Liens, (b) landlord's Liens in any Property which is not
Collateral, (c) Liens existing on cash deposits in connection with Indebtedness
permitted in Section 6.1(d), (d) Liens securing the Indebtedness permitted in
Section 6.1(g), (e) Liens incurred in the ordinary course of business covering
deposit accounts in favor of the depository institution holding such accounts
and arising in connection with obligations of any Borrower arising from any such
accounts, and (f) Liens securing the payment or performance of tenders,
statutory or regulatory obligations, surety and appeal bonds, bids,
55
<PAGE> 61
government contracts and leases, performance and return of money bonds and
similar obligations (other than for payment of Debt) and covering Property which
is not Collateral.
6.4 Negative Pledge Agreements. Create, enter into, execute, incur,
assume or permit to exist, or will permit any of its Subsidiaries to create,
enter into, execute, incur, assume or permit to exist, any contract, agreement
or understanding (other than the Loan Documents) which in any manner grants,
conveys, creates or imposes, or which in any way prohibits or restricts the
granting, conveying, creation or imposition of, any Lien on any Property of the
Borrowers, or which requires the consent of, or notice to, other Persons in
connection therewith; provided, however, the foregoing restrictions shall not
apply to (a) any of the foregoing as may be required under the Senior Note
Indenture, and (b) any of the foregoing with respect to any Liens permitted
pursuant to Section 6.3.
6.5 Sales of Assets. During each Sales Period, sell, transfer, or
otherwise dispose of, in one or any series of transactions, assets, whether now
owned or hereafter acquired, the aggregate value of all of which exceeds
$5,000,000 or enter into any agreement to do so; provided, however, the
foregoing restriction shall not apply to (a) the sale of hydrocarbons or
inventory in the ordinary course of business other than the sale of a production
payment and provided that no contract for the sale of hydrocarbons shall
obligate the Borrowers to deliver hydrocarbons produced from any of the
Mortgaged Property at some future date without receiving full payment therefor
within 90 days of delivery, or (b) the sale or other disposition of Property
destroyed, lost, worn out, damaged, or having only salvage value or no longer
used or useful in the business of such Borrower. For purposes of this Section
6.5, the value of any Oil and Gas Property shall be the discounted present value
of such Property as shown on the most recent Reserve Report delivered to the
Agent pursuant to this Agreement.
6.6 Leasebacks. Enter into any agreement to sell or transfer any
Property and thereafter rent or lease as lessee such Property or other Property
intended for the same use or purpose as the Property sold or transferred.
6.7 Loans; Advances; Investments. Except as permitted by Section 6.1,
make or agree to make or allow to remain outstanding any loans or advances to or
acquire Investments in, or purchase or otherwise acquire all or substantially
all of the assets of any Person; provided, however, the foregoing restrictions
shall not apply to (a) advances or extensions of credit in the form of accounts
receivable incurred in the ordinary course of business and upon terms common in
the industry for such accounts receivable, (b) advances to employees of the
Borrower for the payment of expenses in the ordinary course of business, (c) the
purchase or acquisition of Oil and Gas Properties, (d) Investments in the form
of (i) debt securities issued or directly and fully guaranteed or insured by the
United States Government or any agency or instrumentality thereof, with
maturities of no more than one year from the date of acquisition, (ii)
commercial paper of a domestic issuer rated at the date of acquisition at least
P-2 by Moody's Investor Service, Inc. or A-2 by Standard & Poor's Corporation
and with maturities of no more than one year from the date of acquisition, (iii)
repurchase agreements covering debt securities or commercial paper of the type
permitted in this Section, certificates of deposit, demand deposits, eurodollar
time deposits, overnight bank deposits and bankers' acceptances, with maturities
of no more than one year from the date of acquisition, issued by or acquired
from or through the Agent, any Lender, or any bank or trust company organized
under the laws of the United States or any state thereof
56
<PAGE> 62
and having capital surplus and undivided profits aggregating at least
$500,000,000, and (iv) currency exchange contracts entered into in the ordinary
course of business, (e) other short-term Investments similar in nature and
degree of risk to those described in clause (d) of this Section, (f) loans or
advances by any Borrower to any other Borrower and by KCS to any Subsidiary of
KCS, which loans and advances are payable on demand, duly entered on the books
and records of such Borrower and KCS, and which are not subordinated in right of
payment to any other Indebtedness of KCS except pursuant to the Subordination
Agreement dated September 25, 1996 made by KCS, CIBC, KCS Resources, Inc., KCS
Pipeline Systems, Inc., KCS Michigan Resources, Inc., and KCS Energy Marketing,
Inc., or (g) loans to Persons who are purchasers of Property of any Borrower
granted pursuant to the sale of such Property provided such loans shall not
exceed the aggregate sum of $500,000.00.
6.8 Dividends and Distributions. Declare, pay, or make, whether in
cash or Property of the Borrowers, any dividend or distribution on, or purchase,
redeem, or otherwise acquire for value, any share of any class of its capital
stock at any time that an Event of Default exists or will occur as the result of
the payment of such dividend or distribution; provided, however, the foregoing
restriction shall not apply to dividends paid in capital stock of the Borrowers.
6.9 Environmental Matters. Cause or permit any of its Property to be
in violation of any Environmental Law or do anything or permit anything to be
done that would subject any of its Property to be subject to any remedial
obligations under any Environmental Law, assuming disclosure to applicable
Governmental Authorities of all relevant facts, conditions, and circumstances,
except where the foregoing would not have a Material Adverse Effect.
6.10 Issuance of Stock; Changes in Corporate Structure. (a) Other
than KCS, issue or agree to issue additional shares of capital stock, in one or
any series of transactions; enter into any transaction of consolidation, merger,
or amalgamation except with another Borrower; liquidate, wind up, or dissolve
(or suffer any liquidation or dissolution); or (b) amend or otherwise modify
their corporate charter or their corporate structure, activities or nature, as
applicable, in any manner that could reasonably be expected to have a Material
Adverse Effect, nor permit any of their respective Subsidiaries to do any of the
foregoing.
6.11 Transactions with Affiliates. Directly or indirectly, enter into
any transaction (including the sale, lease, or exchange of Property or the
rendering of service) not otherwise permitted by this Agreement with any of
their Affiliates, other than upon fair and reasonable terms no less favorable
than could be obtained in an arm's length transaction with a Person which was
not an Affiliate.
6.12 Lines of Business. Expand, on their own or through any
Subsidiary, into any line of business other than those in which such Borrower is
engaged as of the date hereof.
6.13 ERISA Compliance. Permit any Plan maintained by it or any
Commonly Controlled Entity to (a) engage in any Prohibited Transaction, (b)
incur any "accumulated funding deficiency," as such term is defined in Section
302 of ERISA, or (c) terminate in a manner which could result in the imposition
of a Lien on any Property of the Borrower pursuant
57
<PAGE> 63
to Section 4068 of ERISA; or assume an obligation to contribute to any
Multiemployer Plan; or acquire any Person or all or substantially all of the
assets of any Person which has now or has had at any time an obligation to
contribute to any Multiemployer Plan.
6.14 Use of Proceeds. Permit the proceeds of any Loan or any Letter
of Credit to be used for any purpose other than as expressly permitted in
Section 2.5.
6.15 Subsidiaries. Other than KCS, create, organize or acquire any
Subsidiary or become a general partner, joint venturer or venturer in any Person
or become or assume any similar capacity in any Person which gives rise to such
similar general liability except in the ordinary course of the oil and gas
industry.
6.16 Tangible Net Worth of KCS Medallion. Permit Tangible Net Worth
of the KCS Medallion Group as of the close of any fiscal quarter to be less than
$48,000,000 plus 50% of positive Net Income of the KCS Medallion Group and 75%
of the net proceeds from any offering by any member of the KCS Medallion Group
or any of their respective Subsidiaries of capital stock or rights to acquire
capital stock in each quarter, beginning with the quarter commencing on January
1, 1997.
6.17 Interest Coverage Ratio of KCS Medallion. Permit Interest
Coverage Ratio of the KCS Medallion Group to be less than 2.0 to 1.
6.18 Tangible Net Worth of KCS. Permit Tangible Net Worth of KCS and
its Subsidiaries on a consolidated basis as of the close of any fiscal quarter
to be less than $75,000,000 plus 50% of positive Net Income of KCS and its
Subsidiaries on a consolidated basis and 75% of the net proceeds from any
offering by KCS or any of its Subsidiaries of capital stock or rights (other
than rights in connection with debt convertible into Equity Securities) to
acquire capital stock in each such quarter commencing April 1, 1996.
6.19 Interest Coverage Ratio of KCS. Permit Interest Coverage Ratio
of KCS and its Subsidiaries on a consolidated basis to be less than 2.0 to 1.
ARTICLE VII
EVENTS OF DEFAULT
7.1 Enumeration of Events of Default. Any of the following events
shall constitute an Event of Default:
(a) (i) default shall be made in any payment of principal when due
under this Agreement or the Notes at Final Maturity or pursuant to Section
2.13, or (ii) in the event of a default in the payment when due of any
other sums, including, without limitation, interest, payable under any
Loan Document other than as set forth under clause (i) hereof, such
failure shall continue unremedied for a period of five (5) days;
58
<PAGE> 64
(b) default shall be made by any Borrower in the due observance or
performance of any of their respective obligations under the Loan
Documents other than as described in Section 7.1(a) and such default shall
not have been remedied within 30 days after the earlier of (i) receipt of
written notice thereof by the Borrowers from the Agent, or (ii) any
Borrower having or obtaining knowledge thereof;
(c) any representation or warranty made by any Borrower in any of
the Loan Documents proves to have been untrue in any material respect as
of the date the facts therein set forth were stated or certified or deemed
stated or certified provided, however, Borrowers' representations and
warranties as to title and environmental matters shall not be deemed to be
untrue in any respect during any period in which Borrowers are pursuing
rights or remedies pursuant to Sections 9.1, 9.2, 10.3 or 10.6 of the
Stock Purchase Agreement;
(d) default(s) shall be made by any Borrower (as principal or
guarantor or other surety) in the payment or performance of any bond,
debenture, note, guaranty or other Debt or under any credit agreement,
loan agreement, indenture, promissory note, including without limitation,
the Affiliate Credit Agreement, or similar agreement or instrument
executed in connection with any of the foregoing in an aggregate amount
equal to or exceeding $2,500,000, and such default(s) shall remain
unremedied for in excess of the period of grace, if any, with respect
thereto, if the effect of such failure is that such Debt shall have become
immediately due and payable in full or is subject to becoming immediately
due and payable in full;
(e) any Borrower shall (i) apply for or consent to the appointment
of a receiver, trustee, or liquidator of it or all or a substantial part
of its assets, (ii) file a voluntary petition commencing an Insolvency
Proceeding, (iii) make a general assignment for the benefit of creditors,
(iv) admit in writing its inability to pay, or generally not be paying,
its debts as they become due, or (v) file an answer admitting the material
allegations of a petition filed against it in any Insolvency Proceeding;
(f) an order, judgment, or decree shall be entered against any
Borrower by any court of competent jurisdiction or by any other duly
authorized authority, on the petition of a creditor or otherwise, granting
relief in any Insolvency Proceeding or approving a petition seeking
reorganization or an arrangement of its debts or appointing a receiver,
trustee, conservator, custodian, or liquidator of it or all or any
substantial part of its assets, and such order, judgment, or decree shall
not be dismissed or stayed within 60 days;
(g) the levy against any significant portion of the Property of any
Borrower, or any execution, garnishment, attachment, sequestration, or
other writ or similar proceeding involving an amount which, if paid, would
have a Material Adverse Effect and which is not permanently dismissed,
discharged or bonded within 30 days after the levy;
59
<PAGE> 65
(h) a final and non-appealable order, judgment, or decree shall be
entered against any Borrower for money damages and/or Indebtedness due in
an aggregate amount in excess of $2,500,000 and which is not covered by
independent third-party insurance as to which the insurer does not dispute
coverage, and such order, judgment, or decree shall not be paid, dismissed
or stayed fifteen (15) days before the date on which execution on any
Property of such Borrower may be issued;
(i) any charges are filed or any other action or proceeding is
instituted by any Governmental Authority against any Borrower or any
Affiliate under the Racketeering Influence and Corrupt Organizations
Statute (18 U.S.C. ss.1961 et seq.), the result of which could reasonably
be expected to be the forfeiture or transfer of any material Property of
such Borrower or any Affiliate subject to a Lien in favor of the Agent
without (i) satisfaction or provision for satisfaction of such Lien, or
(ii) such forfeiture or transfer of such Property being expressly made
subject to such Lien;
(j) any Borrower, or any Affiliate shall have concealed, removed, or
diverted, or permitted to be concealed, removed, or diverted, any part of
its Property, with intent to hinder, delay, or defraud its creditors or
any of them;
(k) any Person shall engage in any Prohibited Transaction involving
any Plan; any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan for
which an excise tax is due or would be due in the absence of a waiver; a
Reportable Event shall occur with respect to, or proceedings shall
commence to have a trustee appointed, or a trustee shall be appointed, to
administer or to terminate, any Single Employer Plan, which Reportable
Event or commencement of proceedings or appointment of a trustee is, in
the reasonable opinion of the Agent, likely to result in the termination
of such Plan for purposes of Title IV of ERISA; any Single Employer Plan
shall terminate for purposes of Title IV of ERISA; any Borrower, or any
Commonly Controlled Entity shall incur, or in the reasonable opinion of
the Agent, be likely to incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan; or any other event or condition shall occur or exist with respect to
a Plan and the result of such events or conditions referred to in this
Section 7.1(k) could reasonably be expected to subject such Borrower or
any Commonly Controlled Entity to any tax (other than an excise tax under
Section 4980 of the Code), penalty or other liabilities which taken in the
aggregate would have a Material Adverse Effect and any such circumstance
shall exist for in excess of 30 days;
(l) subject to Section 2.13(c) any Security Instrument shall for any
reason not, or cease to, create valid and perfected first-priority Liens
against the Collateral purportedly covered thereby, subject to Permitted
Liens, and which Collateral has a value greater than $100,000, unless the
Borrowers have provided the Agent, within 30 days following written notice
to the Borrowers from the
60
<PAGE> 66
Agent, with additional Collateral having at least an equivalent value and
otherwise reasonably satisfactory to the Required Lenders; and
(m) KCS shall without the prior written consent of the Agent cease
to own all of the outstanding capital stock of any class issued by the
Borrowers other than KCS.
7.2 Remedies. (a) Upon the occurrence of an Event of Default
specified in Sections 7.1(e) or 7.1(f), immediately and without notice, (i) all
Obligations shall automatically become immediately due and payable, without
presentment, demand, protest, notice of protest, default, or dishonor, notice of
intent to accelerate maturity, notice of acceleration of maturity, or other
notice of any kind, except as may be provided to the contrary elsewhere herein,
all of which are hereby expressly waived by each Borrower; (ii) the Commitments
shall immediately cease and terminate unless and until reinstated by the Agent
and the Lenders in writing; and (iii) with the oral consent of the Required
Lenders (confirmed promptly in writing), the Agent and each Lender are hereby
authorized at any time and from time to time, without notice to the Borrowers
(any such notice being expressly waived by each Borrower), to set-off and apply
any and all deposits (general or special, time or demand, provisional or final)
held by the Agent or such Lender and any and all other indebtedness at any time
owing by the Agent or such Lender to or for the credit or account of the
Borrowers against any and all of the Obligations.
(b) Upon the occurrence of any Event of Default other than those
specified in Sections 7.1(e) or 7.1(f), (i) the Agent may and, upon the request
of the Required Lenders, shall, by notice to the Borrowers, declare all
Obligations immediately due and payable, without presentment, demand, protest,
notice of protest, default, or dishonor, notice of intent to accelerate
maturity, notice of acceleration of maturity, or other notice of any kind,
except as may be provided to the contrary elsewhere herein, all of which are
hereby expressly waived by each Borrower; (ii) the Agent may and, upon the
request of the Required Lenders, shall, declare the Commitments terminated,
whereupon the Commitments shall immediately cease and terminate unless and until
reinstated by the Agent and the Lenders in writing; and (iii) with the oral
consent of the Required Lenders (confirmed promptly in writing), the Agent and
each Lender are hereby authorized at any time and from time to time, without
notice to the Borrowers (any such notice being expressly waived by each
Borrower), to set-off and apply any and all deposits (general or special, time
or demand, provisional or final) held by the Agent or such Lender and any and
all other indebtedness at any time owing by the Agent or such Lender to or for
the credit or account of the Borrowers against any and all of the Obligations.
(c) Upon the occurrence of any Event of Default, the Lenders, with
the oral consent of the Required Lenders (confirmed promptly in writing), and
the Agent, in accordance with the terms hereof, may, in addition to the
foregoing in this Section, exercise any or all of their rights and remedies
provided by law or pursuant to the Loan Documents.
61
<PAGE> 67
ARTICLE VIII
THE AGENT
8.1 Appointment. Each Lender hereby designates and appoints CIBC as
the Agent and CIBC Inc. as the Collateral Agent under this Agreement and the
other Loan Documents. Each Lender authorizes the Agent and the Collateral Agent
to take such action on behalf of such Lender under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the Agent and the Collateral Agent by
the terms of this Agreement and the other Loan Documents, together with such
other powers as are reasonably incidental thereto. Notwithstanding any provision
to the contrary elsewhere in this Agreement or in any other Loan Document,
neither the Agent nor the Collateral Agent shall have any duties or
responsibilities except those expressly set forth herein or in any other Loan
Document or any fiduciary relationship with any Lender; and no implied
covenants, functions, responsibilities, duties, obligations, or liabilities on
the part of the Agent or the Collateral Agent shall be read into this Agreement
or any other Loan Document or otherwise exist against the Agent or the
Collateral Agent.
8.2 Delegation of Duties. Each of the Agent and the Collateral Agent
may execute any of its duties under this Agreement and the other Loan Documents
by or through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. Neither the Agent nor
the Collateral Agent shall be responsible for the negligence or misconduct of
any agents or attorneys-in-fact selected by it with reasonable care.
8.3 Exculpatory Provisions. Neither the Agent, the Collateral Agent,
nor any of their respective officers, directors, employees, agents,
attorneys-in-fact or affiliates shall be (a) required to initiate or conduct any
litigation or collection proceedings hereunder, except with the concurrence of
the Required Lenders and contribution by each Lender of its Percentage Share of
costs reasonably expected by the Agent or the Collateral Agent to be incurred in
connection therewith, (b) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except for gross negligence or willful misconduct of the
Agent, the Collateral Agent, or such Person), or (c) responsible in any manner
to any Lender for any recitals, statements, representations or warranties made
by the Borrowers or any officer thereof contained in this Agreement or any other
Loan Document or in any certificate, report, statement or other document
referred to or provided for in, or received by the Agent or the Collateral Agent
under or in connection with, this Agreement or any other Loan Document, or for
the value, validity, effectiveness, genuineness, enforceability or sufficiency
of this Agreement or any other Loan Document or for any failure of the Borrower
to perform its obligations hereunder or thereunder. Neither the Agent nor the
Collateral Agent shall be under any obligation to any Lender to ascertain or to
inquire as to the observance or performance of any of the agreements contained
in, or conditions of, this Agreement or any other Loan Document, or to inspect
the properties, books or records of the Borrowers.
8.4 Reliance by Agent. Each of the Agent and the Collateral Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
Note, writing, resolution,
62
<PAGE> 68
notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy,
telex or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel
(including counsel to the Borrowers), independent accountants and other experts
selected by the Agent or the Collateral Agent. Each of the Agent and the
Collateral Agent may deem and treat the payee of any Note as the owner thereof
for all purposes unless and until a written notice of assignment, negotiation,
or transfer thereof shall have been received by the Agent. Each of the Agent and
the Collateral Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Required Lenders as it deems
appropriate or of all of the Lenders if required by any provision of this
Agreement and contribution by each Lender of its Percentage Share of costs
reasonably expected by the Agent or the Collateral Agent, as the case may be, to
be incurred in connection therewith. Each of the Agent and the Collateral Agent
shall in all cases be fully protected in acting, or in refraining from acting,
under this Agreement and the other Loan Documents in accordance with a request
of the Required Lenders. Such request and any action taken or failure to act
pursuant thereto shall be binding upon the Lenders and all future holders of the
Notes. In no event shall either the Agent or the Collateral Agent be required to
take any action that exposes such agent to personal liability or that is
contrary to any Loan Document or applicable Requirement of Law.
8.5 Notice of Default. Neither the Agent nor the Collateral Agent
shall be deemed to have knowledge or notice of the occurrence of any Default or
Event of Default unless such agent has received notice from a Lender or the
Borrowers referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default." In the event that
such agent receives such a notice, such agent shall promptly give notice thereof
to the Lenders. The Agent and the Collateral Agent shall take such action with
respect to such Default or Event of Default as shall be reasonably directed by
the Required Lenders; provided that unless and until the Agent and the
Collateral Agent shall have received such directions, subject to the provisions
of Section 7.2, each of the Agent and the Collateral Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders. In the event that the officer of the Agent or the
Collateral Agent primarily responsible for the lending relationship with the
Borrowers or the officer of any Lender primarily responsible for the lending
relationship with the Borrowers becomes aware that a Default or Event of Default
has occurred and is continuing, such agent or such Lender, as the case may be,
shall use its good faith efforts to inform the other Lenders and/or the other
agents, as the case may be, promptly of such occurrence. Notwithstanding the
preceding sentence, failure to comply with the preceding sentence shall not
result in any liability to the Agent, the Collateral Agent, or any Lender.
8.6 Non-Reliance on Agent and Other Lenders. Each Lender expressly
acknowledges that neither the Agent, the Collateral Agent, any other Lender nor
any of their respective officers, directors, employees, agents,
attorneys-in-fact or affiliates has made any representation or warranty to such
Lender and that no act by the Agent, the Collateral Agent, or any other Lender
hereafter taken, including any review of the affairs of the Borrowers, shall be
deemed to constitute any representation or warranty by the Agent, the Collateral
Agent, or any Lender to any other Lender. Each Lender represents to the Agent
and the Collateral Agent
63
<PAGE> 69
that it has, independently and without reliance upon the Agent, the Collateral
Agent, or any other Lender, and based on such documents and information as it
has deemed appropriate, made its own appraisal of and investigation into the
business, operations, property, condition (financial and otherwise) and
creditworthiness of the Borrowers and the value of the Collateral and other
Properties of the Borrowers and has made its own decision to enter into this
Agreement. Each Lender also represents that it will, independently and without
reliance upon the Agent or the Collateral Agent or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Loan Documents, and to make
such investigation as it deems necessary to inform itself as to the business,
operations, property, condition (financial and otherwise) and creditworthiness
of the Borrowers and the value of the Collateral and other Properties of the
Borrowers. Except for notices, reports and other documents expressly required to
be furnished to the Lenders by the Agent or the Collateral Agent hereunder,
neither the Agent nor the Collateral Agent shall have any duty or responsibility
to provide any Lender with any credit or other information concerning the
business, operations, property, condition (financial and otherwise), or
creditworthiness of the Borrowers or the value of the Collateral or other
Properties of the Borrowers which may come into the possession of the Agent, the
Collateral Agent or any of their respective officers, directors, employees,
agents, attorneys-in-fact or affiliates.
8.7 Indemnification. EACH LENDER AGREES TO INDEMNIFY THE AGENT AND
THE COLLATERAL AGENT AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS-IN-FACT AND AFFILIATES (TO THE EXTENT NOT REIMBURSED BY THE BORROWERS
AND WITHOUT LIMITING THE OBLIGATION OF THE BORROWERS TO DO SO), RATABLY
ACCORDING TO THE PERCENTAGE SHARE OF SUCH LENDER, FROM AND AGAINST ANY AND ALL
LIABILITIES, CLAIMS, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS OF ANY KIND WHATSOEVER WHICH
MAY AT ANY TIME (INCLUDING ANY TIME FOLLOWING THE PAYMENT AND PERFORMANCE OF ALL
OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT) BE IMPOSED ON, INCURRED BY OR
ASSERTED AGAINST THE AGENT, THE COLLATERAL AGENT OR ANY OF THEIR RESPECTIVE
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES IN ANY
WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR
ANY OTHER DOCUMENT CONTEMPLATED OR REFERRED TO HEREIN OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR ANY ACTION TAKEN OR OMITTED BY THE AGENT, THE COLLATERAL
AGENT OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS-IN-FACT OR AFFILIATES UNDER OR IN CONNECTION WITH ANY OF THE
FOREGOING, INCLUDING ANY LIABILITIES, CLAIMS, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS IMPOSED,
INCURRED OR ASSERTED AS A RESULT OF THE NEGLIGENCE, WHETHER SOLE OR CONCURRENT,
OF THE AGENT, THE COLLATERAL AGENT OR ANY OF THEIR RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES; PROVIDED THAT NO
LENDER SHALL BE LIABLE FOR THE PAYMENT OF ANY PORTION OF SUCH LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES OR DISBURSEMENTS RESULTING SOLELY FROM THE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE AGENT, THE COLLATERAL AGENT OR ANY OF THEIR RESPECTIVE
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT
64
<PAGE> 70
OR AFFILIATES. THE AGREEMENTS IN THIS SECTION SHALL SURVIVE THE PAYMENT AND
PERFORMANCE OF ALL OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT.
8.8 Restitution. Should the right of the Agent, the Collateral Agent
or any Lender to realize funds with respect to the Obligations be challenged and
any application of such funds to the Obligations be reversed, whether by
Governmental Authority or otherwise, or should the Borrowers otherwise be
entitled to a refund or return of funds distributed to the Lenders in connection
with the Obligations, the Agent, the Collateral Agent or such Lender, as the
case may be, shall promptly notify the Lenders of such fact. Not later than
Noon, Eastern Standard or Daylight Savings Time, as the case may be, of the
Business Day following such notice, each Lender shall pay to the Agent an amount
equal to the ratable share of such Lender of the funds required to be returned
to the Borrowers. The ratable share of each Lender shall be determined on the
basis of the percentage of the payment all or a portion of which is required to
be refunded originally distributed to such Lender, if such percentage can be
determined, or, if such percentage cannot be determined, on the basis of the
Percentage Share of such Lender. The Agent shall forward such funds to the
Borrowers or to the Lender required to return such funds. If any such amount due
to the Agent is made available by any Lender after Noon, Eastern Standard or
Daylight Savings Time, as the case may be, of the Business Day following such
notice, such Lender shall pay to the Agent (or the Lender required to return
funds to the Borrowers, as the case may be) for its own account interest on such
amount at a rate equal to the Federal Funds Rate for the period from and
including the date on which restitution to the Borrowers is made by the Agent
(or the Lender required to return funds to the Borrowers, as the case may be) to
but not including the date on which such Lender failing to timely forward its
share of funds required to be returned to the Borrowers shall have made its
ratable share of such funds available.
8.9 Agents in Individual Capacity. Each of the Agent and the
Collateral Agent and their affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Borrowers as though the
Agent and the Collateral Agent were not agents hereunder. With respect to any
Note issued to the Lender serving as the Collateral Agent, the Collateral Agent
shall have the same rights and powers under this Agreement as a Lender and may
exercise such rights and powers as though it were not the Collateral Agent. The
terms "Lender" and "Lenders" shall include the Collateral Agent in its
individual capacity.
8.10 Successor Agent. Provided that a successor agent has been
appointed and has accepted such appointment as provided below, the Agent or the
Collateral Agent may resign upon 30 days' notice to the Lenders and the
Borrowers. If the Agent or the Collateral Agent shall resign as an agent under
this Agreement and the other Loan Documents, Lenders for which the Percentage
Shares aggregate at least sixty-six and two-thirds percent (66-2/3%) shall
appoint from among the Lenders a successor agent or collateral agent, as the
case may be, for the Lenders, whereupon such successor agent shall succeed to
the rights, powers and duties of such agent. The term "Agent" or "Collateral
Agent" shall mean such successor agent effective upon its appointment. Upon
written acceptance by such successor agent (a copy of which shall be furnished
to the Borrowers), the rights, powers, and duties of the former agent as Agent
or Collateral Agent shall be terminated, without any other or further act or
deed on the part of such former agent or any of the parties to this Agreement or
any holders of the Notes. After the resignation of the Agent or the Collateral
Agent hereunder as an agent, the provisions of this
65
<PAGE> 71
Article VIII and Sections 2.2(d), 5.13, and 5.17 shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was an agent under
this Agreement and the other Loan Documents.
8.11 Applicable Parties. The provisions of this Article are solely
for the benefit of the Agent, the Collateral Agent and the Lenders, and the
Borrowers shall not have any rights as a third party beneficiary or otherwise or
any obligations under any of the provisions of this Article. In performing
functions and duties hereunder and under the other Loan Documents, the Agent and
the Collateral Agent shall act solely as the agent of the Lenders and do not
assume, nor shall either be deemed to have assumed, any obligation or
relationship of trust or agency with or for the Borrowers or any legal
representative, successor, and assign of the Borrowers.
ARTICLE IX
MISCELLANEOUS
9.1 Assignments; Participations. (a) The Borrowers may not assign any
of its rights or obligations under any Loan Document without the prior consent
of the Agent and the Lenders.
(b) With the consent of the Agent and the Borrowers (which consents
shall not be unreasonably withheld), any Lender may assign to one or more
assignees all or a portion of its rights and obligations under this Agreement
pursuant to an Assignment Agreement. Any such assignment shall be in the amount
of at least $10,000,000 (or any whole multiple of $1,000,000 in excess thereof),
and the assignee shall pay to the Agent a transfer fee in the amount of $3,500
for each such assignment. Any such assignment shall become effective upon the
execution and delivery to the Agent of the Assignment Agreement and the consent
of the Agent and the Borrowers. Promptly following receipt of an executed
Assignment Agreement, the Agent shall send to the Borrowers a copy of such
executed Assignment Agreement. Promptly following receipt of such executed
Assignment Agreement, the Borrowers shall execute and deliver, at its own
expense, new Notes to the assignee and, if applicable, the assignor, in
accordance with their respective interests, whereupon the prior Notes of the
assignor and, if applicable, the assignee, shall be cancelled and returned to
the Borrowers. Upon the effectiveness of any assignment pursuant to this Section
9.1(b), the assignee shall become a "Lender," if not already a "Lender," for all
purposes of the Loan Documents, and the assignor shall be relieved of its
obligations hereunder from and after the date of such assignment to the extent
of such assignment. If the assignor no longer holds any rights or obligations
under this Agreement, such assignor shall cease to be a "Lender" hereunder,
except that its rights under Sections 2.21 and 5.18 shall not be affected. On
the last Business Day of each calendar quarter during which an assignment has
become effective pursuant to this Section 9.1(b), the Agent shall prepare a new
Exhibit III giving effect to all such assignments effected during such month and
will promptly provide a copy thereof to the Borrowers and each Lender.
(c) Each Lender may transfer, grant, or assign participations in all
or any portion of its interests hereunder to any Person pursuant to this Section
9.1(c), provided that such Lender shall remain a "Lender" for all purposes of
this Agreement and the transferee of
66
<PAGE> 72
such participation shall not constitute a "Lender" hereunder. In the case of any
such participation, the participant shall not have any rights under any Loan
Document, the rights of the participant in respect of such participation to be
against the granting Lender as set forth in the agreement with such Lender
creating such participation, and all amounts payable by the Borrower hereunder
shall be determined as if such Lender had not sold such participation. Each
participation agreement shall provide that the Lender that has sold or granted
the participation shall retain the sole right to take or refrain from taking any
action under the Loan Documents, except that such participation agreement may
provide that such Lender shall not, without the consent of the participant,
agree to any amendment or waiver that would have the effect, to the extent such
participant would be affected thereby, of (i) increasing the Commitments of such
Lender, (ii) extending the Revolving Credit Commitment Termination Date, (iii)
extending the Term Credit Commitment Termination Date, (iv) reducing the
principal on the Loans, (v) reducing the rate of interest on the Loans or the
Notes, (vi) reducing the amount of such Lender's participation in any fees
payable pursuant to Sections 2.15 and 2.16, or (vii) extending the time of
scheduled payment of any Obligation. All amounts payable to any Lender under
Article 2 shall be determined as if such Lender had not sold any participations.
Each agreement creating a participation must include an agreement by the
participant to be bound by the provisions of Section 9.9.
(d) The Lenders may furnish any information concerning the Borrowers
in the possession of the Lenders from time to time to assignees and participants
and prospective assignees and participants, provided that such Persons agree to
be bound by the provisions of Section 9.9.
(e) Notwithstanding anything in this Section to the contrary, any
Lender may assign and pledge all or any of its Notes or any interest therein to
any Federal Reserve Bank or the United States Treasury as collateral security
pursuant to Regulation A of the Board of Governors of the Federal Reserve System
and any operating circular issued by such Federal Reserve System and/or such
Federal Reserve Bank. No such assignment or pledge shall release the assigning
or pledging Lender from its obligations hereunder.
(f) Each Lender party to this Agreement on the Closing Date hereby
represents, and each Person that becomes a lender pursuant to an Assignment
Agreement will represent, and shall be deemed to have represented on becoming a
party to this Agreement, that it is a bank or other financial institution
regularly engaged in making or purchasing loans, that it will make or acquire
Loans hereunder for its own account in the ordinary course of its business, and
that it has capital surplus and undivided profits aggregating at least
$500,000,000.
(g) Notwithstanding any other provisions of this Section, no
transfer or assignment of the interests or obligations of any Lender or grant of
participations therein shall be permitted if such transfer, assignment, or grant
would require the Borrower to file a registration statement with the Securities
and Exchange Commission or any successor Governmental Authority or qualify the
Loans under the "Blue Sky" laws of any state.
9.2 Survival of Representations, Warranties, and Covenants. All
representations and warranties of the Borrowers and all covenants and agreements
herein made
67
<PAGE> 73
shall survive the execution and delivery of the Notes and the Security
Instruments and shall remain in force and effect so long as any Obligation is
outstanding or any Commitments exist.
9.3 Notices and Other Communications. Except as to oral notices
expressly authorized herein, which oral notices shall be confirmed in writing,
all notices, requests, and communications hereunder or in connection herewith or
with any other Loan Document shall be in writing (including by telecopy). Unless
otherwise expressly provided herein, any such notice, request, demand, or other
communication shall be deemed to have been duly given or made when delivered by
hand, or, in the case of delivery by mail, two Business Days after deposited in
the mail, certified mail, return receipt requested, postage prepaid, or, in the
case of telecopy notice, when receipt thereof is acknowledged orally or by
written confirmation report, addressed to each party at the "Address for
Notices" specified below its name on the signature pages hereof or at such other
address within the United States as shall be designated by such party in a
notice given to the Agent and the Borrowers.
9.4 Parties in Interest. Subject to the restrictions on changes in
corporate structure set forth in Section 6.10 and other applicable restrictions
contained herein, all covenants and agreements herein contained by or on behalf
of the Borrowers, the Agent, the Collateral Agent or the Lenders shall be
binding upon and inure to the benefit of the Borrowers, the Agent, the
Collateral Agent or the Lenders, as the case may be, and their respective legal
representatives, successors, and permitted assigns.
9.5 Rights of Third Parties. All provisions herein are imposed solely
and exclusively for the benefit of the Agent, the Collateral Agent the Lenders
and the Borrowers and their successors and permitted assigns. No other Person
shall have any right, benefit, priority, or interest hereunder or as a result
hereof or have standing to require satisfaction of provisions hereof in
accordance with their terms.
9.6 No Waiver; Rights Cumulative. No course of dealing on the part of
the Agent, the Collateral Agent or the Lenders or their officers or employees,
nor any failure or delay by the Agent, the Collateral Agent or the Lenders with
respect to exercising any of their rights under any Loan Document shall operate
as a waiver thereof. The rights of the Agent, the Collateral Agent and the
Lenders under the Loan Documents shall be cumulative and the exercise or partial
exercise of any such right shall not preclude the exercise of any other right.
Neither the making of any Loan nor the issuance of a Letter of Credit shall
constitute a waiver of any of the covenants, warranties, or conditions of the
Borrowers contained herein. In the event any Borrower is unable to satisfy any
such covenant, warranty, or condition, neither the making of any Loan nor the
issuance of a Letter of Credit shall have the effect of precluding the Agent or
the Lenders from thereafter declaring such inability to be an Event of Default
as hereinabove provided.
9.7 Severability. In the event any one or more of the provisions
contained in any of the Loan Documents shall, for any reason, be held to be
invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provision of any Loan Document.
68
<PAGE> 74
9.8 Amendments; Waivers. Neither this Agreement nor any of the other
Loan Documents nor any terms hereof or thereof may be amended, supplemented,
modified, or waived except in writing and in accordance with the provisions of
this Section. The Agent and the Borrowers may, from time to time with the
written consent of the Required Lenders, enter into written amendments,
supplements, or modifications to the Loan Documents for the purpose of adding
any provisions to this Agreement or the other Loan Documents or changing in any
manner the rights of the Lenders or the Borrowers hereunder or thereunder or
waiving, on such terms and conditions as the Agent may specify in such
instrument, any of the requirements of this Agreement or the other Loan
Documents or any Default or Event of Default and its consequences; provided,
however, that no such amendment, supplement, modification, or waiver shall (a)
extend the time of scheduled payment of any Obligation, change the rate of
interest thereon, extend the Revolving Credit Commitment Termination Date, the
Term Credit Commitment Termination Date or Final Maturity, reduce any fee
payable for the account of the Lenders hereunder, release any, all or
substantially of the Collateral, reduce the amount of any Obligation, increase
the Revolving Credit Commitment Amount or the Term Credit Commitment Amount,
change the Borrowing Base except in accordance with Section 2.12 or change any
other provision applicable to the determination of the Borrowing Base, amend,
modify, or waive any provision of this Section or Sections 2.12, 5.13, 5.17 or
8.10, change the percentage specified in the definition of Required Lenders, or
consent to the assignment or transfer by the Borrowers of any of their rights or
obligations under this Agreement or the other Loan Documents, in any such case
without the written consent of all Lenders, (b) amend, modify, or waive any
provision of Article VIII or the rights or obligations of the Agent (including
its rights and obligations as issuer of the Letters of Credit) or the Collateral
Agent without the written consent of such agent, or (c) amend, modify, or waive
any provision relating to any Hedging Agreement without the written consent of
the Lender party thereto or whose affiliate is a party thereto. Any such
amendment, supplement, modification, or waiver shall apply equally to each of
the Lenders and shall be binding upon the Borrowers, the Lenders, the Agent, and
the Collateral Agent and all future holders of the Notes. Notwithstanding the
foregoing, during each Sales Period, the Collateral Agent may, provided that no
Default or Event of Default exists, release items of Collateral sold by the
Borrowers in accordance with Section 6.5. In the event of any waiver, the
Borrowers, the Lenders, the Agent, and the Collateral Agent shall be restored to
their respective former positions and rights hereunder and under the other Loan
Documents, and any Default or Event of Default waived shall be deemed to be
cured and not continuing; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right with respect thereto.
9.9 Confidentiality. In the event that any Borrower provides to the
Agent, the Collateral Agent or the Lenders information belonging to any Borrower
or any Affiliate of the Borrowers, the Agent, the Collateral Agent and the
Lenders shall thereafter maintain such information in confidence. This
obligation of confidence shall not apply to such portions of the information
which (i) are in the public domain, (ii) hereafter become part of the public
domain without the Agent, the Collateral Agent or the Lenders breaching their
obligation of confidence herein or in any other Loan Document, (iii) are
previously known by the Agent, the Collateral Agent or the Lenders from some
source other than the Borrowers or any Affiliate of the Borrowers, (iv) are
hereafter developed by the Agent, the Collateral Agent or the Lenders without
using the information thus provided, (v) are hereafter obtained by or available
to the Agent, the Collateral Agent or the Lenders from a third party who owes no
obligation of
69
<PAGE> 75
confidence to the Borrowers or any Affiliate of the Borrowers with respect to
such information or through any other means other than through disclosure by the
Borrowers or any Affiliate of the Borrowers to the Agent, the Collateral Agent
or the Lenders, (vi) are disclosed with the Borrower's consent, (vii) must be
disclosed pursuant to any Requirement of Law, (viii) as may be required by law
or regulation or order of any Governmental Authority in any judicial,
arbitration or governmental proceeding or (ix) as may be requested by any
Governmental Authority pursuant to any bank examination or audit; provided,
however, that to the extent practicable and unless otherwise prohibited by any
Requirement of Law, any Person disclosing any non-public information pursuant to
clauses (vii) or (viii) shall endeavor in good faith to give the Borrowers at
least 5 days' prior written notice of such disclosure. Further, the Agent, the
Collateral Agent or a Lender may disclose any such information to any other
Lender or successor agent, any independent petroleum engineers or consultants,
any independent certified public accountants, any legal counsel employed by such
Person in connection with this Agreement or any other Loan Document, including
the enforcement or exercise of all rights and remedies hereunder or thereunder,
or any assignee or participant (including prospective assignees and
participants) in the Loans; provided, however, that the Agent, the Collateral
Agent or the Lenders impose on the Person to whom such information is disclosed
the same obligation to maintain the confidentiality of such information as is
imposed upon it hereunder and such Person agrees to be bound by the terms
hereof. Notwithstanding anything to the contrary provided herein, this
obligation of confidence shall cease three (3) years from the later of (a) Final
Maturity of the Revolving Notes or (b) the date that all Obligations are paid or
satisfied in full or otherwise performed or discharged or deemed performed or
discharged.
9.10 Controlling Agreement. In the event of a conflict between the
provisions of this Agreement and those of any other Loan Document, the
provisions of this Agreement shall control. Without limiting the generality of
the foregoing, no provision of any Letter of Credit Application, Security
Instrument or other agreement or document executed in connection herewith shall
give the Agent or any Lender any rights that are greater than the rights such
Persons have under this Agreement with respect to the same subject matter.
9.11 Governing Law. THIS AGREEMENT AND THE NOTES SHALL BE DEEMED TO
BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAW.
9.12 Jurisdiction and Venue. ALL ACTIONS OR PROCEEDINGS WITH RESPECT
TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR
FROM THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE SOLE
DISCRETION AND ELECTION OF THE AGENT OR THE COLLATERAL AGENT, IN THE COURTS OF
THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN
DISTRICT OF NEW YORK. EACH BORROWER HEREBY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO
TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST
IT BY THE AGENT, THE COLLATERAL AGENT OR ANY LENDER IN ACCORDANCE WITH THIS
SECTION.
70
<PAGE> 76
9.13 Appointment of Agent for Service of Process. The Borrower hereby
irrevocably designates CT Corporation System, or such other corporate process
agent as is acceptable to the Agent, as the designee, appointee and agent of the
Borrower to receive, for and on behalf of such Borrower, service of process out
of any of the aforementioned courts in any legal action or proceeding with
respect to this Agreement, any other Loan Document or any document related
thereto. It is understood that a copy of such process served on such agent will
be promptly forwarded by mail to such Borrower at its address specified below
its name on the signature pages hereof, but the failure of such Borrower to
receive such copy shall not affect in any way the service of such process. Each
Borrower further irrevocably consents to the service of process of any of the
courts mentioned in Section 9.12 in any such action or proceeding by the mailing
of copies thereof by registered or certified mail, postage prepaid, to such
Borrower at such address, such service to become effective four days after
mailing. Nothing herein shall affect the right of the Agent or any Lender to
serve process in any other manner permitted by law.
9.14 Waiver of Rights to Jury Trial. THE BORROWERS, THE AGENT, THE
COLLATERAL AGENT, AND EACH LENDER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY,
IRREVOCABLY, AND UNCONDITIONALLY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY
ACTION, SUIT, PROCEEDING, COUNTERCLAIM, OR OTHER LITIGATION THAT RELATES TO OR
ARISES OUT OF ANY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE ACTS OR
OMISSIONS OF THE AGENT, THE COLLATERAL AGENT OR ANY LENDER IN THE ENFORCEMENT OF
ANY OF THE TERMS OR PROVISIONS OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR
OTHERWISE WITH RESPECT THERETO. THE PROVISIONS OF THIS SECTION ARE A MATERIAL
INDUCEMENT FOR THE AGENT, THE COLLATERAL AGENT AND THE LENDERS ENTERING INTO
THIS AGREEMENT.
9.15 Integration. THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT
AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND SHALL SUPERSEDE
ANY PRIOR AGREEMENT BETWEEN OR AMONG THE PARTIES, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT HEREOF. FURTHERMORE, IN THIS REGARD, THIS AGREEMENT AND
THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT
AMONG THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.
9.16 Counterparts. For the convenience of the parties, this Agreement
may be executed in multiple counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which together shall constitute one and the same agreement.
71
<PAGE> 77
IN WITNESS WHEREOF, this Agreement is executed effective as of the
date first above written.
BORROWER:
KCS MEDALLION RESOURCES, INC.
By: ___________________________________
Henry A. Jurand
Vice President
Address for Notices:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (908) 603-8960
Principal Place of Business
and Chief Executive Office:
7130 South Lewis Ave.
Suite 700
Tulsa, Oklahoma 74136
Attention:
Telecopy:
KCS ENERGY, INC.
By: ___________________________________
Henry A. Jurand
Vice President
Address for Notices:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (908) 603-8960
72
<PAGE> 78
Principal Place of Business
and Chief Executive Office:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (908) 603-8960
KCS ENERGY SERVICES, INC.
By: ___________________________________
Henry A. Jurand
Vice President
Address for Notices:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (908) 603-8960
Principal Place of Business
and Chief Executive Office:
5555 San Felipe
Suite 1200
Houston, Texas 77056
Attention:
Telecopy:
MEDALLION GAS SERVICES, INC.
By: ___________________________________
Henry A. Jurand
Vice President
Address for Notices:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (908) 603-8960
73
<PAGE> 79
Principal Place of Business
and Chief Executive Office:
7130 South Lewis Avenue
Suite 700
Tulsa, Oklahoma 74136
Attention:
Telecopy:
GED ENERGY SERVICES, INC.
By: ___________________________________
Henry A. Jurand
Vice President
Address for Notices:
379 Thornall St.
Edison, New Jersey 08837
Attention: Kathryn M. Kinnamon
Telecopy: (908) 603-8960
Principal Place of Business
and Chief Executive Office:
7130 South Lewis Avenue
Suite 700
Tulsa, Oklahoma 74136
Attention:
Telecopy:
AGENT:
CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY
By: ___________________________________
Marybeth Ross
Authorized Signatory
74
<PAGE> 80
Address for Notices:
425 Lexington Avenue
7th Floor
New York, New York 10017
Attention: Marybeth Ross
Syndications Group
Telecopy: (212) 856-3763
with copies to:
CANADIAN IMPERIAL BANK OF COMMERCE
909 Fannin, Suite 1200
Houston, Texas 77010
Attention: Dawn Tamborello
Telecopy: (713) 650-3727
COLLATERAL AGENT AND A LENDER:
CIBC INC.
By: ___________________________________
Marybeth Ross
Authorized Signatory
Applicable Lending Office
for Base Rate Loans and
LIBO Rate Loans:
425 Lexington Avenue
7th Floor
New York, New York 10017
Address for Notices:
425 Lexington Avenue
7th Floor
New York, New York 10017
Attention: Marybeth Ross
Telecopy: (212) 856-3763
75
<PAGE> 81
with copies to:
CIBC INC.
909 Fannin, Suite 1200
Houston, Texas 77010
Attention: Dawn Tamborello
Telecopy: (713) 650-3727
76
<PAGE> 82
EXHIBIT I
[FORM OF REVOLVING NOTE]
PROMISSORY NOTE
$[______________] [____________], 1996
FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned ("Maker,"
whether one or more) promises to pay to the order of [___________________]
("Payee"), at the banking quarters of Canadian Imperial Bank of Commerce, New
York Agency (in its capacity as Agent for Payee and others under the Credit
Agreement referred to hereinafter, the "Agent"), the sum of [__________________]
DOLLARS ($[_________]), or so much thereof as may be advanced against this Note
pursuant to the Credit Agreement dated of even date herewith by and among Maker,
Payee, the Agent, the Collateral Agent, and the lenders signatory thereto from
time to time (as amended, restated, or supplemented from time to time, the
"Credit Agreement," defined terms from which are used herein with the meaning
assigned thereto in the Credit Agreement, unless expressly provided to the
contrary herein) and remains unpaid, together with interest at the rates and
calculated as provided in the Credit Agreement. If there is more than one party
constituting Maker hereunder, the liability of all such parties for full
performance under this Note shall be joint and several.
Reference is hereby made to the Credit Agreement for matters
governed thereby, including, without limitation, certain events which will
entitle the holder hereof to accelerate the maturity of all amounts due
hereunder.
This Note is issued pursuant to, is a "Note" under, and is payable
as provided in the Credit Agreement. Subject to compliance with applicable
provisions of the Credit Agreement, Maker may at any time pay the full amount or
any part of this Note without the payment of any premium or fee, but such
payment shall not, until this Note is fully paid and satisfied, excuse the
payment as it becomes due of any payment on this Note provided for in the Credit
Agreement.
Without being limited thereto or thereby, this Note is secured by
the Security Instruments.
The obligations of this Note are without recourse to KCS Energy,
Inc. except as provided in Section 2.27 of the Credit Agreement.
I-i
<PAGE> 83
THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER, AND SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK,
WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICT OF LAWS.
KCS MEDALLION RESOURCES, INC.
By: ___________________________________
Henry A. Jurand
Vice President
KCS ENERGY, INC.
By: ___________________________________
Henry A. Jurand
Vice President
KCS ENERGY SERVICES, INC.
By: ___________________________________
Henry A. Jurand
Vice President
MEDALLION GAS SERVICES, INC.
By: ___________________________________
Henry A. Jurand
Vice President
GED ENERGY SERVICES, INC.
By: ___________________________________
Henry A. Jurand
Vice President
II-ii
<PAGE> 84
EXHIBIT II
[FORM OF TERM NOTE]
TERM NOTE
$_____________ [Date]
FOR VALUE RECEIVED, the undersigned unconditionally promises to pay to the
order of ________________________________ (the "Lender"), at the banking
quarters of Canadian Imperial Bank of Commerce, New York Agency (in its capacity
as Agent for Lender and others under the Credit Agreement referred to
hereinafter (the "Agent") (as hereinafter defined) located in New York City, New
York, on or before the Final Maturity hereof (as defined in the Credit Agreement
hereafter defined), the principal sum of _____________________________________
DOLLARS ($____________________), or, if less, the aggregate unpaid principal
amount of the Term Loans (as defined in the Credit Agreement hereinafter
defined) made by the Lender to the undersigned pursuant to the Credit Agreement
dated of even date herewith by and among the undersigned Lender, the Agent, the
Collateral Agent and the Lenders signatory thereto (as amended, restated or
supplemented from time to time the "Credit Agreement"), defined terms from which
are used herein with the meaning assigned thereto in the Credit Agreement unless
expressly provided to the contrary herein. At the Lender's option, the Term
Loans made to the undersigned may either be set forth on the grid schedule
attached hereto (and any continuation thereof), or in the records of the Lender;
provided that the failure of the Lender to make any such recordation or
endorsement shall not affect the obligations of the undersigned hereunder. Prior
to any transfer hereof, all Term Loans made by the Lender, the respective
maturities thereof and all repayments of the principal thereof shall be endorsed
by the Lender on the grid schedule attached hereto, or on a continuation of such
schedule attached to and made a part hereof; provided that the failure of the
Bank to make any such recordation or endorsement shall not affect the
obligations of the undersigned.
The undersigned also promises to pay interest on the unpaid principal
amount hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Credit Agreement; provided,
however, that in no event shall such interest exceed the Highest Lawful Rate (as
hereinafter defined).
All payments of principal and interest hereunder shall be made in lawful
money of the United States of America in freely transferable United States
dollars.
"Highest Lawful Rate" shall mean the maximum nonusurious interest rate,
if any, that at any time or from time to time may be contracted for, taken,
reserved, charged or received on this Note under laws applicable to the payee
which are presently in effect or, to the extent allowed by applicable law, under
such laws which may hereafter be in effect and which allow a higher maximum
nonusurious interest rate than applicable laws now allow. Determination of the
rate of interest for the purpose of determining whether the Loans represented
hereby are
II-i
<PAGE> 85
usurious under all applicable laws shall be made by amortizing, prorating,
allocating, and spreading, in equal parts during the period of the full stated
term of the Loans represented hereby, all interest at any time contracted for,
charged, or received from the undersigned in connection with such Loans.
This Note is one of the Term Notes referred to in and is entitled to the
benefits of the Credit Agreement and secured by the Security Instruments (as
such term is defined in the Credit Agreement). Reference is hereby made to the
Credit Agreement for a statement of additional provisions relating to interest,
the prepayment rights and obligations of the Maker, a description of the
properties and assets mortgaged, encumbered and assigned, the nature and extent
of the security and the rights of the parties to the Security Instruments in
respect of such security, and for a statement of the terms and conditions under
which the due date of this Note may be accelerated. Upon the occurrence and
during the continuance of any Event of Default as specified in the Credit
Agreement, the principal balance hereof and the interest accrued hereon may be
declared to be forthwith due and payable in accordance with the Credit
Agreement.
All parties hereto, whether as makers, endorsees, or otherwise, severally
waive presentment for payment, demand, protest, notice of intent to accelerate,
notice of acceleration, notice of dishonor and all other notices whatsoever in
respect of this Note.
The obligations of this Note are without recourse to KCS Energy Inc.
except as provided in Section 2.27 of the Credit Agreement.
THIS NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE
STATE OF NEW YORK AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
KCS MEDALLION RESOURCES, INC.
By: ___________________________________
Henry A. Jurand
Vice President
KCS ENERGY, INC.
By: ___________________________________
Henry A. Jurand
Vice President
II-ii
<PAGE> 86
KCS ENERGY SERVICES, INC.
By: ___________________________________
Henry A. Jurand
Vice President
MEDALLION GAS SERVICES, INC.
By: ___________________________________
Henry A. Jurand
Vice President
GED ENERGY SERVICES, INC.
By: ___________________________________
Henry A. Jurand
Vice President
II-iii
<PAGE> 87
LOANS AND PRINCIPAL PAYMENTS
<TABLE>
<CAPTION>
====================================================================================================================================
Date Type of Loan Made Amount of Principal Repaid Unpaid Principal Balance
- ------------------------------------------------------------------------------------------------------------------------------------
Base Rate Eurodollar Rate Base Rate Eurodollar Rate Base Rate Eurodollar Rate Total Notation
Made By
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
II-iv
<PAGE> 88
EXHIBIT III
FORM OF
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT (this "Agreement") is dated as of ________,
199__, by and between ______________________________ (the "Assignor") and
________________________________ (the "Assignee").
RECITALS
A. The Assignor is a party to the Credit Agreement dated as of
____________, 1996 (as amended, restated or supplemented from time to time, the
"Credit Agreement") by and among KCS MEDALLION RESOURCES, INC., a Delaware
corporation, KCS Energy, Inc., a Delaware corporation, KCS Energy Services,
Inc., a Delaware corporation, Medallion Gas Services, Inc., a Delaware
corporation and GED Energy Services, Inc., a Delaware corporation (collectively,
the "Borrowers"), each of the lenders that is or becomes a party thereto as
provided in Section 9.1(b) or Section 2.25 of the Credit Agreement
(individually, together with its successors and such assigns, a "Lender", and
collectively, together with their successors and such assigns, the "Lenders"),
and CANADIAN IMPERIAL BANK OF COMMERCE, acting through its New York agency (in
its individual capacity, "CIBC") and as agent for the Lenders (in such capacity,
together with its successors in such capacity, the "Agent") and CIBC INC., a
Delaware corporation, as collateral agent for the Lenders.
B. The Assignor proposes to sell, assign and transfer to the Assignee,
and the Assignee proposes to purchase and assume from the Assignor, [all][a
portion] of the Assignor's Total Facility Amount, its outstanding Loans and its
Percentage Share of the outstanding LC Exposure, all on the terms and conditions
of this Agreement.
C. In consideration of the foregoing and the mutual agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. All capitalized terms used but not defined herein have
the respective meanings given to such terms in the Credit Agreement.
1.2 Other Definitions. As used herein, the following terms have the
following respective meanings:
III-i
<PAGE> 89
"Assigned Interest" shall mean all of Assignor's (in its capacity as
a "Lender") rights and obligations (i) under the Credit Agreement and the
other Loan Documents in respect of [all of] the [portion of the] Total
Facility Amount of the Assignor in the principal amount equal to
$___________, including, without limitation, any obligation to participate
pro rata in any L/C Exposure, (ii) to make Revolving Loans under its
Revolving Credit Commitment up to the lesser of the Revolving Facility
Amount referenced above or the Borrowing Base in effect from time to time
and any right to receive payments for the Revolving Loans currently
outstanding under its Revolving Credit Commitment in the principal amount
of $ (the "Loan Balance of Revolving Loans"), and (iii) to make Term Loans
under its Term Credit Commitment up to the Term Credit Facility Amount and
any right to receive payments for the Term Loans currently outstanding
under its Term Credit Commitment in the principal amount of $___________
(the "Loan Balance of Term Loans") plus the interest and fees which will
accrue from and after the Assignment Date.
"Assignment Date" shall mean ________________, 199__.
ARTICLE II
SALE AND ASSIGNMENT
2.1 Sale and Assignment. On the terms and conditions set forth herein,
effective on and as of the Assignment Date, the Assignor hereby sells, assigns
and transfers to the Assignee, and the Assignee hereby purchases and assumes
from the Assignor, all of the right, title and interest of the Assignor in and
to, and all of the obligations of the Assignor in respect of, the Assigned
Interest. Such sale, assignment and transfer is without recourse and, except as
expressly provided in this Agreement, without representation or warranty.
2.2 Assumption of Obligations. The Assignee agrees with the Assignor (for
the express benefit of the Assignor and the Borrowers) that the Assignee will,
from and after the Assignment Date, assume and perform all of the obligations of
the Assignor in respect of the Assigned Interest. From and after the Assignment
Date for matters accruing or arising from and after the Assignment Date: (a) the
Assignor shall be released from the Assignor's obligations in respect of the
Assigned Interest, and (b) the Assignee shall be entitled to all of the
Assignor's rights, powers and privileges under the Credit Agreement and the
other Loan Documents in respect of the Assigned Interest.
2.3 Consent to Assignment. By executing this Agreement as provided below,
in accordance with Section 9.1(b) of the Credit Agreement, the Agent and each of
the Borrowers hereby acknowledges notice of the transactions contemplated by
this Agreement and consents to such transactions.
III-ii
<PAGE> 90
ARTICLE III
PAYMENTS
3.1 Payments. As consideration for the sale, assignment and transfer
contemplated by Section 2.1 hereof, the Assignee shall, on the Assignment Date,
assume Assignor's obligations in respect of the Assigned Interest and pay to the
Assignor an amount equal to the sum of the Loan Balance of Revolving Loans and
the Loan Balance of Term Loans, if any. An amount equal to all accrued and
unpaid interest and fees shall be paid to the Assignor as provided in Section
3.2 (iii) below. Except as otherwise provided in this Agreement, all payments
hereunder shall be made in Dollars and in immediately available funds, without
setoff, deduction or counterclaim.
3.2 Allocation of Payments. The Assignor and the Assignee agree that (i)
the Assignor shall be entitled to any payments of principal with respect to the
Assigned Interest made prior to the Assignment Date, together with any interest
and fees with respect to the Assigned Interest accrued prior to the Assignment
Date, (ii) the Assignee shall be entitled to any payments of principal with
respect to the Assigned Interest made from and after the Assignment Date,
together with any and all interest and fees with respect to the Assigned
Interest accruing from and after the Assignment Date, and (iii) the Agent is
authorized and instructed to allocate payments received by it for account of the
Assignor and the Assignee as provided in the foregoing clauses. Each party
hereto agrees that it will hold any interest, fees or other amounts that it may
receive to which the other party hereto shall be entitled pursuant to the
preceding sentence for account of such other party and pay, in like money and
funds, any such amounts that it may receive to such other party promptly upon
receipt.
3.3 Delivery of Notes. Promptly following the receipt by the Assignor of
the consideration required to be paid under Section 3.1 hereof, the Assignor
shall, in the manner contemplated by Section 9.1(b) of the Credit Agreement, (i)
deliver to the Agent (or its counsel) the Notes held by the Assignor and (ii)
notify the Agent to request that the Borrowers execute and deliver new Notes to
the Assignor, if the Assignor continues to be a Lender, and the Assignee, dated
the date of this Agreement in respective principal amounts equal to the
respective Total Facility Amounts of the Assignor (if appropriate) and the
Assignee after giving effect to the sale, assignment and transfer contemplated
hereby.
3.4 Further Assurances. The Assignor and the Assignee hereby agree to
execute and deliver such other instruments, and take such other actions, as
either party may reasonably request in connection with the transactions
contemplated by this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 Conditions Precedent. The effectiveness of the sale, assignment and
transfer contemplated hereby is subject to the satisfaction of each of the
following conditions precedent:
III-iii
<PAGE> 91
(a) the execution and delivery of this Agreement by the Assignor and
the Assignee;
(b) the receipt by the Assignor of the payments required to be made
under Section 3.1 hereof; and
(c) the acknowledgment and consent by the Agent and the Borrowers
contemplated by Section 2.3 hereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of Assignor. The Assignor represents
and warrants to the Assignee as follows:
(a) it has all requisite power and authority, and has taken all
action necessary to execute and deliver this Agreement and to fulfill its
obligations under, and consummate the transactions contemplated by, this
Agreement;
(b) the execution, delivery and compliance with the terms hereof by
Assignor and the delivery of all instruments required to be delivered by
it hereunder do not and will not violate any Requirement of Law
applicable to it;
(c) this Agreement has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of the Assignor,
enforceable against it in accordance with its terms;
(d) all approvals and authorizations of, all filings with and all
actions by any Governmental Authority necessary for the validity or
enforceability of its obligations under this Agreement have been
obtained;
(e) the Assignor has good title to, and is the sole legal and
beneficial owner of, the Assigned Interest, free and clear of all Liens,
claims, participations or other charges of any nature whatsoever; and
(f) the transactions contemplated by this Agreement are commercial
banking transactions entered into in the ordinary course of the banking
business of the Assignor.
5.2 Disclaimer. Except as expressly provided in Section 5.1 hereof, the
Assignor does not make any representation or warranty, nor shall it have any
responsibility to the Assignee, with respect to the accuracy of any recitals,
statements, representations or warranties contained in the Credit Agreement or
in any other Loan Document or for the value, validity, effectiveness,
genuineness, execution, legality, enforceability or sufficiency of the Credit
Agreement, the Notes or any other Loan Document or for any failure by the
Borrower, or any
III-iv
<PAGE> 92
other Person (other than Assignor) to perform any of its obligations thereunder
or for the existence, value, perfection or priority of any collateral security
or the financial or other condition of any Borrower or any other Person, or any
other matter relating to the Credit Agreement or any other Loan Document or any
extension of credit thereunder.
5.3 Representations and Warranties of Assignee. The Assignee represents
and warrants to the Assignor as follows:
(a) it has all requisite power and authority, and has taken all
action necessary to execute and deliver this Agreement and to fulfill its
obligations under, and consummate the transactions contemplated by, this
Agreement;
(b) the execution, delivery and compliance with the terms hereof by
Assignee and the delivery of all instruments required to be delivered by
it hereunder do not and will not violate any Requirement of Law
applicable to it;
(c) this Agreement has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of the Assignee,
enforceable against it in accordance with its terms;
(d) all approvals and authorizations of, all filings with and all
actions by any Governmental Authority necessary for the validity or
enforceability of its obligations under this Agreement have been
obtained;
(e) the Assignee has fully reviewed the terms of the Credit
Agreement and the other Loan Documents and has independently and without
reliance upon the Assignor, and based on such information as the Assignee
has deemed appropriate, made its own credit analysis and decision to
enter into this Agreement;
(f) if the Assignee is not incorporated under the laws of the
United Sates of America or a state thereof, the Assignee has
contemporaneously herewith delivered to the Agent and the Borrowers such
documents as are required by Section 2.24(b) of the Credit Agreement; and
(g) the transactions contemplated by this Agreement are commercial
banking transactions entered into in the ordinary course of the banking
business of the Assignee.
ARTICLE VI
MISCELLANEOUS
6.1 Notices. All notices and other communications provided for herein
(including, without limitation, any modifications of, or waivers, requests or
consents under, this Agreement) shall be given or made in writing (including,
without limitation, by telex or telecopy) to the
III-v
<PAGE> 93
intended recipient at its "Address for Notices" specified below its name on the
signature pages hereof or, as to either party, at such other address as shall be
designated by such party in a notice to the other party.
6.2 Amendment, Modification or Waiver. No provision of this Agreement may
be amended, modified or waived except by an instrument in writing signed by the
Assignor and the Assignee, and consented to by the Agent and the Borrowers.
6.3 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. The representations and warranties made herein by the
Assignee are also made for the benefit of the Agent, and the Assignee agrees
that the Agent is entitled to rely upon such representations and warranties.
6.4 Assignments. Neither party hereto may assign any of its rights or
obligations hereunder except in accordance with the terms of the Credit
Agreement.
6.5 Captions. The captions and section headings appearing herein are
included solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
6.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be identical and all of which, taken together,
shall constitute one and the same instrument, and each of the parties hereto may
execute this Agreement by signing any such counterpart.
6.7 Governing Law. THIS AGREEMENT (INCLUDING, BUT NOT LIMITED TO, THE
VALIDITY AND ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, OTHER THAN THE CONFLICT OF
LAWS RULES THEREOF.
6.8 Expenses. To the extent not paid by the Borrowers pursuant to the
terms of the Credit Agreement, each party hereto shall bear its own expenses in
connection with the execution, delivery and performance of this Agreement.
6.9 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
III-vi
<PAGE> 94
IN WITNESS WHEREOF, the parties hereto have caused this Assignment
Agreement to be executed and delivered as of the date first above written.
ASSIGNOR
______________________________________
By: __________________________________
Printed Name: ________________________
Title: _______________________________
Address for Notices:
______________________________________
______________________________________
______________________________________
Telecopier No.: ______________________
Telephone No.: _______________________
Attention: ___________________________
ASSIGNEE
______________________________________
By: __________________________________
Printed Name: ________________________
Title: _______________________________
Address for Notices:
______________________________________
______________________________________
______________________________________
Telecopier No.: ______________________
Telephone No.: _______________________
Attention: ___________________________
III-vii
<PAGE> 95
ACKNOWLEDGED AND CONSENTED TO:
Canadian Imperial Bank of Commerce,
acting through its New York Agency,
as Agent
By: _______________________________
Printed Name: _____________________
Title: ____________________________
KCS MEDALLION RESOURCES, INC.
By: _______________________________
Printed Name: _____________________
Title: ____________________________
KCS ENERGY, INC.
By: _______________________________
Printed Name: _____________________
Title: ____________________________
KCS ENERGY SERVICES, INC.
By: _______________________________
Printed Name: _____________________
Title: ____________________________
MEDALLION GAS SERVICES, INC.
By: _______________________________
Printed Name: _____________________
Title: ____________________________
III-viii
<PAGE> 96
GED ENERGY SERVICES, INC.
By: _______________________________
Printed Name: _____________________
Title: ____________________________
III-ix
<PAGE> 97
EXHIBIT IV
[FORM OF BORROWING REQUEST]
Canadian Imperial Bank of Commerce,
acting through its New York agency,
as Agent
425 Lexington Avenue, 7th Floor
New York, New York 10017
Attention: Marybeth Ross
Syndications Group
Telecopy: (212) 856-3763
Re: Credit Agreement dated as of _________, 1996, by and among KCS
Medallion Resources, Inc. (the "Borrower"), KCS Energy, Inc., KCS
Energy Services, Inc., Medallion Gas Services, Inc. and GED Energy
Services, Inc., Canadian Imperial Bank of Commerce, acting through
its New York agency, as Agent, and the lenders signatory thereto
from time to time (as amended, restated, or supplemented from time
to time, the "Credit Agreement")
Ladies and Gentlemen:
Pursuant to the Credit Agreement, the Borrowers hereby make the
requests indicated below:
|_| 1. |_| Term Loans |_| Revolving Loans
(a) Amount of new Loan: $____________
(b) Requested funding date: ___________, 19__
(c) $________________ of such Loan is to be a Base Rate Loan; and
$________________ of such Loan is to be a LIBO Rate Loan.
(d) Requested Interest Period for LIBO Rate Loan: ____ months.
|_| 3. Continuation or conversion of LIBO Rate Loan maturing on __________:
(a) Amount to be continued as a LIBO Rate Loan is $_______________, with
an Interest Period of ____ months; and
(b) Amount to be converted to a Base Rate Loan is $________________.
IV-i
<PAGE> 98
4. Conversion of Base Rate Loan:
(a) Requested conversion date: __________, 19__.
(b) Amount to be converted to a LIBO Rate Loan is $________, with an
Interest Period of _____ months.
Each of the undersigned certifies that [s]he is an authorized
officer of such Borrower and as such [s]he is authorized to execute this request
on behalf of such Borrower. The undersigned further represents, and warrants on
behalf of such Borrower that such Borrower is entitled to receive the requested
borrowing, continuation, or conversion under the terms and conditions of the
Credit Agreement and that no Default or Event of Default shall exist or will
occur as a result of the making of such requested borrowing, continuation, or
conversion.
Each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement.
Very truly yours,
KCS MEDALLION RESOURCES, INC.
By: ___________________________________
Henry A. Jurand
Vice President
KCS ENERGY, INC.
By: ___________________________________
Henry A. Jurand
Vice President
KCS ENERGY SERVICES, INC.
By: ___________________________________
Henry A. Jurand
Vice President
IV-ii
<PAGE> 99
MEDALLION GAS SERVICES, INC.
By: ___________________________________
Henry A. Jurand
Vice President
GED ENERGY SERVICES, INC.
By: ___________________________________
Henry A. Jurand
Vice President
IV-iii
<PAGE> 100
EXHIBIT V
FACILITY AMOUNTS
================================================================================
Revolving Team Credit
Percentage Credit Facility Facility Total Facility
Name of Lender Share Amount Amount Amount
- --------------------------------------------------------------------------------
CIBC Inc. 100% $150,000,000 $30,000,000 $180,000,000
- --------------------------------------------------------------------------------
================================================================================
V-i
<PAGE> 101
EXHIBIT VI
[FORM OF COMPLIANCE CERTIFICATE]
___________, 19__
Canadian Imperial Bank of Commerce,
acting through its New York agency,
as Agent
425 Lexington Avenue, 7th Floor
New York, New York 10017
Attention: Marybeth Ross
Syndications Group
Telecopy: (212) 856-3763
Re: Credit Agreement dated as of _________, 1996, by and among KCS
Medallion Resources, Inc., KCS Energy, Inc. ("KCS"), KCS Energy
Services, Inc., Medallion Gas Services, Inc. and GED Energy
Services, Inc., (collectively, "Borrowers"), Canadian Imperial Bank
of Commerce, acting through its New York agency, as Agent, and the
lenders signatory thereto from time to time (as amended, restated,
or supplemented from time to time, the "Credit Agreement")
Ladies and Gentlemen:
1. Pursuant to applicable requirements of the Credit Agreement, the
undersigned, a Responsible Officer of KCS, hereby certifies to you on behalf of
the Borrowers the following information as true and correct as of the date
hereof or for the period indicated, as the case may be:
[(a) No Default or Event of Default exists as of the date hereof or has
occurred since the date of our previous certification to you, if any.]
[(a) The following Defaults or Events of Default exist as of the date
hereof or have occurred since the date of our previous certification to
you, if any, and the actions set forth below are being taken to remedy
such circumstances:]
2. Pursuant to applicable requirements of the Credit Agreement the
undersigned, a Responsible Officer of KCS, hereby certifies to you on behalf of
the Borrowers that:
(a) As of the close of business on , no default exists under Sections
6.16, 6.17, 6.18 or 6.19 of the Credit Agreement, as evidenced by the
following:
(i) Section 6.16: Tangible Net Worth of the KCS Medallion Group
VI-i
<PAGE> 102
Required Actual
-------- ------
Not less than $48,000,000 plus
50% of positive Net Income and
75% of net proceeds of equity offerings $_______________
(ii) Section 6.17: Interest Coverage Ratio of the KCS Medallion
Group
Required Actual
-------- ------
Not less than 2.0 to 1.0 ______ to 1.0
(iii) Section 6.18: Tangible Net Worth of KCS
Required Actual
-------- ------
Not less than $75,000,000 plus 50% of positive Net Income and 75% of
net proceeds of equity offerings $
(iv) Section 6.19: Interest Coverage Ratio of KCS
Required Actual
-------- ------
Not less than 2.0 to 1.0 ______ to 1.0
(b) The Debt of KCS/KCS EBITDA ratio, as of the close of business on
_______________, is _________ to 1.0.
Each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement.
Very truly yours,
KCS ENERGY, INC.
By: _________________________________
Printed Name:
Title:
VI-ii
<PAGE> 103
EXHIBIT VII
MATERIAL PROPERTIES
NO. PROPERTY NAME FIELD COUNTY/PARISH ST
4 RANCHO SAN FRN 2 NEWHALL-POTRERO LOS ANGELES CA
5 RANCHO SAN FRN 7 NEWHALL-POTRERO LOS ANGELES CA
6 RANCHO SAN FRN 16 NEWHALL-POTRERO LOS ANGELES CA
7 RANCHO SAN FRN 19 NEWHALL-POTRERO LOS ANGELES CA
8 RANCHO SAN FRN 21 NEWHALL-POTRERO LOS ANGELES CA
9 RANCHO SAN FRN 29 NEWHALL-POTRERO LOS ANGELES CA
10 RANCHO SAN FRN 45 NEWHALL-POTRERO LOS ANGELES CA
11 RANCHO SAN FRN 58 NEWHALL-POTRERO LOS ANGELES CA
12 RANCHO SAN FRN 69 NEWHALL-POTRERO LOS ANGELES CA
13 RANCHO SAN FRN 73 NEWHALL-POTRERO LOS ANGELES CA
14 RANCHO SAN FRN 74 NEWHALL-POTRERO LOS ANGELES CA
15 RANCHO SAN FRN 76 NEWHALL-POTRERO LOS ANGELES CA
16 RANCHO SAN FRN 77 NEWHALL-POTRERO LOS ANGELES CA
17 RANCHO SAN FRN 80 NEWHALL-POTRERO LOS ANGELES CA
18 RANCHO SAN FRN 90 NEWHALL-POTRERO LOS ANGELES CA
19 RANCHO SAN FRN 91 NEWHALL-POTRERO LOS ANGELES CA
20 RANCHO SAN FRN 96 NEWHALL-POTRERO LOS ANGELES CA
21 RANCHO SAN FRN 99 NEWHALL-POTRERO LOS ANGELES CA
22 RANCHO SAN FRN 101 NEWHALL-POTRERO LOS ANGELES CA
23 RANCHO SAN FRN 102 NEWHALL-POTRERO LOS ANGELES CA
24 RANCHO SAN FRN 107 NEWHALL-POTRERO LOS ANGELES CA
25 RANCHO SAN FRN 114 NEWHALL-POTRERO LOS ANGELES CA
26 RANCHO SAN FRN 122 NEWHALL-POTRERO LOS ANGELES CA
27 RANCHO SAN FRN 123 NEWHALL-POTRERO LOS ANGELES CA
28 RANCHO SAN FRN 127 NEWHALL-POTRERO LOS ANGELES CA
29 RANCHO SAN FRN 128 NEWHALL-POTRERO LOS ANGELES CA
30 RANCHO SAN FRN 137 NEWHALL-POTRERO LOS ANGELES CA
31 RANCHO SAN FRN 141 NEWHALL-POTRERO LOS ANGELES CA
32 RANCHO SAN FRN 143 NEWHALL-POTRERO LOS ANGELES CA
33 RANCHO SAN FRN 150 NEWHALL-POTRERO LOS ANGELES CA
39 DRAGON TR UNIT DRAGON TRAIL RIO BLANCO CO
45 SECOND WIND UNIT SECOND WIND CHEYENNE CO
73 CUMMINGS 1 ELM GROVE BOSSIER LA
74 CUMMINGS 1 ELM GROVE BOSSIER LA
75 CUMMINGS 1 BP-HOS ELM GROVE BOSSIER LA
78 EGP 2 ELM GROVE BOSSIER LA
81 EGP 9-5 ELM GROVE BOSSIER LA
82 EGP 9-6 ELM GROVE BOSSIER LA
83 EGP 9-6 ELM GROVE BOSSIER LA
84 EGP 9-6 BP (HOS) ELM GROVE BOSSIER LA
VII-i
<PAGE> 104
EXHIBIT VII
(continued)
NO. PROPERTY NAME FIELD COUNTY/PARISH ST
85 EGP 10-7 ELM GROVE BOSSIER LA
87 KAUFMAN ETAL 1 ELM GROVE BOSSIER LA
91 MCDADE 1 ELM GROVE BOSSIER LA
93 OSBORNE 8-1 ELM GROVE BOSSIER LA
94 OSBORNE 8-1 BP-CVC ELM GROVE BOSSIER LA
95 OSBORNE 8-1 BP-HOS ELM GROVE BOSSIER LA
96 PARKER 8-1 ELM GROVE BOSSIER LA
98 ROBERTSON 1 ELM GROVE BOSSIER LA
99 ROOS 4 ELM GROVE BOSSIER LA
100 ROOS 4 NP-CVC ELM GROVE BOSSIER LA
101 ROOS 5 ELM GROVE BOSSIER LA
102 ROOS 5 ELM GROVE BOSSIER LA
103 ROOS 5 ELM GROVE BOSSIER LA
105 ROOS 7 ELM GROVE BOSSIER LA
106 ROOS 7 NP (CVC) ELM GROVE BOSSIER LA
107 STAMPER 8-1 (HOSS) ELM GROVE BOSSIER LA
108 STAMPER 8-1 BP-CVC ELM GROVE BOSSIER LA
109 STAMPER 8-1 NP HAY ELM GROVE BOSSIER LA
112 WOODLEY 1 ELM GROVE BOSSIER LA
113 EI 251 A-10 EUGENE ISL 251/262 OFFSHORE LA
114 EI 251 B-3 EUGENE ISL 251/262 OFFSHORE LA
115 EI 251 B-5 EUGENE ISL 251/262 OFFSHORE LA
116 EI 251 B-5 BP EUGENE ISL 251/262 OFFSHORE LA
117 EI 251/262 LOC B EUGENE ISL 251/262 OFFSHORE LA
118 EI 262 A-12 EUGENE ISL 251/262 OFFSHORE LA
119 EI 262 A-12 BP EUGENE ISL 251/262 OFFSHORE LA
120 EI 262 B-1 EUGENE ISL 251/262 OFFSHORE LA
121 EI 262 B-2 EUGENE ISL 251/262 OFFSHORE LA
122 EI 262 B-4 EUGENE ISL 251/262 OFFSHORE LA
123 BOUDREAUX 1 LAKE ARTHUR, S VERMILION LA
149 BANE 35-1 LISBON CLAIBORNE LA
150 KING 1-35 LISBON CLAIBORNE LA
153 BURNS 1 BP2 LONGVILLE, E BEAUREGARD LA
154 BURNS, MAURICE J LONGVILLE, E BEAUREGARD LA
223 ST 193 4 SOUTH TIMB 193/194 OFFSHORE LA
224 ST 193 4 SOUTH TIMB 193/194 OFFSHORE LA
225 ST 193 A-1 SOUTH TIMB 193/194 OFFSHORE LA
226 ST 193 A-1 SOUTH TIMB 193/194 OFFSHORE LA
227 ST 194 A-3 SOUTH TIMB 193/194 OFFSHORE LA
228 ST 194 B-1 SOUTH TIMB 193/194 OFFSHORE LA
229 SL 4909 NO 2 STUARDS BLUFF ST BERNARD LA
VII-ii
<PAGE> 105
EXHIBIT VII
(continued)
NO. PROPERTY NAME FIELD COUNTY/PARISH ST
248 VR 155 A-4 VERMILION 155 OFFSHORE LA
266 BARNES 9-10 2 GREENS CREEK JEFF. DAVIS MS
267 BD OF SUP 16-8 1U GREENS CREEK JEFF. DAVIS MS
323 ST OF NM 35-1 KEMNITZ, S LEA NM
324 VACUUM 31-1 VACUUM, N LEA NM
359 FITTS WEST UNIT FITTS PONTOTOC OK
379 C L O 23-3 MOCANE-LAVERNE HARPER OK
385 COOPER 2-16 MOCANE-LAVERNE ELLIS OK
395 JANE 8-1 MOCANE-LAVERNE ELLIS OK
492 HARRIS T B LEASE EAST TEXAS GREGG TX
510 EPPS, HATTIE D 1 FRANCES HILL SUTTON TX
513 STEWART MACO LEASE GILLOCK GALVESTON TX
555 BRYANT 1-22 MILLS RANCH WHEELER TX
556 BRYANT F D 1 MILLS RANCH WHEELER TX
557 COLTHARP V 1 MILLS RANCH WHEELER TX
558 DABERRY J F 1 MILLS RANCH WHEELER TX
560 DAVIS E T 1 MILLS RANCH WHEELER TX
561 FABIAN S 1 MILLS RANCH WHEELER TX
562 JAMES W F 1 MILLS RANCH WHEELER TX
565 LISTER 1 MILLS RANCH WHEELER TX
566 MILLS R D 1 MILLS RANCH WHEELER TX
568 YOUNG J W 1 MILLS RANCH WHEELER TX
604 MOLLNAR 1 PHASE FOUR WHARTON TX
616 CUSENABRY W R F 3 SAWYER SUTTON TX
617 CUSENABRY W R G 3 SAWYER SUTTON TX
625 CUSENBARY W R F 1 SAWYER SUTTON TX
626 CUSENBARY W R F 2 SAWYER SUTTON TX
627 CUSENBARY W R G 1 SAWYER SUTTON TX
628 CUSENBARY W R G 2 SAWYER SUTTON TX
633 ESPY, H T 1-L SAWYER SUTTON TX
634 ESPY, H T 1-U SAWYER SUTTON TX
635 ESPY, H T 2 SAWYER SUTTON TX
636 ESPY, H T 3-U SAWYER SUTTON TX
637 ESPY, H T 4 SAWYER SUTTON TX
638 ESPY, H T 5-T SAWYER SUTTON TX
639 ESPY, H T 6 SAWYER SUTTON TX
640 ESPY, H T 7 SAWYER SUTTON TX
641 ESPY, H T 8 SAWYER SUTTON TX
642 ESPY, H T A 1 SAWYER SUTTON TX
643 ESPY, H T A 2 SAWYER SUTTON TX
644 ESPY, H T B 1 SAWYER SUTTON TX
VII-iii
<PAGE> 106
EXHIBIT VII
(continued)
NO. PROPERTY NAME FIELD COUNTY/PARISH ST
645 ESPY, H T B 2 SAWYER SUTTON TX
646 ESPY, H T B 3 SAWYER SUTTON TX
647 GENINI 3301 SAWYER SUTTON TX
648 GENINI 3701X SAWYER SUTTON TX
649 GENINI 3702 SAWYER SUTTON TX
650 GENINI 3801 SAWYER SUTTON TX
651 JONES 97 1 SAWYER SUTTON TX
652 JONES 97 2 SAWYER SUTTON TX
653 JONES 97 3 SAWYER SUTTON TX
654 JONES 97 4 SAWYER SUTTON TX
655 JONES 97 5 SAWYER SUTTON TX
656 JONES 97 6 SAWYER SUTTON TX
657 JONES 97 7 SAWYER SUTTON TX
658 JONES 97 10 SAWYER SUTTON TX
659 JONES 97 11 SAWYER SUTTON TX
660 JONES 119 1 SAWYER SUTTON TX
661 JONES 119 2 SAWYER SUTTON TX
662 JONES 119 3 SAWYER SUTTON TX
663 JONES 119 4 SAWYER SUTTON TX
664 JONES 119 5 SAWYER SUTTON TX
665 JONES 119 7 SAWYER SUTTON TX
666 JONES 119 8 SAWYER SUTTON TX
667 JONES 119 9 SAWYER SUTTON TX
668 JONES 119 10 SAWYER SUTTON TX
669 JONES 119 11 SAWYER SUTTON TX
670 JONES 119 12 SAWYER SUTTON TX
671 JONES 119 13 SAWYER SUTTON TX
672 JONES 119 14 SAWYER SUTTON TX
673 JONES 119 15 SAWYER SUTTON TX
674 JONES 121 1 SAWYER SUTTON TX
675 JONES 121 2 SAWYER SUTTON TX
676 JONES 121 3 SAWYER SUTTON TX
677 JONES 121 4 SAWYER SUTTON TX
678 JONES 121 5 SAWYER SUTTON TX
679 JONES 121 6 SAWYER SUTTON TX
680 JONES 121 7 SAWYER SUTTON TX
681 JONES 121 8 SAWYER SUTTON TX
682 JONES 121 9 SAWYER SUTTON TX
683 JONES 121 10 SAWYER SUTTON TX
684 JONES 121 11 SAWYER SUTTON TX
685 JONES 121 12 SAWYER SUTTON TX
VII-iv
<PAGE> 107
EXHIBIT VII
(continued)
NO. PROPERTY NAME FIELD COUNTY/PARISH ST
686 JONES 121 13 SAWYER SUTTON TX
687 JONES 121 14 SAWYER SUTTON TX
688 JONES 121 15 SAWYER SUTTON TX
690 JONES 121 19 SAWYER SUTTON TX
691 JONES 122 1 SAWYER SUTTON TX
692 JONES 122 2 SAWYER SUTTON TX
693 JONES 122 3 SAWYER SUTTON TX
694 JONES 122 4 SAWYER SUTTON TX
695 JONES 122 5 SAWYER SUTTON TX
696 JONES 122 6 SAWYER SUTTON TX
697 JONES 122 7 SAWYER SUTTON TX
698 JONES 122 8 SAWYER SUTTON TX
699 JONES 122 9 SAWYER SUTTON TX
700 JONES 122 10 SAWYER SUTTON TX
701 JONES 122 11 SAWYER SUTTON TX
702 JONES 122 12 SAWYER SUTTON TX
703 JONES 122 14 SAWYER SUTTON TX
704 JONES 122 15 SAWYER SUTTON TX
705 JONES 122 16 SAWYER SUTTON TX
706 JONES 122 17 SAWYER SUTTON TX
707 MCMILLAN, W B 1 SAWYER SUTTON TX
708 MCMILLAN, W B 1 SAWYER SUTTON TX
709 MCMILLAN, W B 2 SAWYER SUTTON TX
710 MCMILLAN, W B 2 SAWYER SUTTON TX
711 MCMILLAN, W B 3 SAWYER SUTTON TX
712 MCMILLAN, W B 3 SAWYER SUTTON TX
713 MCMILLAN, W B 4 SAWYER SUTTON TX
714 REED, FRANK 117 2 SAWYER SUTTON TX
715 REED, FRANK 117 3 SAWYER SUTTON TX
716 REED, FRANK 117 5 SAWYER SUTTON TX
717 REED, FRANK 117 6 SAWYER SUTTON TX
718 REED, FRANK 117 7 SAWYER SUTTON TX
719 REED, FRANK 117 8 SAWYER SUTTON TX
720 REED, FRANK 117 9 SAWYER SUTTON TX
721 REED, FRANK 117 10 SAWYER SUTTON TX
722 REED, FRANK 117 11 SAWYER SUTTON TX
723 REED, FRANK 117 12 SAWYER SUTTON TX
724 REED, FRANK 117 13 SAWYER SUTTON TX
725 REED, FRANK 117 14 SAWYER SUTTON TX
726 REED, FRANK 117 15 SAWYER SUTTON TX
727 REED, FRANK 117 16 SAWYER SUTTON TX
VII-v
<PAGE> 108
EXHIBIT VII
(continued)
NO. PROPERTY NAME FIELD COUNTY/PARISH ST
728 REED, FRANK 117 19 SAWYER SUTTON TX
729 SAWYER 113 1 SAWYER SUTTON TX
730 SAWYER 113 2 SAWYER SUTTON TX
731 SAWYER 113 3 SAWYER SUTTON TX
732 SAWYER 113 4 SAWYER SUTTON TX
733 SAWYER 113 5 SAWYER SUTTON TX
734 SAWYER 113 6 SAWYER SUTTON TX
735 SAWYER 113 7 SAWYER SUTTON TX
736 SAWYER 113 8 SAWYER SUTTON TX
737 SAWYER 113 9 SAWYER SUTTON TX
738 SAWYER 113 11 SAWYER SUTTON TX
739 SAWYER 113 12 SAWYER SUTTON TX
740 SAWYER 113 13 SAWYER SUTTON TX
743 SAWYER 129 3 SAWYER SUTTON TX
744 SAWYER 129 4 SAWYER SUTTON TX
745 SAWYER 129 5 SAWYER SUTTON TX
746 SAWYER 129 6 SAWYER SUTTON TX
747 SAWYER 129 7 SAWYER SUTTON TX
748 SAWYER 129 8 SAWYER SUTTON TX
749 SAWYER 129 9 SAWYER SUTTON TX
750 SAWYER 129 10 SAWYER SUTTON TX
751 SAWYER 129 11 SAWYER SUTTON TX
753 SAWYER 143 1 SAWYER SUTTON TX
754 SAWYER 143 2 SAWYER SUTTON TX
755 SAWYER 143 3 SAWYER SUTTON TX
756 SAWYER 143 4 SAWYER SUTTON TX
757 SAWYER 143 5 SAWYER SUTTON TX
758 SAWYER 143 6 SAWYER SUTTON TX
759 SAWYER 143 7 SAWYER SUTTON TX
760 SAWYER 143 8 SAWYER SUTTON TX
761 SAWYER 143 9 SAWYER SUTTON TX
762 SAWYER 143 10 SAWYER SUTTON TX
763 SAWYER 143 11 SAWYER SUTTON TX
764 SAWYER 143 12 SAWYER SUTTON TX
765 SAWYER 143 13 SAWYER SUTTON TX
766 SAWYER 143 14 SAWYER SUTTON TX
767 SAWYER 143 15 SAWYER SUTTON TX
768 SAWYER 143 16 SAWYER SUTTON TX
769 SAWYER 144 A 1 SAWYER SUTTON TX
770 SAWYER 144 A 2 SAWYER SUTTON TX
771 SAWYER 144 A 3 SAWYER SUTTON TX
VII-vi
<PAGE> 109
EXHIBIT VII
(continued)
NO. PROPERTY NAME FIELD COUNTY/PARISH ST
772 SAWYER 144 A 4 SAWYER SUTTON TX
773 SAWYER 144 A 5 SAWYER SUTTON TX
774 SAWYER 144 A 6 SAWYER SUTTON TX
775 SAWYER 144 A 7 SAWYER SUTTON TX
776 SAWYER 144 A 8 SAWYER SUTTON TX
777 SAWYER 144 A 9 SAWYER SUTTON TX
778 SAWYER 144 A 10 SAWYER SUTTON TX
779 SAWYER 144 A 11 SAWYER SUTTON TX
780 SAWYER 144 A 13 SAWYER SUTTON TX
781 SAWYER 144 A 14 SAWYER SUTTON TX
782 SAWYER 144 A 15 SAWYER SUTTON TX
783 SAWYER 144 A 16 SAWYER SUTTON TX
784 SAWYER 144.5 1 SAWYER SUTTON TX
785 SAWYER 145 1 SAWYER SUTTON TX
786 SAWYER 145 4 SAWYER SUTTON TX
787 SAWYER 145 5 SAWYER SUTTON TX
788 SAWYER 145 6 SAWYER SUTTON TX
789 SAWYER 145 7 SAWYER SUTTON TX
790 SAWYER 145 8 SAWYER SUTTON TX
791 SAWYER 145 9 SAWYER SUTTON TX
792 SAWYER 145 10 SAWYER SUTTON TX
793 SAWYER 145 11 SAWYER SUTTON TX
794 SAWYER 145 13 SAWYER SUTTON TX
795 SAWYER 145 14 SAWYER SUTTON TX
796 SAWYER 146 1 SAWYER SUTTON TX
797 SAWYER 146 2 SAWYER SUTTON TX
798 SAWYER 146 3 SAWYER SUTTON TX
799 SAWYER 146 4 SAWYER SUTTON TX
800 SAWYER 146 5 SAWYER SUTTON TX
801 SAWYER 146 6 SAWYER SUTTON TX
802 SAWYER 146 7 SAWYER SUTTON TX
803 SAWYER 146 8 SAWYER SUTTON TX
804 SAWYER 146 9 SAWYER SUTTON TX
805 SAWYER 146 10 SAWYER SUTTON TX
806 SAWYER 146 11 SAWYER SUTTON TX
807 SAWYER 146 13 SAWYER SUTTON TX
808 SAWYER 146 14 SAWYER SUTTON TX
809 SAWYER 146 15 SAWYER SUTTON TX
810 SAWYER 146 16 SAWYER SUTTON TX
811 SAWYER 146 17 SAWYER SUTTON TX
812 SAWYER 167 2 SAWYER SUTTON TX
VII-vii
<PAGE> 110
EXHIBIT VII
(continued)
NO. PROPERTY NAME FIELD COUNTY/PARISH ST
813 SAWYER 167 3 SAWYER SUTTON TX
814 SAWYER 167 4 SAWYER SUTTON TX
815 SAWYER 167 5 SAWYER SUTTON TX
816 SAWYER 167 6 SAWYER SUTTON TX
817 SAWYER 167 8 SAWYER SUTTON TX
818 SAWYER 167 9 SAWYER SUTTON TX
819 SAWYER 169 3 SAWYER SUTTON TX
820 SAWYER 169 4 SAWYER SUTTON TX
821 SAWYER 169 5 SAWYER SUTTON TX
822 SAWYER 169 6 SAWYER SUTTON TX
823 SAWYER 169 7 SAWYER SUTTON TX
824 SAWYER 169 8 SAWYER SUTTON TX
825 SAWYER 169 11 SAWYER SUTTON TX
826 SAWYER 169 12 SAWYER SUTTON TX
827 SAWYER 169 13 SAWYER SUTTON TX
828 SAWYER 170 1 SAWYER SUTTON TX
829 SAWYER 170 2 SAWYER SUTTON TX
830 SAWYER 170 3 SAWYER SUTTON TX
831 SAWYER 170 4 SAWYER SUTTON TX
832 SAWYER 170 5 SAWYER SUTTON TX
833 SAWYER 170 6 SAWYER SUTTON TX
834 SAWYER 170 7 SAWYER SUTTON TX
835 SAWYER 170 8 SAWYER SUTTON TX
836 SAWYER 170 9 SAWYER SUTTON TX
837 SAWYER 170 10 SAWYER SUTTON TX
838 SAWYER 170 11 SAWYER SUTTON TX
840 SHURLEY 98 1 SAWYER SUTTON TX
841 SHURLEY 98 2 SAWYER SUTTON TX
842 SHURLEY 98 3 SAWYER SUTTON TX
843 SHURLEY 98 5 SAWYER SUTTON TX
844 SHURLEY 98 6 SAWYER SUTTON TX
845 SHURLEY 98 7 SAWYER SUTTON TX
846 SHURLEY 98 8 SAWYER SUTTON TX
847 SHURLEY 98 9 SAWYER SUTTON TX
848 SHURLEY 98 10 SAWYER SUTTON TX
849 SHURLEY 98 11 SAWYER SUTTON TX
850 SHURLEY 98 12 SAWYER SUTTON TX
851 SHURLEY 98 14 SAWYER SUTTON TX
852 SHURLEY 98 15 SAWYER SUTTON TX
853 SHURLEY 98 16 SAWYER SUTTON TX
854 SHURLEY A 99 1 SAWYER SUTTON TX
VII-viii
<PAGE> 111
EXHIBIT VII
(continued)
NO. PROPERTY NAME FIELD COUNTY/PARISH ST
855 SHURLEY A 99 2 SAWYER SUTTON TX
856 SHURLEY A 99 3 SAWYER SUTTON TX
857 SHURLEY A 99 4 SAWYER SUTTON TX
858 SHURLEY A 99 5 SAWYER SUTTON TX
859 SHURLEY A 99 6 SAWYER SUTTON TX
860 SHURLEY A 99 7 SAWYER SUTTON TX
861 SHURLEY A 99 8 SAWYER SUTTON TX
862 SHURLEY A 99 9 SAWYER SUTTON TX
863 SHURLEY A 99 10 SAWYER SUTTON TX
864 SHURLEY A 99 11 SAWYER SUTTON TX
865 SHURLEY A 99 12 SAWYER SUTTON TX
866 SHURLEY A 99 14 SAWYER SUTTON TX
867 SHURLEY A 99 16 SAWYER SUTTON TX
868 SHURLEY B 97 2 SAWYER SUTTON TX
869 SHURLEY B 97 3 SAWYER SUTTON TX
870 SHURLEY B 97 4 SAWYER SUTTON TX
871 SHURLEY B 97 5 SAWYER SUTTON TX
872 SHURLEY B 97 6 SAWYER SUTTON TX
873 SHURLEY B 97 7 SAWYER SUTTON TX
874 SHURLEY B 97 8 SAWYER SUTTON TX
875 SHURLEY B 97 9 SAWYER SUTTON TX
876 SHURLEY B 97 10 SAWYER SUTTON TX
877 SHURLEY B 97 11 SAWYER SUTTON TX
878 SHURLEY B 97 12 SAWYER SUTTON TX
879 SHURLEY B 97 13 SAWYER SUTTON TX
880 SHURLEY B 97 14 SAWYER SUTTON TX
881 SHURLEY B 97 15 SAWYER SUTTON TX
882 SHURLEY C 98 2 SAWYER SUTTON TX
883 SHURLEY C 99 1 SAWYER SUTTON TX
885 SHURLEY D 99 1 SAWYER SUTTON TX
893 SLAUGHTER A SLAUGHTER HOCKLEY TX
897 MIERS 15 A 5 SONORA SUTTON TX
898 MIERS 15 A 10 SONORA SUTTON TX
899 MIERS 15 A 11 SONORA SUTTON TX
900 MIERS 15 A 12 SONORA SUTTON TX
901 MIERS 15 A 14 SONORA SUTTON TX
903 MIERS 82 A 2 SONORA SUTTON TX
904 MIERS 82 A 6 SONORA SUTTON TX
905 MIERS 82 A 8 SONORA SUTTON TX
906 MIERS 82 A 9 SONORA SUTTON TX
907 MIERS 82 A 13 SONORA SUTTON TX
VII-ix
<PAGE> 112
EXHIBIT VII
(continued)
NO. PROPERTY NAME FIELD COUNTY/PARISH ST
908 MIERS 82 A 15 SONORA SUTTON TX
909 MIERS 82 A 16 SONORA SUTTON TX
911 WARD C 109 1 SONORA SUTTON TX
912 WARD C 109 7 SONORA SUTTON TX
913 WARD C 109 11 SONORA SUTTON TX
914 WARD C 109 16 SONORA SUTTON TX
915 WARD C 109 21 SONORA SUTTON TX
916 WARD C 109 22 SONORA SUTTON TX
917 WARD C 109 23 SONORA SUTTON TX
918 WARD C 109 27 SONORA SUTTON TX
919 WARD C 115 2 SONORA SUTTON TX
920 WARD C 115 6 SONORA SUTTON TX
921 WARD C 115 12 SONORA SUTTON TX
922 WARD C 115 13 SONORA SUTTON TX
923 WARD C 115 25 SONORA SUTTON TX
924 WARD C 115 32 SONORA SUTTON TX
925 WARD C 115 33 SONORA SUTTON TX
926 WARD C 116 3 SONORA SUTTON TX
927 WARD C 116 8 SONORA SUTTON TX
928 WARD C 116 14 SONORA SUTTON TX
929 WARD C 116 15 SONORA SUTTON TX
930 WARD C 116 24 SONORA SUTTON TX
931 WARD C 116 28 SONORA SUTTON TX
932 WARD C 116 29 SONORA SUTTON TX
933 WARD C 116 34 SONORA SUTTON TX
934 WARD C 125 4 SONORA SUTTON TX
935 WARD C 125 10 SONORA SUTTON TX
936 WARD C 125 19 SONORA SUTTON TX
937 WARD C 125 20 SONORA SUTTON TX
938 WARD C 125 30 SONORA SUTTON TX
939 WARD C 126 9 SONORA SUTTON TX
940 WARD C 126 17 SONORA SUTTON TX
941 WARD C 126 18 SONORA SUTTON TX
942 WARD C 126 26 SONORA SUTTON TX
943 WARD C 126 31 SONORA SUTTON TX
966 ELK BASIN MAD ELK BASIN PARK WY
967 ELK BASIN TS ELK BASIN PARK WY
VII-x
<PAGE> 113
EXHIBIT VIII
OPINION OF ORLOFF, LOWENBACH, STIFELMAN & SIEGEL
September 25, 1996
To each Lender party
to the Credit Agreement
referenced below,
Canadian Imperial Bank
of Commerce, as Agent,
and CIBC Inc.,
as Collateral Agent
Re: Credit Agreement dated as of January 2, 1997, by and among KCS
Medallion Resources, Inc., KCS Energy, Inc,. KCS Energy Services,
Inc., Medallion Gas Services, Inc. and GED Energy Services, Inc.
(collectively, the "Borrowers"), Canadian Imperial Bank of Commerce,
as Agent, CIBC Inc., as Collateral Agent and the lenders party
thereto from time to time (the "Credit Agreement")
Ladies and Gentlemen:
We have acted as counsel to the Borrowers in connection with the
transactions contemplated in the Credit Agreement. This Opinion is delivered
pursuant to Section 3.1(p) of the Credit Agreement, and the Agent and the
Lenders are hereby authorized to rely upon this Opinion in connection with the
transactions contemplated in the Credit Agreement. Each capitalized term used
but not defined herein shall have the meaning assigned to such term in the
Credit Agreement.
In our representation of the Borrowers, we have examined an executed
counterpart of each of the following (the "Loan Documents"):
(1) the Credit Agreement;
(2) the Notes; and
(3) the Stock Pledge Agreement.
We have also examined the originals, or copies certified to our
satisfaction, of such other records of the Borrowers, certificates of public
officials and officers of the Borrowers, agreements, instruments, and documents
as we have deemed necessary as a basis for the opinions hereinafter expressed.
In making such examinations, we have, with your permission, assumed:
<PAGE> 114
ORLOFF, LOWENBACH, STIFELMAN & SIEGEL
A PROFESSIONAL CORPORATION
September 25, 1996
a) the genuineness of all signatures to the Loan Documents other
than those of the Borrowers;
b) the authenticity and completeness of all documents submitted to
us as originals and the conformity with the originals of all documents
submitted to us as copies;
c) the Agent and each Lender is authorized and has the power to
enter into and perform its obligations under the Credit Agreement;
d) the due authorization, execution, and delivery of all Loan
Documents by each party thereto other than the Borrowers; and
e) the representations as to factual matters made by the Borrowers
in the Loan Documents are true and complete.
Based upon the foregoing and subject to the qualifications set forth
herein, we are of the opinion that:
A. Each of the Borrowers is a corporation duly organized, legally
existing, and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation in the
jurisdictions listed under its name on Schedule A, attached to and made a
part of this Opinion.
B. The execution and delivery by the Borrowers of the Credit
Agreement and the borrowings thereunder, the execution and delivery by the
Borrowers of the other Loan Documents to which each Borrower is a party,
and the payment and performance of all obligations of the Borrowers
thereunder are within the power of each Borrower, have been duly
authorized by all necessary corporate action, and do not (a) require the
consent of any Governmental Authority, (b) contravene or conflict with any
Requirement of Law or the articles or certificate of incorporation,
bylaws, or other organizational or governing documents of the Borrowers,
(c) to our knowledge, contravene or conflict with any indenture,
instrument, or other agreement to which any Borrower is a party or by
which any Property of any Borrower may be presently bound or encumbered,
or (d) to our knowledge, result in or require the creation or imposition
of any Lien upon any Property of the Borrowers other than as contemplated
by the Loan Documents.
C. The execution and delivery of the Stock Pledge Agreement and the
other Loan Documents executed by KCS and the performance of all
obligations of KCS thereunder are within the power of KCS, have been duly
authorized by all necessary corporation action, and do not, (a) require
the consent of any Governmental authority, (b) contravene or conflict with
any Requirement of Law or the articles or certificate of incorporation,
bylaws, or other organizational or governing documents of KCS, (c) to our
knowledge, contravene or conflict with any indenture, instrument, or other
agreement to which KCS is a party or by which any
<PAGE> 115
ORLOFF, LOWENBACH, STIFELMAN & SIEGEL
A PROFESSIONAL CORPORATION
September 25, 1996
Property of KCS may be presently bound or encumbered, or (d) to our
knowledge, result in or require the creation or imposition of any Lien
upon any Property of KCS other than as contemplated by the Loan Documents.
C. The Credit Agreement, the Notes and the other Loan Documents
which are governed by New York law to which each Borrower is a party
constitute legal, valid, and binding obligations of such Borrower,
enforceable against such Borrower in accordance with their respective
terms.
D. To our knowledge, except as disclosed in Exhibit ___ to the
Credit Agreement, no litigation or other action of any nature affecting
the Borrowers is pending before any Governmental Authority or threatened
against the Borrowers, which, if determined adversely to such Borrower,
could reasonably be expected to have a Material Adverse Effect or affect
any Borrower's ability to execute, deliver or perform in any material
respect its obligations under the Loan Documents.
E. No authorization, consent, approval, exemption, franchise, permit
or license of, or filing (other than filing of Security Instruments in
appropriate filing offices) with, any Governmental Authority or any other
Person is required to authorize or is otherwise required in connection
with the valid execution and delivery by the Borrowers of Loan Documents
which are governed by New York Law, or the payment or performance by the
Borrowers of the Obligations arising pursuant to those Loan Documents
entered into at Closing which are governed by New York law.
F. No transaction contemplated by the Loan Documents is in violation
of any regulations promulgated by the Board of Governors of the Federal
Reserve System, including, without limitation, Regulations G, T, U, or X.
G. No Borrower is, nor is any Borrower directly or indirectly
controlled by or acting on behalf of any Person which is, an "investment
company" or an "affiliated person" of an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
H. No Borrower is a "holding company," or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company,"
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
The opinions expressed herein are subject to the following
qualifications and limitations:
We are licensed to practice law only in the States of New Jersey and
New York and other jurisdictions whose laws are not applicable to the
opinions expressed herein; accordingly, the foregoing opinions are limited
solely to the laws of the State of New Jersey, the State of New York,
applicable United States federal law, and the corporation laws of the
State of Delaware.
<PAGE> 116
ORLOFF, LOWENBACH, STIFELMAN & SIEGEL
A PROFESSIONAL CORPORATION
September 25, 1996
The validity, binding effect, and enforceability of the Loan
Documents or certain provisions thereof may be limited or affected by
bankruptcy, insolvency, moratorium, fraudulent conveyance, reorganization,
or other similar laws affecting rights of creditors generally, including,
without limitation, judicial decisions, statutes or rules of law which
limit the effect of waivers of rights by a debtor or guarantor and limit
the permissible scope of indemnification agreements, provided, however,
that the limitations and other effects of such statutes or rules of law,
as currently in effect, upon the validity and binding effect of the Loan
Documents should not differ materially from the limitations and other
effects of such statutes or rules of law upon the validity and binding
effect of credit agreements, promissory notes, and stock pledge agreements
generally. No opinion is expressed with respect to the enforceability of
any provisions that may purport to bind the Borrowers to the waiver of any
right or defense which by virtue of applicable law or equitable principle
cannot be waived.
The enforceability of the respective obligations of the Borrowers
under the Loan Documents is subject to general principles of equity
(whether such enforceability is considered in a suit in equity or at law).
Whenever our opinion is modified by the phrase "to our knowledge" it
is based solely upon information which we have obtained in the course of our
representation of the Borrowers and the Guarantor in matters to which we have
devoted substantive attention, without any further investigation or inquiry.
This Opinion is furnished by us solely for the benefit of the Agent
and the Lenders in connection with the transactions contemplated by the Loan
Documents and is not to be quoted in whole or in part or otherwise referred to
or disclosed in any other transaction.
This Opinion speaks as of the date hereof, and we disclaim any
obligation to update this opinion to you.
Very truly yours,
ORLOFF, LOWENBACH, STIFELMAN
& SIEGEL, P.A.
By: _____________________________
RALPH M. LOWENBACH
RML:cao
<PAGE> 117
SCHEDULE A
JURISDICTIONS WHERE QUALIFIED TO DO BUSINESS
<PAGE> 118
EXHIBIT IX
[FORM OF OPINION OF LOCAL COUNSEL]
[Closing Date]
To each Lender party
to the Credit Agreement
referenced below and
Canadian Imperial Bank
of Commerce, as Agent
Re: Credit Agreement dated as of ___________________, 1996, by and among
KCS Medallion Resources, Inc. ("KCS Medallion"), KCS Energy, Inc.,
KCS Energy Services, Inc., Medallion Gas Services, Inc. and GED
Energy Services, Inc., Canadian Imperial Bank of Commerce, as Agent,
CIBC Inc., as Collateral Agent, and the lenders party thereto from
time to time (the "Credit Agreement")
Ladies and Gentlemen:
We have acted as special counsel in the State of [________________]
(the "State") to each of the lenders from time to time party to the Credit
Agreement (the "Lenders"), Canadian Imperial Bank of Commerce, as Agent for the
Lenders (the "Agent"), and CIBC Inc., as Collateral Agent for the Lenders (the
"Collateral Agent") in connection with the transactions contemplated in the Loan
Documents described below which were executed pursuant to the Credit Agreement.
In such capacity, we furnish this Opinion with the intention and understanding
that it is to be relied upon by the Agent, the Collateral Agent and the Lenders
in the closing of the transactions contemplated in the Credit Agreement.
In our representation of the KCS Medallion, we have examined an
executed counterpart of each of the following (the "Loan Documents"):
(1) Mortgage, Deed of Trust, Indenture, Security Agreement,
Financing Statement, and Assignment of Production dated of even date
herewith from KCS Medallion Resources, Inc. in favor of the Collateral
Agent (the "Mortgage"); and
(2) Non-Standard Financing Statements constituent to the Mortgage
(the "Financing Statements").
In making such examination, we have, with your permission, assumed:
a) the genuineness of all signatures to the Loan Documents;
IX-i
<PAGE> 119
b) the authenticity of all documents submitted to us as originals
and the conformity with the originals of all documents submitted to us as
copies;
c) each party to any Loan Document is authorized and has the power
to enter into and perform its obligations under such Loan Document;
d) the due authorization, execution, and delivery of all Loan
Documents by each party thereto;
e) each of the mortgagors under the Mortgage is a duly organized and
validly existing corporation under the laws of its state of incorporation;
f) the mortgagors under the Mortgage have title to all Mortgaged
Property (as such term is defined in the Mortgage and so used herein)
situated in the State.
Based upon the foregoing and subject to the qualifications set forth
herein, we are of the opinion that:
1. No consent, approval, or other authorization of, or filing or
registration (other than as described in paragraphs 11 and 12 hereof)
with, any court, governmental agency, commission, or other authority of
the State or any subdivision thereof is required for the due execution and
delivery of the Loan Documents or for the enforceability, performance, or
observance of the terms thereof.
2. The execution and delivery by the KCS Medallion of each Loan
Document to which it is a party, compliance with the provisions thereof,
and the consummation of the transactions contemplated thereby will not
conflict with or result in a violation of any law or governmental rule or
regulation of the State or any subdivision thereof.
3. The Loan Documents to which KCS Medallion is a party constitute
legal, valid, and binding obligations of the Borrower, enforceable against
KCS Medallion in accordance with their respective terms.
4. The forms of the Mortgage and the Financing Statements and the
description of the Mortgaged Property situated in the State satisfy all
applicable laws of the State and are legally sufficient under the laws of
the State to enable the Collateral Agent to realize the practical benefits
purported to be afforded by such Loan Documents.
5. The Mortgage (a) creates a lien upon and a security interest in
all Mortgaged Property situated in the State to secure the Indebtedness
(as such term is defined in the Mortgage and so used herein), and (b)
provides for nonjudicial foreclosure remedies customarily used in the
State.
6. The Loan Documents are in satisfactory form for filing and
recording in the offices described below.
IX-ii
<PAGE> 120
7. The filing and/or recording, as the case may be, of (a) the
Mortgage in the office of the county clerk of each county in the State in
which any portion of the Mortgaged Property is located and as a financing
statement in the office of the Secretary of State of the State, and (b)
the Financing Statements in the Uniform Commercial Code records in each
county in the State in which any portion of the Mortgaged Property is
located are the only recordings or filings in the State necessary to
perfect the liens and security interests in the Mortgaged Property created
by the Mortgage or to permit the Collateral Agent to enforce in the State
its rights under the Mortgage. No subsequent filing, re-filing, recording,
or re-recording will be required in the State in order to continue the
perfection of the liens and security interests created by the Mortgage
except that (a) a continuation statement must be filed with respect to the
Mortgage filed as a financing statement in the office of the Secretary of
State of the State and with respect to the Financing Statements in the
Uniform Commercial Code records in each county in the State in which any
portion of the Mortgaged Property is located, each within six months prior
to the expiration of five years from the date of the relevant initial
financing statement filing, (b) a subsequent continuation statement must
be filed within six months prior to the expiration of each subsequent
five-year period from the date of each initial financing statement filing,
and (c) amendments or supplements to the Mortgage filed as a financing
statement and the Financing Statements and/or additional financing
statements may be required to be filed in the event of a change in the
name, identity, or structure of any Borrower or in the event the financing
statement filing otherwise becomes inaccurate or incomplete.
8. No state or local mortgage recording tax, stamp tax, or other
similar fee, tax, or governmental charge (other than statutory filing and
recording fees to be paid upon filing) is required to be paid to the State
or any subdivision thereof in connection with the execution, delivery,
filing, or recording of any of the Loan Documents or the consummation of
the transactions contemplated therein.
9. It is not necessary for the Agent, the Collateral Agent, or any
Lender to qualify to do business in the State or file in the State any
designation for service of process or reports solely by reason of the
interests conveyed or assigned to it or for its benefit under the
Mortgage, nor will such conveyances or assignments alone result in the
imposition upon the Agent, the Collateral Agent, or any Lender of any
taxes by the State or by any subdivision thereof, including, without
limitation, franchise, license, tax on interest received or income taxes,
other than recording and filing fees in connection with the filings
referred to in paragraphs 11 and 12 above and taxes which the Agent, the
Collateral Agent, or a Lender may owe in the event it becomes the actual
and record owner of any Mortgaged Property situated in the State.
10. The foreclosure of, or exercise of the power of sale under, the
Mortgage will not in any manner restrict, affect or impair the liability
of KCS Medallion with respect to the Indebtedness or the rights and
remedies of the Collateral Agent with respect to the foreclosure or
enforcement of any other security interests or liens securing the
Indebtedness to the extent any deficiency remains unpaid after application
to the Indebtedness of the proceeds of such foreclosure or the exercise of
such power of sale.
11. The priority of the liens and security interests created by the
Mortgage with respect to Indebtedness incurred by KCS Medallion on or
before the date on which the Mortgage is filed in the appropriate
recording offices referred to hereinabove will be determined by the
IX-iii
<PAGE> 121
date of such filings. The priority of the lien created by the Mortgage
with respect to Indebtedness incurred by KCS Medallion after the date the
Mortgage is recorded will be determined by the dates the Mortgage is
filed.
12. The priority of the lien created by the Mortgage will not be
affected by any prepayment of a portion, but less than all, of the
Indebtedness, or any reduction or increase of the outstanding amount of
the Indebtedness from time to time.
13. The limitations period for enforcement of the Mortgage in the
State is ________.
The opinions expressed herein are subject to the following qualifications
and limitations:
We are licensed to practice law only in the State and other
jurisdictions whose laws are not applicable to the opinions expressed
herein; accordingly, the foregoing opinions are limited solely to the laws
of the State and applicable United States federal law.
The validity, binding effect, and enforceability of the Loan
Documents may be limited or affected by bankruptcy, insolvency,
moratorium, reorganization, or other similar laws affecting rights of
creditors generally, including, without limitation, statutes or rules of
law which limit the effect of waivers of rights by a debtor or grantor;
provided, however, that the limitations and other effects of such statutes
or rules of law upon the validity and binding effect of the Loan Documents
should not differ materially from the limitations and other effects of
such statutes or rules of law upon the validity and binding effect of
assignments and security instruments generally.
The enforceability of the respective obligations of KCS Medallion
under the Loan Documents to which they are a party is subject to general
principles of equity (whether such enforceability is considered in a suit
in equity or at law).
This Opinion is furnished by us solely for the benefit of the Agent,
the Collateral Agent, and the Lenders in connection with the transactions
contemplated by the Loan Documents and is not to be quoted in whole or in part
or otherwise referred to or disclosed in any other transaction.
Very truly yours,
IX-iv
<PAGE> 122
EXHIBIT X
DISCLOSURES
Section 4.4 Existing Indebtedness
1. for KCS Medallion Resources, Inc. - see Schedule
3.9, Stock Purchase Agreement
2. for KCS Energy, Inc.
a. $150 million 11% Senior Notes due 2003
b. Guarantor of $150 million Revolving Line of
Credit with CIBC, Bank One, NationsBank,
Comerica, Dennorske Bank
Section 4.9 Liabilities:
1. Liabilities - none
2. Litigation - for KCS Energy, Inc. and KCS Energy
Services, Inc.:
a. Royalty suits - see attached Cause
No. 94-12219-L Amended Order of Severance
3. Litigation - for KCS Medallion Resources, Inc.,
Medallion Gas Services, Inc. and GED Energy
Services, Inc. - see Schedule 3.8, Stock Purchase
Agreement
Section 4.14 Environmental Laws
1. For KCS Energy, Inc. and KCS Energy Services, Inc.
- none
2. For KCS Medallion Resources, Inc., Medallion Gas
Services, Inc. and GED Energy Services, Inc. - see
items #15 and #17, Schedule 3.8 and Schedule
3.13(a), Stock Purchase Agreement; and letter
(previously delivered to Agent) dated December 9,
1996 to InterCoast Energy Company and InterCoast
Gas Services Company from KCS Energy, Inc. re:
Notification for Environmental Liabilities
Section 4.19 Refunds
None
Section 4.20 Gas Contracts
(a) None
(b) Balancing
1. For KCS Energy, Inc. - none
X-i
<PAGE> 123
2. For KCS Medallion Resources, Inc. - see Schedule
3.27, Stock Purchase Agreement
Section 4.22 Labor Matters
None
Section 4.23 Casualties
None
Section 4.25 Subsidiaries
1. For KCS Energy, Inc. and KCS Energy Services, Inc.
- see attached sheet
2. For KCS Medallion Resources, Inc., Medallion Gas
Services, Inc. and GED Energy Services, Inc. - see
Schedules 3.5(a) and 3.5(b), Stock Purchase
Agreement
Section 5.4 Approved Petroleum Engineers
H.J. Gruy & Associates, Inc.
R.A. Lenser and Associates, inc.
Netherland, Sewell & Associates, Inc.
Ryder Scott Company
X-ii
<PAGE> 124
KCS ENERGY, INC. LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
NAME TYPE OF PERCENTAGE DATE ACQUIRED DOMESTIC
OPERATIONS OWNED OR CREATED OR FOREIGN
<S> <C> <C> <C> <C>
KCS Energy Risk Management, Futures hedging for energy price risk 100% 05/18/89 Created Delaware
Inc. management
KCS Power Marketing, Inc. Electric Sales and Marketing 100% 11/04/94 Created Delaware
Proliq, Inc. Holding Company 100% 04/27/88 Acquired New Jersey
KCS Resources, Inc. Oil and gas exploration and production 100% 10/01/93 Created Delaware
KCS Michigan Resources, Inc. Oil and gas exploration and production 100% 09/28/95 Created Delaware
KCS Pipeline Systems, Inc. Gas Transportation 100% 10/01/93 Created Delaware
KCS Energy Services, Inc. Purchase and Sales of oil and gas properties 100% 9/24/96 Created Delaware
National Enerdrill Limited partner in drilling rig partnership 100% 04/27/88 Acquired New Jersey
PIM Corporation Tranchless Pipe Replacement 33.00% 04/20/89 Invested New Jersey
PROLIQ, INC. SUBSIDIARY
KCS Energy Marketing, Inc. Natural gas marketing 100% 08/02/79 Created New Jersey
KCS PIPELINE SYSTEMS, INC. SUBSIDIARY
Enercorp Gas Marketing Natural gas marketing 100% 12/21/93 Created Delaware
</TABLE>
X-iii
<PAGE> 125
EXHIBIT XI
FORM OF STOCK PLEDGE AGREEMENT
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT made and entered into as of this 2nd day
of January, 1997, by KCS ENERGY, INC., a Delaware corporation, with its chief
place of business and its chief executive office located at 379 Thornall St.,
Edison, New Jersey 08837 (hereinafter called "Debtor"), in favor of CIBC INC., a
Delaware corporation, with offices at 909 Fannin, Suite 1200, Houston, Texas
77010, as collateral agent for the Lenders, defined below, pursuant to the
Credit Agreement, defined below, (in such capacity, together with its successors
in such capacity pursuant to the terms of the Credit Agreement, hereinafter
"Secured Party");
W I T N E S S E T H:
WHEREAS, on even date herewith that certain Credit Agreement (as may
from time to time be amended or supplemented, hereinafter called the "Credit
Agreement") is being executed by Debtor, KCS MEDALLION RESOURCES, INC. (formerly
known as InterCoast Oil & Gas Company), a Delaware corporation ("KCS
Medallion"), KCS Energy Services, Inc., a Delaware corporation ("KCS Energy
Services"), Medallion Gas Services, Inc. (formerly known as InterCoast Gas
Services, Inc.), a Delaware corporation, ("IGS"), GED Energy Services, Inc., a
Delaware corporation ("GED Energy") (hereinafter together with Debtor,
collectively called "Borrowers"), Secured Party, Canadian Imperial Bank of
Commerce, and the Lenders signatory thereto from time to time pursuant to which
Credit Agreement, upon the terms and conditions stated therein, the Lenders
agree to make loans to Borrower from time to time; and
WHEREAS, the Lenders have conditioned their obligations under the
Credit Agreement upon the execution and delivery by Debtor of this Stock Pledge
Agreement, and Debtor has agreed to enter into this Stock Pledge Agreement;
NOW, THEREFORE, (i) in order to comply with the terms and conditions
of the Credit Agreement, (ii) for and in consideration of the premises and the
agreements herein contained, and (iii) for other good and valuable
consideration, the receipt and sufficiency of all of which is hereby
acknowledged, Debtor hereby agrees with Secured Party as follows:
ARTICLE I
GENERAL TERMS
Section 1.1 Terms Defined Above. As used in this Stock Pledge
Agreement, the terms "Borrower", "Debtor", "Secured Party", "Lenders", and
"Credit Agreement" shall have the meanings indicated above.
Section 1.2 Definitions Contained in the Credit Agreement. All terms
beginning with a capital letter herein which are defined in the Credit Agreement
shall have the same meanings herein unless the context otherwise requires.
XI-i
<PAGE> 126
Section 1.3 Certain Definitions. As used in this Stock Pledge
Agreement, the following terms shall have the following meanings, unless the
context otherwise requires:
"Code" shall mean the Uniform Commercial Code as from time to
time in effect in the State of New York.
"Collateral" shall mean all Property, including without
limitation cash or other proceeds, in which Secured Party shall have
a security interest pursuant to Section of this Stock Pledge
Agreement.
"Default" shall mean the occurrence of any of the events
specified in Section hereof, whether or not any requirement for
notice or lapse of time or other condition precedent has been
satisfied.
"Event of Default" shall mean the occurrence of any of the
events specified in Section hereof, provided that any requirement
for notice or lapse of time or other condition precedent has been
satisfied.
"Obligations" shall have the meaning indicated in Section
hereof.
"Other Liable Party" shall mean any Person, other than Debtor,
primarily or secondarily liable for any of the Obligations or who
grants Secured Party a Lien on any Property as security for the
Obligations.
"Securities" shall mean the Shares, regardless of whether they
constitute a "security" within the meaning of Section 8-102(1)(a) of
the Code.
"Stock Pledge Agreement" shall mean this Stock Pledge
Agreement, as the same may from time to time be amended or
supplemented.
"Shares" shall mean the shares of stock referred to in
Subsections (a)(d) hereof, together with any other shares of stock
which at any time become part of the Collateral pursuant to the
terms of this Stock Pledge Agreement or in which Debtor may
hereafter grant a security interest to Secured Party pursuant to
this Stock Pledge Agreement.
Section 1.4 Terms Defined in Code. All terms used herein which are
defined in the Code shall have the same meaning herein unless the context
otherwise requires.
ARTICLE II
SECURITY INTEREST
Section 2.1 Grant of Security Interest. Debtor hereby assigns,
transfers, and delivers to Secured Party and grants to Secured Party a security
interest in, and a general lien upon, the following described Property:
XI-ii
<PAGE> 127
(a) an aggregate of 1,000 shares of the common stock of KCS
Medallion Resources, Inc. (formerly known as InterCoast Oil & Gas
Company), a Delaware corporation;
(b) an aggregate of 1,000 shares of the common stock of
Medallion Gas Services, Inc., a Delaware corporation;
(c) an aggregate of 1,000 shares of the common stock of GED
Energy Services, Inc., a Delaware corporation;
(d) powers of attorney ("Stock Powers") executed in blank
which are related to the Securities; and
(e) any and all stock rights, rights to subscribe, stock
dividends and dividends paid in stock, new securities which Debtor
is or may hereafter become entitled to receive on account of the
Shares; in the event that Debtor receives any such Property, Debtor
will immediately deliver same to Secured Party to be held by Secured
Party in the same manner as the Property originally deposited as
Collateral; and
(f) the proceeds of any and all Property described in
subparagraphs (a), (b), (c), (d), (e) and (f) above.
Section 2.2 Obligations Secured. The assignment, transfer and
delivery of the Collateral and the security interest in, and general lien upon,
the Collateral is granted to secure the following (herein called the
"Obligations"):
(a) the indebtedness evidenced by the Notes, including,
without limitation, the following described promissory notes dated
of even date herewith executed by the Borrowers, each bearing
interest and being payable as provided in the Credit Agreement, and
any and all renewals, extensions for any period, or rearrangements
thereof:
(i) Promissory Note to the order of CIBC INC. in the
original principal amount of ONE HUNDRED FIFTY MILLION AND
NO/100 DOLLARS ($150,000,000.00) with a Final Maturity of
September 30, 2000;
(ii) Promissory Note to the order of CIBC INC. in the
original principal amount of THIRTY MILLION AND NO/100 DOLLARS
($30,000,000.00) with a Final Maturity as provided in the
Credit Agreement;
(b) all other obligations and liabilities of the Borrowers, or
any one or more of them, to the Lenders, now existing or hereafter
incurred, under, arising out of, or in connection with any Loan
Document.
XI-iii
<PAGE> 128
ARTICLE III
REPRESENTATIONS AND WARRANTIES
In order to induce Secured Party to accept this Stock Pledge
Agreement, Debtor represents and warrants to Secured Party (which
representations and warranties will survive the creation of the Obligations and
any extension of credit thereunder) that:
Section 3.1 Ownership and Liens. Except for the security interest of
Secured Party granted in this Stock Pledge Agreement, Debtor owns (and at the
time of transfer or delivery of the Collateral to Secured Party owned or will
own) good and indefeasible title to the Collateral free and clear of any other
Liens, adverse claims or options. Debtor has (and at the time of transfer or
delivery of the Collateral to Secured Party had or will have) full right, power
and authority to convey, assign, transfer and deliver the Collateral and to
grant a security interest in the Collateral to Secured Party in the manner
provided herein and free and clear of any other Liens, adverse claims and
options. No other Lien, adverse claim or option has been created by Debtor or is
known by Debtor to exist with respect to any Collateral; and to the best of
Debtor's information and belief, no financing statement or other security
instrument is on file in any jurisdiction covering such Collateral.
Section 3.2 Status of Securities Generally. Effective immediately as
to all Securities now in existence and (when indicated below in parentheses)
effective at the time of all other Securities' coming into existence: The
Securities have (or shall have) been properly issued and are (or will be)
genuine; the issuer thereof has (or will have) no defenses (including, without
limitation, defenses of any party which would be available in an action on a
simple contract and the defenses of want or failure of consideration,
nonperformance of any condition precedent, non-delivery, or delivery for a
special purpose), right of set-off or claims to the Securities; Debtor has (or
will have) good title to the Securities; Debtor has (or will have) no knowledge
that the signature of the issuer is unauthorized; the Securities have not (or
will not have) been materially altered; all signatures are (or will be) genuine
and authorized; Debtor has (or will have) no knowledge of any insolvency
proceeding instituted with respect to the issuer; Debtor's transfer of the
Securities to Secured Party is (or will be) effective and rightful; and Debtor
does not (or will not) know of any fact which might impair the validity of the
Securities or of Secured Party's Lien thereon.
Section 3.3 Valid Issuance, Etc. The Shares were duly authorized,
were validly issued and are validly outstanding, were fully paid and are
nonassessable, and were not issued in violation of the pre-emptive rights of any
Person or of any agreement by which Debtor or any issuer of such Shares is
bound.
Section 3.4 Percentage Interests Pledged. The Shares described in
Subsections (a), (b), and (c) hereof constitute all of the authorized, issued,
and outstanding capital stock of KCS Medallion, IGS and GED Energy respectively.
Section 3.5 Stock Rights. To the best of Debtor's information and
belief, none of the issuers of the Shares has any outstanding stock rights,
rights to subscribe, options, warrants or convertible securities outstanding or
any other rights outstanding whereby any Person would be entitled to have issued
to him capital stock of such issuers.
Section 3.6 Secured Party's Security Interest. This Stock Pledge
Agreement creates a valid and binding security interest in the Securities
securing the Obligations. Debtor's transfer and delivery of the
XI-iv
<PAGE> 129
Securities to Secured Party in accordance with this Stock Pledge Agreement
perfects such security interest. Such perfected security interest in the
Securities is a first-priority security interest under the Code free and clear
of all Liens and is enforceable under the Code.
Section 3.7 Corporate Existence. The Debtor is a corporation duly
organized, legally existing, and in good standing under the laws of its state of
its incorporation and is duly qualified as a foreign corporation and is in good
standing in all jurisdictions wherein the ownership of Property or the operation
of its business necessitates same, other than those jurisdictions wherein the
failure to so qualify will not have a Material Adverse Effect.
Section 3.8 Due Authorization. The execution and delivery by Debtor
of this Stock Pledge Agreement and the security interests and liens granted
herein have been duly authorized by all necessary corporate action by the
Debtor, and do not and will not (a) require the consent of any Governmental
Authority to be obtained by the Debtor, (b) contravene or conflict with any
Requirement of Law applicable to the Debtor or the articles or certificate of
incorporation, bylaws, or other organizational or governing documents of the
Debtor, (c) contravene or conflict with any material indenture, instrument, or
other agreement, or any indenture, instrument, or other agreement that, when
aggregated with other such agreements, is material, to which the Debtor is a
party or by which any Property of the Debtor may be presently bound or
encumbered, except as could not reasonably be expected to have a Material
Adverse Effect, (d) contravene or conflict with any indenture, instrument, or
other agreement by which any item of Collateral is bound or to which any such
item of Collateral is subject, except as could not reasonably be expected to
have a Material Adverse Effect, or (e) result in or require the creation or
imposition of any Lien in, upon or of any Property of Debtor under any such
indenture, instrument, or other agreement, other than this Stock Pledge
Agreement.
Section 3.9 Valid and Binding Obligations. This Stock Pledge
Agreement, when duly executed and delivered by Debtor, will be the legal, valid,
and binding obligation of Debtor, enforceable against Debtor in accordance with
its terms except as limited by bankruptcy, insolvency or similar laws affecting
generally the rights of creditors and general principles of equity, whether
applied by a court of law or equity.
Section 3.10 Benefit to Debtor. Debtor's granting of a security
interest to Secured Party pursuant to this Stock Pledge Agreement reasonably may
be expected to benefit, directly or indirectly, Debtor.
ARTICLE IV
COVENANTS AND AGREEMENTS
Without the prior written consent of Secured Party, Debtor will at
all times comply with the covenants contained in this Article IV, from the date
hereof and for so long as any part of any Loans or the Commitments is
outstanding.
Section 4.1 Prohibited Liens and Filings. Debtor will not pledge,
mortgage, otherwise encumber, create or suffer a Lien to exist in any of the
Collateral (other than in favor of Secured Party) or sell, assign, or otherwise
transfer any of the Collateral to or in favor of any Person other than Secured
Party. Debtor will not file or permit to be filed or recorded any financing
statement or other security instrument with respect to the Collateral other than
in favor of Secured Party.
XI-v
<PAGE> 130
Section 4.2 Taxes, Etc. Debtor agrees to pay prior to delinquency
all taxes, charges, Liens and assessments against the Collateral and, upon the
failure of Debtor to do so Secured Party at its option may pay any of them and
shall be the sole judge of the legality or validity thereof and of the amount
necessary to discharge the same.
Section 4.3 Possession of Collateral. Secured Party shall be deemed
to have possession of any of the Collateral in transit to it or set apart for
it.
Section 4.4 Further Assurances. Debtor will sign, execute, deliver
and file, alone or with Secured Party, any financing statements, security
agreements or other documents or procure any instruments or documents as may be
requested by Secured Party from time to time to confirm, perfect and preserve
the security interests intended to be granted hereby, and in addition, Debtor
hereby authorizes Secured Party to execute and deliver on behalf of Debtor and
to file such financing statements, security agreements and other documents
without the signature of Debtor either in Secured Party's name or in the name of
Debtor and as agent and attorney-in-fact for Debtor. Debtor shall do all such
additional and further acts or things, give such assurances and execute such
documents or instruments as Secured Party requires to vest more completely in
and assure to Secured Party its rights under this Stock Pledge Agreement.
Section 4.5 Filing Reproductions. At the option of Secured Party, a
carbon, photographic or other reproduction of this Stock Pledge Agreement or of
a financing statement covering the Collateral shall be sufficient as a financing
statement and may be filed as a financing statement.
Section 4.6 Expenses. To the extent not paid by Borrower, Debtor
agrees to pay to Secured Party at Secured Party's offices all advances, charges,
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by Secured Party in connection with confirming, perfecting and
preserving the security interest created under this Stock Pledge Agreement, in
connection with protecting Secured Party against the claims or interests of any
Person against the Collateral, and in exercising any right, power or remedy
conferred by this Stock Pledge Agreement or by law or in equity (including, but
not limited to, attorneys' fees and legal expenses incurred by Secured Party and
amounts incurred in connection with the operation, maintenance or foreclosure of
any or all of the Collateral).
Section 4.7 Prohibited Issues. Debtor will not permit, authorize the
issuance of, or permit any agent to authorize or permit the issuance of
additional capital stock of any of the issuers of the Collateral or the issuance
or grant by Borrower of any stock rights, rights to subscribe, options,
warrants, convertible securities or any other rights whereby any Person would be
entitled to have issued to him capital stock of such issuer.
Section 4.8 Delivery of Collateral. In the event that Debtor
receives any stock rights, rights to subscribe, stock dividends and dividends
paid in stock, new securities which Debtor is or may hereafter become entitled
to receive on account of the Shares, Debtor will immediately deliver same to
Secured Party to be held by Secured Party in the same manner as the Property
originally deposited as Collateral.
XI-vi
<PAGE> 131
ARTICLE V
RIGHTS, REMEDIES AND DEFAULT
Section 5.1 With Respect to Collateral. Secured Party is hereby
fully authorized and empowered (without the necessity of any further consent or
authorization from Debtor) and the right is expressly granted to Secured Party,
and Debtor hereby constitutes, appoints and makes Secured Party as Debtor's true
and lawful attorney-in-fact and agent for Debtor and in Debtor's name, place and
stead with full power of substitution, in Secured Party's name or Debtor's name
or otherwise, for Secured Party's sole use and benefit, but at Debtor's cost and
expense, to exercise, without notice, all or any of the following powers at any
time with respect to all or any of the Collateral (regardless of whether any
Default has occurred or not):
(a) transfer to or register in the name of Secured Party or
any nominee of Secured Party any of the Shares and whether or not so
transferred or registered, (i) to receive stock dividends, stock
splits and rights to subscribe thereon, and to hold the same as part
of the Collateral (ii) after the occurrence and during the
continuance of an Event of Default to exercise voting rights as to
the Shares; and (iii) to exchange any of the Shares for other
Property upon reorganization, recapitalization or other readjustment
and in connection therewith to deposit any of the Shares with any
committee or depository upon such terms as Secured Party may
determine; all without notice and without liability except to
account for Property actually received by Secured Party;
provided, however, Secured Party shall be under no obligation or duty to
exercise any of the powers hereby conferred upon it and shall be without
liability for any act or failure to act in connection with the collection of, or
the preservation of any rights under, any Collateral.
Section 5.2 Application of Cash Sums. After the occurrence and
during the continuance of an Event of Default, all cash sums paid to and
received by Secured Party on account of the Collateral (i) shall be applied by
Secured Party on the Obligations whether or not such Obligations shall have by
their terms matured, such application to be made to principal or to interest as
Secured Party may elect; as if such sum was a voluntary prepayment on the
Obligations under the Credit Agreement; provided, however, Secured Party need
not apply or give credit for any item included in such sums until Secured Party
has received final payment thereof at its banking quarters or solvent credits
accepted as such by Secured Party; provided, further, however, Secured Party's
failure to so apply any such sums shall not be a waiver of Secured Party's right
to so apply such sums or any other sums at any time, or, (ii) at the option of
Secured Party shall be released to Debtor for use in Debtor's business.
Section 5.3 Default, Events. Any of the following events shall be
considered an "Event of Default":
(a) Payment of Obligations - default is made in the payment
when due of any of the Obligations which default continues beyond
any applicable grace period; or
(b) Representations and Warranties - Any representation or
warranty made by Debtor in this Stock Pledge Agreement or made by
Debtor in any
XI-vii
<PAGE> 132
certificate or statement furnished under this Stock Pledge Agreement
proves to have been incorrect in any material respect as of the date
thereof; or
(c) Covenants - default is made by Debtor in the due
observance or performance of any of the covenants or agreements
contained in this Stock Pledge Agreement and such default continues
for thirty days after the earlier of (i) receipt of written notice
thereof by the Debtor from the Secured Party or (ii) the Debtor
having or obtaining knowledge thereof; or
(d) Judgments - the entry of a judgment, issuance of an
injunction or order of attachment, or any other process against any
Collateral; or
(e) Margin Violations - The failure of Debtor, Other Liable
Party or the Collateral to comply with Regulations G, U or X of the
Board of Governors of the Federal Reserve System, as amended; or
(f) Collateral Transfer - selling, assigning or otherwise
transferring any of the Collateral to or in favor of any Person
other than Secured Party; or
(g) Liens on Collateral - granting a Lien on any of the
Collateral to or in favor of any Person other than Secured Party; or
(h) Loan Documents Default - an event of default occurs and
continues beyond any applicable grace period under any of the Loan
Documents.
Section 5.4 Default Remedies. Upon the happening and during the
continuance of any Event of Default specified in Section , Secured Party may
then, or at any time thereafter and from time to time sell in one or more sales,
or otherwise dispose of, any or all of the Collateral, in such order as Secured
Party may elect, and any such sale may be made either at public or private sale
at its place of business or elsewhere, or at any brokers' board or securities
exchange, either for cash or upon credit or for future delivery, at such price
as Secured Party may deem fair, and Secured Party may be the purchaser of any or
all Collateral so sold and may hold the same thereafter in its own right free
from any claim of Debtor or right of redemption. No such purchase or holding by
Secured Party shall be deemed a retention by Secured Party in satisfaction of
the Obligations. All demands, notices and advertisements, and the presentment of
property at sale are hereby waived. If, notwithstanding the foregoing
provisions, any applicable provision of the Code or other law requires Secured
Party to give reasonable notice of any such sale or disposition or other action,
Debtor hereby agrees five days' prior written notice shall constitute reasonable
notice. Any sale hereunder may be conducted by an auctioneer or any officer or
agent of Secured Party.
Section 5.5 Proceeds. After the happening of any Event of Default
specified in Section , the proceeds of any sale or other disposition of the
Collateral and all sums received or collected by Secured Party from or on
account of the Collateral shall be applied by Secured Party in the manner set
forth in ss. 9-504 of the Code.
Section 5.6 Secured Party's Duties. The powers conferred upon
Secured Party by this Stock Pledge Agreement are solely to protect its interest
in the Collateral and shall not impose any duty upon Secured Party to exercise
any such powers. Secured Party shall be under no duty whatsoever to make or give
any
XI-viii
<PAGE> 133
presentment, demand for performance, notice of nonperformance, protest, notice
of protest, notice of dishonor, or other notice or demand in connection with any
Collateral or the Obligations, or to take any steps necessary to preserve any
rights against prior parties. Secured Party shall not be liable for failure to
collect or realize upon any or all of the Obligations or Collateral, or for any
delay in so doing, nor shall Secured Party be under any duty to take any action
whatsoever with regard thereto. Secured Party shall use reasonable care in the
custody and preservation of any Collateral in its possession but need not take
any steps to keep the Collateral identifiable. Secured Party shall have no duty
to comply with any recording, filing, or other legal requirements necessary to
establish or maintain the validity, priority or enforceability of, or Secured
Party's rights in or to, any of the Collateral.
Section 5.7 Secured Party's Actions. Debtor waives any right to
require Secured Party to proceed against any Person, exhaust any Collateral, or
have any Other Liable Party joined with Debtor in any suit arising out of the
Obligations or this Stock Pledge Agreement, or pursue any other remedy in
Secured Party's power; waives any and all notice of acceptance of this Stock
Pledge Agreement or of creation, modification, renewal or extension for any
period of any of the Obligations from time to time; and waives any defense
arising by reason of any disability or other defense of any Other Liable Party,
or by reason of the cessation from any cause whatsoever of the liability of any
Other Liable Party. All dealings between Debtor and Secured Party, whether or
not resulting in the creation of Obligations, shall conclusively be presumed to
have been had or consummated in reliance upon this Stock Pledge Agreement. Until
all the Obligations shall have been paid and performed in full, Debtor shall
have no right to subrogation, and Debtor waives any right to enforce any remedy
which Secured Party now has or may hereafter have against any Other Liable Party
and waives any benefit of and any right to participate in any Collateral or
security whatsoever now or hereafter held by Secured Party. Debtor authorizes
Secured Party, without notice or demand and without any reservation of rights
against Debtor and without affecting Debtor's liability hereunder or on the
Obligations, from time to time to (a) take and hold any other Property as
collateral, other than the Collateral, for any or all of the Obligations, and
exchange, enforce, waive and release any or all of the Collateral or such other
Property; (b) apply the Collateral or such other Property and direct the order
or manner of sale thereof as Secured Party in its discretion may determine; (c)
renew, extend for any period, accelerate, modify, compromise, settle or release
the obligation of any Other Liable Party with respect to any or all of the
Obligations or Collateral; (d) waive, enforce, modify, amend or supplement any
of the provisions of any of the Loan Documents, including the Credit Agreement
or of any Note evidencing any of the Obligations; and (e) release or substitute
any Other Liable Party.
Section 5.8 Transfer of Obligations and Collateral. Secured Party
may transfer any or all of the Obligations, and upon any such transfer Secured
Party may transfer any or all of the Collateral and shall be fully discharged
thereafter from all liability with respect to the Collateral so transferred, and
the transferee shall be vested with all rights, powers and remedies of Secured
Party hereunder with respect to Collateral so transferred; but with respect to
any Collateral not so transferred Secured Party shall retain all rights, powers
and remedies hereby given. Secured Party may at any time deliver any or all of
the Collateral to Debtor whose receipt shall be a complete and full acquittance
for the Collateral so delivered, and Secured Party shall thereafter be
discharged from any liability therefor.
Section 5.9 Cumulative Security. The execution and delivery of this
Stock Pledge Agreement in no manner shall impair or affect any other security
(by endorsement or otherwise) for the Obligations. No security taken hereafter
as security for payment or performance of the Obligations shall impair in any
manner or affect this Stock Pledge Agreement. All such present and future
additional security is to be considered as cumulative security.
XI-ix
<PAGE> 134
Section 5.10 Continuing Agreement. This is a continuing Stock Pledge
Agreement and the grant of a security interest hereunder shall remain in full
force and effect and all the rights, powers and remedies of Secured Party
hereunder shall continue to exist until the Obligations are paid and performed
in full as the same become due, payable, and performable; until Secured Party
has no further obligation to advance monies to Borrower under the Credit
Agreement or otherwise and until Secured Party, upon request of Debtor, has
executed a written termination statement, reassigned to Debtor, without
recourse, the Collateral and all rights conveyed hereby and returned possession
of the Collateral to Debtor. Furthermore, it is contemplated by the parties
hereto that there may be times when no Obligations are owing; but
notwithstanding such occurrences, this Stock Pledge Agreement shall remain valid
and shall be in full force and effect as to subsequent Obligations provided
Secured Party has not executed a written termination statement and returned
possession of the Collateral to Debtor. Otherwise this Stock Pledge Agreement
shall continue irrespective of the fact that the liability of any Other Liable
Party may have ceased, or irrespective of the validity or enforceability of the
Notes or the Loan Documents, including the Credit Agreement, to which any Other
Liable Party may be a party, and notwithstanding the reorganization or
bankruptcy of any Other Liable Party, and notwithstanding the reorganization or
bankruptcy of Debtor, or any other event or proceeding affecting Debtor or any
Other Liable Party.
Section 5.11 Cumulative Rights. The rights, powers and remedies of
Secured Party hereunder shall be in addition to all rights, powers and remedies
given by statute or rule of law and are cumulative. The exercise of any one or
more of the rights, powers and remedies provided herein shall not be construed
as a waiver of any other rights, powers and remedies of Secured Party.
Furthermore, regardless of whether or not the Uniform Commercial Code is in
effect in the jurisdiction where such rights, powers and remedies are asserted,
Secured Party shall have the rights, powers and remedies of a secured party
under the Code. Secured Party may exercise its bankers' lien or right of set-off
with respect to the Obligations in the same manner as if the Obligations were
unsecured.
Section 5.12 Exercise of Rights, Etc. Time shall be of the essence
for the performance of any act under this Stock Pledge Agreement or the
Obligations by Debtor or Other Liable Party, but neither Secured Party's
acceptance of partial or delinquent payments nor any forbearance, failure or
delay by Secured Party in exercising any right, power or remedy shall be deemed
a waiver of any obligation of Debtor or of Other Liable Party or of any right,
power or remedy of Secured Party or preclude any other or further exercise
thereof; and no single or partial exercise of any right, power or remedy shall
preclude any other or further exercise thereof, or the exercise of any other
right, power or remedy.
Section 5.13 Remedy and Waiver. Secured Party may remedy any Default
and may waive any Default without waiving the Default remedied or waiving any
prior or subsequent Default.
Section 5.14 Non-Judicial Remedies. Secured Party may enforce its
rights hereunder without prior judicial process or judicial hearing, and Debtor
expressly waives, renounces and knowingly relinquishes any and all legal rights
which might otherwise require Secured Party to enforce its rights by judicial
process. In so providing for non-judicial remedies, Debtor recognizes and
concedes that such remedies are consistent with the usage of the trade, are
responsive to commercial necessity, and are the result of bargain at arm's
length. Nothing herein is intended to prevent Secured Party or Debtor from
resorting to judicial process at either party's option.
XI-x
<PAGE> 135
ARTICLE VI
MISCELLANEOUS
Section 6.1 Preservation of Liability. Neither this Stock Pledge
Agreement nor the exercise by Secured Party of (or the failure to so exercise)
any right, power or remedy conferred herein or by law shall be construed as
relieving any Person liable on the Obligations from liability on the Obligations
and for any deficiency thereon.
Section 6.2 Notices and Other Communications. Except as to oral
notices expressly authorized herein, which oral notices shall be confirmed in
writing, all notices, requests, and communications hereunder or in connection
herewith shall be in writing (including by telecopy). Unless otherwise expressly
provided herein, any such notice, request, demand, or other communication shall
be deemed to have been duly given or made when delivered by hand, or, in the
case of delivery by mail, two Business Days after deposited in the mail,
certified mail, return receipt requested, postage prepaid, or, in the case of
telecopy notice, when receipt thereof is acknowledged orally or by written
confirmation report, addressed to each party at the "Address for Notices"
specified in the Credit Agreement or at such other address within the United
States as shall be designated by such party in a notice given to the Agent and
the Debtor.
Section 6.3 Construction. This Stock Pledge Agreement has been made
in and the conveyance, assignment, transfer and delivery has been made in and
the security interest granted hereby is granted in and each shall be governed by
the laws of the State of New York, and of the United States of America, as
applicable, in all respects, including matters of construction, validity,
enforcement and performance.
Section 6.4 Amendment and Waiver. This Stock Pledge Agreement may
not be amended (nor may any of its terms be waived) except in the manner
provided in Section 9.8 of the Credit Agreement.
Section 6.5 Invalidity. If any provision of this Stock Pledge
Agreement is rendered or declared invalid, illegal or unenforceable by reason of
any existing or subsequently enacted legislation or by a judicial decision which
shall have become final, Debtor and Secured Party shall promptly meet and
negotiate substitute provisions for those rendered invalid, illegal or
unenforceable, but all of the remaining provisions shall remain in full force
and effect.
Section 6.6 Survival of Agreements. All representations and
warranties of Debtor herein, and all covenants and agreements herein not fully
performed before the effective date of this Stock Pledge Agreement, shall
survive such date.
Section 6.7 Successors and Assigns. The covenants and agreements
herein contained by or on behalf of Debtor shall bind Debtor and Debtor's
successors and assigns and shall inure to the benefit of Secured Party and its
successors and assigns.
Section 6.8 Titles of Articles, Sections and Subsections. All titles
or headings to articles, sections, subsections or other divisions of this Stock
Pledge Agreement are only for the convenience of the parties and shall not be
construed to have any effect or meaning with respect to the other content of
such articles, sections, subsections or other divisions, such other content
being controlling as to the agreement between the parties hereto.
XI-xi
<PAGE> 136
Section 6.9 Counterparts. This Stock Pledge Agreement may be
executed in two or more counterparts, and it shall not be necessary that the
signatures of all parties hereto be contained on any one counterpart hereof;
each counterpart shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS HEREOF, Debtor and Secured Party have caused this
instrument to be duly executed as of the date first above written.
DEBTOR:
KCS ENERGY, INC.
By: ___________________________________
Henry A. Jurand
Vice President
SECURED PARTY:
CIBC INC.
By: ___________________________________
Marybeth Ross
Authorized Signatory
XI-xii
<PAGE> 1
Exhibit 11
Statement re Computation of Per Share Earnings
Earnings per share were calculated as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------
1996 1995 1994
------------------------------
In Thousands
Except per share amount
-----------------------------
<S> <C> <C> <C>
Net income $19,872 $21,306 $24,157
======= ======= =======
Average shares of common
stock outstanding 11,557 11,480 11,485
Add: Net shares assumed to be issued
for dilutive stock options 348 281 320
------- ------- -------
Average shares of common stock
and common stock equivalents
outstanding 11,905 11,761 11,805
======= ======= =======
Earnings per share of common stock
and common stock equivalents $ 1.67 $ 1.81 $ 2.05
======= ======= =======
</TABLE>
<PAGE> 1
Exhibit 21
KCS ENERGY, INC.
LIST OF WHOLLY-OWNED SUBSIDIARIES
KCS Resources, Inc.
KCS Pipelines Systems, Inc.
Enercorp Gas Marketing, Inc.
KCS Energy Risk Management, Inc.
National Enerdrill Corporation
Proliq, Inc.
KCS Energy Marketing, Inc.
KCS Power Marketing, Inc.
KCS Michigan Resources, Inc.
KCS Energy Services, Inc.
KCS Medallion Resources, Inc.
Medallion California Properties, Inc.
Medallion Gas Services Company
GED Energy Services, Inc.
<PAGE> 1
Exhibit 23 (i)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into KCS Energy, Inc.'s previously filed
Registration Statement File Nos. 33-25707, 33-28899, 33-45923 and 33-63982.
Arthur Andersen LLP
New York, New York
March 26, 1997
<PAGE> 1
Exhibit 23 (ii)
CONSENT OF INDEPENDENT PETROLEUM ENGINEER
We hereby consent to the references to us under the headings "Oil and Gas
Producing Operations: and "Oil and Gas Reserves" in the Annual Report on Form
10-K of KCS Energy, Inc. for the year ended December 31, 1996.
R. A. Lenser and Associates, Inc.
Houston, Texas
March 26, 1997
<PAGE> 1
Exhibit 23 (iii)
CONSENT OF INDEPENDENT PETROLEUM ENGINEER
We hereby consent to the references to us under the headings "Oil and Gas
Producing Operations: and "Oil and Gas Reserves" in the Annual Report on Form
10-K of KCS Energy, Inc. for the year ended December 31, 1996.
H. J. Gruy and Associates, Inc.
Houston, Texas
March 26, 1997
<PAGE> 1
Exhibit 23 (iv)
CONSENT OF INDEPENDENT PETROLEUM ENGINEER
We hereby consent to the references to us under the headings "Oil and Gas
Producing Operations: and "Oil and Gas Reserves" in the Annual Report on Form
10-K of KCS Energy, Inc. for the year ended December 31, 1996.
Ryder Scott Company
Houston, Texas
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,100
<SECURITIES> 0
<RECEIVABLES> 94,023
<ALLOWANCES> 2,084
<INVENTORY> 1,020
<CURRENT-ASSETS> 126,088
<PP&E> 565,566
<DEPRECIATION> 135,070
<TOTAL-ASSETS> 569,558
<CURRENT-LIABILITIES> 96,561
<BONDS> 0
0
0
<COMMON> 125
<OTHER-SE> 125,497
<TOTAL-LIABILITY-AND-EQUITY> 569,558
<SALES> 398,009
<TOTAL-REVENUES> 398,009
<CGS> 279,859
<TOTAL-COSTS> 279,859
<OTHER-EXPENSES> 73,850
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,963
<INCOME-PRETAX> 31,483
<INCOME-TAX> 11,611
<INCOME-CONTINUING> 19,872
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,872
<EPS-PRIMARY> 1.67
<EPS-DILUTED> 1.67
</TABLE>
