<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO_________
Commission file number 1-10389
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WESTERN GAS RESOURCES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1127613
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12200 N. Pecos Street, Denver, Colorado 80234-3439
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(303) 452-5603
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Registrant's telephone number, including area code
No Changes
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report).
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
----- -----
On August 1, 1998, there were 32,147,993 shares of the registrant's Common Stock
outstanding.
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1
<PAGE>
WESTERN GAS RESOURCES, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - Financial Information Page
- ------------------------------ ----
Item 1. Financial Statements (Unaudited)
<S> <C>
Consolidated Balance Sheet - June 30, 1998 and December 31, 1997................ 3
Consolidated Statement of Cash Flows - Six months ended June 30, 1998
and 1997........................................................................ 4
Consolidated Statement of Operations - Three and Six months ended
June 30, 1998 and 1997.......................................................... 5
Consolidated Statement of Changes in Stockholders' Equity - Six months ended
June 30, 1998................................................................... 6
Notes to Consolidated Financial Statements...................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations...................................................................... 8
PART II - Other Information
- ---------------------------
Item 1. Legal Proceedings.............................................................. 16
Item 4. Submission of Matters to a Vote of Security Holders............................ 17
Item 6. Exhibits and Reports on Form 8-K............................................... 17
Signatures................................................................................ 18
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
WESTERN GAS RESOURCES, INC.
CONSOLIDATED BALANCE SHEET
(000s, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -------------
ASSETS (Unaudited)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................... $ 10,018 $ 19,777
Trade accounts receivable, net............................................... 207,984 258,791
Product inventory............................................................ 53,159 17,261
Parts inventory.............................................................. 9,672 9,405
Other........................................................................ 2,943 2,364
---------- ----------
Total current assets....................................................... 283,776 307,598
---------- ----------
Property and equipment:
Gas gathering, processing, storage and transmission.......................... 1,062,024 1,050,676
Oil and gas properties and equipment......................................... 146,983 136,129
Construction in progress..................................................... 72,107 64,268
---------- ----------
1,281,114 1,251,073
Less: Accumulated depreciation, depletion and amortization.................. (307,052) (294,350)
---------- ----------
Total property and equipment, net.......................................... 974,062 956,723
---------- ----------
Other assets:
Gas purchase contracts (net of accumulated amortization of $28,766 and
$27,554, respectively)..................................................... 42,475 43,687
Other........................................................................ 39,539 40,268
---------- ----------
Total other assets......................................................... 82,014 83,955
---------- ----------
Total assets................................................................... $1,339,852 $1,348,276
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable............................................................. $ 232,386 $ 326,696
Accrued expenses............................................................. 20,471 27,151
Dividends payable............................................................ 4,217 4,217
---------- ----------
Total current liabilities................................................ 257,074 358,064
Long-term debt................................................................. 521,914 441,357
Deferred income taxes payable.................................................. 90,423 80,743
---------- ----------
Total liabilities.......................................................... 869,411 880,164
---------- ----------
Commitments and contingent liabilities......................................... - -
Stockholders' equity:
Preferred stock, par value $.10; 10,000,000 shares authorized:
$2.28 cumulative preferred stock; 1,400,000 shares issued and outstanding
($35,000,000 aggregate liquidation preference)........................... 140 140
$2.625 cumulative convertible preferred stock; 2,760,000 shares issued and
outstanding ($138,000,000 aggregate liquidation preference).............. 276 276
Common stock, par value $.10; 100,000,000 shares authorized; 32,173,009 and
32,171,453 shares issued, respectively..................................... 3,217 3,217
Treasury stock, at cost, 25,016 shares....................................... (788) (788)
Additional paid-in capital................................................... 399,577 399,554
Retained earnings............................................................ 69,104 66,999
Notes receivable from key employees secured by common stock.................. (1,085) (1,286)
---------- ----------
Total stockholders' equity................................................. 470,441 468,112
---------- ----------
Total liabilities and stockholders' equity..................................... $1,339,852 $1,348,276
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(000s)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------
1998 1997
----------- ---------
<S> <C> <C>
Reconciliation of net income to net cash (used in) provided by operating
activities:
Net income................................................................... $ 10,540 $ 11,486
Add income items that do not affect working capital:
Depreciation, depletion and amortization................................... 29,328 30,570
Deferred income taxes...................................................... 9,680 5,121
(Gain) loss on the sale of property and equipment.......................... (14,813) 71
Other non-cash items, net.................................................. 778 1,799
Adjustments to working capital to arrive at net cash (used in) provided by
operating activities:
Decrease in trade accounts receivable...................................... 50,907 141,609
Increase in product inventory.............................................. (36,457) (11,416)
(Increase) decrease in parts inventory..................................... (267) 277
Increase in other current assets........................................... (579) (2,785)
Decrease in other assets and liabilities, net.............................. 558 3
Decrease in accounts payable............................................... (94,310) (126,273)
Decrease in accrued expenses............................................... (6,950) (7,093)
----------- ---------
Net cash (used in) provided by operating activities.......................... (51,585) 43,369
----------- ---------
Cash flows from investing activities:
Purchase of property and equipment......................................... (51,838) (117,691)
Proceeds from the dispositions of property and equipment................... 22,250 4,946
Contributions to equity investees.......................................... (729) (2,436)
----------- ---------
Net cash used in investing activities........................................ (30,317) (115,181)
----------- ---------
Cash flows from financing activities:
Net proceeds from exercise of common stock options......................... 23 161
Debt issue costs paid...................................................... (2) (659)
Payments on revolving credit facility...................................... (1,355,500) (439,650)
Borrowings under revolving credit facility................................. 1,443,200 568,150
Payments on long-term debt................................................. (7,143) (82,143)
Dividends paid............................................................. (8,435) (8,433)
----------- ---------
Net cash provided by financing activities.................................... 72,143 37,426
----------- ---------
Net decrease in cash and cash equivalents.................................... (9,759) (34,386)
Cash and cash equivalents at beginning of period............................. 19,777 39,504
----------- ---------
Cash and cash equivalents at end of period................................... $ 10,018 $ 5,118
=========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(000s, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -------------------------------
1998 1997 1998 1997
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Revenues:
Sale of residue gas................................... $ 378,345 $ 307,019 $ 804,972 $ 736,201
Sale of natural gas liquids........................... 108,866 131,643 232,624 300,742
Processing, transportation and storage revenue........ 10,656 9,603 21,991 19,872
Sale of electric power................................ - 13,310 20 37,416
Other, net............................................ 2,904 2,000 21,619 4,882
----------- ----------- ----------- -----------
Total revenues..................................... 500,771 463,575 1,081,226 1,099,113
---------- ----------- ----------- -----------
Costs and expenses:
Product purchases..................................... 453,181 412,152 960,468 982,517
Plant operating expense............................... 20,406 18,522 40,661 36,507
Oil and gas exploration and production expense........ 1,603 1,997 2,995 3,164
Depreciation, depletion and amortization.............. 14,826 15,396 29,328 30,570
Selling and administrative expense.................... 6,783 7,944 14,907 15,678
Interest expense...................................... 8,140 6,302 16,296 12,729
----------- ----------- ----------- -----------
Total costs and expenses........................... 504,939 462,313 1,064,655 1,081,165
----------- ----------- ----------- -----------
Income (loss) before taxes.............................. (4,168) 1,262 16,571 17,948
Provision (benefit) for income taxes:
Current............................................... (860) (79) (3,649) 1,341
Deferred.............................................. (663) 463 9,680 5,121
----------- ----------- ----------- -----------
Total provision (benefit) for income taxes......... (1,523) 384 6,031 6,462
----------- ----------- ----------- -----------
Net income (loss)....................................... (2,645) 878 10,540 11,486
Preferred stock requirements............................ (2,610) (2,610) (5,220) (5,220)
----------- ----------- ----------- -----------
Income (loss) attributable to common stock.............. $ (5,255) $ (1,732) $ 5,320 $ 6,266
=========== =========== =========== ===========
Income (loss) per share of common stock................. $(.16) $(.05) $.17 $.20
=========== =========== =========== ===========
Weighted average shares of common stock outstanding..... 32,147,499 32,135,992 32,147,035 32,123,844
=========== =========== =========== ===========
Income (loss) per share of common stock -
assuming dilution...................................... $(.16) $(.05) $.17 $.20
=========== =========== =========== ===========
Weighted average shares of common stock outstanding -
assuming dilution...................................... 32,149,859 32,138,792 32,149,885 32,127,074
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
WESTERN GAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(000s, except share amounts)
<TABLE>
<CAPTION>
Shares of
Shares of $2.625 $2.625
$2.28 Cumulative Shares $2.28 Cumulative
Cumulative Convertible Shares of Common Cumulative Convertible
Preferred Preferred of Common Stock Preferred Preferred
Stock Stock Stock in Treasury Stock Stock
---------- ----------- ----------- ----------- ---------- -----------
Balance at December 31, 1997 1,400,000 2,760,000 32,146,437 25,016 $ 140 $ 276
Net income............................. - - - - - -
Stock options exercised................ - - 1,556 - - -
Loans forgiven......................... - - - - - -
Dividends declared on common stock..... - - - - - -
Dividends declared on $2.28 cumulative
preferred stock...................... - - - - - -
Dividends declared on $2.625 cumulative
convertible preferred stock.......... - - - - - -
---------- --------- ----------- --------- --------- ----------
Balance at June 30, 1998 1,400,000 2,760,000 32,147,993 25,016 $ 140 $ 276
========== ========= =========== ========= ========= ==========
Notes Total
Additional Receivable Stock-
Common Treasury Paid-In Retained from Key holders'
Stock Stock Capital Earnings Employees Equity
---------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $3,217 $(788) $399,554 $66,999 $(1,286) $468,112
Net income............................. - - - 10,540 - 10,540
Stock options exercised................ - - 23 - - 23
Loans forgiven......................... - - - - 201 201
Dividends declared on common stock..... - - - (3,215) - (3,215)
Dividends declared on $2.28 cumulative
preferred stock...................... - - - (1,597) - (1,597)
Dividends declared on $2.625 cumulative
convertible preferred stock.......... - - - (3,623) - (3,623)
---------- ----------- ----------- ----------- ---------- -----------
Balance at June 30, 1998 $3,217 $(788) $399,577 $69,104 $(1,085) $470,441
========== =========== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
WESTERN GAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
GENERAL
The interim consolidated financial statements presented herein should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included in the Company's Form 10-K for the year ended December 31, 1997. The
interim consolidated financial statements as of June 30, 1998 and for the three
and six month periods ended June 30, 1998 and 1997 included herein are unaudited
but reflect, in the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to fairly present the results for such
periods. The results of operations for the three and six months ended June 30,
1998 are not necessarily indicative of the results of operations expected for
the year ended December 31, 1998.
Certain prior year amounts in the Consolidated Financial Statements and Notes
have been reclassified to conform to the presentation used in 1998.
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Earnings per share of common stock is computed by dividing income attributable
to common stock by the weighted average shares of common stock outstanding. In
addition, earnings per share of common stock - assuming dilution is computed by
dividing income attributable to common stock by the weighted average shares of
common stock outstanding as adjusted for potential common shares. Income
attributable to common stock is income less preferred stock dividends. The
Company declared preferred stock dividends of $2.6 million and $5.2 million,
respectively, for both of the three and six month periods ended June 30, 1998
and 1997. Common stock options, which are potential common shares, had a
dilutive effect on earnings per share and increased the weighted average shares
of common stock outstanding by 2,360 and 2,800 shares for the three month
periods ended June 30, 1998 and 1997, respectively. Common stock options had a
dilutive effect on earnings per share and increased the weighted average shares
of common stock outstanding by 2,850 and 3,230 shares for the six month periods
ended June 30, 1998 and 1997, respectively. The numerators and the denominators
for the three and six month periods ended June 30, 1998 and 1997 are not
adjusted to reflect the Company's $2.625 Cumulative Convertible Preferred Stock
outstanding. These shares are antidilutive as the incremental shares result in
an increase in earnings per share after giving effect to the dividend
requirements.
SUPPLEMENTARY CASH FLOW INFORMATION
Interest paid was $20.5 million and $15.4 million, respectively, for the six
months ended June 30, 1998 and 1997.
Income taxes paid were $2.6 million for the six months ended June 30, 1997. No
such taxes were paid for the six months ended June 30, 1998.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," ("SFAS No. 133") with an effective date for fiscal
years beginning after June 15, 1999. The Company will comply with the accounting
and reporting requirements of SFAS No. 133 when required. The Company has not
yet completed its evaluation of the impact that SFAS No. 133 will have upon its
financial statements.
LEGAL PROCEEDINGS
Reference is made to "Part II - Other Information - Item 1. Legal Proceedings,"
of this Form 10-Q.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
The following discussion and analysis relates to factors which have affected the
consolidated financial condition and results of operations of the Company for
the three and six month periods ended June 30, 1998 and 1997. Certain prior
year amounts have been reclassified to conform to the presentation used in 1998.
Reference should also be made to the Company's Consolidated Financial Statements
and Notes thereto included elsewhere in this document. This section, as well as
other sections in this Form 10-Q, contain "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995, which can
be identified by the use of forward-looking terminology, such as "may,"
"intend," "will," "expect," "anticipate," "estimate," or "continue" or the
negative thereof or other variations thereon or comparable terminology. In
addition to the important factors referred to herein, numerous factors affecting
the gas processing industry generally and in the markets for gas and NGLs in
which the Company operates, could cause actual results to differ materially from
those in such forward-looking statements.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE AND SIX MONTHS
ENDED JUNE 30, 1997 (000S, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- Percent ---------------------------- Percent
1998 1997 Change 1998 1997 Change
--------- --------- --------- ---------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL RESULTS:
Revenues................................... $500,771 $463,575 8 $1,081,226 $1,099,113 2
Gross profit............................... 10,755 15,508 (31) 47,774 46,355 3
Net income................................. (2,645) 878 - 10,540 11,486 (8)
Income (loss) per share of common stock.... (.16) (.05) (220) .17 .20 (15)
Income (loss) per share of common stock -
assuming dilution....................... (.16) (.05) (220) .17 .20 (15)
Net cash (used in) provided by
operating activities..................... $(35,269) $(21,641) (63) $ (51,585) $ 43,369 -
OPERATING DATA:
Average gas sales (MMcf/D)................. 2,010 1,765 14 2,145 1,795 19
Average NGL sales (MGal/D)................. 4,620 4,440 4 4,640 4,360 6
Average gas prices ($/Mcf)................. $ 2.07 $ 1.90 9 $ 2.07 $ 2.26 (8)
Average NGL prices ($/Gal)................. $ .26 $ .32 (19) $ .27 $ .38 (29)
</TABLE>
Revenues from the sale of residue gas increased approximately $71.3 million to
$378.3 million for the quarter ended June 30, 1998 compared to the same period
in 1997. Average gas sales volumes increased 245 MMcf per day to 2,010 MMcf per
day for the quarter ended June 30, 1998 compared to the same period in 1997,
primarily as a result of an increase in the sale of residue gas purchased from
third parties. Average gas prices increased $.17 per Mcf to $2.07 per Mcf for
the three months ended June 30, 1998 compared to the same period in 1997.
Revenues from the sale of residue gas increased approximately $68.8 million to
$805.0 million for the six months ended June 30, 1998 compared to the same
period in 1997. Average gas sales volumes increased 350 MMcf per day to 2,145
MMcf per day for the six months ended June 30, 1998 compared to the same period
in 1997, primarily due to an increase in the sale of residue gas purchased from
third parties. Average gas prices decreased $.19 per Mcf to $2.07 per Mcf for
the six months ended June 30, 1998 compared to the same period in 1997.
Included in the average gas price was approximately $668,000 of loss and
$218,000 of gain, respectively, recognized for the three and six months ended
June 30, 1998 related to futures positions on equity gas volumes. The Company
has entered into futures positions for a portion of its equity gas for the
remainder of 1998. See further discussion in "Liquidity and Capital Resources -
Risk Management Activities."
Revenues from the sale of NGLs decreased approximately $22.8 million to $108.9
million for the quarter ended June 30, 1998 compared to 1997. Average NGL sales
volumes increased 180 MGal per day to 4,620 MGal per day, primarily due to an
increase in the sale of NGLs purchased from third parties. Average NGL prices
decreased $.06 per gallon to $.26 per gallon for the quarter ended June 30,
1998 compared to 1997. Revenues from the sale of NGLs decreased approximately
$68.1 million
8
<PAGE>
to $232.6 million for the six months ended June 30, 1998 compared to 1997.
Average NGL sales volumes increased 280 MGal per day to 4,640 MGal per day,
primarily due to an increase in the sale of NGLs purchased from third parties.
Average NGL prices decreased $.11 per gallon to $.27 per gallon for the six
months ended June 30, 1998 compared to 1997. Included in the average NGL price
was approximately $1.4 million and $3.6 million, respectively, of gain
recognized for the three and six months ended June 30, 1998 related to futures
positions on equity volumes. The Company has entered into futures positions for
a portion of its equity production for the remainder of 1998. See further
discussion in "Liquidity and Capital Resources -Risk Management Activities."
Revenue associated with the sale of electric power decreased $13.3 million and
$37.4 million, respectively, for the three and six months ended June 30, 1998
compared to the same periods in 1997, primarily because the Company had minimal
transactions in this market during 1998. During the second half of 1997, the
Company elected to discontinue wholesale trading of electric power, due to a
lack of profitability.
Other net revenue remained relatively constant and increased $16.7 million,
respectively, for the three and six months ended June 30, 1998 compared to the
same periods in 1997. The increase for the six month ended June 30, 1998 is
primarily due to a $14.9 million gain on the sale of the Company's Perkins
facility, and the Company recognized $1 million of revenue related to an option
payment received from RIS Resources (USA) Inc. ("RIS"). The option payment is
associated with the potential sale of a portion of certain of the Company's
assets in Southwest Wyoming. See further discussion at "Liquidity and Capital
Resources - Capital Investment Program - Southwest Wyoming."
Product purchases increased $41.0 million and decreased $22.0 million,
respectively, for the three and six months ended June 30, 1998 compared to the
same periods in 1997. The increase in product purchases for the three months
ended June 30, 1998 is due primarily to increased purchases from third parties.
The decrease in product purchases for the six month period ended June 30, 1998
is primarily due to the decrease in commodity prices which was somewhat offset
by an increase in volumes sold. Included in product purchases were lower of cost
or market write-downs of NGL inventory of $194,000 and $465,000, respectively,
for the three months ended June 30, 1998 and 1997, and of $522,000 and $963,000,
respectively, for the six months ended June 30, 1998 and 1997. Combined product
purchases as a percentage of residue gas, NGL and electric power sales increased
from 91% to 93% for both the three and six month periods ended June 30, 1998
compared to the same periods in 1997. Over the past several years, the Company
has experienced narrowing margins in its third-party sales related to the
increasing competitiveness of the natural gas marketing industry. During the
six months ended June 30, 1998, margins on the sale of third-party gas
declined and averaged approximately $.02 per Mcf compared to approximately $.03
for the same period in 1997. Contributing to the increase in the product
purchase percentage for the six months ended June 30, 1998 were higher payments
related to the Company's "keepwhole" contracts at its Granger facility. Under a
"keepwhole" contract, the Company's margin is reduced when the value of NGLs
declines relative to the value of residue gas.
Plant operating expense increased $1.9 million and $4.2 million, respectively,
for the three and six months ended June 30, 1998 compared to the same periods in
1997. The increase is primarily due to additional compression costs associated
with the increased Coal Bed Methane production activities and expenses incurred
at the Bethel Treating facility, which became partially operational during the
third quarter of 1997.
Interest expense increased $1.8 million and $3.6 million, respectively, for the
three and six months ended June 30, 1998 compared to the same periods in 1997.
The increase is due to less interest being capitalized related to capital
projects, primarily the Bethel facility, and larger debt balances outstanding
during the three and six month periods ended June 30, 1998 compared to the
corresponding periods in 1997. The larger debt balances resulted primarily from
higher product inventory positions and capital expenditures.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of liquidity and capital resources historically have been
net cash provided by operating activities, funds available under its financing
facilities and proceeds from offerings of equity securities. In the past, these
sources have been sufficient to meet its needs and finance the growth of the
Company's business. The Company can give no assurance that the historical
sources of liquidity and capital resources will be available for future
development and acquisition projects, and it may be required to seek alternative
financing sources. Net cash provided by operating activities is primarily
affected by product prices and sales of inventory, the Company's success in
increasing the number and efficiency of its facilities and the volumes of
natural gas processed by such facilities, as well as the margin on third-party
product purchased for resale. The Company's continued growth will be dependent
upon success in the areas of marketing, additions to dedicated plant reserves,
acquisitions and new project development.
Historically, oil prices have been volative and subject to rapid price
fluctuations. The oil and gas industry is currently experiencing significantly
declining oil prices. Such prices have declined approximately 30% during the
first half of 1998 to approximately $12.71 per barrel as of August 12, 1998.
In addition, the start-up volumes associated with the Bethel Treating facility
have been lower than anticipated. If the current pricing of oil and associated
NGLs continues or declines and volumes associated with the Bethel Treating
facility do not increase, the Company is uncertain as to its ability to satisfy
its interest coverage covenants under certain of its debt agreements during
1999. However, the Company believes it can obtain amendments or waivers from the
necessary lenders.
The Company believes that the amounts available to be borrowed under the
Revolving Credit Facility, together with cash provided by operating activities,
will provide it with sufficient funds to connect new reserves, maintain its
existing facilities and complete its current capital expenditure program.
Depending on the timing and the amount of the Company's future projects, it may
be required to seek additional sources of capital. The Company's ability to
secure such capital is restricted by its credit facilities, although it may
request additional borrowing capacity from its lenders, seek waivers from its
lenders to permit it to borrow funds from third parties, seek replacement credit
facilities from other lenders, use stock as a currency for an acquisition, sell
existing assets or a combination of such alternatives. While the Company
believes that it would be able to secure additional financing, if required, no
assurance can be given that it will be able to do so or as to the terms of any
such financing. Despite the declining oil prices experienced in the first
half of 1998, the Company also believes that cash provided by operating
activities will be sufficient to meet its debt service and preferred stock
dividend requirements in 1998.
9
<PAGE>
The Company's sources and uses of funds for the six months ended June 30, 1998
are summarized as follows (000s):
SOURCES OF FUNDS:
Borrowings on Revolving Credit Facility................... $1,443,200
Proceeds from the dispositions of property and equipment.. 22,250
Proceeds from exercise of common stock options............ 23
----------
Total sources of funds.................................... $1,465,473
==========
USES OF FUNDS:
Payments related to long-term debt........................ $1,362,645
Net cash used in operating activities..................... 51,585
Capital expenditures...................................... 52,567
Dividends paid............................................ 8,435
----------
Total uses of funds..................................... $1,475,232
==========
Additional sources of liquidity available to the Company are volumes of gas and
NGLs in storage facilities. The Company stores gas and NGLs primarily to ensure
an adequate supply for long-term sales contracts and for resale during periods
when prices are favorable. The Company held gas in storage and held imbalances
for such purposes of approximately 18.5 Bcf at an average cost of $2.10 per Mcf
at June 30, 1998 compared to 6.0 Bcf at an average cost of $1.97 per Mcf at
December 31, 1997, at various storage facilities, including the Katy Facility.
At June 30, 1998, the Company had hedging contracts in place for anticipated
sales of approximately 17.4 Bcf of stored gas at a weighted average price of
$2.36 per Mcf. The Company held NGLs in storage of 50,000 MGal, consisting
primarily of propane, at an average cost of $.28 per gallon, and 14,400 MGal, at
an average cost of $.37 per gallon, at June 30, 1998 and December 31, 1997,
respectively, at various third-party storage facilities. At June 30, 1998, the
Company had hedging contracts in place for anticipated sales of approximately
5,200 MGal of stored NGLs at a weighted average price of $.25 per gallon,
consisting primarily of propane.
Risk Management Activities
The Company enters into futures transactions on the New York Mercantile Exchange
("NYMEX") and the Kansas City Board of Trade and OTC swaps and options with
counterparties it considers to be creditworthy consisting primarily of financial
institutions and other natural gas companies. Using these tools, as well as
physical forward transactions, the Company has hedged a portion of its equity
volumes of gas and NGLs in 1998 at pricing levels in excess of its 1998
operating budget. The Company's 1998 hedging strategy established a minimum and
maximum price to the Company while allowing market participation between these
levels. As of August 3, 1998, the Company had hedged approximately 75% of its
anticipated equity gas for the remainder of 1998 at a weighted average NYMEX-
equivalent minimum price of $2.21 per Mcf. Additionally, the Company has hedged
approximately 25% of its anticipated equity NGLs, primarily crude oil, for the
remainder of 1998 at a weighted average composite Mont Belvieu and West Texas
Intermediate Crude-equivalent minimum price of $.36 per gallon.
Capital Investment Program
Capital expenditures related to existing operations are expected to be
approximately $122.8 million during 1998, consisting of the following: capital
expenditures related to gathering, processing and pipeline assets are expected
to be approximately $74.1 million, of which approximately $64.1 million is
budgeted to be used for new connects, system expansions and asset consolidations
and approximately $10.0 million for maintaining existing facilities. The
Company expects capital expenditures on exploration and production activities
and other miscellaneous items to be approximately $44.3 million and $4.4
million, respectively. These capital expenditures represent anticipated
expenditures, and to a certain extent, are subject to adjustment in response to
present or forecasted market conditions. The Company is currently re-evaluating
the level of capital expenditures at its processing facilities to reflect
reductions in certain producers' drilling plans and capital expenditures related
to its exploration and production activities pending the completion of its
analysis of the impact of the Southern Ute Litigation. See further discussion at
"Coal Bed Methane." As of June 30, 1998, the Company had expended $52.6 million,
consisting of the following: (i) $25.7 million for new connects, system
expansions and asset consolidations; (ii) $4.2 million for maintaining
existing facilities; (iii) $21.3 for exploration and production activities; and
(iv) $1.4 million related to other miscellaneous items.
10
<PAGE>
Coal Bed Methane. The Company is expanding its Powder River Basin coal bed
methane natural gas gathering system and developing its own coal seam gas
reserves in Wyoming. The Company's revised capital budget provides for
expenditures of approximately $51.4 million during 1998. This capital budget
includes approximately $28.2 million for drilling costs, production equipment
and purchase of operating wells and undeveloped acreage. The remainder is to be
used primarily for compression equipment. On July 20, 1998, the United States
Court of Appeals, Tenth Circuit, ruled in favor of the Southern Ute Indian Tribe
in a case entitled Southern Ute Indian Tribe v. Amoco Production Company, et
---------------------------------------------------------
al., ("Southern Ute Litigation") and found that coal bed methane was reserved
- ----
under patents issued pursuant to the 1909 and 1910 Coal Land Acts to the United
States government, and subsequently transferred to a Native American tribe,
along with the coal. As of August 1998, approximately 31% of the Company's
leases in the Powder River coal bed are from landowners whose title was derived
under those acts and under which the federal government may have retained the
rights to the coal bed methane. In July 1998, approximately 17 MMcf per day of
gas, net to the Company, was produced from those leases. In response to this
decision, the Company will curtail drilling on affected lands pending resolution
of the Southern Ute Litigation. As a result, the Company is currently re-
evaluating the level of capital expenditures related to its exploration and
production activities in this area pending the completion of its analysis of the
impact of the Southern Ute Litigation. The Company is currently evaluating its
legal position and seeking legislative solutions to the issue. Depending upon
future drilling success, additional capital expenditures will be required to
continue expansion in this basin. However, because of drilling and other
uncertainties, beyond the Company's control, including potential litigation,
there can be no assurance that this level of capital expenditures will be
incurred or that future capital expenditures will be made. See further
discussion at "Part II - Other Information - Item 1. Legal Proceedings," of this
Form 10-Q.
On July 10, 1998 MIGC received approval from the Federal Energy Regulatory
Commission ("FERC") to increase its pipeline capacity from 90 MMcf per day to
130 MMcf per day. The Company plans to expand the pipeline to approximately 110
MMcf per day to meet current capacity requirements and anticipates that
construction will be completed by December 31, 1998. This portion of the
construction is expected to cost approximately $4.0 million and is included in
the $51.4 million capital budget. Further expansion of the pipeline will be
contingent upon the Company's completion of its analysis of the impact of the
Southern Ute Litigation.
Southwest Wyoming. The Company began to expand its gas gathering and
exploration and production activities in Southwest Wyoming during 1997. The
Company's capital budget provides for expenditures of approximately $14.6
million during 1998. This capital budget includes approximately $4.6 million
for drilling costs and production equipment and approximately $10.0 million
related to gathering, transportation and expansion of the Granger facility.
During 1997, the Company entered into two separate agreements with RIS to sell
RIS undivided interests in certain assets. Under the first agreement, in
February 1998, the Company sold RIS a 50% undivided interest in a portion of the
Granger gathering system servicing a large area of mutual interest (the "Bird
Canyon Line") for approximately $4.0 million. This amount approximated the
Company's cost in such facilities. RIS and the Company expect to install
jointly additional gathering assets in this area as needed.
Under the second agreement, as amended, RIS exercised an option to purchase 50%
of the Granger processing facility and its remaining gathering system and a 50%
interest in the Company's 72% ownership interest in the Lincoln Road facility
(collectively the "Granger Complex") for $105 million. Pursuant to the agreement
with RIS, the Company will remain the operator of the Bird Canyon Line and the
Granger Complex. The purchase price will be further increased by a pro-rata
share of capital expenditures incurred at the Granger Complex from November 1997
until closing. The sale is subject to various regulatory approvals and third-
party purchase preferential rights. The transaction is expected to close on
August 31, 1998. As a component of RIS's financing, the Company has entered into
a letter of intent with RIS to purchase $14 million of 9.5% preferred stock. The
preferred stock will be issued by RIS and will be redeemable at RIS's option
during the initial three years after issuance at varying premiums. If the
preferred stock is not redeemed during the initial three year period, the
preferred stock is convertible into shares of RIS Resources International Corp.,
RIS's parent company and a Vancover Stock Exchange listed Company.
Bethel Treating Facility. In March 1998, the Company completed the
construction of a 60-ton sulfur recovery plant to accommodate wells which
contain greater concentrations of hydrogen sulfide. The Bethel Treating facility
averaged gas throughput of approximately 65 MMcf per day and 67 MMcf per day for
the three and six months ended June 30, 1998, respectively. The Company
anticipates that in order to cover controllable plant operating costs, the
Bethel Treating facility would need to average approximately 40 MMcf per day of
throughput for 1998. The Bethel Treating facility is not expected to contribute
to profitability during 1998. However, because of uncertainties related to
third-party drilling programs, declines in volumes produced at certain wells and
other conditions outside of the Company's control, the Company is currently
unable to predict future throughput volumes associated with the Bethel Treating
facility, which may be lower or higher than current throughput levels.
11
<PAGE>
Long-term gathering and treating agreements have been signed with several
producers, including Sonat Exploration Company ("Sonat"), UMC Petroleum
Corporation, Broughton Associates Joint Venture and Union Pacific Resources
Company ("UPRC"), relating to their interests in the Cotton Valley Pinnacle Reef
trend. These agreements, in addition to other agreements, cover specified areas
of dedication aggregating approximately 650,000 acres of previously undedicated
interests and other individual wellsites. Pursuant to its agreement with Sonat,
the Company will begin treating additional volumes in May 1999 which are
currently being treated by a competitor. This production volume has declined
from that previously reported in the Company's Annual Report on Form 10-K of 100
MMcf per day to approximately 25 MMcf per day. In addition, Sonat announced
plans to reduce its drilling program in the Cotton Valley Pinnacle Reef. UPRC
announced that it intended to divest certain assets, including some of its
acreage in the Cotton Valley Pinnacle Reef. Any purchaser of UPRC's dedicated
leases will continue to be subject to the Company's gathering and treating
agreement.
Other. The Company continually monitors the economic performance of each
of its operating facilities to ensure that a desired cash flow objective is
achieved. If an operating facility is not generating desired cash flows or does
not fit in with the Company's strategic plans, the Company will explore various
options, such as consolidation with other Company-owned facilities,
dismantlement, asset swap or outright sale.
Financing Facilities
Revolving Credit Facility. The Company's unsecured variable rate Revolving
Credit Facility was restated and amended on May 30, 1997. The Revolving Credit
Facility is with a syndicate of nine banks and provides for a maximum borrowing
commitment of $300 million, $241 million of which was outstanding at June 30,
1998. The Revolving Credit Facility's commitment period will terminate on March
31, 2002. At that time, any amounts outstanding on the Revolving Credit
Facility will become due and payable. The Revolving Credit Facility bears
interest at certain spreads over the Eurodollar rate, at the Federal Funds rate
plus .50% or at the agent bank's prime rate. The Company has the option to
determine which rate will be used. The Company also pays a facility fee on the
commitment. The interest rate spreads and facility fee are adjusted based on
the Company's debt to capitalization ratio. At June 30, 1998, the spread was
.35% over the Eurodollar rate and the facility fee was .175%. The rate payable,
including the facility fee, on the Revolving Credit Facility at June 30, 1998
was 6.412%. Beginning August 1998, the spread over the Eurodollar rate increased
to .425% and the facility fee increased to .25%. Pursuant to the Revolving
Credit Facility, the Company is required to maintain a debt to capitalization
ratio (as defined therein) of not more than 60% as of the end of any fiscal
quarter and a ratio of EBITDA (as defined therein) to interest and dividends on
preferred stock as of the end of any fiscal quarter of not less than 2.75 to 1.0
through December 31, 1998, 3.0 to 1.0 from January 1, 1999 through December 31,
1999 and 3.25 to 1.0 thereafter. The Company generally utilizes excess daily
funds to reduce any outstanding balances on the Revolving Credit Facility and
associated interest expense and it intends to continue such practice.
Master Shelf Agreement. In December 1991, the Company entered into a
Master Shelf Agreement (as amended and restated, the "Master Shelf") with The
Prudential Insurance Company of America ("Prudential"). The Master Shelf
Agreement, as further restated and amended, is fully utilized, as indicated in
the following table (000s):
<TABLE>
<CAPTION>
Interest Final
Issue Date Amount Rate Maturity Principal Payments Due
- ------------------ -------- -------- ------------------ -----------------------------------------------
<S> <C> <C> <C> <C>
October 27, 1992 $ 25,000 7.51% October 27, 2000 $8,333 on each of October 27, 1998 through 2000
October 27, 1992 25,000 7.99% October 27, 2003 $8,333 on each of October 27, 2001 through 2003
September 22, 1993 25,000 6.77% September 22, 2003 single payment at maturity
December 27, 1993 25,000 7.23% December 27, 2003 single payment at maturity
October 27, 1994 25,000 9.05% October 27, 2001 single payment at maturity
October 27, 1994 25,000 9.24% October 27, 2004 single payment at maturity
July 28, 1995 50,000 7.61% July 28, 2007 $10,000 on each of July 28, 2003 through 2007
--------
$200,000
========
</TABLE>
Pursuant to the Master Shelf Agreement, the Company is required to maintain a
current ratio (as defined therein) of at least 1.0 to 1.0, a minimum tangible
net worth equal to the sum of $345 million plus 50% of consolidated net earnings
earned from June 30, 1995 plus 75% of the net proceeds of any equity offerings
after June 30, 1995, a debt to capitalization ratio (as defined therein) of no
more than 55%, and an EBITDA (as defined
12
<PAGE>
therein) to interest ratio of not less than 3.25 to 1.0 through October 31, 1997
and 3.75 to 1.0 thereafter. The Company is prohibited from declaring or paying
dividends on any capital stock on or after June 30, 1995, that in the aggregate
exceed the sum of $50 million plus 50% of consolidated net earnings earned after
June 30, 1995, plus the cumulative net proceeds received by the Company after
June 30, 1995 from the sale of any equity securities. At June 30, 1998, $115.4
million was available under this limitation. The Company presently intends to
finance the $8.3 million payment due on October 27, 1998 with amounts available
under the Revolving Credit Facility.
1993 Senior Notes. On April 28, 1993, the Company sold $50 million of
7.65% Senior Notes ("1993 Senior Notes") due 2003 to a group of insurance
companies. Annual principal payments of $7.1 million on the 1993 Senior Notes
were and are due on April 30 of each year from 1997 through 2002, with any
remaining principal and interest outstanding due on April 30, 2003. The Company
financed the $7.1 million payment paid on April 30, 1998 with amounts available
under the Revolving Credit Facility. The Company presently intends to finance
the $7.1 million payment due on April 30, 1999 with amounts available under the
Revolving Credit Facility. The 1993 Senior Notes are unsecured and contain
certain financial covenants that substantially conform with those contained in
the Master Shelf Agreement.
1995 Senior Notes. The Company sold $42 million of 1995 Senior Notes to a
group of insurance companies in the fourth quarter of 1995, with an interest
rate of 8.16% per annum and principal due in a single payment in December 2005.
The 1995 Senior Notes are unsecured and contain certain financial covenants that
conform with those contained in the Master Shelf Agreement.
Covenant Compliance. At June 30, 1998, the Company was in compliance with
all covenants in its loan agreements. Taking into account all the covenants
contained in the Company's financing facilities and maturities of long-term debt
during 1998, the Company had approximately $49 million of available borrowing
capacity at June 30, 1998. Historically, oil prices have been volatile and
subject to rapid price fluctuations. The oil and gas industry is currently
experiencing significantly declining oil prices. Such prices have declined
approximately 30% during the first half of 1998 to approximately $12.71 per
barrel as of August 12, 1998. In addition, the start-up volumes associated with
the Bethel Treating facility have been lower than anticipated. If the current
pricing of oil and associated NGLs continues or declines and volumes associated
with the Bethel Treating facility do not increase, the Company is uncertain as
to its ability to satisfy its interest coverage covenants under certain of its
debt agreements during 1999. However, the Company believes it can obtain
amendments or waivers from the necessary lenders.
13
<PAGE>
PRINCIPAL FACILITIES
The following table provides information concerning the Company's principal
facilities. The Company also owns and operates several smaller treating and
processing facilities located in the same areas as its other facilities.
<TABLE>
<CAPTION>
Average for the Six Months Ended
June 30, 1998
Gas Gas -----------------------------------------
Gathering Throughput Gas Gas NGL
Year Placed Systems Capacity Throughput Production Production
Plant Facilities (1) In Service Miles(2) (MMcf/D)(3) (MMcf/D)(4) (MMcf/D)(5) (MGal/D)(5)
- --------------------------------- ----------- ---------------- --------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
SOUTHERN REGION:
Texas
Bethel Treating (6)............ 1997 86 350 67 63 -
Edgewood (6)(7)................ 1964 89 65 23 7 55
Giddings Gathering............. 1979 660 80 52 44 79
Gomez Treating................. 1971 384 280 123 117 -
Midkiff/Benedum................ 1955 2,133 165 153 102 979
Mitchell Puckett Gathering..... 1972 86 85 69 46 -
MiVida Treating (6)............ 1972 289 150 66 63 -
Rosita Treating................ 1973 - 60 49 49 -
Louisiana
Black Lake..................... 1966 56 75 13 8 36
Toca (7)(8).................... 1958 - 160 71 67 53
NORTHERN REGION:
Wyoming
Coal Bed Methane
Gathering..................... 1990 213 62 62 57 -
Granger (7)(9)(10)(11)......... 1987 389 235 149 136 200
Hilight Complex (7)............ 1969 622 80 41 36 95
Kitty/Amos Draw (7)............ 1969 307 17 10 7 45
Lincoln Road (11).............. 1988 149 50 30 27 28
Newcastle (7).................. 1981 146 5 2 2 17
Red Desert (7)................. 1979 111 42 20 18 35
Reno Junction (9).............. 1991 - - - - 51
Oklahoma
Arkoma......................... 1985 64 8 4 4 -
Chaney Dell.................... 1966 2,047 180 68 54 220
Westana........................ 1986 744 45 59 51 78
New Mexico
San Juan River (6)............. 1955 134 60 28 24 1
Utah
Four Corners Gathering......... 1988 104 15 4 3 4
----- ----- ----- --- -----
Total......................... 8,813 2,269 1,163 985 1,976
===== ===== ===== === =====
. Average for the
Six Months Ended
June 30, 1998
Interconnect ----------------
and Gas Storage Pipeline Gas
Storage and Year Placed Transmission Capacity Capacity Throughput
Transmission Facilities (1) In Service Miles(2) (Bcf)(2) (MMcf/D)(2) (MMcf/D)(3)
- --------------------------------- ----------- ------------- ------------ ------------- ----------------
Katy Facility (12)............... 1994 17 20 - 237
MIGC (13)........................ 1970 245 - 90 86
MGTC (14)........................ 1963 252 - 18 9
----- ----- ----- -----
Total.......................... 514 20 108 332
===== ===== ===== =====
</TABLE>
____________________________
Footnotes on following page.
14
<PAGE>
(1) The Company's interest in all facilities is 100% except for Midkiff/Benedum
(73%); Black Lake (69%); Lincoln Road (72%); Westana Gathering Company
("Westana") (50%); Newcastle (50%) and Coal Bed Methane Gathering (50%).
All facilities are operated by the Company, and all data include interests
of the Company, other joint interest owners and producers of gas volumes
dedicated to the facility.
(2) Gas gathering systems miles, interconnect and transmission miles, gas
storage capacity and pipeline capacity are as of June 30, 1998. On July
10, 1998, MIGC received approval from the FERC to increase its pipeline
capacity from 90 MMcf per day to 130 MMcf per day.
(3) Gas throughput capacity is as of June 30, 1998 and represents capacity in
accordance with design specifications unless other constraints exist,
including permitting or field compression limits.
(4) Aggregate wellhead natural gas volumes collected by a gathering system,
aggregate volumes delivered over the header at the Katy Hub and Gas Storage
Facility ("Katy Facility") or volumes transported by a pipeline.
(5) Volumes of gas and NGLs are allocated to a facility when a well is
connected to that facility; volumes exclude NGLs fractionated for third
parties.
(6) Sour gas facility (capable of processing or treating gas containing
hydrogen sulfide and/or carbon dioxide).
(7) Fractionation facility (capable of fractionating raw NGLs into end-use
products).
(8) Straddle plant (a plant located near a transmission pipeline that processes
gas dedicated to or gathered by a pipeline company or another third party).
(9) NGL production includes conversion of third-party feedstock to iso-butane.
(10) In February 1998, the Company sold a 50% undivided interest in a portion of
the Granger gathering system for approximately $4.0 million. This amount
approximated the Company's cost in such facilities.
(11) The Company and its joint venture partner at the Lincoln Road facility have
agreed to process such gas at the Company's Granger facility as long as
there is available capacity at the Granger facility. As a result, a
periodic election is made as to whether or not gas will be processed at the
Lincoln Road facility. Accordingly, operations at the Lincoln Road
facility were temporarily suspended for the period between February 1998
and June 1998.
(12) Hub and gas storage facility.
(13) MIGC is an interstate pipeline located in Wyoming and is regulated by the
FERC.
(14) MGTC is a public utility located in Wyoming and is regulated by the Wyoming
Public Service Commission.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
JN Exploration and Production Litigation
JN Exploration and Production ("JN") is a producer of oil and natural gas that
sold unprocessed natural gas to the Company on a percentage-of-proceeds basis.
The Company processed the natural gas at its Teddy Roosevelt Plant, which is no
longer in operation. In JN Exploration and Production v. Western Gas Resources,
-------------------------------------------------------
Inc. United States District Court for the District of North Dakota,
- ----
Southwestern Division, Civil Action Nos. A1-93-53 and 903-CV-60, JN sued the
Company, alleging that JN was entitled to a portion of a $15 million amendment
fee the Company received in the years 1987 through 1989 from Williston Basin
Interstate Pipeline Company ("WBI"), which had an agreement with the Company to
purchase natural gas. On April 15, 1996, the Court issued a Memorandum and
Order granting JN's summary judgment motion on the issue of liability. On July
11, 1996, the Court issued a Memorandum and Order setting forth the manner in
which damages are to be calculated. On September 17, 1996, the Court entered a
final judgment against the Company in the amount of $421,000 (including pre-
judgment interest). The Company has filed a Notice of Appeal with the United
States Court of Appeals for the Eighth Circuit, and an order granting a stay of
execution of the judgment until the appeal is resolved was granted by the Court
on November 29, 1996. The case has been briefed and argued to the Court and the
Company is presently awaiting the Court's decision. The Company believes that
there are meritorious grounds to reverse the trial court's decision. One other
producer has filed a similar claim. If JN were to prevail on appeal, other
producers who sold natural gas which was processed at the Teddy Roosevelt Plant
during the time period in question may be able to assert similar claims. The
Company believes that it has meritorious defenses to such claims and, if sued,
the Company would defend vigorously against any such claims. At the present
time, it is not possible to predict the outcome of this litigation or any other
producer litigation that might raise similar issues or to estimate the amount of
potential damages.
15
<PAGE>
Southern Ute Indian Tribe
The Company is producing and gathering natural gas from the coal bed methane
play in the Powder River Basin of Wyoming. On July 20, 1998, the United States
Court of Appeals, Tenth Circuit, ruled in favor of the Southern Ute Indian Tribe
in a case entitled Southern Ute Indian Tribe v. Amoco Production Company, et
---------------------------------------------------------
al., No. 94-1579 and found that coal bed methane was reserved under patents
- ---
issued pursuant to the 1909 and 1910 Coal Land Acts to the United States
government, and subsequently transferred to a Native American tribe, along with
the coal. As of August 1998, approximately 31% of the Company's leases in the
Powder River coal bed are from landowners whose title was derived under those
acts and under which the federal government may have retained the rights to the
coal bed methane. In July 1998, approximately 17 MMcf per day of gas, net to the
Company, was produced from those leases. In addition, this Court of Appeals
ruled against the claim of the lessees that owned natural gas rights but not
coal rights. There is no assurance that the United States government, as the
owner of the coal rights, will not assert a similar claim to the coal bed
methane rights that the Company believes it owns as owner of the natural gas
rights.
Internal Revenue Service
The Internal Revenue Service ("IRS") has completed its examination of the
Company's tax returns for the years 1990 and 1991 and has proposed adjustments
to taxable income reflected in such tax returns that would shift the recognition
of certain items of income and expense from one year to another ("Timing
Adjustments"). To the extent taxable income in a prior year is increased by
proposed Timing Adjustments, taxable income may be reduced by a corresponding
amount in other years. However, the Company would incur an interest charge as a
result of such adjustment. The Company currently is protesting certain of these
proposed adjustments. In the opinion of management, any proposed adjustments
for the additional income taxes and interest that may result would not be
material. However, it is reasonably possible that the ultimate resolution could
result in an amount which differs materially from management's estimates.
Other
The Company is involved in various other litigation and administrative
proceedings arising in the normal course of business. In the opinion of
management, any liabilities that may result from these claims, will not,
individually or in the aggregate, have a material adverse effect on the
Company's financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The following matter was voted on at the Company's Annual Meeting of
Stockholders held on May 22, 1998:
Walter L. Stonehocker, Dean Phillips, Bill M. Sanderson and James A. Senty
were elected as Class Three Directors to serve until their terms expire in
2001 and until their successors have been elected. 28,882,954, 28,881,952,
28,883,182 and 28,881,925 shares, respectively, were voted for and 373,241,
374,243, 373,013 and 374,270 shares, respectively, were withheld for Walter
L. Stonehocker, Dean Phillips, Bill M. Sanderson and James A. Senty.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
10.21 Amendment No. 6 to Note Purchase Agreements as of January 15,
1998 by and among Western Gas Resources, Inc. and the
Purchasers.
10.22 First Amendment to Credit Agreement dated July 8, 1998 by and
among Western Gas Resources, Inc. and NationsBank, N.A. as
agent, and the Lenders (Revolver).
10.23 Letter Amendment No. 1 to Senior Note Purchase Agreement dated
November 29, 1995 by and among Western Gas Resources, Inc. and
the Purchasers identified therein.
10.24 Letter Amendment No. 1 to Second Amended and Restated Master
Shelf Agreement effective January 31, 1996 by and among Western
Gas Resources, Inc. and Prudential Company of America.
(b) Reports on Form 8-K:
A report on Form 8-K was filed on July 1, 1998 with the Securities and
Exchange Commission to notify the Company's stockholders of the
extension of the closing date of the transactions between the Company
and Ultra Resources, Inc. and RIS Resources (USA) Inc.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WESTERN GAS RESOURCES, INC.
---------------------------
(Registrant)
Date: August 14, 1998 By: /s/ LANNY F. OUTLAW
-------------------
Lanny F. Outlaw
President and Chief Operating Officer
Date: August 14, 1998 By: /s/WILLIAM J. KRYSIAK
---------------------
William J. Krysiak
Vice President - Finance
(Principal Financial
and Accounting Officer)
17
<PAGE>
EXHIBIT 10.21
AMENDMENT NO. 6 TO NOTE PURCHASE AGREEMENT
AMENDMENT NO. 6 TO NOTE PURCHASE AGREEMENTS (this "AMENDMENT") dated as of
January 15, 1998, by and among Western Gas Resources, Inc., a Delaware
corporation (together with its successors and assigns, the "COMPANY"), each of
the Guarantors signatory hereto and each of the Purchasers of Notes listed on
Attachment 1 (collectively, the "EXISTING NOTEHOLDERS") who become signatories
to this Amendment (collectively, the "CONSENTING NOTEHOLDERS").
WITNESSETH:
-----------
WHEREAS, the Company, the Guarantors and the Existing Noteholders have
entered into those separate Note Purchase Agreements, each dated as of April 1,
1993, (as amended and as in effect prior to the effectiveness of this Amendment,
collectively the "EXISTING NOTE AGREEMENT," and, as amended by this Amendment,
collectively the "AMENDED NOTE AGREEMENT") pursuant to which the Company sold
its 7.65% Senior Notes due April 30, 2003 (the "NOTES"), in the aggregate
principal amount of Fifty Million Dollars ($50,000,000);
WHEREAS, the Company, the Guarantors and the Required Holders desire to
amend and restate certain provisions of the Existing Note Agreement;
WHEREAS, following the effectiveness of this Amendment, Amendment No. 1 to
the Note Purchase Agreement dated as of August 31, 1993, Amendment No. 2 to the
Note Purchase Agreement dated as of August 31, 1994, Amendment No. 3 to the Note
Purchase Agreement dated as of March 22, 1995, Amendment No. 4 to the Note
Purchase Agreement dated as of July 14, 1995 and Amendment No. 5 to the Note
Purchase Agreement dated as of December 1, 1997, are superseded by the
amendments and restatements provided herein;
WHEREAS, in consideration for and as a condition precedent to this
Amendment, the Company has agreed to pay to the Existing Noteholders a fee (the
"AMENDMENT FEE") equal to 0.1% of the principal amount of the Notes outstanding
as of May 1, 1998; and
WHEREAS, the capitalized terms used herein and not defined herein shall
have the respective meanings ascribed to them in the Existing Note Agreement.
NOW THEREFORE, upon the full and complete satisfaction of the conditions
precedent to the effectiveness of this Amendment set forth in Section 3 hereof,
and for good and valuable consideration the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
1. AMENDMENTS.
Upon the effectiveness of this Amendment, the Existing Note Agreement shall
be amended as set forth in this Section 1.
1.1 AMENDMENT TO SECTION 7 OF THE EXISTING NOTE AGREEMENT.
<PAGE>
Section 7 of the Existing Note Agreement is hereby amended and restated in
its entirety to read as follows:
7. COMPANY BUSINESS COVENANTS
The Company covenants that so long as you shall have any obligation to
purchase any Notes hereunder or any of the Notes shall be outstanding:
7.1 PAYMENT OF TAXES AND CLAIMS.
The Company will, and will cause each Subsidiary to, pay before they
become delinquent,
(a) all taxes, assessments and governmental charges or levies
imposed upon it or its Property, and
(b) all claims or demands of materialmen, mechanics, carriers,
warehousemen, vendors, landlords and other like Persons that, if
unpaid, might result in the creation of a Lien upon its Property,
provided, that items of the foregoing description need not be paid
(i) while being contested in good faith and by appropriate
proceedings as long as adequate book reserves (if required by
GAAP) have been established and maintained and exist with respect
thereto, and
(ii) so long as the title of the Company or the Subsidiary,
as the case may be, to, and its right to use, such Property, is
not materially adversely affected thereby.
7.2 MAINTENANCE OF PROPERTIES; INSURANCE; CORPORATE EXISTENCE, ETC.
The Company will, and will cause each Subsidiary to,
(A) PROPERTY -- maintain its Property in good condition, ordinary
wear and tear excepted, and make all renewals, replacements,
additions, betterments and improvements thereto deemed necessary in
the reasonable judgment of the management of the Company;
(B) INSURANCE -- maintain, with Lloyds of London, or financially
sound and reputable insurers accorded a rating by A.M. Best Company of
"A-" or better and a size rating of "X" or better (or a comparable
rating by any comparable successor rating agency), insurance with
respect to its Property and business against such casualties and
contingencies, of such types (including, without limitation, insurance
with respect to losses arising out of Property loss or damage, public
liability, business interruption, larceny, workers'
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compensation, embezzlement or other criminal misappropriation) and in
such amounts as is customary in the case of corporations of
established reputations engaged in the same or a similar business and
similarly situated;
(C) FINANCIAL RECORDS -- keep true books of records and accounts
in which full and correct entries shall be made of all its business
transactions and which will permit the provision of accurate and
complete financial statements in accordance with GAAP;
(D) CORPORATE EXISTENCE AND RIGHTS -- do or cause to be done all
things necessary
(i) to preserve and keep in full force and effect its
corporate existence, rights (charter and statutory) and
franchises, subject to Section 7.4 hereof, except where the
failure to do so could not reasonably be expected to have a
Material Adverse Effect, and
(ii) to maintain each Restricted Subsidiary as a Restricted
Subsidiary, except as otherwise permitted by Section 7.4 or
Section 12.1 hereof; and
(E) COMPLIANCE WITH LAW -- not be in violation of any law,
ordinance or governmental rule or regulation to which it is subject
(including, without limitation, any Environmental Protection Law) and
not fail to obtain any license, certificate, permit, franchise or
other governmental authorization necessary to the ownership of its
Properties or to the conduct of its business if such violation or
failure to obtain could be reasonably expected to have a Material
Adverse Effect.
7.3 PAYMENT OF NOTES AND MAINTENANCE OF OFFICE.
The Company will punctually pay, or cause to be paid, the principal of
and interest (and Make-Whole Amount, if any) on, the Notes, as and when the
same shall become due according to the terms hereof and of the Notes, and
will maintain an office at the address of the Company set forth in Section
12.2 hereof where notices, presentations and demands in respect hereof or
the Notes may be made upon it. Such office will be maintained at such
address until such time as the Company shall notify the holders of the
Notes of any change of location of such office, which will in any event be
located within the United States of America.
7.4 MERGER; ACQUISITION.
(A) MERGER AND CONSOLIDATION. The Company will not, nor will it
permit any Restricted Subsidiary to, merge into, consolidate with, or
sell, lease, transfer or otherwise dispose of all or substantially all
of its Property to, any other Person or permit any other Person to
consolidate with or merge into it (except that a Restricted Subsidiary
may merge into, consolidate with, or sell,
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lease, transfer or otherwise dispose of all or substantially all of
its assets to, the Company or another Restricted Subsidiary); provided
that the foregoing restriction does not apply to:
I. A merger or consolidation in which the Company is the
surviving corporation, provided that immediately prior to and
immediately after the consummation of such transaction, and after
giving effect thereto, no Default or Event of Default exists or would
exist under any provision of this Agreement.
II. The merger or consolidation of the Company with, or the
sale, lease, transfer or other disposition by the Company of all or
substantially all of its Property to, another corporation, if:
(i) the corporation that results from such merger or
consolidation or that purchases, leases, or acquires all or
substantially all of such Property (the "SURVIVING CORPORATION")
is organized under the laws of the United States of America or
any jurisdiction thereof;
(ii) the due and punctual payment of the principal of and
Make-Whole Amount, if any, and interest on all of the Notes,
according to their tenor, and the due and punctual performance
and observance of all the covenants in the Notes and this
Agreement to be performed or observed by the Company, are
expressly assumed by the Surviving Corporation pursuant to
agreements and instruments reasonably acceptable to the Required
Holders, and the Company will cause to be delivered to each
holder of Notes an opinion of independent counsel to the effect
that such agreements and instruments are enforceable in
accordance with their terms;
(iii) after giving effect to the proposed merger or
consolidation the Surviving Corporation will be engaged in
substantially the same lines of business referred to in Section
2.1 hereof;
(iv) the Notes are not junior in right of payment or
performance to any other Debt of the Surviving Corporation; and
(v) immediately prior to, and immediately after the
consummation of, the transaction, and after giving effect
thereto, no Default or Event of Default exists or would exist
under any provision of this Agreement.
III. The merger or consolidation of a Restricted Subsidiary, if:
(i) such Restricted Subsidiary is the surviving corporation
and remains a Restricted Subsidiary, and
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(ii) immediately prior to, and immediately after the
consummation of, the proposed transaction, and after giving
effect thereto, no Default or Event of Default exists or would
exist under any provision of this Agreement.
(B) SALE OF ASSETS. The Company will not at any time, and will
not at any time permit any Restricted Subsidiary to, sell, lease,
transfer or otherwise dispose of assets, except (1) sales of inventory
and sales or other dispositions of obsolete or worn-out equipment or
delinquent receivables, in each case in the ordinary course of
business, (2) sales, leases, transfers or other dispositions to the
Company or a Wholly-Owned Restricted Subsidiary, (3) sales permitted
by Section 7.4(a) hereof, (4) in any year, sales or other dispositions
of Surplus Equipment having an aggregate book value of less than Two
Million Dollars ($2,000,000), (5) the Panhandle Transaction and (6)
sales of receivables pursuant to Section 7.15 hereof (all sales,
leases, transfers and other dispositions referred to in the foregoing
clauses (1) through (6) are hereinafter referred to as "Excluded
Transfers"); provided that the foregoing shall not apply to the sale
of an asset for a cash consideration to any Person other than an
Affiliate if all of the following conditions are met (collectively,
the "Initial Basket"):
(i) the book value of such asset and the aggregate book
value of each other asset sold (other than in Excluded Transfers)
during the period of three hundred sixty-five (365) consecutive
days immediately preceding the consummation of such sale does not
exceed fifteen percent (15%) of Consolidated Net Tangible
Capitalization measured as of the end of the fiscal quarter of
the Company immediately preceding such sale;
(ii) in the good faith opinion of the Board of Directors
(or management of the Company if the Board of Directors has
authorized management to make such determination, either
generally or in the specific instance), the sale is for Fair
Market Value and is in the best interests of the Company; and
(iii) immediately after the consummation of such sale, and
after giving effect thereto, no Default or Event of Default
exists or would exist under any provision of this Agreement;
provided further, that, in the event that the first exercisable option
to purchase certain assets (the "Option") from the Company or its
Restricted Subsidiaries as defined in and pursuant to that certain
Option and Asset Purchase Agreement dated November 14, 1997, by and
between Mountain Gas Resources, Inc. and the Company and RIS Resources
(USA) Inc. ("Option Agreement") is exercised pursuant to the terms of
the Option Agreement, then, from and after the effective date of the
sale of assets resulting from the exercise of the Option, the Initial
Basket shall not apply to the sale of an asset for a cash
consideration to
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any Person other than an Affiliate, which sale occurs on or before
December 31, 1998, if all of the following conditions are met
(collectively the "Revised Basket"):
(i) the book value of such asset and the aggregate book
value of each other asset sold (other than in Excluded Transfers)
does not exceed either of (x) twenty-five percent (25%) of
Consolidated Net Tangible Capitalization during the period of 730
consecutive days immediately preceding the consummation of such
sale, or (y) twenty percent (20%) of Consolidated Net Tangible
Capitalization during the period of 365 consecutive days
immediately preceding the consummation of such sale, measured, in
each case, as of the end of the fiscal quarter of the Company
immediately preceding such sale;
(ii) in the good faith opinion of the Board of Directors
(or management of the Company if the Board of Directors has
authorized management to make such determination, either
generally or in the specific instance), the sale is for Fair
Market Value and is in the best interests of the Company; and
(iii) immediately after the consummation of such sale, and
after giving effect thereto, no Default or Event of Default
exists or would exist under any provision of this Agreement.
The Revised Basket shall not apply to any sale of an asset
occurring on and after January 1, 1999 or to any sale of an asset at
any time in the event the Option is not exercised, in either of which
cases the Initial Basket shall apply.
For purposes of determining the book value of assets constituting
Restricted Subsidiary Stock being sold as provided in each clause (i)
above, such book value shall be deemed to be the net book value of the
Restricted Subsidiary which shall have issued such Restricted
Subsidiary Stock.
(C) DISPOSAL OF OWNERSHIP OF A SUBSIDIARY. The Company will not
at any time, and will not at any time permit any Restricted Subsidiary
to, sell or otherwise dispose of any shares of the stock (or any
options or warrants to purchase stock or other Securities exchangeable
for or convertible into stock) of a Restricted Subsidiary (said stock,
options, warrants and other Securities herein called "Restricted
Subsidiary Stock"), nor will any Restricted Subsidiary issue, sell or
otherwise dispose of any shares of its own Restricted Subsidiary
Stock, if the effect of the transaction would be to reduce the direct
or indirect proportionate interest of the Company or its other
Subsidiaries in the outstanding Restricted Subsidiary Stock of the
Restricted Subsidiary whose shares are the subject of the transaction,
provided that the foregoing restrictions do not apply to:
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(i) the issue of directors' qualifying shares; and
(ii) the sale for a cash consideration to a Person (other
than directly or indirectly to an Affiliate) of the entire
Investment (whether represented by stock, debt, claims or
otherwise) of the Company and its other Restricted Subsidiaries
in such Restricted Subsidiary, if all of the following conditions
are met:
(A) such sale satisfies the requirements of clause (i)
of Section 7.4(b) of this Agreement;
(B) in the good faith opinion of the Board of Directors
of the Company, the sale is for Fair Market Value and is in
the best interests of the Company;
(C) the Subsidiary being disposed of has no continuing
Investment in any other Subsidiary not being simultaneously
disposed of or in the Company; and
(D) immediately after the consummation of such sale,
and after giving effect thereto, no Default or Event of
Default would exist.
7.5 LIENS.
(A) NEGATIVE PLEDGE. The Company will not, nor will it permit
any Restricted Subsidiary to, cause or permit to exist or agree or
consent to cause or permit to exist in the future (upon the happening
of a contingency or otherwise) any of its Property, whether now owned
or hereafter acquired, to be subject to a Lien except:
(i) Liens securing taxes, assessments or governmental
charges or levies or the claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other like
Persons, provided that the payment thereof is not at the time
required by Section 7.1 hereof;
(ii) Liens incurred or deposits made in the ordinary course
of business
(A) in connection with worker's compensation,
unemployment insurance, social security and other like laws,
or
(B) to secure the performance of letters of credit,
bids, tenders, sales contracts, leases, statutory
obligations, surety and performance bonds (of a type other
than set forth in Section 7.5(a)(iii)) hereof) and other
similar obligations not incurred in connection with the
borrowing of money, the obtaining of
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advances, the payment of the deferred purchase price of
Property, or a Guaranty;
(iii) Liens on Natural Gas Inventory securing obligations
of the Company, provided that the aggregate amount of Debt
secured by such Liens shall not at any time exceed $35,000,000;
(iv) Liens on Property of a Restricted Subsidiary,
provided that such Liens secure only obligations owing to the
Company or a Wholly-Owned Restricted Subsidiary;
(v) Liens in the nature of reservations, exceptions,
encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases and other similar title exceptions or
encumbrances affecting real property, provided that such
exceptions and encumbrances do not in the aggregate materially
detract from the value of such Properties or materially interfere
with the use of such Property in the ordinary conduct of the
business of the Company and the Restricted Subsidiaries;
(vi) (A) Liens listed in Paragraph V of Annex 3 hereto,
and
(B) Liens securing renewals, extensions (as to time)
and refinancings of Debt secured by the Liens listed on
Annex 3 hereto, provided that the amount of Debt secured by
each of such Liens is not increased in excess of the amount
of Debt outstanding on the date of such renewal, extension
or refinancing, and none of such Liens is extended to
include any additional Property of the Company or any
Restricted Subsidiary;
(vii) Purchase Money Liens;
(viii) Liens on deposit and other bank accounts of the
Company created by the right of a lender under any of the
Company's bank agreements to offset obligations of the Company
owing under such agreement against such accounts, provided,
however, that such Liens shall be permitted hereunder if, and
only if, there is no agreement (other than of the type
contemplated by clause (ix) below) between such lender and the
Company which requires the Company to maintain funds in any
account with such lender;
(ix) Liens on deposits securing the face amount of
outstanding letters of credit issued pursuant to any of the Company's
bank agreements;
(x) Liens securing sales or transfers of receivables
permitted pursuant to Section 7.15 hereof; and
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(xi) other Liens;
provided that the aggregate amount of Debt of the Company secured by
Liens permitted by any one or more of clauses (vi), (vii) and (xi)
above, together with the face amount of undrawn letters of credit with
respect to which the Company is obligated to provide deposits referred
to in clause (ix) above (whether or not such deposits have been
provided) together with Permitted Restricted Subsidiary Debt shall not
at any time exceed an amount in excess of five percent (5.0%) of
Consolidated Tangible Net Worth.
(B) EQUAL AND RATABLE LIEN; EQUITABLE LIEN. In case any Property
shall be subjected to a Lien in violation of this Section 7.5, the
Company will forthwith make or cause to be made, to the fullest extent
permitted by applicable law, provision whereby the Notes will be
secured equally and ratably with all other obligations secured thereby
pursuant to such agreements and instruments as shall be approved by
the Required Holders, and the Company will cause to be delivered to
each holder of a Note an opinion of independent counsel to the effect
that such agreements and instruments are enforceable in accordance
with their terms, and in any such case the Notes shall have the
benefit, to the full extent that, and with such priority as, the
holders of Notes may be entitled under applicable law, of an equitable
Lien on such Property securing the Notes. Such violation of this
Section 7.5 will constitute an Event of Default hereunder, whether or
not any such provision is made pursuant to this Section 7.5(b).
(C) FINANCING STATEMENTS. The Company will not, and will not
permit any Restricted Subsidiary to, sign or file a financing
statement under the Uniform Commercial Code of any jurisdiction that
names the Company or such Restricted Subsidiary as debtor, or sign any
security agreement authorizing any secured party thereunder to file
any such financing statement, except, in any such case, a financing
statement filed or to be filed to perfect or protect a security
interest that the Company or such Restricted Subsidiary is entitled to
create, assume or incur, or permit to exist, under the foregoing
provisions of this Section 7.5 or to evidence for informational
purposes a lessor's interest in Property leased to the Company or any
such Restricted Subsidiary.
(D) LIENS OF SUBSIDIARIES. Each Person that becomes a Subsidiary
after the Closing Date will be deemed to have granted on the date such
Person becomes a Subsidiary all the Liens in existence on its Property
on such date.
7.6 MAINTENANCE OF CONSOLIDATED TANGIBLE NET WORTH.
Consolidated Tangible Net Worth as of the end of each and every fiscal
quarter shall be not less than the sum of
(a) Two Hundred Ten Million Dollars ($210,000,000), plus
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(b) fifty percent (50%) of Consolidated Adjusted Net Income for
each and every fiscal year of the Company, ending after December 31,
1992, in which Consolidated Adjusted Net Income is greater than zero.
7.7 LEVERAGE RATIO.
The Company shall not allow Consolidated Debt to exceed: (i) from
April 30, 1993 through August 30, 1993, sixty percent (60%) of Consolidated
Net Tangible Capitalization; (ii) from August 31, 1993 through March 31,
1994, sixty-five percent (65%) of Consolidated Net Tangible Capitalization;
and (iii) at any time after March 31, 1994, sixty percent (60%) of
Consolidated Net Tangible Capitalization.
7.8 RESTRICTED SUBSIDIARY DEBT.
Neither the Panhandle Joint Venture nor any Restricted Subsidiary will
incur or in any manner become liable in respect of any Debt, provided that
Permitted Restricted Subsidiary Debt may be incurred if, after giving
effect thereto and to any concurrent transactions, no Default or Event of
Default would exist and the aggregate amount of:
(a) Debt of the Company secured by Liens permitted by any one or
more of clauses (vi), (vii) and (xi) of Section 7.5(a) of this
Agreement,
(b) the face amount of undrawn letters of credit with respect to
which the Company is obligated to provide the deposits referred to in
Section 7.5(a)(ix) of this Agreement (whether or not such deposits
have been provided), and
(c) Permitted Restricted Subsidiary Debt,
would not exceed five percent (5%) of Consolidated Tangible Net Worth.
Nothing in this Section 7.8 shall be deemed to limit the ability of any
Restricted Subsidiary to (i) incur Debt in favor of the Company or a
Wholly-Owned Restricted Subsidiary or (ii) guaranty Debt of the Company
owed to a lender which has entered into an intercreditor agreement with the
holders of the Notes to the effect and substantially in the form of Exhibit
E hereto.
7.9 DISTRIBUTIONS; RESTRICTED INVESTMENTS.
The Company will not, nor will it permit any Restricted Subsidiary to,
declare or make or incur any liability to declare or make any Distribution
(other than Distributions payable solely to the Company or another
Restricted Subsidiary) or make any Restricted Investment unless,
immediately after giving effect to the proposed Distribution or Restricted
Investment,
(a) the aggregate amount of Distributions in respect of the
capital stock of the Company and the Restricted Subsidiaries (other
than Distributions payable to the Company or another Restricted
Subsidiary) and Restricted
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Investments made during the period commencing on October 1, 1992 and
ending on the date of such proposed Distribution or Restricted
Investment would not exceed the sum of:
(i) an amount equal to the net proceeds received by the
Company from the sale of its capital stock during the period
subsequent to September 30, 1992, plus,
(ii) fifty percent (50%) of the aggregate of Consolidated
Adjusted Net Income (or, if such Consolidated Adjusted Net Income
shall be a deficit for any fiscal year during such period, minus
one hundred percent (100%) of such deficit) earned on a
cumulative basis during the period commencing on October 1, 1992
and ending on the last day of the fiscal quarter of the Company
most recently ended prior to the declaration of such Distribution
or the making of such Restricted Investment, plus,
(iii) Ten Million Dollars ($10,000,000), and
(b) no Default or Event of Default would exist.
For purposes of this Section 7.9 the amount involved in any Distribution
made in Property shall be the greater of the Fair Market Value of such
Property (as determined in good faith by the Board of Directors) and the
net book value thereof on the books of the Company (determined in
accordance with GAAP) on the date on which such Distribution is made. The
Company will not declare any Distribution which (A) is payable more than
ninety (90) days after the date of declaration thereof or (B) would not be
permitted to be paid on the date of declaration thereof pursuant to this
Section 7.9.
7.10 GUARANTIES.
The Company will not and will not permit any Restricted Subsidiary to
enter into or be party to:
(a) any contract for the purchase of materials, supplies or other
property or services if such contract (or any related document)
requires that payment for such materials, supplies or other property
or services shall be made regardless of whether or not delivery of
such materials, supplies or other property or services is ever made or
tendered, or
(b) any contract to rent or lease (as lessee) any real or
personal property if such contract (or any related document) provides
that the obligation to make payments thereunder is absolute and
unconditional under conditions not customarily found in commercial
leases then in general use or requires that the lessee purchase or
otherwise acquire securities or obligations of the lessor, or
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(c) any contract for the sale or use of materials, supplies or
other property, or the rendering of services, if such contract (or any
related document) requires that the payment obligation to the Company
or a Restricted Subsidiary for such materials, supplies or other
property, or the use thereof, or the payment obligation to the Company
or a Restricted Subsidiary for such services, shall be subordinate in
right of payment to any obligation owed or to be owed to any Person,
or
(d) any Guaranty other than Guaranties by Restricted Subsidiaries
of the Debt of the Company permitted by Section 7.8 of this Agreement;
provided, that, notwithstanding the foregoing provisions of this
Section 7.10, the Company may enter into any such contract (i) if the
obligations of the Company thereunder are quantifiable as to maximum
amount, (ii) the obligations guarantied constitute indebtedness of the
primary obligor for borrowed money or payments under a Capital Lease
owed by the primary obligor, and (iii) after giving effect to such
contract no Default or Event of Default would exist.
7.11 FIXED CHARGE COVERAGE
As at the end of each fiscal quarter of the Company, Income Available
for Fixed Charges shall be at least three hundred twenty-five percent
(325%) of Fixed Charges for the period of four consecutive fiscal quarters
of the Company then most recently ended; provided however, that for the
period of four consecutive fiscal quarters ended on each of September 30,
1998 and December 31, 1998, Income Available For Fixed Charges shall be at
least three hundred percent (300%) of Fixed Charges.
7.12 ERISA.
(A) COMPLIANCE. The Company will, and will cause each ERISA
Affiliate to, at all times with respect to each Pension Plan, make
timely payment of contributions required to meet the minimum funding
standard set forth in ERISA or the IRC with respect thereto, and to
comply with all other applicable provisions of ERISA.
(B) RELATIONSHIP OF VESTED BENEFITS TO PENSION PLAN ASSETS. The
Company will not at any time permit the present value of all employee
benefits vested under each Pension Plan to exceed the assets of such
Pension Plan allocable to such vested benefits at such time, in each
case determined pursuant to Section 7.12(c) hereof.
(C) VALUATIONS. All assumptions and methods used to determine
the actuarial valuation of vested employee benefits under Pension
Plans and the present value of assets of Pension Plans will be
reasonable in the good faith judgment of the Company and will comply
with all requirements of law.
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(D) PROHIBITED ACTIONS. The Company will not, and will not
permit any ERISA Affiliate to:
(i) engage in any "prohibited transaction" (as such term
is defined in section 406 of ERISA or section 4975 of the IRC)
that would result in the imposition of a material tax or penalty;
(ii) incur with respect to any Pension Plan any
"accumulated funding deficiency" (as such term is defined in
section 302 of ERISA), whether or not waived;
(iii) terminate any Pension Plan in a manner that could
result in
(A) the imposition of a Lien on the Property of the
Company or any Subsidiary pursuant to section 4068 of ERISA
or
(B) the creation of any liability under section 4062 of
ERISA;
(iv) fail to make any payment required by section 515 of
ERISA; or
(v) except as disclosed on Annex 3 hereto, be an
"employer" (as such term is defined in section 3 of ERISA)
required to contribute to any Multiemployer Plan or a
"substantial employer" (as such term is defined in section 4001
of ERISA) required to contribute to any Multiple Employer Pension
Plan.
7.13 LINE OF BUSINESS.
Neither the Company nor any Restricted Subsidiary will engage in any
business if, as a result thereof, the business of the Company and its
Restricted Subsidiaries, taken as a whole, would not be substantially the
same as on the date of this Agreement.
7.14 TRANSACTIONS WITH AFFILIATES.
The Company will not, and will not permit any Restricted Subsidiary
to, enter into any transaction, including, without limitation, the
purchase, sale or exchange of Property or the rendering of any service,
with any Affiliate, except in the ordinary course of and pursuant to the
reasonable requirements of the Company's or such Restricted Subsidiary's
business and upon fair and reasonable terms no less favorable to the
Company or such Restricted Subsidiary than would obtain in a comparable
arm's-length transaction with a Person not an Affiliate.
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7.15 SALE OR DISCOUNT OF RECEIVABLES.
Notwithstanding anything else contained in this Note Purchase
Agreement to the contrary, the Company shall be permitted to grant a
security interest in the accounts receivable of the Company and the
Subsidiaries in connection with a Permitted Securitization Program,
provided, however, that the Company and the Subsidiaries may not have more
than one Permitted Securitization Program outstanding at any time.
7.16 OFFERS TO ACQUIRE NOTES.
The Company will not, and will not permit any Restricted Subsidiary,
any Affiliate or any Person, acting on behalf of the Company to, directly
or indirectly, acquire or make any offer to acquire any Notes unless the
Company or such Restricted Subsidiary, Affiliate or other Person shall have
offered to acquire Notes, pro rata, from all holders of the Notes and upon
the same terms. In case the Company acquires any Notes, such Notes will
immediately thereafter be cancelled and no Notes will be issued in
substitution therefor.
7.17 PRIVATE OFFERING.
The Company will not, and will not permit any Person acting on its
behalf to, offer the Notes or any part thereof or any similar Securities
for issuance or sale to, or solicit any offer to acquire any of the same
from, any Person so as to bring the issuance and sale of the Notes within
the provisions of section 5 of the Securities Act.
7.18 NEW GUARANTORS.
The Company shall cause each corporation which becomes a Restricted
Subsidiary after the date of this Agreement (and which on a pro forma basis
accounts for more than ten percent (10%) of Consolidated Adjusted Tangible
Assets) to guaranty the payment and performance of the Notes pursuant to a
guaranty agreement (acceptable to the Required Holders) to the effect and
substantially in the form of Section 10 to this Agreement.
1.2 AMENDMENT TO SECTION 8.2 OF THE EXISTING NOTE AGREEMENT.
Section 8.2 of the Existing Note Agreement is hereby amended and restated
in its entirety to read as follows:
8.2 OFFICERS' CERTIFICATES.
Each set of financial statements delivered to each holder of Notes
pursuant to Section (a) or Section (b) hereof shall be accompanied by a
certificate of the President, the Vice President - Chief Financial Officer
or the Treasurer of the Company setting forth:
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(A) COVENANT COMPLIANCE -- the information (including reasonably
detailed calculations) required in order to establish whether the
Company was in compliance with the requirements of Section 7.4 through
Section 7.11 hereof, inclusive, during the period covered by the
income statement then being furnished (including with respect to each
such Section, where applicable, the calculations of the maximum or
minimum amounts, ratios or percentages, as the case may be,
permissible under the terms of such Sections, and the calculation of
the amounts, ratios or percentages then in existence); and
(B) EVENT OF DEFAULT -- a statement that the signers have
reviewed the relevant terms hereof and have made, or caused to be
made, under their supervision, a review of the transactions and
conditions of the Company and the Subsidiaries from the beginning of
the accounting period covered by the income statements being delivered
therewith to the date of the certificate and that such review has not
disclosed the existence during such period of any condition or event
that constitutes a Default or an Event of Default or, if any such
condition or event existed or exists, specifying the nature and period
of existence thereof and what action the Company has taken or proposes
to take with respect thereto.
1.3 AMENDMENTS TO SECTION 11.1 OF THE EXISTING NOTE AGREEMENT.
Section 11.1 of the Existing Note Agreement is hereby amended and restated
in its entirety to read as follows:
11. INTERPRETATION OF THIS AGREEMENT
11.1 TERMS DEFINED.
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
ADJUSTED FUNDED DEBT -- means, at any time, with respect to any
Person, without duplication,
(a) its liabilities for borrowed money, other than Current Debt;
(b) liabilities secured by any Lien existing on Property owned by
such Person (whether or not such liabilities have been assumed) other
than Current Debt;
(c) its liabilities in respect of Capital Leases;
(d) its liabilities under Guaranties other than Guaranties of
Current Debt; and
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(e) any other obligations (other than deferred taxes) that are
required to be shown as liabilities on its balance sheet and that are
payable or remain unpaid more than one (1) year from the creation
thereof;
at such time.
ADJUSTED TANGIBLE ASSETS -- in respect of any Person at any time means
all assets (including, without duplication, the capitalized value of any
leasehold interest under any Capital Lease and all Asset Agreements) of
such Person except:
(a) deferred assets, other than
(i) prepaid insurance,
(ii) prepaid taxes and
(iii) prepaid items the benefits of which will be realized
by such Person within three hundred and sixty-five (365) days of
such time;
(b) patents, copyrights, trademarks, trade names, franchises,
goodwill, experimental expense and other similar intangible assets;
(c) unamortized debt discount and expense; and
(d) assets located, and notes and receivables due from obligors
domiciled, outside the United States of America, Puerto Rico or
Canada.
AFFILIATE -- means, at any time, a Person (other than a Restricted
Subsidiary)
(a) that directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common
Control with, the Company,
(b) that beneficially owns or holds five percent (5%) or more of
any class of the Voting Stock of the Company, or
(c) five percent (5%) or more of the Voting Stock (or in the case
of a Person that is not a corporation, five percent (5%) or more of
the equity interest) of which is beneficially owned or held by the
Company or a Subsidiary,
at such time.
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As used in this definition,
Control -- means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies
of a Person, whether through the ownership of voting securities, by
contract or otherwise.
AGREEMENT, THIS -- means this agreement, as it may be amended and
restated from time to time.
APPLICABLE H.15 -- means, at any time, United States Federal Reserve
Statistical Release H.15(519) or its successor publication most recently
published and available to the public at such time, or if no such successor
publication is available, then any other source of current information in
respect of interest rates on securities of the United States of America
that is generally available and, in the judgment of the Required Holders,
provides information reasonably comparable to the H.15(519) report.
ASSET AGREEMENTS -- of any Person means all oil and gas leases,
mineral leases and gas purchase contracts which have been assumed by such
Person in connection with any acquisition of any other Person and which
would be shown as assets on a consolidated balance sheet of such Person
prepared in accordance with GAAP.
BANKRUPTCY LAW -- means any bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or liquidation
or similar law, whether now or hereafter in effect, of any jurisdiction.
BOARD OF DIRECTORS -- means, at any time, the board of directors of
the Company or any committee thereof which, in the instance, shall have the
lawful power to exercise the power and authority of such board of
directors.
BUSINESS DAY -- means, at any time, a day other than a Saturday, a
Sunday or, in the case of any Note with respect to which the provisions of
Section 4.1 hereof are applicable, a day on which the bank designated (by
the holder of such Note) to receive (for such holder's account) payments on
such Note is required by law (other than a general banking moratorium or
holiday for a period exceeding four (4) consecutive days) to be closed.
CAPITAL LEASE -- means any lease with respect to which GAAP requires
the lessee to recognize the acquisition of an asset and the incurrence of a
liability.
CLOSING -- Section 1.2.
CLOSING DATE -- Section 1.2.
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COMPANY -- has the meaning specified in the introductory sentence
hereof.
CONFIDENTIAL INFORMATION -- means any material non-public information
regarding the Company and its Subsidiaries that is provided to any holder
of any Note or any offeree of a Note pursuant to this Agreement, other than
information
(a) which was publicly known or otherwise known to such holder or
such offeree at the time of disclosure,
(b) which subsequently becomes publicly known through no act or
omission of such holder or such offeree or
(c) which otherwise becomes known to such holder or such offeree,
other than through disclosure by the Company or any Subsidiary.
CONSOLIDATED ADJUSTED FUNDED DEBT -- at any time, means the Adjusted
Funded Debt of the Company and its Restricted Subsidiaries at such time on
a consolidated basis.
CONSOLIDATED ADJUSTED NET INCOME -- for any fiscal period means net
earnings after income taxes of the Company and the Restricted Subsidiaries
determined on a consolidated basis, but excluding:
(a) any gain or loss arising from the sale of capital assets;
(b) any gain arising from any write-up of assets;
(c) earnings of any Restricted Subsidiary accrued prior to the
date it became a Restricted Subsidiary;
(d) earnings of any Person, substantially all the assets of which
have been acquired in any manner, realized by such other Person prior
to the date of such acquisition;
(e) net earnings of any Person (other than a Restricted
Subsidiary) in which the Company or any Restricted Subsidiary shall
have an ownership interest unless such net earnings shall have
actually been received by the Company or such Restricted Subsidiary in
the form of cash distributions;
(f) any portion of the net earnings of any Restricted Subsidiary
that for any reason is unavailable for payment of dividends to the
Company or any other Restricted Subsidiary;
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(g) the earnings of any Person to which assets of the Company
shall have been sold, transferred or disposed of after the date of
such transaction;
(h) any gain arising from the acquisition of any Securities of
the Company or any Restricted Subsidiary; and
(i) any portion of the net earnings of the Company that cannot be
freely converted into United States dollars.
CONSOLIDATED ADJUSTED TANGIBLE ASSETS -- means at any time the net
book value (after deducting related depreciation, obsolescence,
amortization, valuation and other proper reserves) at which the Adjusted
Tangible Assets of the Company and the Restricted Subsidiaries would be
shown on a consolidated balance sheet of such Persons at such time, but
excluding any amount on account of write-ups of assets after December 31,
1992.
CONSOLIDATED DEBT -- means, at any time, the Debt of the Company and
its Restricted Subsidiaries on a consolidated basis at such time.
CONSOLIDATED NET TANGIBLE CAPITALIZATION -- means, at any time, (i)
Consolidated Adjusted Tangible Assets, less (ii) Restricted Investments,
less (iii) all items which would appear on the liability side of a balance
sheet (other than deferred liabilities, shareholders' equity, minority
interests in Subsidiaries and Adjusted Funded Debt) in each case as such
items would be shown on a consolidated balance sheet of the Company and its
Restricted Subsidiaries at such time.
CONSOLIDATED TANGIBLE NET WORTH -- means, at any time, Consolidated
Net Tangible Capitalization less (to the extent included in the computation
----
of Consolidated Net Tangible Capitalization) deferred liabilities and
Consolidated Adjusted Funded Debt at such time.
CURRENT DEBT -- means, at any time, with respect to any Person
(i) all liabilities for borrowed money and all liabilities
secured by any Lien existing on Property owned by such Person whether
or not such liabilities have been assumed, that, in either case are
payable on demand or within one (1) year from such time, except:
(a) any such liabilities which are renewable or extendible
at the option of such Person to a date more than one (1) year
from such time, and
(b) any such liabilities that, although payable within one
(1) year, constitute payments required to be made on
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account of principal of indebtedness expressed to mature more
than one (1) year from such time, and
(ii) its liabilities under Guaranties of obligations described in
(i) above.
DEBT -- means, with respect to any Person, at any time, without
duplication, all Adjusted Funded Debt and Current Debt of such Person at
such time.
DEFAULT -- means an event or condition the occurrence of which would,
with the lapse of time or the giving of notice or both, become an Event of
Default.
DISTRIBUTION -- means, in respect of any corporation:
(a) dividends or other distributions in respect of the capital
stock, or any rights or warrants to purchase such stock, of such
corporation (except distributions in such stock, or rights or warrants
pertaining thereto); and
(b) the redemption or acquisition of such stock or of warrants,
rights or other options to purchase such stock (except when solely in
exchange for stock whether pursuant to a conversion right or
otherwise) unless made, contemporaneously, from the net proceeds of a
sale of such stock.
ENVIRONMENTAL PROTECTION LAW -- means any federal, state, county,
regional or local law, statute, or regulation (including, without
limitation, CERCLA, RCRA and SARA) enacted in connection with or relating
to the protection or regulation of the environment, including, without
limitation, those laws, statutes, and regulations regulating the disposal,
removal, production, storing, refining, handling, transferring, processing,
or transporting of Hazardous Substances, and any regulations, issued or
promulgated in connection with such statutes by any Governmental Authority
and any orders, decrees or judgments issued by any court of competent
jurisdiction in connection with any of the foregoing.
As used in this definition:
CERCLA -- means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended from time to time
(by SARA or otherwise), and all rules and regulations promulgated in
connection therewith;
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RCRA -- means the Resource Conservation and Recovery Act of 1976,
as amended from time to time, and any rules and regulations issued in
connection therewith; and
SARA -- means the Superfund Amendments and Reauthorization Act of
1986, as amended from time to time, and all rules and regulations
promulgated in connection therewith.
ERISA -- means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
ERISA AFFILIATE -- means any corporation or trade or business that
(i) is a member of the same controlled group of corporations
(within the meaning of section 414(b) of the IRC) as the Company, or
(ii) is under common control (within the meaning of section
414(c) of the IRC) with the Company.
EVENT OF DEFAULT -- Section 9.1.
EXCHANGE ACT -- shall mean the Securities Exchange Act of 1934, as
amended.
FAIR MARKET VALUE -- means, at any time with respect to any Property,
the sale value of such Property that would be realized in an arm's-length
sale at such time between an informed and willing buyer, and an informed
and willing seller, under no compulsion to buy or sell, respectively.
FIXED CHARGES -- for any period shall mean, the sum of (i) all
interest on Debt paid or payable during such period (including the portion
of rent under Capital Leases which is allocable to interest), and (ii) all
debt discount and expense amortized or required to be amortized during such
period, in each case by the Company and its Restricted Subsidiaries on a
consolidated basis during such period.
FOREIGN PENSION PLAN -- means any plan, fund or other similar program
(a) established or maintained outside of the United States of
America by any one or more of the Company or the Subsidiaries
primarily for the benefit of the employees (substantially all of whom
are aliens not residing in the United States of America) of the
Company or such Subsidiaries which plan, fund or other similar program
provides for retirement income for such employees or results in a
deferral of income for such employees in contemplation of retirement
and
(b) not otherwise subject to ERISA.
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GAAP -- means accounting principles as promulgated from time to time
in statements, opinions and pronouncements by the American Institute of
Certified Public Accountants and the Financial Accounting Standards Board
and in such statements, opinions and pronouncements of such other entities
with respect to financial accounting of for-profit entities as shall be
accepted by a substantial segment of the accounting profession in the
United States.
GOVERNMENTAL AUTHORITY -- means
(a) the government of
(i) the United States of America and any State or other
political subdivision thereof, or
(ii) any jurisdiction in which the Company or any Restricted
Subsidiary conducts all or any part of its business, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
GUARANTORS -- means, individually and collectively, Western Gas
Resources Storage, Inc., a Texas corporation, Western Gas Resources-Texas,
Inc., a Texas corporation, Western Gas Resources-Oklahoma, a Delaware
corporation, MGTC, Inc., a Wyoming corporation, MIGC, Inc., a Delaware
corporation, Mountain Gas Resources, Inc., a Delaware corporation any other
Persons who may from time to time become guarantors pursuant to Section
7.18 of this Agreement.
GUARANTIED OBLIGATIONS -- Section 10.1(a).
GUARANTY -- means with respect to any Person (for the purposes of this
definition, the "Guarantor") any obligation (except the endorsement in the
ordinary course of business of negotiable instruments for deposit or
collection) of such Person guaranteeing or in effect guaranteeing any
indebtedness, dividend or other obligation of any other Person (the
"Primary Obligor") in any manner, whether directly or indirectly, including
(without limitation) obligations incurred as a partner or joint venturer,
or through an agreement, contingent or otherwise, by the Guarantor:
(a) to purchase such indebtedness or obligation or any Property
or assets constituting security therefor;
(b) to advance or supply funds
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<PAGE>
(i) for the purpose of payment of such indebtedness or
obligation, or
(ii) to maintain working capital or other balance sheet
condition or any income statement condition of the Primary
Obligor or otherwise to advance or make available funds for the
purchase or payment of such indebtedness or obligation;
(c) to lease Property or to purchase Securities or other Property
or services primarily for the purpose of assuring the owner of such
indebtedness or obligation of the ability of the Primary Obligor to
make payment of the indebtedness or obligation; or
(d) otherwise to assure the owner of the indebtedness or
obligation of the Primary Obligor against loss in respect thereof.
For purposes of computing the amount of any Guaranty, in connection with
any computation of indebtedness or other liability, it shall be assumed
that the indebtedness or other liabilities that are the subject of such
Guaranty are direct obligations of the issuer of such Guaranty.
HAZARDOUS SUBSTANCES -- means any and all pollutants, contaminants,
toxic or hazardous wastes or any other substances that might pose a hazard
to health or safety, the removal of which may be required or the
generation, manufacture, refining, production, processing, treatment,
storage, handling, transportation, transfer, use, disposal, release,
discharge, spillage, seepage, or filtration of which is or shall be
restricted, prohibited or penalized by any applicable law (including,
without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).
INCOME AVAILABLE FOR FIXED CHARGES -- for any period shall mean,
Consolidated Adjusted Net Income for such period plus (to the extent
deducted in computing Consolidated Adjusted Net Income for such period)
income taxes, Fixed Charges, depreciation and amortization.
INSTITUTIONAL INVESTOR -- means the Purchasers, any affiliate of any
of the Purchasers, and any holder of Notes that is an "accredited investor"
as defined in section 2(15) of the Securities Act.
IRC -- means the Internal Revenue Code of 1986, together with all
rules and regulations promulgated pursuant thereto, as amended from time to
time.
IRS -- means the Internal Revenue Service and any successor agency.
LIEN -- means any interest in Property securing an obligation owed to,
or a claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or contract, and including but
not
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limited to the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or
bailment for security purposes, and the filing of any financing statement
under the Uniform Commercial Code of any jurisdiction, or an agreement to
give any of the foregoing. The term "Lien" includes reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases and other title exceptions and encumbrances affecting
real property and includes, with respect to stock, stockholder agreements,
voting trust agreements, buy-back agreements and all similar arrangements.
For the purposes hereof, the Company and each Subsidiary is deemed to be
the owner of any Property that it shall have acquired or holds subject to a
conditional sale agreement, Capital 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 such retention or vesting is deemed a
Lien. The term "Lien" does not include negative pledge clauses in
agreements relating to the borrowing of money. For purposes of
clarification, the Option does not constitute a Lien.
MAKE-WHOLE AMOUNT -- means, at any time with respect to a principal
amount of Notes becoming due in whole or in part, and whether by
prepayment, acceleration or otherwise, the greater of
(a) Zero Dollars ($0), if the Make-Whole Discount Rate equals or
exceeds 7.65% per annum, or
(b) if the Make-Whole Discount Rate is less than 7.65% per annum,
then
(i) the sum of the present values of the then remaining
scheduled payments of principal and interest that would be
payable in respect of such principal amount but for such
prepayment or acceleration, minus
(ii) such principal amount and the amount of interest
accrued on such principal amount since the then most nearly
preceding scheduled interest payment date.
In determining such present values, a discount rate equal to the Make-Whole
Discount Rate divided by two (2), and a discount period of six (6) months
of thirty (30) days each, shall be used. As used in this definition,
Applicable H.15 -- means, at any time, United States Federal
Reserve Statistical Release H.15(519) or its successor publication
most recently published and available to the public at such time, or
if no such successor publication is available, then any other source
of current information in respect of interest rates on securities of
the United States of America that is generally available and, in the
judgment of the
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<PAGE>
Required Holders, provides information reasonably comparable to the
H.15(519) report.
Make-Whole Discount Rate -- means, at any time, with respect to a
principal amount of Debt being prepaid or accelerated:
(a) the per annum percentage rate (rounded to the nearest
three decimal places) equal to the yield to maturity implied by
(i) the yields reported, as of 10:00 A.M. (New York
City time) on the date two Business Days prior to the date
of such prepayment or acceleration, as the case may be, (as
reported on the Telerate Service, the Bloomberg Financial
Markets System or any other nationally recognized trading
screen, reasonably selected by the Required Holders,
reporting on-line intraday trading in United States
government Securities) for actively traded U.S. Treasury
securities having a maturity equal to the Weighted Average
Life to Maturity of the principal amount of the Debt then
being prepaid or accelerated, or, if such yields shall not
be reported as of such time or the yields reported as of
such time shall not be ascertainable,
(ii) the annual yield to maturity at such time of the
United States Treasury obligation listed in the then most
recently available Applicable H.15 for the then most recent
available day in such Applicable H.15 with a Treasury
Constant Maturity (as such term is defined in such
Applicable H.15) equal to the Weighted Average Life to
Maturity of the principal amount of the Debt then being
prepaid or accelerated,
plus
(b) one-half of one percent (0.50%) per annum.
For purposes of clause (a)(i) and clause (a)(ii) of the preceding
sentence, if no United States Treasury obligation with a maturity
corresponding exactly to the Weighted Average Life of the Debt being
prepaid or accelerated is listed, yields for the two (2) published
maturities most closely corresponding to such scheduled maturity shall
be calculated pursuant to the immediately preceding sentence and the
Make-Whole Discount Rate shall be linearly interpolated from such
yields.
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Remaining Dollar-Years -- means, at any time, with respect to a
principal amount of indebtedness being prepaid or accelerated, the
result obtained by
(a) multiplying
(i) an amount equal to the then remaining scheduled
payments of principal (including payment at maturity) that
would be payable in respect of the principal amount of the
indebtedness being so prepaid or accelerated but for such
prepayment or acceleration, by
(ii) the number of years (calculated to the nearest
one-twelfth) that will elapse between such time and the date
each such required principal payment would be due if such
prepayment or acceleration had not occurred, and
(b) calculating the sum of each of the products obtained in
the preceding subsection (a).
Weighted Average Life to Maturity -- means, at any time, with
respect to a principal amount of Debt being prepaid or accelerated,
the number of years obtained by dividing the Remaining Dollar-Years of
such principal amount, determined at such time, by such principal
amount.
MARGIN SECURITY -- means "margin stock" and "margin security" within
the meaning of Regulations U, T, and X of the Board of Governors of the
Federal Reserve System, 12 C.F.R., Chapter II, as amended from time to
time.
MATERIAL ADVERSE EFFECT -- shall mean a material adverse effect on the
ability of the Company to perform its obligations under this Agreement or
the Notes, or a material adverse effect upon the business, properties,
prospects, profits or condition (financial or otherwise) of the Company and
the Restricted Subsidiaries, taken as a whole.
MULTIEMPLOYER PLAN -- means any multiemployer plan (as defined in
section 3(37) of ERISA) in respect of which the Company or any ERISA
Affiliate is an "employer" (as such term is defined in section 3 of ERISA).
MULTIPLE EMPLOYER PENSION PLAN -- means any employee benefit plan
within the meaning of section 3(3) of ERISA (other than a Multiemployer
Plan), subject to Title IV of ERISA, to which the Company or any ERISA
Affiliate and an employer (as such term is defined in section 3 of ERISA)
other than an ERISA Affiliate or the Company contribute.
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NATURAL GAS INVENTORY -- means, at any time, the natural gas owned by
the Company and its Restricted Subsidiaries and held in storage at such
time.
NOTE -- Section 1.1.
NOTE PURCHASE AGREEMENT -- Section 1.2.
OPTION -- Section 7.4(b).
OPTION AGREEMENT -- Section 7.4(b).
OTHER PURCHASER -- Section 1.2.
PANHANDLE JOINT VENTURE -- shall mean the joint venture formed as a
result of the Panhandle Transaction.
PANHANDLE TRANSACTION -- shall mean the Company's initial investment
in a joint venture to be formed between the Company and Panhandle Eastern
Pipe Line Company or an affiliate thereof ("PEPL"), which will consist of:
(i) the contribution by the Company of its Chester Gas Plant and related
Vega, Fisher, Longdale and Bouse gathering systems, which collectively have
a book value of $13,871,891 as of February 28, 1993; and (ii) the
construction by the Company of certain pipeline and compression facilities
for the joint venture and the modification of certain assets to be
contributed by PEPL, at an aggregate cost estimated at $9,000,000. PEPL
will contribute its Avard/Waynoka, NE Seiling and Canton/Cedardale
gathering systems to the joint venture. The Company and PEPL will each
have a fifty percent (50.0%) ownership interest in the joint venture.
PBGC -- means the Pension Benefit Guaranty Corporation and any
successor corporation or governmental agency.
PENSION PLAN -- means, at any time, any "employee pension benefit
plan" (as such term is defined in section 3 of ERISA) maintained at such
time by the Company or any ERISA Affiliate for employees of the Company or
such ERISA Affiliate, excluding any Multiemployer Plan, but including,
without limitation any Multiple Employer Pension Plan.
PERMITTED RESTRICTED SUBSIDIARY DEBT -- means
(a) unsecured Debt of a Restricted Subsidiary other than (i) Debt
in favor of the Company or a Wholly-Owned Restricted Subsidiary or
(ii) any Guaranty of Debt of the Company owed to a lender which has
entered into an intercreditor agreement with the holders of the Notes
to the effect and substantially in the form of Exhibit E hereto, and
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(b) Debt of a Restricted Subsidiary secured by a lien permitted
by any one or more of clauses (vi)B, (vii), (ix) and (xi) of Section
7.5(a) of this Agreement.
PERMITTED SECURITIZATION PROGRAM -- means a transaction or series of
transactions pursuant to which:
(a) The Company and Subsidiaries sell, transfer or otherwise
dispose of, at not less than face value, on a revolving basis, an
undivided interest in a pool of the Company's and the Subsidiaries'
accounts receivable to a special purpose entity, in an amount not to
exceed, at any time Seventy-Five Million Dollars ($75,000,000), plus
ten percent (10%) of the amount sold or transferred at such time for
the purpose of providing the purchaser with over-collateralization;
and
(b) The Company and the Subsidiaries grant a security interest
(the "Security Interest") in all or a portion of their accounts
receivable (the "Pledged Accounts Receivable") to a special purpose
entity (the "Special Purpose Entity") for the purpose of providing the
Special Purpose Entity with a basis of recourse for its investment in
the Pledged Accounts Receivable (the "Receivables Investment"),
provided that:
(i) the maximum recourse to the Pledged Accounts Receivable
shall be equal to the purchase price of the Receivables
Investment plus ten percent (10%), in an aggregate amount not to
exceed Eighty-Two Million Five Hundred Thousand Dollars
($82,500,000) (the "Recourse Amount");
(ii) the Security Interest shall apply to each Pledged
Account Receivable in an amount not to exceed the proportion that
the Recourse Amount bears to the aggregate face value of the
Pledged Accounts Receivable; and
(iii) the Company and the Subsidiaries shall be entitled to
share (with the Special Purpose Entity), on a pari passu and pro
rata basis (based upon the purchaser's share described in clause
(ii)), all proceeds (if any) derived from each Pledged Accounts
Receivable.
PERSON -- means an individual, partnership, corporation, trust,
unincorporated organization, or a government or agency or political
subdivision thereof.
PLACEMENT MEMORANDUM -- Section 2.1.
PROPERTY -- means any interest in any kind of property or asset,
whether real, personal or mixed, and whether tangible or intangible.
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PURCHASE MONEY LIEN -- means
(a) a Lien held by any Person (whether or not the seller of such
assets) on tangible Property (or a group of related items of Property
the substantial portion of which are tangible) acquired or constructed
by the Company or any Subsidiary, which Lien secures all or a portion
of the related purchase price or construction costs of such Property,
provided that such Purchase Money Lien
(i) encumbers only Property acquired after the Closing
Date and acquired with the proceeds of the Debt secured thereby,
and
(ii) attaches to such Property within six months of the
date such property is first acquired, and
(iii) does not encumber any other Property, and
(iv) does not secure an amount of Debt greater than the
cost or Fair Market Value (whichever is less) of the encumbered
Property; and
(b) any Lien existing on real Property of any corporation at the
time it becomes a Subsidiary, or any Lien on Property acquired by the
Company or a Subsidiary which was in existence prior to the time such
Property was so acquired, provided that
(i) no such Lien shall extend to or cover any Property
other than the Property subject to such Lien at the time of any
such transaction, and
(ii) such Lien was not created in contemplation of any such
transaction.
PURCHASER -- means the Persons listed as purchasers of Notes on Annex
1 hereto.
REQUIRED HOLDERS -- means, at any time, the holders of at least sixty-
six and two-thirds percent (66 2/3%) in principal amount of the Notes at
the time outstanding (exclusive of Notes then owned by any one or more of
the Company, any Restricted Subsidiary, any Affiliate and any officer or
director of any thereof).
RESPONSIBLE OFFICER -- shall mean the chief executive officer, chief
financial officer, president, general counsel or treasurer of the Company.
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RESTRICTED INVESTMENTS -- means at any time all investments, made in
cash or by delivery of Property or otherwise, by the Company and the
Restricted Subsidiaries (x) in any Person, whether by acquisition of stock,
indebtedness or other obligation or Security, or by loan, Guaranty, advance
or capital contribution, or otherwise, or (y) in any Property (items (x)
and (y) herein called "Investments"), except the following:
(a) Investments in one or more Restricted Subsidiaries or any
corporation that becomes a Restricted Subsidiary concurrently with
such Investment;
(b) Investments in Property used or to be used in the ordinary
course of business of the Company and the Restricted Subsidiaries as
referred to in Section 2.1 of this Agreement;
(c) Investments in current assets arising from the sale of goods
and services in the ordinary course of business of the Company and the
Restricted Subsidiaries;
(d) Investments in direct obligations of the United States of
America, or any agency thereof or obligations guaranteed by the United
States of America, provided that such obligations mature within three
(3) years from the date of acquisition thereof;
(e) Investments in certificates of deposit and/or bankers'
acceptances, in each case maturing within three hundred sixty-five
(365) days from the date of acquisition and issued by a bank or trust
company organized under the laws of the United States of America,
Canada, Japan or a nation which is a member of the European Economic
Community, which bank at the time of the acquisition such Investment
shall be rated B or better by IBCA or B or better by Thompson Bank
Watch;
(f) Investments in commercial paper rated A-1 by Standard &
Poor's Corporation or P-1 by Moody's Investors Service, Inc. and
maturing not more than two hundred seventy (270) days from the date of
acquisition thereof;
(g) Investments in readily marketable and tax-exempt direct
obligations of any State of the United States of America or a
Governmental Authority located in the United States of America having
at all times a credit rating of at least Aa by Moody's Investors
Service, Inc. or AA or SP-2 by Standard and Poor's Corporation, in
each case due within three years from the making of such Investment;
(h) Investments in money market investment programs which are
classified as current assets in accordance with GAAP and which are
30
<PAGE>
administered by a financial institution having capital, surplus and
undivided profits of at least One Hundred Million Dollars
($100,000,000), provided that each such program invests solely in
Investments of the types described in clause (d), clause (e), clause
(f), and clause (g) above and has assets in excess of One Hundred
Million Dollars ($100,000,000);
(i) Investments in money market or auction rate preferred stock
rated A or better by Standard and Poor's Corporation or a or better by
Moody's Investors Service;
(j) Investments in the equity of corporations or partnerships
which have as their principal business (i) gas gathering, processing
and transmission, (ii) oil and gas production and storage, or (iii)
gas marketing and related activities, provided that the aggregate
amount of Investments made pursuant to this clause (j) (other than
investments allowed by clause (a) above) shall not at any time exceed
ten percent (10%) of Consolidated Net Tangible Capitalization;
(k) Loans to officers and other key employees of the Company or a
Restricted Subsidiary to enable such individuals to exercise options
to purchase capital stock of the Company; and
(l) the Panhandle Transaction.
Investments shall be valued at cost less any net return of capital through
the sale or liquidation thereof or other return of capital thereon.
RESTRICTED SUBSIDIARY -- means a corporation,
(a) organized under the laws of the United States, Puerto Rico or
Canada or a jurisdiction thereof,
(b) that conducts substantially all of its business and has
substantially all of its Property within the United States, Puerto
Rico and Canada, and
(c) at least eighty percent (80%) (by number of votes) of each
class of Voting Stock of which and one hundred percent (100%) of all
other equity Securities and all other Securities convertible into,
exchangeable for, or representing the right to purchase, Voting Stock,
of which are legally and beneficially owned by the Company and its
Wholly-Owned Restricted Subsidiaries.
RESTRICTED SUBSIDIARY STOCK -- Section 7.4(c).
SECURITIES ACT -- means the Securities Act of 1933, as amended.
31
<PAGE>
SECURITY -- means "security" as defined by section 2(1) of the
Securities Act.
SUBSIDIARY -- means, at any time, a corporation of which the Company
owns, directly or indirectly, more than fifty percent (50%) (by number of
votes) of each class of Voting Stock at such time.
SURPLUS EQUIPMENT -- means equipment of the Company or a Restricted
Subsidiary which equipment is (i) similar to other equipment of the Company
or such Restricted Subsidiary and (ii) not used or useful in the ongoing
operation of the Company and its Restricted Subsidiaries.
SURVIVING CORPORATION -- Section 7.4(a).
UNCONDITIONAL GUARANTY -- Section 10.1(a).
UNRESTRICTED SUBSIDIARY -- means any Subsidiary which (a) as of the
Closing Date is not a Restricted Subsidiary, (b) after the Closing Date is
designated as an Unrestricted Subsidiary pursuant to Section 12.1 hereof,
or (c) otherwise does not satisfy the criteria for a Restricted Subsidiary
set forth in the definition of "Restricted Subsidiary."
VOTING STOCK -- means capital stock of any class or classes of a
corpora tion the holders of which are ordinarily, in the absence of
contingencies, entitled to elect corporate directors (or Persons performing
similar functions).
WHOLLY-OWNED RESTRICTED SUBSIDIARY -- means, at any time, any
Restricted Subsidiary one hundred percent (100%) of all of the equity
Securities (except directors' qualifying shares) and voting Securities of
which are owned by any one or more of the Company and the Company's other
wholly-owned Subsidiaries at such time.
2. WARRANTIES AND REPRESENTATIONS.
To induce the Existing Noteholders to enter into this Amendment, the
Company and the Guarantors represent and warrant as follows:
2.1 DUE AUTHORIZATION, EXECUTION AND DELIVERY; OBLIGATIONS ENFORCEABLE.
This Amendment has been duly authorized by all necessary corporate action
on the part of the Company and each Guarantor, has been executed and delivered
by a duly authorized officer of the Company and each Guarantor, and constitutes
a legal, valid and binding obligation of each such corporation, enforceable
against each such corporation in accordance with its terms.
2.2 NO EVENTS OF DEFAULT.
32
<PAGE>
Immediately prior to, and immediately after giving effect to, this
Amendment, no Default or Event of Default will exist.
2.3 OTHER CREDITORS.
Since January 1, 1998, other than the Amendment Fee paid to the Existing
Noteholders, the Company has not paid or agreed to pay to any creditor of the
Company any fee or other compensation in consideration for amending any term of
any indebtedness of the Company.
3. EFFECTIVENESS.
The provisions of Section 1 of this Amendment shall become effective and
binding upon the Company, the Guarantors and the Existing Noteholders as of
January 15, 1998 when all of the conditions set forth in this Section 3 are
satisfied.
3.1 EXECUTION AND DELIVERY.
The Company and the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the outstanding principal amount of the Notes shall have executed
and delivered to Hebb & Gitlin, special counsel to the Existing Noteholders, a
counterpart of this Amendment.
3.2 PAYMENT OF AMENDMENT FEE AND EXPENSES.
The Company shall have paid the Amendment Fee to each of the Existing
Noteholders and shall have paid all costs, expenses and charges (including,
without limitation, all fees and out-of-pocket expenses of Hebb & Gitlin,
special counsel to the Existing Noteholders) incurred on or prior to the date
hereof, directly or indirectly, by each Existing Noteholder in connection with
the preparation, review and implementation of this Amendment.
4. MISCELLANEOUS.
4.1 EFFECT OF AMENDMENT.
Upon the effectiveness of this Amendment, each reference in the Existing
Note Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of
like import, and each such reference in the Notes, shall mean and be a reference
to the Existing Note Agreement as amended hereby.
4.2 DUPLICATE ORIGINALS; EXECUTION IN COUNTERPART.
Two or more duplicate originals of this Amendment may be signed by the
parties hereto, each of which shall be an original but all of which together
shall constitute one and the same instrument. This Amendment may be executed in
one or more counterparts and shall be effective when at least one counterpart
shall have been executed by the Company and the holders of at least sixty-six
and two-thirds percent (66 2/3%) of the outstanding principal
33
<PAGE>
amount of the Notes, and each set of counterparts which, collectively, shows
execution by the Company and such Noteholders shall constitute one duplicate
original.
4.3 LIMITATION OF AMENDMENT.
Except as expressly provided herein,
(a) no terms or provisions of the Existing Note Agreement are modified
or changed by this Amendment, and
(b) the terms and provisions of the Existing Note Agreement shall
continue in full force and effect.
The Company and each of the Guarantors hereby acknowledges, confirms, reaffirms
and ratifies all of its obligations and duties under the Amended Note Agreement
and the Notes.
4.4 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CONNECTICUT.
[Remainder of page intentionally blank. Next page is signature page.]
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their authorized officers as of the date first above written.
WESTERN GAS RESOURCES, INC.
By /s/ William J. Krysiak
------------------------------------------
Name: William J. Krysiak
Title: Vice President - Finance
LANCE OIL & GAS COMPANY, INC.
MGTC, INC.
MIGC, INC.
MOUNTAIN GAS RESOURCES, INC.
PINNACLE GAS TREATING, INC.
WESTERN POWER SERVICES, INC.
WESTERN GAS RESOURCES-
OKLAHOMA, INC.
WESTERN GAS RESOURCES
STORAGE, INC.
WESTERN GAS RESOURCES-TEXAS, INC.
WGR CANADA, INC.
By /s/ William J. Krysiak
------------------------------------------
Name: William J. Krysiak
Title: Vice President - Finance
ACCEPTED:
CONNECTICUT GENERAL LIFE INSURANCE COMPANY*
CIGNA PROPERTY AND CASUALTY INSURANCE COMPANY*
CENTURY INDEMNITY COMPANY*
LIFE INSURANCE COMPANY OF NORTH AMERICA*
By: Cigna Investments, Inc.
By: /s/ James G. Schelling
--------------------------
Name: James G. Schelling
Title: Managing Director
* This entity is either the registered owner of one or more of the securities
pertaining hereto or is a beneficial owner of one or more of such securities
owned by and registered in the name of a nominee for that entity.
35
<PAGE>
ATTACHMENT 1
Guarantors
- ----------
Lance Oil & Gas Company, Inc.
MGTC, Inc.
MIGC, Inc.
Mountain Gas Resources, Inc.
Pinnacle Gas Treating, Inc.
Western Power Services, Inc.
Western Gas Resources-Oklahoma, Inc.
Western Gas Resources Storage, Inc.
Western Gas Resources-Texas, Inc.
WGR Canada, Inc.
Existing Noteholders
- --------------------
Connecticut General Life Insurance Company
Century Indemnity Company
CIGNA Property and Casualty Company
Life Insurance Company of North America
The Canada Life Assurance Company
Canada Life Insurance Company of America
Canada Life Insurance Company of New York
The Franklin Life Insurance Company
Royal Maccabees Life Insurance Company
Attachment 1-1
<PAGE>
EXHIBIT 10.22
Execution
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (herein called this "Amendment")
is made as of the 8th day of July, 1998 by and among Western Gas Resources, Inc.
("Borrower") and NationsBank, N.A., successor by merger to NationsBank of Texas,
N.A., as Agent ("Agent"), and the Lenders referred to in the Original Agreement
(as defined below).
W I T N E S S E T H:
WHEREAS, Borrower, Agent and Lenders have entered into that certain Credit
Agreement dated as of May 30, 1997 (as amended, restated, or supplemented to the
date hereof, the "Original Agreement"), for the purposes and consideration
therein expressed, pursuant to which Lenders made and became obligated to make
loans to Borrower as therein provided; and
WHEREAS, Borrower, Agent and Lenders desire to amend the Original Agreement
to for the purposes set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein and in the Original Agreement, in consideration
of the loans which may hereafter be made by Lenders to Borrower, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
Definitions and References
--------------------------
(S) 1.1 Terms Defined in the Original Agreement. Unless the context
---------------------------------------
otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment.
ARTICLE II.
Amendments
----------
(S) 2.2 Defined Terms. Section 1.1 of the Original Agreement is hereby
-------------
amended by adding the following defined terms:
"'Granger Complex' means those certain gas processing facilities and
----------------
associated gas gathering systems (with all related assets) to be sold by
Borrower to RIS Resources (USA) Inc. pursuant to the Granger Option and
Asset Purchase Agreement."
<PAGE>
"'Granger Option and Asset Purchase Agreement' means that certain
-------------------------------------------
Option and Asset Purchase Agreement dated November 14, 1997 by and between
Mountain Gas Resources, Inc., Borrower and RIS Resources (USA) Inc., as
amended.
(S) 2.2 Limitation on Sales of Property. Section 6.2(d) of the Original
-------------------------------
Agreement is hereby amended to read in its entirety as follows:
"Limitation on Sales of Property. No Related Person will sell, transfer,
-------------------------------
lease, exchange, alienate or dispose of any of its material assets or properties
or any material interest therein except:
(i) equipment which is worthless or obsolete or which is
replaced by equipment of equal suitability and value;
(ii) inventory which is sold in the ordinary course of business;
(iii) sales of receivables pursuant to a Permitted Receivables
Purchase Facility;
(iv) the sale of up to an undivided fifty percent (50%) interest
in the Granger Complex pursuant to the Granger Option and Asset
Purchase Agreement; and
(v) so long as no Default or Event of Default has occurred,
other assets or property which are sold in arm's length transactions
to third parties that are not Affiliates of Borrower and are sold for
fair consideration not in the aggregate in excess of $20,000,000
during any Fiscal Year; provided that the sale of the Granger Complex
and related assets pursuant to the Granger Option and Asset Purchase
Agreement shall not be included in the calculation of this clause (v).
Neither Borrower nor any of Borrower's Subsidiaries will sell, transfer or
otherwise dispose of capital stock of any of Borrower's Subsidiaries except
that any Subsidiary of Borrower may sell or issue its own capital stock to
the extent not otherwise prohibited hereunder. No Related Person will
discount, sell, pledge or assign any notes payable to it, accounts
receivable or future income except to the extent expressly permitted under
the Loan Documents."
(S) 2.3 Limitation on Investments and New Businesses Section 6.2(f)(iii)
--------------------------------------------
of the Original Agreement is hereby amended to read in its entirety as follows:
"(iii) make any acquisitions of or capital contributions to or
other investments except (A) capital contributions to and investments
in Williston Gas Company and Subsidiaries already wholly owned by such
Related Person and the joint ventures described on Schedule 4 hereto,
(B) deposits with any Lender, investments in obligations of any Lender
or any of such Lender's Affiliates, time
-2-
<PAGE>
deposits in other banking institutions which, at the time such deposit
is made, are rated "C" by Thomson BankWatch, Inc. and investments
maturing within one year from the date of acquisition in direct
obligations of or obligations supported by, the full faith and credit
of, the United States of America, (C) purchases of open market
commercial paper, maturing within 270 days after acquisition thereof,
with the highest or second highest credit rating given by either
Standard & Poor's Rating Group (a division of McGraw-Hill, Inc.) or
Moody's Investors Services, Inc. and investments in money market
mutual funds with equivalent ratings, or (D) preferred stock of RIS
Resources (USA) Inc. in an amount not to exceed $14,000,000 received
in connection with the sale of the Granger Complex and related assets
described in Section 6.2;"
ARTICLE III.
Conditions of Effectiveness
---------------------------
(S) 3.1. Effective Date. This Amendment shall become effective as of the
--------------
date first above written when, and only when, Agent shall have received all of
the following documents:
(a) This Amendment, duly authorized, executed and delivered, and in
form and substance satisfactory to Agent.
(b) A certificate of a duly authorized officer of Borrower to the
effect that all of the representations and warranties set forth in Article
IV hereof are true and correct at and as of the time of such effectiveness.
(c) A certificate of the Secretary of Borrower dated the date of this
Amendment certifying that attached thereto is a true and complete copy of
resolutions adopted by the Board of Directors of Borrower authorizing the
execution, delivery and performance of this Amendment and certifying the
names and true signatures of the officers of Borrower authorized to sign
this Amendment.
(d) Such supporting documents as Agent may reasonably request.
ARTICLE IV.
Representations and Warranties
------------------------------
(S) 4.1. Representations and Warranties of Borrower. In order to induce
------------------------------------------
each Lender to enter into this Amendment, Borrower represents and warrants to
each Lender that:
(a) The representations and warranties contained in Section 5.1 of the
Original Agreement are true and correct at and as of the time of the
effectiveness hereof (except as
-3-
<PAGE>
such representations and warranties have been modified by the transactions
contemplated herein).
(b) Borrower is duly authorized to execute and deliver this Amendment
and Borrower is and will continue to be duly authorized to borrow monies
and to perform its obligations under the Credit Agreement. Borrower has
duly taken all corporate and action necessary to authorize the execution
and delivery of this Amendment.
(c) The execution and delivery by Borrower of this Amendment, the
performance of its obligations thereunder and the consummation of the
transactions contemplated hereby do not and will not conflict with any
provision of law, statute, rule or regulation or of the certificate of
incorporation and bylaws of Borrower or of any material agreement,
judgment, license, order or permit applicable to or binding upon Borrower
or result in the creation of any lien, charge or encumbrance upon any
assets or properties of Borrower. Except for those which have been
obtained, no consent, approval, authorization or order of any court or
governmental authority or third party is required in connection with the
execution and delivery by Borrower and of this Amendment.
(d) When duly executed and delivered, this Amendment and the Credit
Agreement will be a legal and binding obligation of Borrower enforceable in
accordance with its terms, except as limited by bankruptcy, insolvency or
similar laws of general application relating to the enforcement of
creditors' rights and by equitable principles of general application.
(e) The unaudited Consolidated quarterly financial statements of
Borrower dated as of March 31, 1998 fairly present the Consolidated
financial position at such date and the Consolidated statement of
operations and the changes in Consolidated financial position for the
periods ending on such date for Borrower. Copies of such financial
statements have heretofore been delivered to Agent. Since March 31, 1998,
no material adverse change has occurred in the financial condition or
business or in the Consolidated financial condition or business of
Borrower.
ARTICLE V.
Miscellaneous
-------------
(S) 5.1. Ratification of Agreements. The Original Agreement as hereby
--------------------------
amended is hereby ratified and confirmed in all respects. Any reference to the
Credit Agreement in any Loan Document shall be deemed to be a reference to the
Original Agreement as hereby amended. The Loan Documents, as they may be
amended or affected by the various Amendment Documents, are hereby ratified and
confirmed in all respects. The execution, delivery and effectiveness of this
Amendment and the other Amendment Documents shall not, except as expressly
provided herein or therein, operate as a waiver of any right, power or remedy of
Lenders under the Credit
-4-
<PAGE>
Agreement, the Notes, or any other Loan Document nor constitute a waiver of any
provision of the Credit Agreement, the Notes or any other Loan Document.
(S) 5.2. Survival of Agreements. All representations, warranties,
----------------------
covenants and agreements of Borrower herein shall survive the execution and
delivery of this Amendment and the performance hereof, including without
limitation the making or granting of the Loans, and shall further survive until
all of the Obligations are paid in full. All statements and agreements
contained in any certificate or instrument delivered by Borrower hereunder or
under the Credit Agreement to any Lender shall be deemed to constitute
representations and warranties by, and/or agreements and covenants of, Borrower
under this Amendment and under the Credit Agreement.
(S) 5.3. Loan Documents. This Amendment and each other Amendment Document
--------------
is a Loan Document, and all provisions in the Credit Agreement pertaining to
Loan Documents apply hereto and thereto.
(S) 5.4. Governing Law. This Amendment shall be governed by and construed
-------------
in accordance the laws of the State of Texas and any applicable laws of the
United States of America in all respects, including construction, validity and
performance.
(S) 5.5. Counterparts. This Amendment may be separately executed in
------------
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Amendment.
THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.
-5-
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
WESTERN GAS RESOURCES, INC.
By: /s/ William J. Krysiak
---------------------------------------
Name: William J. Krysiak
Title: Vice President - Finance
NATIONSBANK, N.A.
By: /s/ David C. Rubinking
---------------------------------------
Name: David C. Rubinking
Title: Senior Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Paul Colon
---------------------------------------
Name: Paul Colon
Title: Vice President
BANK OF MONTREAL
By: /s/ Cahal B. Carmody
---------------------------------------
Name: Cahal B. Carmody
Title: Director
BANKBOSTON, N.A.
By: /s/ Terrance Ronon
---------------------------------------
Name: Terrance Ronon
Title: Vice President
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Philippe Soustra
----------------------------------------
Name: Philippe Soustra
Title: Senior Vice President
CIBC INC.
By: /s/ M.A. G. Corkum
----------------------------------------
Name: Michael A. G. Corkum
Title: Authorized Signatory
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Monte E. Deckerd
----------------------------------------
Name: Monte E. Deckerd
Title: Vice President
SOCIETE GENERALE, SOUTHWEST AGENCY
By: /s/ R.A. Erbert
----------------------------------------
Name: Richard A. Erbert
Title: Vice President
ABN AMRO BANK N.V.
By: /s/ Scott Albert
----------------------------------------
Name: Scott Albert
Title: Vice President
By: /s/ Darin P. Fischer
----------------------------------------
Name: Darin P. Fischer
Title Assistant Vice President
<PAGE>
EXHIBIT 10.23
LETTER AMENDMENT NO.1 TO
THAT CERTAIN NOTE PURCHASE AGREEMENT
December 15, 1997
To Each of the Purchasers:
Ladies and Gentlemen:
We refer to that certain Note Purchase Agreement dated as of November 29,
1995, by and among the undersigned, Western Gas Resources, Inc. (the "Company")
and the Purchasers relating to the purchase and sale of the Company's 8.02%
Senior Notes (the "Agreement"). Unless otherwise defined herein, the terms
defined in the Agreement shall be used herein as therein defined.
The Company has requested that each of you amend Sections 6C(4) and
6C(5)(v) relating to, among other things, sales of stock or assets by the
Company or any Subsidiary. The Required Holders have indicated their
willingness to so amend the Agreement. Accordingly, it is hereby agreed by the
parties hereto as follows:
I. AMENDMENTS TO THE AGREEMENT. The Agreement is, effective the date first
---------------------------
above written, hereby amended as follows:
A. Paragraph 6C(4) is hereby deleted in its entirety and replaced, in lieu
thereof, with the following:
"6C(4) SALE OF STOCK AND DEBT OF SUBSIDIARIES. (i) Sell or otherwise
dispose of, or part with control of, any shares of stock or Debt of any
Subsidiary, except to the Company or another Wholly Owned Subsidiary, and
except that all shares of stock and Debt of any Subsidiary at the time
owned by or owed to the Company and all Subsidiaries may be sold as an
entirety for a cash consideration which represents the fair value (as
determined in good faith by the Board of Directors of the Company) at the
time of sale of the shares of stock and Debt so sold (the "Stock Sale
Restriction"), provided that (i) the assets of such Subsidiary together
--------
with (ii) the assets of all other Subsidiaries the stock or Debt of which
was sold or otherwise disposed of in the preceding 12-month period and
(iii) the assets of the Company and its Subsidiaries sold, leased,
transferred or otherwise disposed of pursuant to clause (v) of paragraph
6C(5) in the preceding 12-month period (in each transaction measured by the
greater of book value or Fair Market Value), do not represent more than 15%
of Consolidated Net Tangible Assets as reflected on the most recent annual
or quarterly consolidated balance sheet
<PAGE>
To Each of the Purchasers
December 15, 1997
Page 2
(the "Initial Basket"); and
provided further that, at the time of such sale, such Subsidiary shall not
----------------
own, directly or indirectly, any shares of stock or Debt of, or any other
continuing investment in, any other Subsidiary (unless all of the shares of
stock and Debt of such other Subsidiary owned, directly or indirectly, by
the Company and all Subsidiaries are simultaneously being sold as permitted
by this paragraph 6C(4)), or any shares of stock or Debt of the Company.
(ii) Notwithstanding anything else contained in paragraph 6C(4)(i), in the
event that the Option (as hereinafter defined) is exercised in accordance
with the terms of the Option Agreement (as hereinafter defined) , then
during the 12-month period following the end of the month in which the
Option is exercised, the Company will not and will not permit any
Subsidiary to (i) Sell or otherwise dispose of, or part with control of,
any shares of stock of any Subsidiary, except to the Company or another
Wholly Owned Subsidiary, and except that all shares of stock of any
Subsidiary at the time owned by the Company and all Subsidiaries may be
sold as an entirety for a cash consideration which represents the fair
value (as determined in good faith by the Board of Directors of the
Company) at the time of sale of the shares of stock so sold (the "Stock
Sale Restriction"), provided that (I) the assets of such Subsidiary
--------
together with (ii) the assets of all other Subsidiaries the stock of which
was sold or otherwise disposed of in the preceding 24-month period and
(iii) the assets of the Company and its Subsidiaries sold, leased,
transferred or otherwise disposed of pursuant to clause (v) of paragraph
6C(5) in the preceding 24-month period (in each transaction measured by the
greater of book value or Fair Market Value), do not represent more than 25%
of Consolidated Net Tangible Assets (the "Increased Basket") as reflected
on the most recent annual or quarterly consolidated balance sheet, and
provided further that, at the time of such sale, such Subsidiary shall not
----------------
own, directly or indirectly, any shares of stock of, or any other
continuing investment in, any other Subsidiary (unless all of the shares of
stock of such other Subsidiary owned, directly or indirectly, by the
Company and all Subsidiaries are simultaneously being sold as permitted by
this paragraph 6C(4)), or any shares of stock of the Company. The
Increased Basket for the Stock Sale Restriction shall apply during the 12-
month period following the month in which the Option is exercised.
Thereafter, the Initial Basket shall apply.
B. Paragraph 6C(5)(v) is hereby deleted in its entirety and replaced, in
lieu thereof, with the following:
<PAGE>
To Each of the Purchasers
December 15, 1997
Page 3
"6C(5)(v) The Company or any Subsidiary may sell, lease, transfer or
otherwise dispose of any of its assets to any Person (the "Asset Sale
Restriction"), provided, that: (a) such assets together with (b) all other
--------
assets of the Company and its Subsidiaries sold, leased, transferred or
otherwise disposed of during the preceding 12-month period, and (c) the
assets of all Subsidiaries the stock or Debt of which has been sold or
otherwise disposed of during the preceding 12-month period pursuant to the
first proviso of paragraph 6C(4) (in each transaction measured by the
greater of book value or Fair Market Value), does not represent more than
the Initial Basket as reflected on the most recent annual or quarterly
consolidated balance sheet; provided further, that, in the event that the
----------------
first option to purchase certain assets (the "Option") from the Company or
its Subsidiaries as defined in and pursuant to that certain Option and
Asset Purchase Agreement dated November 14, 1997, by and between Mountain
Gas Resources, Inc. and the Company and RIS Resources (USA) Inc. ("Option
Agreement") is exercised in accordance with the Option Agreement by July 1,
1998, then for any sales, leases, transfers or other dispositions
(including any sale pursuant to the Option Agreement) of any of the assets
of Company or any Subsidiary during the 12-month period following the end
of the month in which the Option is exercised, the Company or any
Subsidiary may sell, lease, transfer or otherwise dispose of any of its
assets to any Person, provided, that: (a) such assets together with (b) all
--------
other assets of the Company and its Subsidiaries sold, leased, transferred
or otherwise disposed of during the preceding 24-month period, and (c) the
assets of all Subsidiaries the stock of which has been sold or otherwise
disposed of during the preceding 24-month period pursuant to paragraph
6C(4)(ii) (in each transaction measured by the greater of book value or
Fair Market Value), does not represent more than the Increased Basket. The
Increased Basket for the Asset Sale Restriction shall apply during the 12-
month period following the month in which the Option is exercised.
Thereafter, the Initial Basket for the Asset Sale Restriction shall apply.
II. THE OPTION IS NOT A LIEN.
------------------------
A. For the purpose of clarification, the parties hereto agree that the
Option does not constitute a Lien.
III. MISCELLANEOUS; EFFECTIVENESS.
-----------------------------
<PAGE>
To Each of the Purchasers
December 15, 1997
Page 4
A. On and after the effective date of this letter amendment, each
reference in the Agreement to "this Agreement", "hereunder", "hereof", or words
of like import referring to the Agreement, and each reference in the Notes to
"the Agreement", "thereunder", "thereof", or words of like import referring to
the Agreement, shall mean the Agreement as amended by this Letter Amendment No.
1. The Agreement, as amended by this letter amendment, is and shall continue to
be in full force and effect and is hereby in all respects ratified and
confirmed. The execution, delivery and effectiveness of this letter amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy under the Agreement nor constitute a waiver of any
provision of the Agreement.
B. This Letter Amendment No. 1 may be executed in any number of
counterparts and by any combination of the parties hereto in separate
counterparts, each of which counterparts shall be an original and all of which
taken together shall constitute one and the same letter amendment.
C. If you agree to the terms and provisions hereof, please evidence your
agreement by executing and returning at least a counterpart of this Letter
Amendment No. 1 to the Company at its address at 12200 N. Pecos Street, Denver,
CO 80234, Attention: Vice President-Finance.
D. This Letter Amendment No. 1 shall become effective as of the date
first above written when and if counterparts of this letter Amendment No. 1
shall have been executed by us and the Required Holders.
Very truly yours,
WESTERN GAS RESOURCES, INC.
By: /s/ William J. Krysiak
----------------------------
William J. Krysiak,
Vice President-Finance
Agreed as of the date
first above written:
<PAGE>
To Each of the Purchasers
December 15, 1997
Page 5
THE VARIABLE ANNUITY
LIFE INSURANCE COMPANY
By: /s/ Julia S. Tucker
---------------------------------
Julia S. Tucker
Investment Officer
AMERICAN GENERAL LIFE
INSURANCE COMPANY
By:
---------------------------------
GULF LIFE INSURANCE COMPANY
By:
---------------------------------
FIRST ALLMERICA FINANCIAL
LIFE INSURANCE COMPANY
By: /s/ Scott Hyney
---------------------------------
ALLMERICA FINANCIAL LIFE
INSURANCE AND ANNUITY COMPANY
By: /s/ Scott Hyney
---------------------------------
<PAGE>
To Each of the Purchasers
December 15, 1997
Page 6
J. ROMEO & CO., as nominee for
THE MUTUAL LIFE INSURANCE
COMPANY OF NEW YORK
By: /s/ Raouf Khanil
--------------------------------
Raouf Khanil
<PAGE>
EXHIBIT 10.24
LETTER AMENDMENT NO. 1 TO
SECOND AMENDMENT AND RESTATED MASTER SHELF AGREEMENT
November 21, 1997
The Prudential Insurance Company of America
Pruco Life Insurance Company
c/o Prudential Capital Group
2200 Ross Avenue, Suite 4200E
Dallas, Texas 75201
Ladies and Gentlemen:
We refer to the Second Amended and Restated Master Shelf Agreement dated
as of December 19, 1991 (effective as of January 31, 1996) (the "AGREEMENT") by
and among the undersigned, Western Gas Resources, Inc. (the "COMPANY"), The
Prudential Insurance Company of America ("PRUDENTIAL") and Pruco Life Insurance
Company ("PRUCO"). Unless otherwise defined herein, the terms defined in the
Agreement shall be used herein as therein defined.
The Company and Mountain Gas Resources, Inc., a wholly-owned Subsidiary of
the Company, have entered into an Option and Asset Purchase Agreement dated
November 14, 1997 with RIS (the "OPTION AGREEMENT"). The Option Agreement grants
RIS an option to purchase a portion (up to 50%) of the Company's interests in
Granger/Lincoln Road Complex (such portion of such assets being the "Option
Assets"). The unadjusted option price of the Option Assets is approximately
$110,000,000.
The Company has requested that you amend paragraphs 6C(4) and 6C(5)(v)
relating to, among other things, sales of assets by the Company or any
Subsidiary. You have indicated your willingness to so amend the Agreement.
Accordingly, it is hereby agreed by the parties hereto as follows:
1. AMENDMENTS TO THE AGREEMENT. The Agreement is, effective the date first
---------------------------
above written, hereby amended as follows:
A. PARAGRAPH 6C(4). SALE OF STOCK AND DEBT OF SUBSIDIARIES. Paragraph
6C(4) is hereby deleted in its entirety and replaced, in lieu thereof, with the
following:
<PAGE>
The Prudential Insurance Company of America
Pruco Life Insurance Company
November 21, 1997
Page 2
"6C(4). SALE OF STOCK AND DEBT OF SUBSIDIARIES. (i) Sell or otherwise
dispose of, or part with control of, any shares of stock or Debt of
any Subsidiary, except to the Company or another Wholly Owned
Subsidiary, and except that all shares of stock and Debt of any
Subsidiary at the time owned by or owed to the Company and all
Subsidiaries may be sold as an entirety for a cash consideration which
represents the fair value (as determined in good faith by the Board of
Directors of the Company) at the time of sale of the shares of stock
and Debt so sold, provided that (i) the assets of such Subsidiary
--------
together with (ii) the assets of all other Subsidiaries the stock or
Debt of which was sold or otherwise disposed of in the preceding 12-
month period and (iii) the assets of the Company and its Subsidiaries
sold, leased, transferred or otherwise disposed of pursuant to clause
(v) of paragraph 6C(5) in the preceding 12-month period (in each
transaction measured by the greater of book value or Fair Market
Value), do not represent more than 15% of Consolidated Net Tangible
Assets as reflected on the most recent annual or quarterly
consolidated balance sheet, and provided further that, at the time of
-------- -------
such sale, such Subsidiary shall not own, directly or indirectly, any
shares of stock or Debt of, or any other continuing investment in any
other Subsidiary (unless all of the shares of stock and Debt of such
other Subsidiary owned, directly or indirectly, by the Company and all
Subsidiaries are simultaneously being sold as permitted by this
paragraph 6C(4)), or any shares of stock or Debt of the Company.
(ii) Notwithstanding anything else contained in this paragraph
6C(4), in the event that the Option (as hereinafter defined) is
exercised, then during the 12-month period following the end of the
calendar month in which the Option is exercised the Company shall be
permitted to sell or otherwise dispose of, or part with control of,
any shares of stock or Debt of any Subsidiary, provided that all
--------
shares of stock and Debt of any Subsidiary at the time owned by or
owed to the Company and all Subsidiaries may be sold as an entirety
for a cash consideration which represents the fair value (as
determined in good faith by the Board of Directors of the Company) at
the time of sale of the shares of stock and Debt so sold, provided
--------
that (i) the assets of such Subsidiary together with (ii) the assets
of all other Subsidiaries the stock or Debt of which was sold or
otherwise disposed of in the preceding 24-month period and (iii) the
assets of the Company and its Subsidiaries sold, leased, transferred
of pursuant to clause (v) of paragraph 6C(5) in the preceding 24-month
period (in each transaction measured by the greater of book value or
Fair Market Value), do not represent more than 25% of Consolidated Net
Tangible Assets as reflected on the most recent annual or
<PAGE>
The Prudential Insurance Company of America
Pruco Life Insurance Company
November 21, 1997
Page 3
quarterly consolidated balance sheet, and provided further that, at
-------- -------
the time of such sale, such Subsidiary shall not own, directly or
indirectly, any shares of stock or Debt of, or any other continuing
investment in, any other Subsidiary (unless all of the shares of stock
and Debt of such other Subsidiary owned, directly or indirectly, by
the Company and all Subsidiaries are simultaneously being sold as
permitted by this paragraph 6C(4)), or any shares of stock or Debt of
the Company."
B. PARAGRAPH 6C(5). MERGER AND SALE OF ASSETS. Clause (v) of paragraph
6C(5) is hereby deleted in its entirety and replaced, in lieu thereof, with the
following:
"(v) the Company or any Subsidiary may sell, lease, transfer or
otherwise dispose of any of its assets to any Person, provided, that
--------
(a) such assets together with (b) all other assets of the Company and
its Subsidiaries sold, leased, transferred or otherwise disposed of
during the preceding 12-month period, and (c) the assets of all
Subsidiaries the stock or Debt of which has been sold or otherwise
disposed of during the preceding 12-month period pursuant to the first
proviso of paragraph 6C(4)(i) (in each transaction measured by the
greater of book value or Fair Market Value), do not represent more
that 15% of Consolidated Net Tangible Assets as reflected on the most
recent annual or quarterly consolidated balance sheet; provided
--------
further, that, in the event that the first option to purchase certain
-------
assets (the "OPTION") from the Company or its Subsidiaries as defined
in and pursuant to that certain Option and Asset Purchase Agreement
dated November 14, 1997, by and between Mountain Gas Resources, Inc.
and the Company and RIS (the "OPTION AGREEMENT") is exercised, then
for any sales, leases, transfers or other dispositions (including any
sale pursuant to the Option Agreement) of any of the assets of Company
or any Subsidiary during the 12-month period following the end of the
calendar month in which the option is exercised, the Company or any
Subsidiary may sell, lease, transfer or otherwise dispose of any of
its assets to any Person, provided that (a) such assets together with
--------
(b) all other assets of the Company and its Subsidiaries sold, leased,
transferred or otherwise disposed of during the preceding 24-month
period, and (c) the assets of all Subsidiaries the stock or Debt of
which has been sold or otherwise disposed of during the preceding 24-
month period pursuant to paragraph 6C(4)(iii) (in each transaction
measured by the greater of book value or Fair Market Value), does not
represent more than 25% of Consolidated Net Tangible Assets as
reflected on the most recent annual or quarterly consolidated balance
sheet."
<PAGE>
The Prudential Insurance Company of America
Pruco Life Insurance Company
November 21, 1997
Page 4
II. WAIVERS UNDER THE AGREEMENT. To the extent that granting the option to RIS
---------------------------
pursuant to the Option Agreement would be granting a "Lien" on property of the
Company and its Subsidiaries in violation of paragraph 6C(1) of the Agreement,
the Company has requested that you waive such violation. Prudential and Pruco
agree to waive any such violation of paragraph 6C(1) to the extent that granting
the option to purchase properties to RIS pursuant to the Option Agreement
constitutes a "Lien" provided the option granted to RIS expires, or the option
of RIS is exercised, on or before (a) July 1, 1998 with respect to at least
one-half of the Option Assets and (b) if the purchase pursuant to the preceding
clause, (a) is not for the entire amount of the Option Assets, July 1, 1999 for
the remaining one-half of the Option Assets.
III. MISCELLANEOUS; EFFECTIVENESS.
----------------------------
A. On and after the effective date of this letter amendment, each
reference in the Agreement to "this Agreement," "hereunder," "hereof," or words
of like import referring to the Agreement, and each reference in the Notes to
"the Agreement," "thereunder," "thereof," or words of like import referring to
the Agreement, shall mean the Agreement as emended by this Letter Amendment No.
1. The Agreement, as amended by this letter agreement, is and shall continue to
be in full force and effect and is hereby in all respects ratified and
confirmed. The execution, delivery and effectiveness of this letter amendment
shall note except as expressly provided herein, operate as a waiver of any
right, power or remedy under the Agreement nor constitute a waiver of any
provision of the Agreement.
B. This Letter Amendment No. 1 may be executed in any number of
counterparts, and by any combination of the parties hereto in separate
counterparts, each of which counterpart shall be an original and all of which
taken together shall constitute one and the same letter amendment.
C. If you agree to the terms and provisions hereof, please evidence your
agreement by executing and returning at least a counterpart of this Letter
Amendment No. 1 to the Company at its address at 12200 N. Pecos Street, Denver,
CO 80234, Attention: Vice President-Finance.
<PAGE>
The Prudential Insurance Company of America
Pruco Life Insurance Company
November 21, 1997
Page 5
D. This Letter Amendment No. 1 shall become effective as of the date
first above written when and if (i) counterparts of this letter amendment shall
have been executed by us and you, (ii) the consent attached hereto shall have
been executed by each Guarantor, and (iii) Lance Oil & Gas Company, Inc. shall
have delivered to you a Guaranty.
Very truly yours,
WESTERN GAS RESOURCES, INC.
By: /s/ William J. Krysiak
------------------------------
William J. Krysiak
Vice President-Finance
Agreed as of the date first above written:
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/ Randy Cobb
------------------------------------
Vice President
PRUCO LIFE INSURANCE COMPANY
By: /s/ Randy Cobb
------------------------------------
Vice President
<PAGE>
CONSENT TO AMENDMENT
Each of the undersigned is a Guarantor ("GUARANTOR" and, collectively,
"GUARANTORS") under separate guaranties (each being a "GUARANTY") in favor of
The Prudential Insurance Company of America ("PRUDENTIAL"), for itself and on
behalf of affiliates of Prudential with respect to the obligations of Western
Gas Resources, Inc. (the "COMPANY") under that certain Second Amended and
Restated Master Shelf Agreement dated as of December 19, 1991 (effective as of
January 31, 1996) (the "AGREEMENT"). The terms used herein have the meaning
specified in each Guaranty unless otherwise defined herein. Prudential, Pruco
Life Insurance Company and the Company are entering into that certain Letter
Amendment No. 1 dated as of November 21, 1997 to the Agreement to which this
consent is attached ("LETTER AMENDMENT NO. 1"). Each of the undersigned hereby
consents to Letter Amendment No. 1 and each hereby confirms and agrees that its
Guaranty is, and shall continue to be, in full force and effect and is hereby
confirmed and ratified in all respects except that, upon the effectiveness of,
and on and after the date of this consent, all references in the Guaranty of the
undersigned to the "Shelf Agreement," "thereunder," "thereof," or words of like
import referring to the Shelf Agreement shall mean the Agreement as amended by
the Letter Amendment No. 1.
Dated as of November 21, 1997.
LANCE OIL & GAS COMPANY, INC.
MGTC, INC.
MIGC, INC.
MOUNTAIN GAS RESOURCES, INC.
PINNACLE GAS TREATING, INC.
WESTERN GAS RESOURCES STORAGE, INC.
WESTERN GAS RESOURCES - TEXAS, INC.
WESTERN GAS RESOURCES OKLAHOMA, INC.
WESTERN POWER SERVICES, INC.
WGR CANADA, INC.
By: /s/ William J. Krysiak
-----------------------------------
William J. Krysiak, as Vice President-
Finance of each of the above-named companies.
<TABLE> <S> <C>
<PAGE>
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<PERIOD-END> JUN-30-1998
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416
0
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<TOTAL-LIABILITY-AND-EQUITY> 1,339,852
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