SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1998
Commission File Number: 0-23870
McMoRan Oil & Gas Co.
Incorporated in Delaware 72-1266477
(IRS Employer Identification No.)
1615 Poydras Street, New Orleans, Louisiana 70112
Registrant's telephone number, including area code: (504) 582-4000
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 September 30, 1998, there were issued and outstanding
42,932,628 shares of the registrant's Common Stock, par value
$0.01 per share.
McMoRan Oil & Gas Co.
TABLE OF CONTENTS
Page
Part I. Financial Information
Financial Statements:
Condensed Balance Sheets 3
Statements of Operations 4
Statements of Cash Flow 5
Notes to Financial Statements 6
Remarks 7
Report of Independent Public Accountants 8
Management's Discussion and Analysis
of Financial Condition and Results of Operations 9
Part II. Other Information 15
Signature 16
Exhibit Index E-1
<PAGE> 2
McMoRan Oil & Gas Co.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
McMoRan OIL & GAS CO.
CONDENSED BALANCE SHEETS (Unaudited)
September 30, December 31,
1998 1997
----------- ----------
(In Thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 11,271 $ 29,149
Accounts receivable and other 4,020 14,065
---------- ---------
Total current assets 15,291 43,214
Property, plant and equipment, net 71,807 57,705
Other assets 1,165 169
---------- ---------
Total assets $ 88,263 $ 101,088
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 10,790 $ 9,465
Other long-term liabilities 1,906 925
Stockholders' equity 75,567 90,698
---------- ---------
Total liabilities and stockholders' equity $ 88,263 $ 101,088
========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 3
<TABLE>
<CAPTION>
McMoRan OIL & GAS CO.
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1998 1997 1998 1997
-------- ------- -------- --------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 4,147 $ 1,813 $ 15,925 $ 6,016
Other - 875 - 1,693
------- ------- -------- --------
Total revenues 4,147 2,688 15,925 7,709
Costs and expenses:
Depreciation and amortization 2,921 1,729 13,891 6,551
Production and delivery costs 719 328 2,530 818
Exploration expenses 1,577 6,518 13,835 10,790
General and administrative expenses 867 387 3,216 1,565
Gain on sale of oil and gas property (447) - (447) (2,289)
------- ------- -------- --------
Total costs and expenses 5,637 8,962 33,025 17,435
------- ------- -------- --------
Operating loss (1,490) (6,274) (17,100) (9,726)
Interest expense - (359) - (1,040)
Other income, net 388 88 1,120 337
------- ------- -------- --------
Net loss $(1,102) $(6,545) $(15,980) $(10,429)
======= ======= ======== ========
Basic and diluted net loss per share $(0.03) $(0.46) $(0.37) $(0.74)
====== ====== ====== ======
Basic and diluted average shares
outstanding 42,913 14,101 42,848 14,063
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
<TABLE>
<CAPTION>
McMoRan OIL & GAS CO.
STATEMENTS OF CASH FLOW (Unaudited)
Nine Months Ended
September 30,
---------------------
1998 1997
--------- --------
(In Thousands)
<S> <C> <C>
Cash flow from operating activities:
Net loss $(15,980) $(10,429)
Adjustments to reconcile net loss to
net cash provided by
(used in) operating activities:
Depreciation and amortization 13,891 6,551
Exploration expenses 13,835 10,790
Gain on sale of oil and gas property (447) (2,289)
Decrease in working capital 10,363 5,499
Other 123 (136)
-------- --------
Net cash provided by operating activities 21,785 9,986
-------- --------
Cash flow from investing activities:
Exploration and development expenditures (39,205) (17,951)
Proceeds from sale of oil and gas interest 450 2,884
Other (293) -
-------- --------
Net cash used in investing activities (39,048) (15,067)
-------- --------
Cash flow from financing activities:
Proceeds from exercise of stock options 283 -
Proceeds from production loan - 10,874
Payments on production loan - (6,161)
Other (898) -
-------- --------
Net cash provided by (used in)
financing activities (615) 4,713
-------- --------
Net decrease in cash and cash equivalents (17,878) (368)
Cash and cash equivalents at beginning of year 29,149 10,500
-------- --------
Cash and cash equivalents at end of period $ 11,271 $ 10,132
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
McMoRan OIL & GAS CO.
NOTES TO FINANCIAL STATEMENTS
1.MERGER WITH FREEPORT-McMoRan SULPHUR INC.
On August 3, 1998, McMoRan Oil & Gas Co. (MOXY) and Freeport-McMoRan
Sulphur Inc. (FSC) announced that they had signed a definitive agreement to
combine their operations. In the proposed transaction, a new holding
company, McMoRan Exploration Co. (MMR), would issue approximately 5.5
million MMR common shares in exchange for all of FSC's common shares and
approximately 8.6 million MMR common shares in exchange for all of MOXY's
common shares. FSC shareholders would receive 0.625 MMR shares for each
common share of FSC outstanding and MOXY shareholders would receive 0.20
MMR shares for each common share of MOXY outstanding. Immediately following
the transaction, MMR would have approximately 14.1 million common shares
outstanding that would be owned approximately 61 percent by MOXY's existing
common shareholders and approximately 39 percent by FSC's existing common
shareholders. MMR's Board of Directors and executive management will
include current members of the Board of Directors and executive management
of both MOXY and FSC. The transaction would be tax-free with respect to
both MOXY and FSC shareholders and will be reported on the basis of
purchase accounting, reflecting MOXY as the acquiring entity. The
completion of the transaction is subject to approval by MOXY and FSC
shareholders of record on October 2, 1998 at special shareholder meetings
scheduled for November 17, 1998.
2. CREDIT FACILITY
In August 1998, MOXY entered into a one-year, unsecured, variable rate
$15.0 million line of credit. The credit facility is for general corporate
purposes, and is intended primarily to provide funding for any portion of
MOXY's development activities in excess of its available cash generated from
operations. Under the terms of the credit facility MOXY is able to increase
the size of the facility to $20 million and extend the term for two additional
years subject to certain conditions, including providing security for the
facility. Borrowings under the facility are subject to a borrowing base
redetermined semiannually. No amounts were outstanding under this facility
as of September 30, 1998.
3. EARNINGS PER SHARE
MOXY adopted Statement of Financial Accounting Standards (SFAS) 128
"Earnings Per Share" in the fourth quarter of 1997 and has restated prior
periods earnings per share (EPS) data as required by SFAS 128. Basic net
loss per share of common stock was calculated by dividing net loss
applicable to common stock by the weighted-average number of common shares
outstanding during the period. MOXY had outstanding options representing
approximately 626,000 and 302,000 shares of common stock during the third
quarter of 1998 and 1997, respectively, and 852,000 and 160,000 shares of
common stock during the nine-month periods ended September 30, 1998 and
1997, respectively, that otherwise would have been includable in the
calculation of diluted earnings per share but were excluded as anti-
dilutive considering the losses incurred during the periods presented.
Outstanding options to purchase approximately 2,374,000 and 975,000
shares of common stock at average exercise prices of $3.83 and $4.58 for
the third quarter of 1998 and 1997, respectively, and outstanding options
to purchase 331,000 and 1,080,000 shares of common stock at an average
exercise prices of $4.93 and $4.51 for the nine months ended September 30,
1998 and 1997, respectively, were not included in the computation of
diluted EPS because their exercise prices were greater than the average
market price for the periods presented.
4. NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
133, "Accounting for Derivative Instruments and Hedging Activity," which
establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset
or liability measured at its fair value. SFAS 133 requires that changes in
the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. SFAS 133 is effective for
fiscal years beginning after June 15, 1999 with earlier adoption permitted.
MOXY currently has no derivatives, so that adoption of SFAS 133 would not
have any impact on MOXY's earnings or financial position.
<PAGE> 6
-----------------
Remarks
The information furnished herein should be read in conjunction with MOXY's
financial statements contained in its 1997 Annual Report to stockholders
and included in its Annual Report on Form 10-K.
The information furnished herein reflects all adjustments which are, in the
opinion of management, necessary for a fair statement of the results for
the periods. All such adjustments are, in the opinion of management, of a
normal recurring nature.
<PAGE> 7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of McMoRan Oil & Gas Co.:
We have reviewed the accompanying condensed balance sheet of McMoRan Oil &
Gas Co. (a Delaware Corporation) as of September 30, 1998, and the related
statements of operations for the three and nine-month periods ended
September 30, 1998 and 1997 and the statements of cash flow for the nine-
month periods ended September 30, 1998 and 1997. These financial statements
are the responsibility of the company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of McMoRan Oil & Gas Co. as of December 31,
1997, and the related statements of operations, stockholders' equity and
cash flow for the year then ended (not presented herein), and, in our
report dated January 20, 1998, we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth in the
accompanying condensed balance sheet as of December 31, 1997, is fairly
stated, in all material respects, in relation to the balance sheet from
which it has been derived.
/s/ ARTHUR ANDERSEN LLP
New Orleans, Louisiana
October 20, 1998
<PAGE> 8
Item 2.Management's Discussion and Analysis of Financial Condition and
Results of Operations.
OVERVIEW
McMoRan Oil & Gas Co. (MOXY) is engaged in the exploration, development and
production of oil and natural gas. MOXY and its predecessors have conducted
exploration, development and production operations offshore in the Gulf of
Mexico and onshore in the Gulf Coast region and other areas for more than
25 years, which has provided MOXY an extensive geological and geophysical
data base and significant technical and operational expertise. MOXY expects
to continue to concentrate its efforts in this selected geographic area
where its management team has significant exploration experience.
MOXY's business strategy is to create value for its stockholders
through the discovery of oil and gas reserves in its exploration and
development activities. Management believes MOXY's significant
opportunities to discover meaningful oil and gas reserves can best be
achieved through the use of advanced 3-D seismic technology, applied in
conjunction with a multi-year exploration program (see "Capital Resources
and Liquidity" below). Moreover, MOXY believes that its acquisitions of 3-
D seismic data will continue to improve its ability to interpret subsurface
geology and allow it to continue to develop an inventory of high-quality
prospects which it can pursue at lease sales and through farm-in
opportunities offshore in the Gulf of Mexico and onshore in the Gulf Coast
area.
RESERVE ADDITIONS
MOXY's additions to proved oil and natural gas reserves for the first half
of 1998 totaled 22.7 billion cubic feet of natural gas equivalents (BCFE),
bringing its estimated proved reserves to approximately 60.3 BCFE at June
30, 1998, net of production, an increase of approximately 40 percent from
proved reserves of 43.0 BCFE at December 31, 1997. The June 30, 1998
proved reserves of 60.3 BCFE consisted of approximately 57 billion cubic
feet of gas (BCF) and approximately 0.5 million barrels of oil, using a
ratio of 6 thousand cubic feet of natural gas (MCF) being equivalent to 1
barrel of oil based on an approximate energy content equivalency. These
additions were primarily attributable to successful exploration drilling at
Brazos Block A-19, Vermilion Block 159 and West Cameron Block 617.
OPERATIONAL ACTIVITIES
Recent operational activities are as follows:
. MOXY's net daily production at the Vermilion Block 160 field unit
averaged 8 million cubic feet (MMCF) of gas and 201 barrels of
condensate per day during the third quarter of 1998. Two wells in the
Vermilion Block 160 field unit will be re-completed during the fourth
quarter of 1998, which when completed are expected to increase current
production levels from the field. MOXY has a 25.5 percent net revenue
interest, subject to an approximate 2.6 percent net profits interest, in
the Vermilion Block 160 field unit. The Vermilion Block 160 field unit
is located in approximately 100 feet of water, 42 miles offshore
Louisiana.
. MOXY's net daily production at the Vermilion Block 410 field averaged 12
MMCF of gas during the third quarter of 1998. MOXY has a 28.4 percent
net revenue interest in the Vermilion 410 field which includes portions
of multiple blocks totaling 11,015 acres and is located in approximately
360 feet of water, 115 miles offshore Louisiana.
. At West Cameron Block 616 an offshore production platform, with
facilities designed to process 75 MMCF per day, was installed in August,
with production expected to begin in January 1999 at a gross rate of
approximately 70 MMCF per day from five well completions. Completion
work is currently in progress. MOXY, as operator, has a 50 percent
working interest and an approximate 38 percent net revenue interest in
West Cameron Block 616, which covers 5,000 acres located in
approximately 300 feet of water, 130 miles offshore Louisiana.
. The fabrication of a deck with processing facilities for the Vermilion
Block 160 #4 sidetrack development well is nearing completion, with
installation scheduled in the fourth quarter. The processing facilities
were designed to process 60 MMCF per day in order to accommodate
production from both the Vermilion Block 159 #3 well and the Vermilion
Block 160 #4 sidetrack well. The pipelines connecting the wells are
substantially complete and production from both wells is anticipated to
<PAGE> 9
commence in early 1999 at a combined gross rate of approximately 40 MMCF
equivalent per day. MOXY, as operator, has a 58 percent net revenue
interest in the Vermilion Block 160 #4 sidetrack well, subject to an
approximate 12.7 percent net profits interest. Vermilion Block 160 is
located in approximately 100 feet of water, 42 miles offshore Louisiana.
MOXY, as operator, has a 48 percent working interest and a 33.8 percent
net revenue interest in the Vermilion Block 159 #3 area, encompassing
3,438 acres located in approximately 90 feet of water, 42 miles offshore
Louisiana.
. MOXY and its partners were high bidder on the Brazos Block A-9 lease at
the Western Gulf of Mexico lease sale held in August 1998. Brazos Block
A-9 is adjacent to and directly northeast of MOXY's Brazos Block A-19
property, which encountered commercial hydrocarbons in April 1998 and is
scheduled for development in 1999. If MOXY is awarded the A-9 lease it
will have a 16.8 percent working interest and a 13.3 percent net revenue
interest in the block. MOXY has a 16.8 percent working interest and a
13.3 percent net revenue interest in Brazos Block A-19, and a 24 percent
working interest and 19.3 percent net revenue interest in the adjacent
Brazos Block A-26. These three blocks cover 17,280 acres and are
located in approximately 135 feet of water, 35 miles offshore Texas.
. MOXY sold its interest in West Cameron Block 519 for $450,000,
recognizing a gain of approximately the same amount in July 1998.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
Third Quarter Nine Months
------------------- --------------------
1998 1997 1998 a 1997
--------- ------- --------- ---------
<S> <C> <C> <C> <C>
Production:
Gas (thousand cubic feet,or MCF) 1,843,700 750,300 6,866,300 2,371,300
Oil (barrels) 19,000 2,800 81,600 12,200
Average realization:
Gas (per MCF) $ 2.06 $ 2.33 $ 2.17 $ 2.40
Oil (per barrel) 13.05 19.30 14.17 21.29
</TABLE>
a. MOXY's net ownership interest in Vermilion Block 160 field unit
revenues was reduced during the 1998 first quarter as a result of
a redetermination of participants' interest in the unit. The 1998
production quantities shown above reflect MOXY's adjusted net
revenue interest for the periods. Additionally, nine-month 1998
revenues were reduced by $486,000 to reflect reductions in MOXY's
share of production volumes recorded prior to 1998 (150,400 mcf of
gas and 6,200 barrels of oil). These volume adjustments are not
reflected in the table above.
MOXY's revenues for the third quarter and nine months ended September
30, 1998 increased to $4.1 million and $15.9 million, respectively,
compared to revenues of $2.7 million and $7.7 million for the same periods
of 1997. The significant increases are primarily from MOXY's purchase of
additional net revenue interests in Vermilion Blocks 160 and 410 (see
"Capital Resources and Liquidity" below) and from a substantial increase in
production of natural gas and oil over last year's levels at Vermilion
Block 160 as a result of three additional wells commencing production
during the fourth quarter of 1997. The increases in revenues were
partially offset by lower natural gas and oil market prices throughout the
first nine months of 1998, as well as recording a cumulative adjustment for
production prior to 1998 for the redetermination of ownership interest in
Vermilion Block 160, which reduced combined revenues from gas and oil by
approximately $486,000 during the first quarter of 1998. Production during
the third quarter of 1998 was adversely affected by temporary production
shut-ins caused by tropical storms and Hurricane Georges in the Gulf of
Mexico and by natural depletion of some wells.
Depreciation and amortization increased to $2.9 million and $13.9
million for the third quarter and nine month periods of 1998, respectively,
from $1.7 million and $6.6 million for the comparable periods of 1997. The
increase resulted from the increased production volumes, together with
increased depreciable capitalized costs incurred since the 1997 first
quarter. This increase was partially offset by a decrease in depreciation
and amortization rates during the third quarter of 1998 to reflect the
additional proved reserves (see "Reserve Additions") estimated as of June
30, 1998, which resulted in an approximate $1.1 million benefit during the
third quarter.
<PAGE> 10
Production and delivery cost for the third quarter and nine months
ended September 30, 1998 increased to $0.7 million and $2.5 million,
respectively, from $0.3 million and $0.8 million during the third quarter
and nine months ended September 30, 1997, respectively, largely as a result
of the increased production volumes.
MOXY's exploration expenses fluctuate from period to period based on
the level, results and costs of exploratory drilling. MOXY did not
participate in any exploratory drilling during the third quarter of 1998
because of limited funds available to it under the terms of the MOXY
Exploration Program (see "Capital Resources and Liquidity"). Exploratory
drilling and leasehold expense for the nine months ended September 30, 1998
were approximately $9.5 million, primarily from costs associated with the
Atchafalaya Bay, Grand Isle Block 54 #1, West Cameron Block 617 #2, and
West Cameron Block 157 #1 unsuccessful exploratory wells, compared to $2.1
million for the comparable nine month period last year.
General and administrative expense increased to $0.9 million and $3.2
million for the third quarter and nine months ended September 30, 1998,
respectively, compared to $0.4 million and $1.6 million for the comparable
1997 period. The increases are primarily due to the allocation of actual
general and administrative expenses to MOXY for certain administrative
expenses provided by an affiliated services company, FM Services Company,
which were charged at a fixed annual amount of $1.0 million prior to 1998.
MOXY's interest expense decreased from $0.4 million and $1.0 million
for the third quarter and nine months ended September 30, 1997,
respectively, to zero for the comparable periods of 1998. The reduction
reflects the repayment of the outstanding debt upon completion of a rights
offering in November 1997.
As a result of anticipated future exploration expenditures, MOXY
expects to continue to report operating losses for at least the near
future.
CAPITAL RESOURCES AND LIQUIDITY
Upon completion of a rights offering in November 1997, MOXY realized net
proceeds of $92.2 million from the sale of 28.6 million common shares, of
which 3.8 million shares were purchased by Phosphate Resource Partners
Limited Partnership (PLP) for $13.5 million pursuant to a stand-by
agreement. MOXY used these proceeds to retire all its existing debt ($20
million) and to purchase additional interests in the Vermilion Blocks 160
and 410 fields ($24.5 million). The remaining proceeds provided MOXY with a
portion of the funding necessary to participate in the multi-year $210
million MOXY Exploration Program. MOXY serves as operator and selects all
prospects and drilling opportunities associated with the MOXY Exploration
Program. Most of the exploration expenses related to the MOXY Exploration
Program will be shared 37.6 percent by MOXY, 56.4 percent by PLP and 6
percent by an individual investor, who is also a director of MOXY. All
revenues and other costs are shared 48 percent by MOXY, 47 percent by PLP
and 5 percent by the individual investor.
Cash provided by operating activities amounted to $21.8 million for
the nine months ended September 30, 1998 compared to $10.0 million for the
comparable period last year. Increased operating cash flow in 1998
reflects the increase in oil and gas revenues generated by MOXY's producing
properties and significant collections of outstanding joint interest
receivables.
Cash used in investing activities during the nine months ended
September 30, 1998 was $39.0 million compared to $15.1 million for the
comparable period last year. MOXY incurred $39.2 million of cash
exploration and development expenditures during the nine months ended
September 30, 1998, principally consisting of $26.2 million for capitalized
drilling costs primarily for the West Cameron Block 616 #5 development
well, facility costs associated with West Cameron Block 616, platform and
facility costs associated with the Vermilion Block 160 #4 sidetrack and
Vermilion Block 159 #3 wells and costs associated with the successful
exploratory wells at Brazos Block A-19 and the West Cameron Block 617 #1
well; $9.5 million in drilling and leasehold costs charged to expense,
primarily relating to the Atchafalaya Bay, the Grand Isle Block 54 #1, West
Cameron Block 617 #2 and the West Cameron Block 157 #1 unsuccessful
exploratory wells; and $3.5 million of geological and geophysical costs.
Investing activities also included the proceeds from MOXY's sale of its
interest in West Cameron Block 519 of $450,000. MOXY has committed
<PAGE> 11
development expenditures of approximately $10.6 million, net of pipeline
construction cost reimbursements of approximately $0.7 million, budgeted
for implementation during the fourth quarter of 1998. In addition, MOXY as
of September 30, 1998 has committed exploration and development
expenditures for 1999 of approximately $3.0 million. These expenditures
are expected to be funded by available cash, cash from operating activities
and by bank financing (see discussion below).
In August 1998, MOXY entered into a one-year, unsecured variable rate
$15.0 million line of credit (see Note 2). Under the terms of the credit
facility MOXY is able to increase the size of the facility to $20 million
and extend the term for two additional years subject to certain conditions,
including providing security for the facility. There were no amounts
outstanding under this facility as of October 20, 1998.
On August 3, 1998, MOXY and Freeport-McMoRan Sulphur Inc. (FSC)
announced they had signed a definitive agreement to combine their
operations (see Note 1). The completion of the merger transaction is
subject to approval by MOXY and FSC shareholders of record on October 2,
1998 at special shareholder meetings scheduled for November 17, 1998.
The MOXY Exploration Program's Agreement provides that, without the
consent of the participants, exploration expenditures will be scheduled so
that expenditures will not likely exceed $60 million for any 12 month
period on a cumulative basis. As of June 30, 1998, the MOXY Exploration
Program committed to approximately $60 million of exploratory costs for
1998, as a result of numerous drilling opportunities that became available
during the period. As a result, MOXY's operational activities during the
second half of 1998 have focused and will continue to focus primarily on
developing its recent discoveries and identifying new exploration prospects
for 1999.
On May 18, 1998, IMC Global Inc. (IGL) and PLP filed suit against four
former directors of Freeport-McMoRan Inc. (FTX) and MOXY. The plaintiffs
alleged the defendants breached fiduciary duties in the approval by FTX of
the MOXY Exploration Program discussed above. The plaintiffs seek
unspecified monetary damages and recission or equitable reformation of the
program agreement. Currently PLP continues to participate in the MOXY
Exploration Program, pursuant to its contractual agreement and is current
on payments due on its joint interest billings. For further discussion on
this and other litigation matters see Part II, Item 1, "Legal Proceedings."
IMPACT OF YEAR 2000 COMPLIANCE
The Year 2000 ("Y2K") issue is the result of computerized systems being
written to store and process the year portion of dates using two digits
rather than four. Date-aware systems, (i.e., any system or component that
performs calculations, comparisons, sequencing, or other operations
involving dates) may fail or produce erroneous results on or before January
1, 2000 because the year 2000 will be interpreted as the year 1900.
MOXY's State of Readiness
MOXY has been pursuing a strategy to ensure all of its significant computer
systems will be able to process dates from and after January 1, 2000,
including leap years, without mission-critical system failure (Y2K
Compliance or Y2K Compliant). Computerized systems are integral to the
operations of MOXY, particularly for various engineering systems used for
exploration, reserve, production and modeling functions. Certain
computerized business systems and related services are provided by FM
Services Company (FMS), which is responsible for ensuring Y2K Compliance
for the systems it manages. FMS has separately prepared a plan for its Y2K
Compliance. Progress of the Y2K plan is being monitored by MOXY executive
management and reported to the Audit Committee of the MOXY Board of
Directors. In addition, the independent accounting firm functioning as
MOXY's internal auditors is assisting management in monitoring the progress
of the Y2K plan. MOXY believes all critical components of the plan are on
schedule for completion by the end of the second quarter of 1999.
The majority of computerized date-sensitive hardware and software
components used by MOXY or FMS are covered by maintenance contracts with
the vendors who originally implemented them. All of these vendors have
already been contacted regarding Y2K Compliance of their products. Where
<PAGE> 12
necessary, software modifications to ensure compliance will be provided by
the appropriate vendors under their maintenance contracts.
Information Technology (IT) Systems - The bulk of MOXY oil and gas specific
processing is provided through third party software licensed by MOXY. The
Y2K Compliant version of this software is being tested by MOXY and
scheduled for implementation in the fourth quarter of 1998. The remaining
business processing is provided by FMS. Third party software is used for
general accounting and accounts payable. FMS will install a Y2K Compliant
version of this same software in the fourth quarter of 1998 for an
affiliated entity, allowing any installation issues to be identified and
rectified prior to installation of this system at MOXY in the second
quarter of 1999. FMS also provides payroll and cash disbursements
processing for MOXY . FMS has implemented the Y2K version of the payroll
interface software and will conduct Y2K Compliance testing of third party-
provided payroll services in early 1999. FMS will also conduct Y2K testing
of the interfaces to its primary bank and bank-provided computerized
disbursement services in early 1999 after the bank has completed its
internal Y2K Compliance work.
Non-IT Systems - Systems used for exploration, reserve, production and
modeling functions are integral to the operations of MOXY. The major
provider of these systems has indicated that Y2K Compliant versions of its
software will be available in the second quarter of 1999. MOXY is
participating in an oil and gas industry Y2K consortium to jointly help
ensure compliance of its products. MOXY also utilizes process control
systems in the operation of its offshore facilities. MOXY has engaged an
engineering firm to complete an assessment of the compliance of these
systems in the fourth quarter of 1998.
Third Party Risks - MOXY also has initiated an assessment of Y2K external
risk that may arise from the failure of critical suppliers and customers to
become Y2K Compliant. As is the case with most oil and gas exploration
companies, MOXY relies extensively on third party contractors for a
significant portion of its operating functions. An assessment of third-
party risk is underway and scheduled for completion in the fourth quarter
of 1998.
The Costs to Address MOXY's Y2K Issues
Expenditures for the necessary software modifications required during 1998
and 1999 will largely be funded by routine software and hardware
maintenance fees paid by MOXY or FMS to the related software providers.
Based on current information, MOXY estimates that the cost of Y2K
Compliance will not be material and will be provided for through its normal
operating and capital budgets. If the software modifications and
conversions referred to above are not made, or are delayed, the Y2K issue
could have a material impact on MOXY's operations. Additionally, current
estimates are based on management's best assessment, which was derived
using numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. There can be no assurance that these estimates will be achieved,
and actual results could differ materially from these plans. There also
can be no assurance that the systems of other companies will be converted
on a timely basis or that failure to convert will not have a material
adverse effect on MOXY.
The Risks of MOXY's Y2K Issues
Based on preliminary risk assessment work conducted thus far, MOXY believes
the most likely Y2K-related failures would probably be temporary disruption
in certain materials and services provided by third parties, which would
not be expected to have a material adverse effect on MOXY's financial
condition or results of operations. A more definitive assessment of this
risk will be available at the conclusion of the Risk Assessment phase of
the Y2K project, which is scheduled for completion in the fourth quarter of
1998.
The Company's Contingency Plans
Companies, including MOXY, cannot make Y2K Compliance certifications
because the ability of any organization systems to operate reliably after
midnight on December 31, 1999 is dependent upon factors that may be outside
the control of, or unknown to, the organization. For example, in
Securities Exchange Commission (SEC) Staff Legal Bulletin No. 5, the SEC
opined that "it is not, and will not, be possible for any single entity or
collective enterprise to represent that it has achieved complete Year 2000
compliance and thus to guarantee its remediation efforts. The problem is
simply too complex for such a claim to have legitimacy. Efforts to solve
<PAGE> 13
Year 2000 problems are best described as `risk mitigation'."
Although MOXY believes the likelihood of any or all of the above risks
occurring to be low, specific contingency plans to address certain risk
areas will be developed, if needed, beginning in the first quarter of 1999.
While there can be no assurance that MOXY will not be materially adversely
affected by Y2K problems, it is committed to ensuring that it is fully Y2K
ready and believes its plans adequately address the above-mentioned risks.
CAUTIONARY STATEMENT
Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements regarding plans and
objectives of MOXY's management for future operations and MOXY's
exploration and development activities. Important factors that may cause
actual results to differ materially from MOXY's expectations include
drilling results, unanticipated fluctuations in flow rates of producing
wells, depletion rates, economic and business conditions, Y2K Compliance,
general development risks and hazards and risks inherent with the
production of oil and gas, such as fires, natural disasters, blowouts and
the encountering of formations with abnormal pressures, changes in laws or
regulations and other factors, many of which are beyond the control of MOXY
and other factors as described in more detail under the heading "Cautionary
Statements" in MOXY's Form 10-K for the year ended December 31, 1997.
________________________
The results of operations reported and summarized above are not necessarily
indicative of future operating results.
<PAGE> 14
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
IMC Global Inc. and Phosphate Resource Partners Limited Partnership vs.
James R. Moffett, Richard C. Adkerson, B. M. Rankin, Henry A. Kissinger and
McMoRan Oil & Gas Co., Civ. Act. No. 16387-NC (Del. Ch. filed May 18,
1998). On May 18, 1998 IMC Global Inc. (IGL) and Phosphate Resource
Partners Limited Partnership (PLP) filed a lawsuit in the Delaware Court
of Chancery of New Castle County against MOXY, and four former directors of
Freeport-McMoRan Inc. (FTX), which merged into IGL in December of 1997.
The plaintiffs allege that the individual defendants breached fiduciary
duties in the approval by FTX of a the exploration program between MOXY and
PLP, entered into pursuant to an agreement dated July 14, 1997. The suit
also alleges that MOXY conspired with the individual defendants and aided
and abetted their alleged breach of fiduciary duties. The plaintiffs seek
unspecified monetary damages and recision or equitable reformation of the
program agreement. MOXY believes that the suit is without merit and
intends to vigorously defend itself and enforce its contract rights.
Currently PLP continues to participate in the exploration program pursuant
to its contractual agreements and is current on payments due on its joint
interest billings.
Jacob Gottlieb vs. James R. Moffett, Richard C. Adkerson, B. M. Rankin,
Henry A. Kissinger, Phosphate Resource Partners Limited Partnership,
McMoRan Oil & Gas Co. and IMC Global Inc., Civ. Act. No. 16393 (Del. Ch.
Filed May 19, 1998). On May 19, 1998, plaintiff filed an action on behalf
of a purported class of plaintiffs who own depository units of PLP. The
plaintiff makes substantially similar allegations to those set forth in the
IGL complaint described above. The plaintiff also alleges that IGL and FTX
breached fiduciary duties to PLP and PLP's public unitholders. The
plaintiff seeks unspecified monetary damages and other relief. MOXY
intends to vigorously defend itself and enforce its contract rights.
Daniel W. Krasner vs James R. Moffett; Rene L. Latiolais; C. Donald Whitmire,Jr.
; J. Terrell Brown; Thomas D. Clark, Jr.; B.M. Rankin, Jr.; Richard C. Adkerson;
Robert M.Wohleber; Freeport-McMoRan Sulphur Inc. and McMoRan Oil & Gas Co.,
Civ. Act. No. 16729-NC (Del. Ch. Filed Oct. 22, 1998). On October 22, 1998,
one Freeport-McMoRan Sulphur Inc. (FSC) stockholder filed a purported class
action lawsuit in Delaware alleging that FSC's directors breached their
fiduciary duty to FSC stockholders by signing the agreement to merge with
MOXY. The plaintiff contends that the merger transaction is structured to
give preference to MOXY stockholders and fails to recognize the true value
of FSC. The plaintiff claims that the directors failed to take certain
actions that were necessary to obtain the true value of FSC such as auctioning
the company to the highest bidder or evaluating FSC's worth as a merger
candidate. The plaintiff also claims that MOXY knowingly aided and abetted
the breaches of fiduciary duty committed by the other defendants. The plaintiff
seeks injunctive relief and monetary damages. MOXY intends to vigorously defend
this action.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits to this report are listed in the Exhibit Index appearing on
page E-1 hereof.
(b) Two Current Reports on Form 8-K, reporting information under Item 5,
were filed by the registrant for the period covered by this Quarterly
Report on Form 10-Q. One report was dated August 3, 1998 and the other
was dated September 1, 1998.
<PAGE> 15
McMoRan Oil & Gas Co.
SIGNATURE
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.
McMoRan Oil & Gas Co.
By: /s/ C. Donald Whitmire, Jr.
----------------------------
C. Donald Whitmire, Jr.
Controller
(authorized signatory and
Principal Accounting Officer)
Date: November 12, 1998
<PAGE> 16
McMoRan Oil & Gas Co.
EXHIBIT INDEX
Exhibit Number
3.1 Amended and Restated Certificate of
Incorporation of the Company.
Incorporated by reference to Exhibit
3.1 to the Company's Annual Report for
the year ended December 31, 1994 on
Form 10-K (the 1994 10-K).
3.2 Bylaws of the Company. Incorporated by
reference to Exhibit 3.2 to the
Company's 1994 10-K.
4.1 Form of the Company's Certificate of
Designation of Series A Participating
Cumulative Preferred Stock.
Incorporated by reference to Exhibit
4.1 to Amendment No. 2.
4.2 Rights Agreement dated as of May 19,
1994 between the Company and Mellon
Securities Trust Company, as Rights
Agent. Incorporated by reference to
Exhibit 4.2 to the Company's 1994 10-K.
4.3 Amendment No. 1 dated July 14, 1997 to
the Rights Agreement dated as of May
19, 1994 between McMoRan Oil & Gas Co.
and Mellon Securities Trust Company, as
Rights Agent. Incorporated by
reference to Exhibit 10.7 to the
Company's Current Report on Form 8-K
dated as of July 14, 1997 (the July
14, 1997 8-K).
4.4 Amendment No. 2 dated August 1, 1998 to
the Rights Agreement dated as of May
19, 1994 between McMoRan Oil & Gas Co.
and Mellon Securities Trust Company, as
Rights Agent.
4.5 Amendment No. 3 dated August 26, 1998
to the Rights Agreement dated as of May
19, 1994 between McMoRan Oil & Gas Co.
and Mellon Securities Trust Company, as
Rights Agent.
10.1 Master Agreement dated July 14, 1997
between McMoRan Oil & Gas Co. and
Freeport-McMoRan Resource Partners,
Limited Partnership, now named
Phosphate Resource Partners Limited
Partnership (PLP). Incorporated by
reference to Exhibit 10.1 to the July
14, 1997 8-K.
10.2 Purchase and Sale Agreement dated July
11, 1997 by and among PLP, MCNIC Oil & Gas
Properties, Inc., MCN Investment Corporation
and MOXY. Incorporated by reference
to Exhibit 10.4 to the July 14, 1997 8-K.
10.3 Agreement for Purchase and Sale dated as
of August 1, 1997 between FM Properties Operating
Co. and McMoRan Oil & Gas Co. Incorporated by
reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K dated as of
September 2, 1997.
10.4 Participation Agreement between McMoRan
Oil & Gas Co. and PLP dated as of April
1, 1997. Incorporated by reference to
Exhibit 10.4 to the Company's 1997 Form
10-K.
10.5 Amendment to Participation Agreement
between McMoRan Oil & Gas Co. and PLP
dated December 15, 1997. Incorporated
by reference to Exhibit 10.5 to the
Company's 1997 Form 10-K.
<PAGE> E-1
Exhibit Number
10.6 Participation Agreement between McMoRan
Oil & Gas Co. and Gerald J. Ford dated
as of December 15, 1997. Incorporated
by reference to Exhibit 10.6 to the
Company's 1997 Form 10-K.
10.7 Amended and Restated Services
Agreement, dated as of December 23,
1997, between FM Services Company and
the Company. Incorporated by reference
to Exhibit 10.7 to the Company's 1997
Form 10-K.
10.8 Exploration Agreement effective July 1,
1996, between MOXY and PLP.
Incorporated by reference to the
Company's Quarterly Report on Form 10-Q
for the quarter ending June 30, 1996.
10.9 Credit Agreement dated August 19, 1998
among the Company as borrower,and the
Chase Bank of Texas N.A., as agent.
Executive Compensation Plans and Arrangements
(Exhibits 10.10 through 10.14)
10.10 McMoRan Oil & Gas Co. Adjusted Stock
Award Plan, as amended. Incorporated by
reference to Exhibit 10.10 to the
Company's 1997 Form 10-K.
10.11 McMoRan Oil & Gas Co. 1994 Stock Option
Plan, as amended. Incorporated by
reference to Exhibit 10.11 to the
Company's 1997 Form 10-K.
10.12 McMoRan Oil & Gas Co. 1994 Stock Option
Plan for Non-Employee Directors, as
amended. Incorporated by reference to
Exhibit 10.12 to the Company's 1997
Form 10-K.
10.13 McMoRan Oil & Gas Co. Performance
Incentive Awards Program, as amended.
Incorporated by reference to Exhibit
10.5 to the Company's 1995 10-K.
10.14 Financial Counseling and Tax Return
Preparation and Certification Program
of McMoRan Oil & Gas Co. Incorporated
by reference to Exhibit 10.6 to the
Company's 1995 10-K.
10.15 McMoRan Oil & Gas Co. 1998 Stock Option
Plan.
15.1 Letter dated October 20, 1998 from
Arthur Andersen LLP regarding unaudited
interim financial statements.
27.1 MOXY Financial Data Schedule.
<PAGE> E-2
Exhibit 4.4
Amendment No. 2
to Rights Agreement
of
McMoRan Oil & Gas Co.
This Amendment No. 2 (the "Amendment") to the Rights
Agreement between McMoRan Oil & Gas Co. (the "Company") and
Mellon Securities Trust Company, as Rights Agent (the "Rights
Agent"), dated May 19, 1994 by and between the Company and the
Rights Agent (the "Rights Agreement") is dated and effective as
of August 1, 1998.
W I T N E S S E T H
WHEREAS, Section 27 of the Rights Agreement grants the Board
of Directors of the Company the exclusive power and authority to
amend the Rights Agreement;
WHEREAS, the Company intends to enter into an Agreement and
Plan of Mergers ("Merger Agreement") with Freeport-McMoRan
Sulphur Inc. ("FSC"), McMoRan Exploration Co. ("Parent"), and
MOXY LLC and Brimstone LLC, (collectively, the "Merger Subs"),
both Delaware limited liability companies wholly owned by the
Parent.
WHEREAS, the Company's Board of Directors desires to amend
the Rights Agreement to permit FSC, the Parent, the Merger Subs,
and the Company to enter into and consummate the transactions
contemplated by the Merger Agreement without triggering the
rights under the Rights Agreement.
NOW, THEREFORE, in consideration of the covenants and
agreements contained herein, the parties agree as follows:
1. The definition of "Acquiring Person" in Section 1 of
the Rights Agreement is hereby amended and restated to read in
its entirety as follows:
"Acquiring Person" means any Person who,
together with all Affiliates and Associates
of such Person, shall be the Beneficial Owner
of 15% or more of the shares of Common Stock
then outstanding, but shall not include the
Company, any of its Subsidiaries, any
employee benefit plan of the Company or any
of its Subsidiaries or any Person organized,
appointed or established by the Company or
any of its Subsidiaries for or pursuant to
the terms of any such plan; provided,
however, that for the purpose of determining
shares of Common Stock beneficially owned by
Oppenheimer Group, Inc., all shares of Common
Stock beneficially owned by Oppenheimer
Group, Inc. on the Distribution Date shall be
excluded; and provided further, however, that
none of Freeport-McMoRan Sulphur Inc., a
Delaware corporation, McMoRan Exploration
Co., a Delaware corporation, MOXY LLC, a
Delaware limited liability company, and
Brimstone LLC, a Delaware limited liability
company, and their respective Subsidiaries,
Affiliates, and Associates (hereinafter
collectively the "Sulphur Parties") shall be
deemed to be an Acquiring Person.
Notwithstanding the foregoing, no Person
shall become an Acquiring Person if (i) such
Person has become the Beneficial Owner of 15%
or more of the shares of Common Stock, (ii)
the acquisition by such Person of the shares
that equal or exceed 15% of the shares of
Common Stock was made without apparent
knowledge of the potential implications of
such acquisition under this Agreement and
(iii) either (A) within 10 days after the
Company has notified such Person that the
Company has become aware of such potential
implications, such Person ceases to be the
Beneficial Owner of 15% or more of the shares
of Common Stock or (B) prior to receiving
such notice such Person ceases to be the
Beneficial Owner of 15% or more of the shares
of Common Stock.
2. The definition of "Beneficial Owner" and "beneficially
own" in Section 1 of the Rights Agreement is hereby amended by
adding an additional paragraph at the end of the definition
reading as follows:
Notwithstanding anything in this definition
of "Beneficial Owner" and "beneficially own"
to the contrary, none of the Sulphur Parties,
as defined in the definition of "Acquiring
Person", shall be deemed to be the Beneficial
Owner of, nor to beneficially own any Common
Stock solely by reason of the approval,
execution or delivery by any party thereto,
or by reason of the amendment or consummation
of, an Agreement and Plan of Mergers by and
among the Company and the Sulphur Parties
dated August 1, 1998 (the "Sulphur Merger
Agreement").
3. Paragraph (a) of Section 7 of the Rights Agreement is
hereby amended and restated in its entirety as follows:
(a) The registered holder of any Right
Certificate may exercise the Rights evidenced
thereby (except as otherwise provided herein,
including Section 7(d) and (e), 9(c), 11(a)
and 24) in whole or in part at any time after
the Distribution Date and prior to the
earlier of (i) the Effective Date of the
Sulphur Merger Agreement, as defined in the
definition of Beneficial Owners and
"beneficially own" in Section 1, or (ii) the
Expiration Date upon surrender of the Right
Certificate, with the form of election to
purchase and the certificate on the reverse
side duly executed, to the Rights Agent at
the principal office or offices of the Rights
Agent designated for such purpose, together
with payment (in lawful money of the United
States of America by certified check or bank
draft payable to the order of the Company) of
the aggregate Purchase Price with respect to
the Rights then to be exercised and an amount
equal to any applicable transfer tax or other
governmental charge.
4. The Rights Agreement as heretofore amended is hereby
further amended by adding at the end a new Section 35 reading as
follows:
Section 35. Sulphur Merger Agreement.
Notwithstanding anything in this Agreement to
the contrary, none of the approval,
execution, delivery, amendment, or
consummation of the Sulphur Merger Agreement,
as defined in the definition of "Beneficial
Owner" and "beneficially own", or the
transactions contemplated thereby or in
connection therewith, shall cause (a) any of
the Sulphur Parties, as defined in the
definition of "Acquiring Person", to become
an Acquiring Person, (b) a Stock Acquisition
Date to occur, or (c) a Distribution Date to
occur. Any Distribution Date that might or
could otherwise occur related to the Sulphur
Merger Agreement or the transactions
contemplated thereby or in connection
therewith under this Agreement shall be
indefinitely deferred until such time as the
Board of Directors may otherwise determine.
5. The definition of the term "Flip-In" defined in the
Summary of Terms is hereby amended to read in its entirety as
follows:
If any person becomes an Acquiring Person,_
then each Right (other than Rights
beneficially owned by the Acquiring Person
and certain affiliated persons) will entitle
the holder to purchase, for the Purchase
Price, a number of shares of the Company's
Common Stock having a market value of twice
the Purchase Price.
"Acquiring Person" means any Person who,
together with all Affiliates and Associates
of such Person, shall be the Beneficial Owner
of 15% or more of the shares of Common Stock
then outstanding, but shall not include the
Company, any of its Subsidiaries, any
employee benefit plan of the Company or any
of its Subsidiaries or any Person organized,
appointed or established by the Company or
any of its Subsidiaries for or pursuant to
the terms of any such plan; provided,
however, that for the purpose of determining
shares of Common Stock beneficially owned by
Oppenheimer Group, Inc., all shares of Common
Stock beneficially owned by Oppenheimer
Group, Inc. on the Distribution Date shall be
excluded; and provided further, however, that
none of Freeport-McMoRan Sulphur Inc., a
Delaware corporation, McMoRan Exploration
Co., a Delaware corporation, MOXY LLC, a
Delaware limited liability company, and
Brimstone LLC, a Delaware limited liability
company, and their respective Subsidiaries
Affiliates and Associates (hereinafter
collectively the "Sulphur Parties") shall be
deemed to be an Acquiring Person.
Notwithstanding the foregoing, no Person
shall become an Acquiring Person if (i) such
Person has become the Beneficial Owner of 15%
or more of the shares of Common Stock, (ii)
the acquisition by such Person of the shares
that equal or exceed 15% of the shares of
Common Stock was made without apparent
knowledge of the potential implications of
such acquisition under this Agreement and
(iii) either (A) within 10 days after the
Company has notified such Person that the
Company has become aware of such potential
implications, such Person ceases to be the
Beneficial Owner of 15% or more of the shares
of Common Stock or (B) prior to receiving
such notice such Person ceases to be the
Beneficial Owner of 15% or more of the shares
of Common Stock.
6. All capitalized terms used herein but not otherwise
defined herein shall have the meanings ascribed to them in the
Rights Agreement.
7. Except as specifically amended by this Amendment, the
Rights Agreement shall remain in full force and effect.
8. Any reference to "this Agreement" or "the Rights
Agreement" shall be deemed to be a reference to the Rights
Agreement as amended hereby.
9. This Amendment, all rights hereunder and provisions
hereof, shall be governed by, and construed in accordance with,
the laws of the State of Delaware without giving effect to
principles of conflict of laws.
10. This Amendment may be executed by the parties in one or
more counterparts, all of which shall be deemed an original, but
all of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Amendment effective as of the day and year first above
written.
McMoRan OIL & GAS CO.
Attest:
By:/s/ Michael C. Kilanowski Jr By: /s/ Richard C. Adkerson
---------------------------- -----------------------
Michael C. Kilanowski, Jr. Richard C. Adkerson
Secretary Co-Chairman of the Board and
Chief Executive Officer
MELLON SECURITIES TRUST COMPANY
Attest:
By:/s/ James S. McNellage By:/s/ Nathan L. Hill
--------------------------- --------------------------
Name:James S. McNellage Name:Nathan L. Hill
Title:Assistant Vice President Title:Assistant Vice President
Exhibit 4.5
Amendment No. 3
to Rights Agreement
of
McMoRan Oil & Gas Co.
This Amendment No. 3 (the "Amendment") to the Rights
Agreement (the "Rights Agreement") between McMoRan Oil & Gas
Co. (the "Company") and Mellon Securities Trust Company, as
Rights Agent (the "Rights Agent"), dated May 19, 1994 by and
between the Company and the Rights Agent is dated and
effective as of August 26, 1998.
W I T N E S S E T H
WHEREAS, Section 27 of the Rights Agreement grants the
Board of Directors of the Company the exclusive power and
authority to amend the Rights Agreement;
WHEREAS, the Company's Board of Directors desires to
amend the Rights Agreement to permit certain existing
stockholders to purchase additional shares of Common Stock
of the Company without triggering the rights under the
Rights Agreement.
NOW, THEREFORE, in consideration of the covenants and
agreement contained herein, the parties agree as follows:
1. The definition of "Acquiring Person" in Section 1
of the Rights Agreement is hereby amended and restated to
read in its entirety as follows:
"Acquiring Person" means any Person
who, together with all Affiliates and
Associates of such Person, shall be the
Beneficial Owner of 15% or more of the
shares of Common Stock then outstanding,
but shall not include the Company, any
of its Subsidiaries, any employee
benefit plan of the Company or any of
its Subsidiaries or any Person
organized, appointed or established by
the Company or any of its Subsidiaries
for or pursuant to the terms of any such
plan; provided, however, that for the
purpose of determining shares of Common
Stock beneficially owned by Oppenheimer
Group, Inc., all shares of Common Stock
beneficially owned by Oppenheimer Group,
Inc. on the Distribution Date shall be
excluded; provided further, however,
that none of Freeport-McMoRan Sulphur
Inc., a Delaware corporation, McMoRan
Exploration Co., a Delaware corporation,
MOXY LLC, a Delaware limited liability
company, and Brimstone LLC, a Delaware
limited liability company, and their
respective Subsidiaries, Affiliates, and
Associates (hereinafter collectively the
"Sulphur Parties") shall be deemed to be
an Acquiring Person; and provided
further, however, that none of Alpine
Capital, L.P., Robert W. Bruce III,
Algenpar, Inc., J. Taylor Crandall,
Keystone, Inc., Robert M. Bass and their
respective Subsidiaries, Affiliates and
Associates (hereinafter collectively the
"Alpine Group") shall be deemed to be an
Acquiring Person unless the Alpine Group
shall be the Beneficial Owner of 25% or
more of the shares of Common Stock
outstanding.
Notwithstanding the foregoing, no Person
shall become an Acquiring Person if (i)
such Person has become the Beneficial
Owner of 15% (25% with respect to the
Alpine Group) or more of the shares of
Common Stock, (ii) the acquisition by
such Person of the shares that equal or
exceed 15% (25% with respect to the
Alpine Group) of the shares of Common
Stock was made without apparent
knowledge of the potential implications
of such acquisition under this Agreement
and (iii) either (A) within 10 days
after the Company has notified such
Person that the Company has become aware
of such potential implications, such
Person ceases to be the Beneficial Owner
of 15% (25% with respect to the Alpine
Group) or more of the shares of Common
Stock or (B) prior to receiving such
notice such Person ceases to be the
Beneficial Owner of 15% (25% with
respect to the Alpine Group) or more of
the shares of Common Stock.
2. The definition of the term "Flip-In" defined in
the Summary of Terms is hereby amended to read in its
entirety as follows:
If any person becomes an Acquiring
Person, then each Right (other than
Rights beneficially owned by the
Acquiring Person and certain affiliated
persons) will entitle the holder to
purchase, for the Purchase Price, a
number of shares of the Company's Common
Stock having a market value of twice the
Purchase Price.
"Acquiring Person" means any Person who,
together with all Affiliates and
Associates of such Person, shall be the
Beneficial Owner of 15% or more of the
shares of Common Stock then outstanding,
but shall not include the Company, any
of its Subsidiaries, any employee
benefit plan of the Company or any of
its Subsidiaries or any Person
organized, appointed or established by
the Company or any of its Subsidiaries
for or pursuant to the terms of any such
plan; provided, however, that for the
purpose of determining shares of Common
Stock beneficially owned by Oppenheimer
Group, Inc., all shares of Common Stock
beneficially owned by Oppenheimer Group,
Inc. on the Distribution Date shall be
excluded; provided further, however,
that none of Freeport-McMoRan Sulphur
Inc., a Delaware corporation, McMoRan
Exploration Co., a Delaware corporation,
MOXY LLC, a Delaware limited liability
company, and Brimstone LLC, a Delaware
limited liability company, and their
respective Subsidiaries Affiliates and
Associates (hereinafter collectively the
"Sulphur Parties") shall be deemed to be
an Acquiring Person; and provided
further, however, that none of Alpine
Capital, L.P., Robert W. Bruce III,
Algenpar, Inc., J. Taylor Crandall,
Keystone, Inc., Robert M. Bass and their
respective Subsidiaries, Affiliates and
Associates (hereinafter collectively the
"Alpine Group") shall be deemed to be an
Acquiring Person unless the Alpine Group
shall be the Beneficial Owner of 25% or
more of the shares of Common Stock
outstanding.
Notwithstanding the foregoing, no Person
shall become an Acquiring Person if (i)
such Person has become the Beneficial
Owner of 15% (25% with respect to the
Alpine Group) or more of the shares of
Common Stock, (ii) the acquisition by
such Person of the shares that equal or
exceed 15% (25% with respect to the
Alpine Group) of the shares of Common
Stock was made without apparent
knowledge of the potential implications
of such acquisition under this Agreement
and (iii) either (A) within 10 days
after the Company has notified such
Person that the Company has become aware
of such potential implications, such
Person ceases to be the Beneficial Owner
of 15% (25% with respect to the Alpine
Group) or more of the shares of Common
Stock or (B) prior to receiving such
notice such Person ceases to be the
Beneficial Owner of 15% (25% with
respect to the Alpine Group) or more of
the shares of Common Stock.
3. All capitalized terms used herein but not
otherwise defined herein shall have the meanings ascribed to
them in the Rights Agreement.
4. Except as specifically amended by this Amendment,
the Rights Agreement shall remain in full force and effect.
5. Any reference to "this Agreement" or "the Rights
Agreement" shall be deemed to be a reference to the Rights
Agreement as amended hereby.
6. This Amendment, all rights hereunder and
provisions hereof, shall be governed by, and construed in
accordance with, the laws of the State of Delaware without
giving effect to principles of conflict of laws.
7. This Amendment may be executed by the parties in
one or more counterparts, all of which may be deemed an
original, but all of which taken together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly
executed this Amendment effective as of the day and year
first above written.
McMoRan OIL & GAS CO.
Attest:
By:/s/ Michael C. Kilanowski Jr. By:/s/ Richard C. Adkerson
----------------------------- -------------------------
Michael C. Kilanowski, Jr. Richard C. Adkerson
Secretary Co-Chairman of the Board and
Chief Executive Officer
MELLON SECURITIES TRUST COMPANY
Attest:
By:/s/ James S. McNellage By:/s/ Nathan L. Hill
-------------------------- -------------------------
Name:James S. McNellage Name:Nathan L. Hill
Title:Assistant Vice President Title:Assistant Vice President
Exhibit 10.9
CREDIT AGREEMENT
Dated as of August 19, 1998
Among
McMoRan OIL & GAS CO.,
as Borrower,
CHASE BANK OF TEXAS, N.A.,
as Agent,
and
THE LENDERS SIGNATORY HERETO
TABLE OF CONTENTS
Page
ARTICLE I Definitions and Accounting Matters..................-1-
Section 1.01 Terms Defined Above........................-1-
Section 1.02 Certain Defined Terms......................-1-
Section 1.03 Accounting Terms and Determinations.......-14-
ARTICLE II Commitments ......................................-14-
Section 2.01 Loans and Letters of Credit...............-14-
Section 2.02 Borrowings, Continuations and Conversions,
Letters of Credit..................................-15-
Section 2.03 Changes of Commitments....................-17-
Section 2.04 Fees......................................-17-
Section 2.05 Several Obligations.......................-18-
Section 2.06 Notes.....................................-19-
Section 2.07 Prepayments...............................-19-
Section 2.08 Borrowing Base............................-20-
Section 2.09 Assumption of Risks.......................-22-
Section 2.10 Obligation to Reimburse and to Prepay.....-23-
Section 2.11 Lending Offices...........................-24-
ARTICLE III Payments of Principal and Interest...............-24-
Section 3.01 Repayment of Loans........................-24-
Section 3.02 Interest..................................-24-
ARTICLE IV Payments; Pro Rata Treatment; Computations; Etc...-25-
Section 4.01 Payments..................................-25-
Section 4.02 Pro Rata Treatment........................-25-
Section 4.03 Computations..............................-26-
Section 4.04 Non-receipt of Funds by the Agent.........-26-
Section 4.05 Set-off, Sharing of Payments, Etc.........-26-
Section 4.06 Taxes.....................................-27-
Section 4.07 Disposition of Proceeds...................-30-
ARTICLE V Capital Adequacy...................................-30-
Section 5.01 Additional Costs..........................-30-
Section 5.02 Limitation on Eurodollar Loans............-32-
Section 5.03 Illegality................................-32-
Section 5.04 Base Rate Loans Pursuant to Sections 5.01,
5.02 and 5.03......................................-32-
Section 5.05 Compensation..............................-33-
Section 5.06 Replacement Lenders.......................-33-
ARTICLE VI Conditions Precedent..............................-35-
Section 6.01 Initial Funding...........................-35-
Section 6.02 Initial Borrowing Base Redetermination....-35-
Section 6.03 Initial and Subsequent Loans and Letters of
Credit.............................................-36-
Section 6.04 Conditions Relating to Letters of Credit..-37-
ARTICLE VII Representations and Warranties...................-37-
Section 7.01 Corporate Existence.......................-37-
Section 7.02 Financial Condition.......................-37-
Section 7.03 Litigation................................-38-
Section 7.04 No Breach.................................-38-
Section 7.05 Authority.................................-38-
Section 7.06 Approvals.................................-39-
Section 7.07 Use of Loans..............................-39-
Section 7.08 ERISA.....................................-39-
Section 7.09 Taxes.....................................-40-
Section 7.10 Titles, etc...............................-40-
Section 7.11 No Material Misstatements.................-41-
Section 7.12 Investment Company Act....................-41-
Section 7.13 Public Utility Holding Company Act........-41-
Section 7.14 Subsidiaries..............................-41-
Section 7.15 Location of Business and Offices..........-41-
Section 7.16 Defaults..................................-41-
Section 7.17 Environmental Matters.....................-42-
Section 7.18 Compliance with the Law...................-43-
Section 7.19 Insurance.................................-43-
Section 7.20 Hedging Agreements........................-43-
Section 7.21 Restriction on Liens......................-44-
Section 7.22 Material Agreements.......................-44-
Section 7.23 Gas Imbalances............................-44-
Section 7.24 Year 2000.................................-44-
ARTICLE VIII Affirmative Covenants...........................-45-
Section 8.01 Financial Statements......................-45-
Section 8.02 Litigation................................-47-
Section 8.03 Maintenance, Etc..........................-47-
Section 8.04 Environmental Matters.....................-48-
Section 8.05 Further Assurances........................-49-
Section 8.06 Performance of Obligations................-49-
Section 8.07 Engineering Reports.......................-49-
Section 8.08 Title Information.........................-50-
Section 8.09 Collateral................................-51-
Section 8.10 ERISA Information and Compliance...........-53-
ARTICLE IX Negative Covenants................................-53-
Section 9.01 Debt......................................-53-
Section 9.02 Liens.....................................-54-
Section 9.03 Investments, Loans and Advances...........-55-
Section 9.04 Dividends, Distributions and Redemptions..-56-
Section 9.05 Sales and Leasebacks......................-56-
Section 9.06 Nature of Business........................-56-
Section 9.07 Mergers, Etc..............................-56-
Section 9.08 Proceeds of Notes.........................-57-
Section 9.09 ERISA Compliance..........................-57-
Section 9.10 Sale or Discount of Receivables...........-58-
Section 9.11 Ratio of Debt to EBITDAX..................-58-
Section 9.12 Interest Coverage Ratio...................-58-
Section 9.13 Sale of Oil and Gas Properties............-59-
Section 9.14 Environmental Matters.....................-59-
Section 9.15 Transactions with Affiliates..............-59-
Section 9.16 Subsidiaries..............................-59-
Section 9.17 Negative Pledge Agreements................-60-
Section 9.18 Gas Imbalances, Take-or-Pay or Other
Prepayments........................................-60-
ARTICLE X Events of Default; Remedies........................-60-
Section 10.01 Events of Default........................-60-
Section 10.02 Remedies.................................-62-
ARTICLE XI The Agent.........................................-63-
Section 11.01 Appointment, Powers and Immunities.......-63-
Section 11.02 Reliance by Agent........................-63-
Section 11.03 Defaults.................................-64-
Section 11.04 Rights as a Lender.......................-64-
Section 11.05 INDEMNIFICATION..........................-64-
Section 11.06 Non-Reliance on Agent and other Lenders..-64-
Section 11.07 Action by Agent..........................-65-
Section 11.08 Resignation or Removal of Agent..........-65-
ARTICLE XII Miscellaneous....................................-66-
Section 12.01 Waiver...................................-66-
Section 12.02 Notices..................................-66-
Section 12.03 Payment of Expenses, Indemnities, etc....-66-
Section 12.04 Amendments, Etc..........................-68-
Section 12.05 Successors and Assigns...................-69-
Section 12.06 Assignments and Participations...........-69-
Section 12.07 Invalidity...............................-70-
Section 12.08 Counterparts.............................-70-
Section 12.09 References...............................-70-
Section 12.10 Survival.................................-71-
Section 12.11 Captions.................................-71-
Section 12.12 NO ORAL AGREEMENTS.......................-71-
Section 12.13 GOVERNING LAW; SUBMISSION TO JURISDICTION-71-
Section 12.14 Interest.................................-72-
Section 12.15 Confidentiality..........................-73-
Section 12.16 Effectiveness............................-74-
Section 12.17 EXCULPATION PROVISIONS...................-74-
THIS CREDIT AGREEMENT dated as of August 19, 1998 is
among: McMoRan OIL & GAS CO., a corporation formed under the
laws of the State of Delaware (together with its successors and
assigns, the "Borrower"); each of the lenders that is a signatory
hereto or which becomes a signatory hereto as provided in Section
12.06 (individually, together with its successors and assigns, a
"Lender" and, collectively, the "Lenders"); and CHASE BANK OF
TEXAS, N.A., a national banking association (in its individual
capacity, "Chase"), as agent for the Lenders (in such capacity,
together with its successors in such capacity, the "Agent").
R E C I T A L S
A. The Borrower has requested that the Lenders provide
certain loans to and extensions of credit on behalf of the
Borrower; and
B. The Lenders have agreed to make such loans and
extensions of credit subject to the terms and conditions of this
Agreement.
C. In consideration of the mutual covenants and agreements
herein contained and of the loans, extensions of credit and
commitments hereinafter referred to, the parties hereto agree as
follows:
ARTICLE I
Definitions and Accounting Matters
Section 1.01 Terms Defined Above. As used in this
Agreement, the terms "Agent," "Borrower," "Chase," "Lender" and
"Lenders" shall have the meanings indicated above.
Section 1.02 Certain Defined Terms. As used herein,
the following terms shall have the following meanings (all terms
defined in this Article I or in other provisions of this
Agreement in the singular to have the same meanings when used in
the plural and vice versa):
"Additional Costs" shall have the meaning assigned such term
in Section 5.01(a).
"Affected Loans" shall have the meaning assigned such term
in Section 5.04.
"Affiliate" of any Person shall mean (i) any Person directly
or indirectly controlled by, controlling or under common control
with such first Person, (ii) any director or officer of such
first Person or of any Person referred to in clause (i) above and
(iii) if any Person in clause (i) above is an individual, any
member of the immediate family (including parents, spouse and
children) of such individual and any trust whose principal
beneficiary is such individual or one or more members of such
immediate family and any Person who is controlled by any such
member or trust. For purposes of this definition, any Person
which owns directly or indirectly 15% or more of the securities
having ordinary voting power for the election of directors or
other governing body of a corporation or 15% or more of the
partnership or other ownership interests of any other Person
(other than as a limited partner of such other Person) will be
deemed to "control" (including, with its correlative meanings,
"controlled by" and "under common control with") such corporation
or other Person.
<PAGE> 1
"Agreement" shall mean this Credit Agreement, as the same
may from time to time be amended or supplemented.
"Aggregate Commitments" at any time shall equal the amount
calculated in accordance with Section 2.03(a) hereof.
"Aggregate Maximum Credit Amount" at any time shall equal
the sum of the Maximum Credit Amounts of the Lenders ($15,000,000
until the conditions precedent set forth in Section 6.02 have
been satisfied and $20,000,000 thereafter), as the same may be
reduced pursuant to Section 2.03(b).
"Applicable Lending Office" shall mean, for each Lender and
for each Type of Loan, the lending office of such Lender (or an
Affiliate of such Lender) designated for such Type of Loan on the
signature pages hereof or such other offices of such Lender (or
of an Affiliate of such Lender) as such Lender may from time to
time specify to the Agent and the Borrower as the office by which
its Loans of such Type are to be made and maintained.
"Applicable Margin" shall mean, the applicable per annum
percentage set forth at the appropriate intersection in the table
shown below, based on the Borrowing Base Utilization Percentage
as in effect from time to time:
Borrowing Base Utilization Percentage Eurodollar Rate Base Rate
------------------------------------- --------------- ---------
Less than or equal to 33% 1.50% 0.0%
Greater than 33% but less than
or equal to 66% 1.75% 0.25%
Greater than 66% 2.00% 0.50%
"Assignment" shall have the meaning assigned such term in
Section 12.06(b).
"Base Rate" shall mean, with respect to any Base Rate Loan,
for any day, the higher of (i) the Federal Funds Rate for any
such day plus 1/2 of 1% or (ii) the Prime Rate for such day.
Each change in any interest rate provided for herein based upon
the Base Rate resulting from a change in the Base Rate shall take
effect at the time of such change in the Base Rate.
"Base Rate Loans" shall mean Loans that bear interest at
rates based upon the Base Rate.
"Borrowing Base" shall mean at any time an amount equal to
the amount determined in accordance with Section 2.08(f).
"Borrowing Base Deficiency" shall have the meaning assigned
such term in Section 2.07(d).
"Borrowing Base Utilization Percentage" shall mean, as of
any day, the fraction expressed as a percentage, the numerator of
which is the balance of all Loans and the LC Exposure outstanding
on such day, and the denominator of which is the Offered
Borrowing Base in effect on such day.
<PAGE> 2
"Bridge Facility Termination Date" shall mean the earlier of
(i) the date which is twelve (12) months after the Closing Date
and (ii) the date on which the Borrower satisfies the conditions
precedent set forth in Section 6.02.
"Business Day" shall mean any day other than a day on which
commercial banks are authorized or required to close in Houston,
Texas and, where such term is used in the definition of
"Quarterly Date" or if such day relates to a borrowing or
continuation of, a payment or prepayment of principal of or
interest on, or a conversion of or into, or the Interest Period
for, a Eurodollar Loan or a notice by the Borrower with respect
to any such borrowing or continuation, payment, prepayment,
conversion or Interest Period, any day which is also a day on
which dealings in Dollar deposits are carried out in the London
interbank market.
"Closing Date" shall mean August 24, 1998.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time and any successor statute.
"Commitment" shall mean, for any Lender, its obligation to
(i) make Loans up to the lesser of such Lender's Maximum Credit
Amount or the Lender's Percentage Share of the then effective
Borrowing Base and (ii) participate in the issuance of Letters of
Credit as provided in Section 2.01(b).
"Consolidated Subsidiaries" shall mean each Subsidiary of
the Borrower (whether now existing or hereafter created or
acquired) the financial statements of which shall be (or should
have been) consolidated with the financial statements of the
Borrower in accordance with GAAP.
"Debt" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money (including
principal, interest, fees and charges), (b) all obligations of
such Person evidenced by bonds, debentures, notes or similar
instruments (including principal, interest, fees and charges),
(c) all obligations of such Person for the unearned balance of
any payment received under any contract outstanding for 180 days,
(d) all obligations of such Person under conditional sale or
other title retention agreements relating to Property or assets
purchased by such Person, (e) all obligations of such Person
issued or assumed as the deferred purchase price of Property or
services (excluding trade accounts payable and accrued
obligations incurred in the ordinary course of business so long
as the same are not 180 days overdue or, if overdue, are being
contested in good faith and by appropriate proceedings), (f) all
Debt of others secured by (or for which the holder of such Debt
has an existing right, contingent or otherwise, to be secured by)
any Lien on Property owned or acquired by such Person, whether or
not the obligations secured thereby have been assumed, (g) all
obligations of such Person, contingent or otherwise, guaranteeing
or having the economic effect of guaranteeing Debt of others, (h)
all obligations of such Person to pay rent or other amounts under
a capital lease, (i) all recourse obligations of such Person with
respect to sales of accounts receivable which would be shown
under GAAP on the balance sheet of such Person as a liability,
(j) all obligations of such Person as an account party (including
reimbursement obligations to the issuer of a letter of credit) in
respect of bankers' acceptances and letters of credit
guaranteeing Debt, (k) all noncontingent obligations of such
Person as an account party (including reimbursement obligations
to the issuer of a letter of credit) in respect of letters of
credit other than those referred to in clause (j) above, (l) all
obligations under leases which require such Person to make
<PAGE> 3
payments over the term of such lease, including payments at
termination, which are substantially equal to at least eighty
percent (80%) of the purchase price of the Property subject to
such lease plus interest as an imputed rate of interest, (m) all
obligations or undertakings of such Person to maintain or cause
to be maintained the financial position or covenants of others or
to purchase the Debt or Property of others, (n) obligations
outstanding for 180 days or more to deliver goods or services
including Hydrocarbons in consideration of advance payments, (o)
obligations to pay for goods or services in the event that such
goods or services are not actually received or utilized by such
Person, (p) any capital stock of such Person in which such Person
has a mandatory obligation to redeem such stock within two (2)
years after the Termination Date (plus any extension of such
date), (q) any Debt of a Special Entity for which such Person is
liable either by agreement or because of a Governmental
Requirement, (r) the undischarged balance of any production
payment created by such Person or for the creation of which such
Person directly received payment; and (s) all obligations of such
Person under Hedging Agreements. The Debt of any person shall
exclude obligations under leases which are characterized as
operating leases.
"Default" shall mean an Event of Default or an event which
with notice or lapse of time or both would become an Event of
Default.
"Dollars" and "$" shall mean lawful money of the United
States of America.
"EBITDAX" shall mean, for any period, the sum of
consolidated net income for such period plus the following
expenses or charges to the extent deducted from consolidated net
income in such period: interest paid or accrued on the Loans to
the Borrower and on other Debt of the Borrower during such
period, taxes, depreciation, depletion, amortization and
exploration expenses. As used herein, "consolidated net income"
shall mean, for any period, the amount which, in conformity with
GAAP, would be set forth opposite the caption "net income or
loss" (or any like caption) on a consolidated income statement of
the Borrower and its Consolidated Subsidiaries (before deducting
minority interests in net income of Consolidated Subsidiaries,
but disregarding all extraordinary or unusual noncash items in
calculating such consolidated net income). The calculation of
each of the items specified above will exclude items relating to
Unrestricted Subsidiaries.
"Effective Date" shall have the meaning assigned such term
in Section 12.16.
"Engineering Reports" shall have the meaning assigned such
term in Section 2.08.
"Environmental Laws" shall mean any and all Governmental
Requirements pertaining to health or the environment in effect in
any and all jurisdictions in which the Borrower or any Subsidiary
is conducting or at any time has conducted business, or where any
Property of the Borrower or any Subsidiary is located, including
without limitation, the Oil Pollution Act of 1990 ("OPA"), the
Clean Air Act, as amended, the Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980 ("CERCLA"), as
amended, the Federal Water Pollution Control Act, as amended, the
Occupational Safety and Health Act of 1970, as amended, the
Resource Conservation and Recovery Act of 1976 ("RCRA"), as
amended, the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Superfund Amendments and
Reauthorization Act of 1986, as amended, the Hazardous Materials
Transportation Act, as amended, and other environmental
conservation or protection laws. The term "oil" shall have the
<PAGE> 4
meaning specified in OPA, the terms "hazardous substance" and
"release" (or "threatened release") have the meanings specified
in CERCLA, and the terms "solid waste" and "disposal" (or
"disposed") have the meanings specified in RCRA; provided,
however, that (i) in the event either OPA, CERCLA or RCRA is
amended so as to broaden the meaning of any term defined thereby,
such broader meaning shall apply subsequent to the effective date
of such amendment and (ii) to the extent the laws of the state in
which any Property of the Borrower or any Subsidiary is located
establish a meaning for "oil," "hazardous substance," "release,"
"solid waste" or "disposal" which is broader than that specified
in either OPA, CERCLA or RCRA, such broader meaning shall apply.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time and any successor
statute.
"ERISA Affiliate" shall mean each trade or business (whether
or not incorporated) which together with the Borrower or any
Subsidiary would be deemed to be a "single employer" within the
meaning of section 4001(b)(1) of ERISA or subsections (b), (c),
(m) or (o) of section 414 of the Code.
"ERISA Event" shall mean (i) a "Reportable Event" described
in Section 4043 of ERISA and the regulations issued thereunder,
(ii) the withdrawal of the Borrower, any Subsidiary or any ERISA
Affiliate from a Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA,
(iii) the filing of a notice of intent to terminate a Plan or the
treatment of a Plan amendment as a termination under Section 4041
of ERISA, (iv) the institution of proceedings to terminate a Plan
by the PBGC or (v) any other event or condition which might
constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer,
any Plan.
"Eurodollar Loans" shall mean Loans the interest rates on
which are determined on the basis of rates referred to in the
definition of "Eurodollar Rate".
"Eurodollar Rate" shall mean, with respect to any Eurodollar
Loan, the rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) quoted by the Agent at approximately 11:00
a.m. London time (or as soon thereafter as practicable) two (2)
Business Days prior to the first day of the Interest Period for
such Loan for the offering by the Agent to leading banks in the
London interbank market of Dollar deposits having a term
comparable to such Interest Period and in an amount comparable to
the principal amount of the Eurodollar Loan to be made by the
Lenders for such Interest Period.
"Event of Default" shall have the meaning assigned such term
in Section 10.01.
"Excepted Liens" shall mean: (i) Liens for taxes,
assessments or other governmental charges or levies not yet due
or which are being contested in good faith by appropriate action
and for which adequate reserves have been maintained; (ii) Liens
in connection with workmen's compensation, unemployment insurance
or other social security, old age pension or public liability
obligations not yet due or which are being contested in good
faith by appropriate action and for which adequate reserves have
been maintained in accordance with GAAP; (iii) operators',
vendors', carriers', warehousemen's, repairmen's, mechanics',
workmen's, materialmen's, construction or other like Liens
arising by operation of law or lien in favor of operators or co-
interest owners under contract in the ordinary course of business
<PAGE> 5
or incident to the exploration, development, operation and
maintenance of Oil and Gas Properties or statutory landlord's
liens, each of which is in respect of obligations that have not
been outstanding more than 90 days or which are being contested
in good faith by appropriate proceedings and for which adequate
reserves have been maintained in accordance with GAAP; (iv) any
Liens reserved in leases or farmout agreements for rent or
royalties and for compliance with the terms of the farmout
agreements or leases in the case of leasehold estates, to the
extent that any such Lien referred to in this clause does not
materially impair the use of the Property covered by such Lien
for the purposes for which such Property is held by the Borrower
or any Subsidiary or materially impair the value of such Property
subject thereto; (v) encumbrances (other than to secure the
payment of borrowed money or the deferred purchase price of
Property or services), easements, restrictions, servitudes,
permits, conditions, covenants, exceptions or reservations in any
rights of way or other Property of the Borrower or any Subsidiary
for the purpose of roads, pipelines, transmission lines, trans-
portation lines, distribution lines for the removal of gas, oil,
coal or other minerals or timber, and other like purposes, or for
the joint or common use of real estate, rights of way, facilities
and equipment, and defects, irregularities, zoning restrictions
and deficiencies in title of any rights of way or other Property
which in the aggregate do not materially impair the use of such
rights of way or other Property for the purposes of which such
rights of way and other Property are held by the Borrower or any
Subsidiary or materially impair the value of such Property
subject thereto; (vi) deposits of cash or securities to secure
the performance of bids, trade contracts, leases, statutory
obligations and other obligations of a like nature incurred in
the ordinary course of business; (vii) Liens permitted by the
Security Instruments ; (viii) required margin deposits on
permitted Hedging Agreements arising in the ordinary course of
business; (ix) Liens on assets or Properties not owned as of the
Closing Date by the Borrower or any Restricted Subsidiary
securing only purchase money Debt of the Borrower or such
Restricted Subsidiary permitted by Section 9.01(f), which Liens
are limited to the specific Property the purchase of which is
financed by such Debt; (x) Liens existing at the time of
acquisition by the Borrower or any Restricted Subsidiary of the
majority of the capital stock or other ownership interests or
substantially all of the assets of any other Person or existing
at the time of the merger of any such other Person into the
Borrower or any Restricted Subsidiary, on such capital stock or
other ownership interests or assets so acquired or on the assets
of the Person so merged into the Borrower or such Restricted
Subsidiary; provided, however, that such acquisition or merger
(and the discharge of such Liens referred to in the immediately
succeeding proviso) shall not otherwise result in an Event of
Default or Default; and provided further that all such Liens
shall be discharged within 180 days after the date of the
respective acquisition or merger; (xi) Liens of lessors of
Property (in such capacity) leased by the Borrower or any
Restricted Subsidiary pursuant to an operating lease or permitted
capital lease, which Lien in any such case is limited to the
Property leased thereunder; and (xii) Liens on equity or debt
investments in Third Parties owned by the Borrower or a
Restricted Subsidiary (which Lien in any case is limited to such
pledged equity or debt investment) which secure Debt of Third
Parties or other Third Party obligations (or guaranties thereof);
provided that such pledged investments were initially acquired in
accordance with Section 9.03.
"Federal Funds Rate" shall mean, for any day, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
equal to the weighted average of the rates on overnight federal
funds transactions with a member of the Federal Reserve System
arranged by federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Business Day next
<PAGE> 6
succeeding such day, provided that (i) if the date for which such
rate is to be determined is not a Business Day, the Federal Funds
Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next
succeeding Business Day, and (ii) if such rate is not so
published for any day, the Federal Funds Rate for such day shall
be the average rate charged to the Agent on such day on such
transactions as determined by the Agent.
"Fee Letter" shall mean that certain letter agreement from
August 18, 1998 to the Borrower dated of even date with this
Agreement concerning certain fees in connection with this
Agreement and any agreements or instruments executed in
connection therewith, as the same may be amended or replaced from
time to time.
"Financial Statements" shall mean the financial statement or
statements of the Borrower and its Consolidated Subsidiaries
described or referred to in Section 7.02.
"Free Cash Flow" shall mean, for any period, revenues which
have accrued for such period and which relate to the net revenue
interest of the Borrower and any Restricted Subsidiary in the Oil
and Gas Properties included in the Borrowing Base for such
period, minus operating expenses, ad valorem taxes,
transportation expenses, net profit distributions and committed
capital expenditures necessary to maintain Borrowing Base assets.
"GAAP" shall mean generally accepted accounting principles
in the United States of America in effect from time to time.
"Governmental Authority" shall include the country, the
state, county, city and political subdivisions in which any
Person or such Person's Property is located or which exercises
valid jurisdiction over any such Person or such Person's
Property, and any court, agency, department, commission, board,
bureau or instrumentality of any of them including monetary
authorities which exercises valid jurisdiction over any such
Person or such Person's Property. Unless otherwise specified,
all references to Governmental Authority herein shall mean a
Governmental Authority having jurisdiction over, where
applicable, the Borrower, the Subsidiaries or any of their
Property or the Agent, any Lender or any Applicable Lending
Office.
"Governmental Requirement" shall mean any law, statute,
code, ordinance, order, determination, rule, regulation,
judgment, decree, injunction, franchise, permit, certificate,
license, authorization or other directive or requirement (whether
or not having the force of law), including, without limitation,
Environmental Laws, energy regulations and occupational, safety
and health standards or controls, of any Governmental Authority.
"Hedging Agreements" shall mean any commodity, interest rate
or currency swap, cap, floor, collar, forward agreement or other
exchange or protection agreements or any option with respect to
any such transaction.
"Highest Lawful Rate" shall mean, with respect to each
Lender, the maximum nonusurious interest rate, if any, that at
any time or from time to time may be contracted for, taken,
reserved, charged or received on the Notes or on other
Indebtedness under laws applicable to such Lender which are
presently in effect or, to the extent allowed by law, under such
applicable laws which may hereafter be in effect and which allow
a higher maximum nonusurious interest rate than applicable laws
now allow.
<PAGE> 7
"Hydrocarbon Interests" shall mean all rights, titles,
interests and estates now or hereafter acquired in and to oil and
gas leases, oil, gas and mineral leases, or other liquid or
gaseous hydrocarbon leases, mineral fee interests, overriding
royalty and royalty interests, net profit interests and
production payment interests, including any reserved or residual
interests of whatever nature.
"Hydrocarbons" shall mean oil, gas, casinghead gas, drip
gasoline, natural gasoline, condensate, distillate, liquid
hydrocarbons, gaseous hydrocarbons and all products refined or
separated therefrom.
"Indebtedness" shall mean any and all amounts owing or to be
owing by the Borrower or any Restricted Subsidiary to the Agent
and/or Lenders in connection with the Loan Documents and the
Letter of Credit Agreements, and any Hedging Agreements now or
hereafter arising between the Borrower or any Restricted
Subsidiary and any Lender and permitted by the terms of this
Agreement and all renewals, refinancings, extensions and/or
rearrangements of any of the above.
"Indemnified Parties" shall have the meaning assigned such
term in Section 12.03(b).
"Indemnity Matters" shall mean any and all actions, suits,
proceedings (including any investigations, litigation or
inquiries), claims, demands and causes of action made or
threatened against a Person and, in connection therewith, all
losses, liabilities, damages (including, without limitation,
consequential damages) or reasonable costs and expenses of any
kind or nature whatsoever incurred by such Person whether caused
by the sole or concurrent negligence of such Person seeking
indemnification.
"Initial Funding" shall mean the funding of the initial
Loans or issuance of the initial Letters of Credit, whichever
occurs first, pursuant to Section 6.01 hereof.
"Initial Reserve Report" shall mean the report of Ryder
Scott Company, dated April 2, 1998, with respect to the Oil and
Gas Properties of the Borrower as of December 31, 1997, a copy of
which has been delivered to the Agent.
"Interest Period" shall mean, with respect to any Eurodollar
Loan, the period commencing on the date such Eurodollar Loan is
made and ending on the numerically corresponding day in the
first, second, third or sixth calendar month thereafter, as the
Borrower may select as provided in Section 2.02 (or such longer
period as may be requested by the Borrower and agreed to by the
Majority Lenders), except that each Interest Period which
commences on the last Business Day of a calendar month (or on any
day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last
Business Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) no Interest Period may
commence before and end after the Termination Date; (ii) each
Interest Period which would otherwise end on a day which is not a
Business Day shall end on the next succeeding Business Day (or,
if such next succeeding Business Day falls in the next succeeding
calendar month, on the next preceding Business Day); and (iii) no
Interest Period shall have a duration of less than one month and,
if the Interest Period for any Eurodollar Loans would otherwise
be for a shorter period, such Loans shall not be available
hereunder.
<PAGE> 8
"LC Commitment" at any time shall mean $7,000,000.00
"LC Exposure" at any time shall mean the aggregate face
amount of all undrawn and uncancelled Letters of Credit and the
aggregate of all amounts drawn under all Letters of Credit and
not yet reimbursed.
"Letter of Credit Agreements" shall mean the written
agreements with the Agent, as issuing lender for any Letter of
Credit, executed or hereafter executed in connection with the
issuance by the Agent of the Letters of Credit, such agreements
to be on the Agent's customary form for letters of credit of
comparable amount and purpose as from time to time in effect or
as otherwise agreed to by the Borrower and the Agent.
"Letters of Credit" shall mean the letters of credit issued
pursuant to Section 2.01(b) and all reimbursement obligations
pertaining to any such letters of credit, and "Letter of Credit"
shall mean any one of the Letters of Credit and the reimbursement
obligations pertaining thereto.
"Lien" shall mean 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 whether such obligation or claim is
fixed or contingent, and including but not limited to (i) the
lien or security interest arising from a mortgage, encumbrance,
pledge, security agreement, conditional sale or trust receipt or
a lease, consignment or bailment for security purposes or (ii)
production payments and the like payable out of Oil and Gas
Properties. The term "Lien" shall include reservations,
exceptions, encroachments, easements, rights of way, covenants,
conditions, restrictions, leases and other title exceptions and
encumbrances affecting Property. For the purposes of this
Agreement, the Borrower or any Subsidiary shall be deemed to be
the owner of any Property which it has acquired or holds subject
to a conditional sale agreement, or leases under a financing
lease or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person in a
transaction intended to create a financing.
"Loan Documents" shall mean this Agreement, the Notes and
the Security Instruments.
"Loans" shall mean the loans as provided for by Section
2.01(a).
"Majority Lenders" shall mean, at any time while no Loans
are outstanding, Lenders having at least sixty-six and two-thirds
percent (66-2/3%) of the Aggregate Commitments and, at any time
while Loans are outstanding, Lenders holding at least sixty-six
and two-thirds percent (66-2/3%) of the outstanding aggregate
principal amount of the Loans (without regard to any sale by a
Lender of a participation in any Loan under Section 12.06(c)).
"Material Adverse Effect" shall mean any material and
adverse effect on (i) the assets, liabilities, financial
condition, business, operations or affairs of the Borrower and
the Restricted Subsidiaries taken as a whole or from the facts
represented or warranted in any Loan Document, or (ii) the
ability of the Borrower and the Restricted Subsidiaries taken as
a whole to carry out their business as at the Closing Date or as
proposed as of the Closing Date to be conducted or meet their
obligations under the Loan Documents on a timely basis.
<PAGE> 9
"Maximum Credit Amount" shall mean, as to each Lender, the
amount set forth opposite such Lender's name on Annex I under the
caption "Maximum Credit Amounts" (as the same may be reduced
pursuant to Section 2.03(b) hereof pro rata to each Lender based
on its Percentage Share) as modified from time to time to reflect
any assignments permitted by Section 12.06(b).
"Merger" shall mean the merger and consolidation of the
Borrower and Sulphur materially in the form described in the
Registration Statement.
"Mortgaged Property" shall mean the Property owned by the
Borrower and which is subject to the Liens existing and to exist
under the terms of the Security Instruments.
"Multiemployer Plan" shall mean a Plan defined as such in
Section 3(37) or 4001(a)(3) of ERISA.
"Notes" shall mean the promissory note or notes (whether one
or more) of the Borrower provided for by Section 2.06 and in the
form of Exhibit A hereto, together with any and all renewals,
extensions for any period, increases, rearrangements,
substitutions or modifications thereof.
"Offered Borrowing Base" shall mean the Offered Borrowing
Base offered to the Borrower by the Lenders pursuant to Sections
2.08(a) and 2.08(b) hereof.
"Oil and Gas Properties" shall mean Hydrocarbon Interests;
the Properties now or hereafter pooled or unitized with
Hydrocarbon Interests; all presently existing or future
unitization, pooling agreements and declarations of pooled units
and the units created thereby (including without limitation all
units created under orders, regulations and rules of any
Governmental Authority) which may affect all or any portion of
the Hydrocarbon Interests; all operating agreements, contracts
and other agreements which relate to any of the Hydrocarbon
Interests or the production, sale, purchase, exchange or
processing of Hydrocarbons from or attributable to such
Hydrocarbon Interests; all Hydrocarbons in and under and which
may be produced and saved or attributable to the Hydrocarbon
Interests, including all oil in tanks, the lands covered thereby
and all rents, issues, profits, proceeds, products, revenues and
other incomes from or attributable to the Hydrocarbon Interests;
all tenements, hereditaments, appurtenances and Properties in any
manner appertaining, belonging, affixed or incidental to the
Hydrocarbon Interests; and all Properties, rights, titles,
interests and estates described or referred to above, including
any and all Property, real or personal, now owned or hereinafter
acquired and situated upon, used, held for use or useful in
connection with the operating, working or development of any of
such Hydrocarbon Interests or Property (excluding drilling rigs,
automotive equipment or other personal property which may be on
such premises for the purpose of drilling a well or for other
similar temporary uses) and including any and all oil wells, gas
wells, injection wells or other wells, buildings, structures,
fuel separators, liquid extraction plants, plant compressors,
pumps, pumping units, field gathering systems, tanks and tank
batteries, fixtures, valves, fittings, machinery and parts,
engines, boilers, meters, apparatus, equipment, appliances,
tools, implements, cables, wires, towers, casing, tubing and
rods, surface leases, rights-of-way, easements and servitudes
together with all additions, substitutions, replacements,
accessions and attachments to any and all of the foregoing.
"Other Taxes" shall have the meaning assigned such term in
Section 4.06(b).
<PAGE> 10
"PBGC" shall mean the Pension Benefit Guaranty Corporation
or any entity succeeding to any or all of its functions.
"Percentage Share" shall mean the percentage of the
Aggregate Commitments to be provided by a Lender under this
Agreement as indicated on Annex I hereto, as modified from time
to time to reflect any assignments permitted by Section 12.06(b).
"Person" shall mean any individual, corporation, company,
voluntary association, partnership, joint venture, trust,
unincorporated organization or government or any agency,
instrumentality or political subdivision thereof, or any other
form of entity.
"Plan" shall mean any employee pension benefit plan, as
defined in Section 3(2) of ERISA, which (i) is currently or
hereafter sponsored, maintained or contributed to by the
Borrower, any Subsidiary or an ERISA Affiliate or (ii) was at any
time during the preceding six calendar years sponsored,
maintained or contributed to, by the Borrower, any Subsidiary or
an ERISA Affiliate.
"Post-Default Rate" shall mean, in respect of any principal
of any Loan or any other amount payable by the Borrower under
this Agreement or any Note, a rate per annum during the period
commencing on the date of an Event of Default until such amount
is paid in full or all Events of Default are cured or waived
equal to 2% per annum above the Base Rate as in effect from time
to time plus the Applicable Margin (if any), but in no event to
exceed the Highest Lawful Rate provided that, for a Eurodollar
Loan, the "Post-Default Rate" for such principal shall be, for
the period commencing on the date of the Event of Default and
ending on the earlier to occur of the last day of the Interest
Period therefor or the date all Events of Default are cured or
waived, 2% per annum above the interest rate for such Loan as
provided in Section 3.02(ii), but in no event to exceed the
Highest Lawful Rate.
"Prime Rate" shall mean the rate of interest from time to
time announced publicly by the Agent at the Principal Office as
its prime commercial lending rate. Such rate is set by the Agent
as a general reference rate of interest, taking into account such
factors as the Agent may deem appropriate, it being understood
that many of the Agent's commercial or other loans are priced in
relation to such rate, that it is not necessarily the lowest or
best rate actually charged to any customer and that the Agent may
make various commercial or other loans at rates of interest
having no relationship to such rate.
"Principal Office" shall mean the principal office of the
Agent, presently located at 600 Travis, Houston, Texas 77002 or
such other location as designated by the Agent from time to time.
"Property" shall mean any interest in any kind of property
or asset, whether real, personal or mixed, or tangible or
intangible.
"Quarterly Dates" shall mean the last day of each March,
June, September and December, in each year, the first of which
shall be September 30, 1998; provided, however, that if any such
day is not a Business Day, such Quarterly Date shall be the next
succeeding Business Day.
"Redetermination Date" shall have the meaning assigned such
term in Section 2.08(a).
<PAGE> 11
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System (or any successor), as
the same may be amended or supplemented from time to time.
"Regulatory Change" shall mean, with respect to any Lender,
any change after the Closing Date in any Governmental Requirement
(including Regulation D) or the adoption or making after such
date of any interpretations, directives or requests applying to a
class of lenders (including such Lender or its Applicable Lending
Office) of or under any Governmental Requirement (whether or not
having the force of law) by any Governmental Authority charged
with the interpretation or administration thereof.
"Registration Statement" shall mean the Registration
Statement on Form S-4 filed with the SEC, copies of which have
been provided to the Agent and the Lenders.
"Required Payment" shall have the meaning assigned such term
in Section 4.04.
"Reserve Report" shall mean a report, in form and substance
satisfactory to the Agent, to be delivered prior to April 1 of
each year, setting forth as of prior year-end: (i) the oil and
gas reserves attributable to certain of the Borrower's Oil and
Gas Properties together with a projection of the rate of
production and future net income, taxes, operating expenses and
capital expenditures with respect thereto as of such date, based
upon the pricing assumptions consistent with SEC reporting
requirements at the time, and (ii) such other information as the
Agent may reasonably request. The term "Reserve Report" shall
also include the information to be provided by the Borrower
pursuant to Section 8.07(a) prior to October 1 of each year,
setting forth, as of July 1 of such year, the information
required in clauses (i) and (ii) of the preceding sentence. The
term "Reserve Report" shall also include the information to be
provided in the interim reports required to be delivered pursuant
to Section 8.07(e).
"Responsible Officer" shall mean, as to any Person, the
Chief Executive Officer, the President or any Vice President of
such Person and, with respect to financial matters, the term
"Responsible Officer" shall include the Chief Financial Officer
or the Treasurer of such Person. Unless otherwise specified, all
references to a Responsible Officer herein shall mean a
Responsible Officer of the Borrower.
"Restricted Subsidiary" means any direct or indirect
Subsidiary of the Borrower that is not an Unrestricted
Subsidiary.
"Scheduled Borrowing Base Reductions" shall have the meaning
assigned such term in Section 2.08(i).
"Scheduled Redetermination Date" shall have the meaning
assigned such term in Section 2.08(d).
"SEC" shall mean the Securities and Exchange Commission or
any successor Governmental Authority.
"Security Instruments" shall mean the Letters of Credit, the
Letter of Credit Agreements, the Fee Letter, the agreements or
instruments described or referred to in Exhibit E, and any and
<PAGE> 12
all other agreements or instruments now or hereafter executed and
delivered by the Borrower or any other Person (other than
participation or similar agreements between any Lender and any
other lender or creditor with respect to any Indebtedness
pursuant to this Agreement) in connection with, or as security
for the payment or performance of the Notes or this Agreement, or
reimbursement obligations under the Letters of Credit, as such
agreements may be amended, supplemented or restated from time to
time.
"Special Entity" shall mean any joint venture, limited
liability company or partnership, general or limited partnership
or any other type of partnership or company other than a
corporation in which the Borrower or one or more of its other
Subsidiaries is a member, owner, partner or joint venturer and
owns, directly or indirectly, at least a majority of the equity
of such entity or controls such entity, but excluding any tax
partnerships that are not classified as partnerships under state
law. For purposes of this definition, any Person which owns
directly or indirectly an equity investment in another Person
which allows the first Person to manage or elect managers who
manage the normal activities of such second Person will be deemed
to "control" such second Person (e.g. a sole general partner
controls a limited partnership).
"Subsidiary" shall mean (i) any corporation of which at
least a majority of the outstanding shares of stock having by the
terms thereof ordinary voting power to elect a majority of the
board of directors of such corporation (irrespective of whether
or not at the time stock of any other class or classes of such
corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time directly or
indirectly owned or controlled by the Borrower or one or more of
its Subsidiaries or by the Borrower and one or more of its
Subsidiaries and (ii) any Special Entity. Unless otherwise
indicated herein, each reference to the term "Subsidiary" shall
mean a Subsidiary of the Borrower.
"Sulphur" shall mean Freeport-McMoRan Sulphur, Inc. together
with its successors and assigns.
"Taxes" shall have the meaning assigned such term in
Section 4.06(a).
"Termination Date" shall initially mean the date which is
ten (10) Business Days after the Bridge Facility Termination
Date, unless the conditions precedent set forth in Section 6.02
have been satisfied on or before such date. If all such
conditions are satisfied on or before the date which is ten (10)
Business Days after the Bridge Facility Termination Date, the
term "Termination Date" shall mean, unless the Commitments are
sooner terminated pursuant to Sections 2.03(b) or 10.02 hereof,
August 19, 2001.
"Third Party" shall have the meaning assigned such term in
Section 9.03.
"Type" shall mean, with respect to any Loan, a Base Rate
Loan or a Eurodollar Loan.
"Unrestricted Subsidiary" shall mean (i) any of the
Subsidiaries listed on Schedule 7.14 hereto as an Unrestricted
Subsidiary, (ii) any Subsidiary of any Unrestricted Subsidiary,
(iii) any surviving Person (other than the Borrower or a
Restricted Subsidiary) into which any of such Persons referred to
in clause (i) or (ii) is merged or consolidated and (iv) any
<PAGE> 13
Subsidiary organized after the date of this Agreement and
designated as an Unrestricted Subsidiary by the Borrower
(pursuant to Section 9.16(b) hereof). By written notice to the
Agent, the Borrower may (x) declare any Unrestricted Subsidiary
to be a Restricted Subsidiary and such former Unrestricted
Subsidiary shall thereafter be deemed to be a Restricted
Subsidiary for all purposes of this Agreement (subject to the
limitations of this Agreement and pursuant to Section 9.16
hereof) or (y) at any time other than when a Default or Event of
Default has occurred and is continuing or would exist after
giving effect to such declaration, in any fiscal year, declare
one or more Restricted Subsidiaries, to be an Unrestricted
Subsidiary, subject to the limitations contained in Section 9.03
hereof, and any such former Restricted Subsidiary shall
thereafter be deemed to be an Unrestricted Subsidiary for all
purposes of this Agreement.
"Unused Amount of the Aggregate Commitments" shall mean the
Aggregate Commitments minus the sum of the outstanding Loans and
the LC Exposure.
"Wholly-Owned Subsidiary" shall mean, as to the Borrower,
any Subsidiary of which all of the outstanding shares of stock
having by the terms thereof ordinary voting power to elect the
board of directors of such corporation, other than directors'
qualifying shares, are owned or controlled by the Borrower or one
or more of the Wholly-Owned Subsidiaries or by the Borrower and
one or more of the Wholly-Owned Subsidiaries.
Section 1.03 Accounting Terms and Determinations.
Unless otherwise specified herein, all accounting terms used
herein shall be interpreted, all determinations with respect to
accounting matters hereunder shall be made, and all financial
statements and certificates and reports as to financial matters
required to be furnished to the Agent or the Lenders hereunder
shall be prepared, in accordance with GAAP, applied on a basis
consistent with the audited financial statements of the Borrower
referred to in Section 7.02 (except for changes concurred with by
the Borrower's independent public accountants).
ARTICLE II
Commitments
Section 2.01 Loans and Letters of Credit.
(a) Loans. Each Lender severally agrees, on the terms
of this Agreement, to make Loans to the Borrower during the
period from and including (i) the Closing Date or (ii) such
later date that such Lender becomes a party to this
Agreement as provided in Section 12.06(b), to but excluding,
the Termination Date in an aggregate principal amount at any
one time outstanding up to but not exceeding the amount of
such Lender's Commitment as then in effect; provided,
however, that the aggregate principal amount of all Loans by
all Lenders hereunder at any one time outstanding together
with the LC Exposure shall not exceed the Aggregate
Commitments. Subject to the terms of this Agreement, during
the period from the Closing Date to but excluding the
Termination Date, the Borrower may borrow, repay and
reborrow the amount described in this Section 2.01(a).
<PAGE> 14
(b) Letters of Credit. During the period from and
including the Closing Date to but excluding the Termination
Date, the Agent, as issuing bank for the Lenders, agrees, on
the terms of this Agreement, to extend credit for the
account of the Borrower at any time and from time to time by
issuing, renewing, extending or reissuing Letters of
Credit; provided however, the LC Exposure at any one time
outstanding shall not exceed the lesser of (i) the LC
Commitment or (ii) the Aggregate Commitments, as then in
effect, minus the aggregate principal amount of all Loans
then outstanding. The Lenders shall participate in such
Letters of Credit according to their respective Percentage
Shares.
(c) Limitation on Types of Loans. Subject to the
other terms and provisions of this Agreement, at the option
of the Borrower, the Loans may be Base Rate Loans or
Eurodollar Loans; provided that, without the prior written
consent of the Majority Lenders, no more than six (6)
Eurodollar Loans may be outstanding at any time to any
Lender.
Section 2.02 Borrowings, Continuations and
Conversions, Letters of Credit.
(a) Borrowings. The Borrower shall give the Agent
(which shall promptly notify the Lenders) advance notice as
hereinafter provided of each borrowing hereunder, which
shall specify the aggregate amount of such borrowing, the
Type and the date (which shall be a Business Day) of the
Loans to be borrowed and (in the case of Eurodollar Loans)
the duration of the Interest Period therefor.
(b) Minimum Amounts. All Base Rate Loan borrowings
shall be in amounts of at least $500,000 or the remaining
balance of the Aggregate Commitments, if less, or any whole
multiple of $500,000 in excess thereof, and all Eurodollar
Loans shall be in amounts of at least $500,000 or any whole
multiple of $500,000 in excess thereof.
(c) Notices. The initial borrowing and all subsequent
borrowings, continuations and conversions shall require
advance written notice to the Agent (which shall promptly
notify the Lenders) in the form of Exhibit B hereto (or
telephonic notice promptly confirmed by such a written
notice), which in each case may be revocable or irrevocable,
from the Borrower to be received by the Agent not later than
11:00 a.m. Houston, Texas time on the date of each Base Rate
Loan borrowing and three Business Days prior to the date of
each Eurodollar Loan borrowing, continuation or conversion.
Without in any way limiting the Borrower's obligation to
confirm in writing any telephonic notice, the Agent may act
without liability upon the basis of telephonic notice
believed by the Agent in good faith to be from the Borrower
prior to receipt of written confirmation. In each such
case, the Borrower hereby waives the right to dispute the
Agent's record of the terms of such telephonic notice except
in the case of gross negligence or willful misconduct by the
Agent.
(d) Continuation Options. Subject to the provisions
made in this Section 2.02(d), the Borrower may elect to
continue all or any part of any Eurodollar Loan beyond the
expiration of the then current Interest Period relating
thereto by giving advance notice as provided in Section
2.02(c) to the Agent (which shall promptly notify the
Lenders) of such election, specifying the amount of such
Loan to be continued and the Interest Period therefor. In
the absence of such a timely and proper election, the
Borrower shall be deemed to have elected to convert such
Eurodollar Loan to a Base Rate Loan pursuant to Section
<PAGE> 15
2.02(e). All or any part of any Eurodollar Loan may be
continued as provided herein, provided that (i) any
continuation of any such Loan shall be (as to each Loan as
continued for an applicable Interest Period) in amounts of
at least $500,000 or any whole multiple of $500,000 in
excess thereof and (ii) no Default shall have occurred and
be continuing. If a Default shall have occurred and be
continuing, each Eurodollar Loan shall be converted to a
Base Rate Loan on the last day of the Interest Period
applicable thereto.
(e) Conversion Options. The Borrower may elect to
convert all or any part of any Eurodollar Loan on the last
day of the then current Interest Period relating thereto to
a Base Rate Loan by giving advance notice to the Agent
(which shall promptly notify the Lenders) of such election.
Subject to the provisions made in this Section 2.02(e), the
Borrower may elect to convert all or any part of any Base
Rate Loan at any time and from time to time to a Eurodollar
Loan by giving advance notice as provided in Section 2.02(c)
to the Agent (which shall promptly notify the Lenders) of
such election. All or any part of any outstanding Loan may
be converted as provided herein, provided that (i) any
conversion of any Base Rate Loan into a Eurodollar Loan
shall be (as to each such Loan into which there is a
conversion for an applicable Interest Period) in amounts of
at least $500,000 or any whole multiple of $500,000 in
excess thereof and (ii) no Default shall have occurred and
be continuing. If a Default shall have occurred and be
continuing, no Base Rate Loan may be converted into a
Eurodollar Loan.
(f) Advances. Not later than 12:00 p.m. Houston,
Texas time on the date specified for each borrowing
hereunder, each Lender shall make available the amount of
the Loan to be made by it on such date to the Agent, to an
account which the Agent shall specify, in immediately
available funds, for the account of the Borrower. The
amounts so received by the Agent shall, subject to the terms
and conditions of this Agreement, be made available to the
Borrower by depositing the same, in immediately available
funds, in an account of the Borrower, designated by the
Borrower and maintained at the Principal Office.
(g) Letters of Credit. The Borrower shall give the
Agent (which shall promptly notify the Lenders of such
request) advance revocable or irrevocable notice to be
received by the Agent not later than 11:00 a.m. Houston,
Texas time not less than three (3) Business Days prior
thereto of each request for the issuance and at least thirty
(30) Business Days prior to the date of the renewal or
extension of a Letter of Credit hereunder which request
shall specify the amount of such Letter of Credit, the date
(which shall be a Business Day) such Letter of Credit is to
be issued, renewed or extended, the duration thereof, the
name and address of the beneficiary thereof, the form of the
Letter of Credit and such other information as the Agent may
reasonably request all of which shall be reasonably
satisfactory to the Agent. Subject to the terms and
conditions of this Agreement, on the date specified for the
issuance, renewal or extension of a Letter of Credit, the
Agent shall issue such Letter of Credit to the beneficiary
thereof.
In conjunction with the issuance of each Letter of
Credit, the Borrower shall execute a Letter of Credit
Agreement. In the event of any conflict between any
provision of a Letter of Credit Agreement and this
Agreement, the Borrower, the Agent and the Lenders hereby
agree that the provisions of this Agreement shall govern.
<PAGE> 16
The Agent will send to the Borrower and each Lender,
upon issuance of any Letter of Credit, or an amendment
thereto, a true and complete copy of such Letter of Credit,
or such amendment thereto.
Section 2.03 Changes of Commitments.
(a) The Aggregate Commitments shall at all times be
equal to the lesser of (i) the Aggregate Maximum Credit
Amount after adjustments resulting from reductions pursuant
to Section 2.03(b) hereof or (ii) the Borrowing Base as
determined from time to time pursuant to Section 2.08(f)
hereof.
(b) The Borrower shall have the right to terminate or
to reduce the amount of the Aggregate Maximum Credit Amounts
at any time or from time to time upon not less than three
(3) Business Days' prior notice to the Agent (which shall
promptly notify the Lenders) of each such termination or
reduction, which notice shall specify the effective date
thereof and the amount of any such reduction (which shall
not be less than $1,000,000 or any whole multiple of
$1,000,000 in excess thereof) and may be revocable or
irrevocable and effective only upon receipt by the Agent.
The Aggregate Maximum Credit Amounts once terminated or
reduced pursuant to this Section 2.03(b) may not be
reinstated.
Section 2.04 Fees.
(a) The Borrower agrees to pay to the Agent, for the
account of each Lender, the following commitment fees: (i)
A commitment fee on the daily average of the amount by
which the Borrowing Base exceeds the sum of (A) the LC
Exposure, plus (B) the aggregate principal amount of all
outstanding Loans for the period from and including the
Closing Date up to but excluding the earlier of the date the
Aggregate Commitments are terminated or the Termination Date
at a rate per annum set forth at the appropriate
intersection in the table shown below based upon the
Borrowing Base Utilization Percentage as in effect from time
to time on each day during the period in question:
Borrowing Base Utilization Percentage Commitment Fee
------------------------------------- --------------
Less than or equal to 33% 0.25%
Greater than 33% but less than
or equal to 66% 0.375%
Greater than 66% 0.50%
(ii) An unavailable commitment fee on the daily average
difference between the Borrowing Base and the lesser of (A)
$20,000,000 or (B) the Offered Borrowing Base for the period
from and including the Closing Date up to the earlier of the
date the Aggregate Commitments are terminated or the
Termination Date at a rate per annum equal to 25% of the
applicable rate per annum outlined in clause (i) above.
<PAGE> 17
All such commitment fees shall be calculated on the basis of
a year of 365 (or, in a leap year, 366) days for the actual
number of days elapsed. The accrued commitment fees shall be due
and payable quarterly in arrears on each Quarterly Date and on
the earlier of the date the Aggregate Commitments are terminated
or the Termination Date.
(b) The Borrower agrees to pay the Agent, for the
account of each Lender, commissions for issuing the Letters
of Credit on the daily average outstanding of the maximum
liability of the Agent existing from time to time under such
Letter of Credit (calculated separately for each Letter of
Credit) at the applicable per annum percentage set forth at
the appropriate intersection in the table shown below,
provided that each Letter of Credit shall bear a minimum
commission of $300.00. Each Letter of Credit shall be
deemed to be outstanding up to the full face amount of the
Letter of Credit until the Agent has received the canceled
Letter of Credit or a written cancellation of the Letter of
Credit from the beneficiary of such Letter of Credit in form
and substance acceptable to the Agent, or for any reductions
in the amount of the Letter of Credit (other than from a
drawing), written notification from the beneficiary of such
Letter of Credit. Such commissions are payable in advance
at issuance of the Letter of Credit.
Borrowing Base Utilization Percentage Letter of Credit Fee
------------------------------------- --------------------
Less than or equal to 33% 1.50%
Greater than 33% but less than
or equal to 66% 1.75%
Greater than 66% 2.00%
(c) The Agent, for its own account, shall retain
0.125% of the Letter of Credit fee (as described in
subsection (b) above) as an issuing fee and shall pay the
balance of such Letter of Credit fee to the Lenders pro
rata.
(d) The Borrower shall pay to the Agent for its
account such other fees as are set forth in the Fee Letter
on the dates specified therein to the extent not paid prior
to the Closing Date.
(e) If the Borrower exercises its option to cause the
Lenders to redetermine the Borrowing Base pursuant to
Section 2.08(d), then for each exercise of such option, the
Borrower shall pay a fee to the Agent in the amount of
$2,000 to be shared by the Lenders pro rata in proportion to
their Percentage Share. Such fee shall be due and payable
at the time the Borrower gives notice of its election to
exercise such option.
Section 2.05 Several Obligations. The failure of any
Lender to make any Loan to be made by it or to provide funds for
disbursements or reimbursements under Letters of Credit on the
date specified therefor shall not relieve any other Lender of its
obligation to make its Loan or provide funds on such date, but no
Lender shall be responsible for the failure of any other Lender
to make a Loan to be made by such other Lender or to provide
funds to be provided by such other Lender.
<PAGE> 18
Section 2.06 Notes. The Loans made by each Lender
shall be evidenced by a single promissory note of the Borrower in
substantially the form of Exhibit A hereto, dated (i) the Closing
Date or (ii) the effective date of an Assignment pursuant to
Section 12.06(b), payable to the order of such Lender in a
principal amount equal to its Maximum Credit Amount as in effect
and otherwise duly completed and such substitute Notes as
required by Section 12.06(b). The date, amount, Type, interest
rate and Interest Period of each Loan made by each Lender, and
all payments made on account of the principal thereof, shall be
recorded by such Lender on its books for its Notes, and, prior to
any transfer, may be endorsed by such Lender on a schedule
attached to such Notes or any continuation thereof or on any
separate record maintained by such Lender. Failure to make any
such notation or to attach a schedule shall not affect any
Lender's or the Borrower's rights or obligations in respect of
such Loans or affect the validity of such transfer by any Lender
of its Notes.
Section 2.07 Prepayments.
(a) The Borrower may prepay the Base Rate Loans upon
one (1) Business Day's prior notice to the Agent (which
shall promptly notify the Lenders), which notice shall
specify the prepayment date (which shall be a Business Day)
and the amount of the prepayment (which shall be at least
$500,000 or the remaining aggregate principal balance
outstanding on the Notes) and may be revocable or
irrevocable and effective only upon receipt by the Agent,
provided that interest on the principal prepaid, accrued to
the prepayment date, shall be paid on the prepayment date.
The Borrower may prepay all or any portion of Eurodollar
Loans upon not less than three (3) Business Day's prior
notice to the Agent (which shall promptly notify the
Lenders), which notice shall specify the prepayment date
(which shall be a Business Day) and the amount of the
prepayment (which shall be at least $500,000 or the
remaining aggregate principal balance outstanding on the
Notes) and may be revocable or irrevocable and effective
only upon receipt by the Agent, provided that interest on
the principal prepaid, accrued to the prepayment date, shall
be paid on the prepayment date. In addition, prepayments of
Eurodollar Loans shall be subject to the terms of Section
5.05.
(b) If, after giving effect to any termination or
reduction of the Aggregate Maximum Credit Amounts pursuant
to Section 2.03(b), the outstanding aggregate principal
amount of the Loans plus the LC Exposure exceeds the
Aggregate Maximum Credit Amounts, the Borrower shall (i)
prepay the Loans on the date of such termination or
reduction in an aggregate principal amount equal to the
excess, together with interest on the principal amount paid
accrued to the date of such prepayment and (ii) if any
excess remains after prepaying all of the Loans, pay to the
Agent on behalf of the Lenders an amount equal to the excess
to be held as cash collateral as provided in Section 2.10(b)
hereof.
(c) Upon any adjustment or redetermination of the
amount of the Borrowing Base in accordance with Sections
2.07(e), 2.07(f), 2.08, 6.02, 8.08(c), 9.01(e), 9.03(i) or
9.12 or otherwise, if the adjusted or redetermined Borrowing
Base is less than the sum of the aggregate outstanding
principal amount of the Loans and the LC Exposure (a
"Borrowing Base Deficiency"), then (i) the Borrower shall
within 90 days of receipt of written notice thereof cure
such Borrowing Base Deficiency by prepaying the Loans in an
aggregate principal amount equal to such excess, together
with interest on the principal amount paid accrued to the
date of such prepayment; provided, however, that if a
<PAGE> 19
Borrowing Base Deficiency remains after such 90-day period,
the Borrower shall pay to the Agent on behalf of the Lenders
an amount equal to 85% of Free Cash Flow for each month
beginning the fourth month after the Borrowing Base
Deficiency occurred until such Borrowing Base Deficiency is
cured, such payments to be made by the Borrower to the Agent
within five (5) Business Days after the end of each month
during such period; provided further, that if such Borrowing
Base Deficiency is not cured by the 185th day after the
Borrower's receipt of notice of such Borrowing Base
Deficiency, then such Borrowing Base Deficiency shall
constitute an Event of Default hereunder.
(d) Following a casualty loss to all or any part of
the Oil and Gas Properties constituting the Borrowing Base,
all insurance proceeds payable to the Borrower and not used
by the Borrower to repair or replace such Properties shall
be used by the Borrower to prepay the Loans. The Borrowing
Base shall be reduced by an amount reasonably determined at
the time by the Agent to reflect the contribution to the
Borrowing Base of such Oil and Gas Properties not repaired
or replaced and such Oil and Gas Properties shall no longer
be included in the Borrowing Base.
(e) Upon the request of the Borrower, the Agent shall
release any Oil and Gas Properties included in the Borrowing
Base from the Lien of the Security Documents; provided that
(i) at the time of such request, no Event of Default shall
have occurred and be continuing and (ii) the Borrowing Base
shall be reduced by an amount reasonably determined at the
time by the Agent to reflect the contribution to the
Borrowing Base of such Oil and Gas Properties so released.
Any Oil and Gas Properties so released shall no longer be
included in the Borrowing Base.
(f) Prepayments permitted or required under this
Section 2.07 shall be without notice, premium or penalty,
except as required under Section 5.05 for prepayment of
Eurodollar Loans. Any prepayments on the Loans may be
reborrowed subject to the then effective Aggregate
Commitments.
Section 2.08 Borrowing Base.
(a) During the period from and after the Closing Date
until the first redetermination of the Offered Borrowing
Base (scheduled to be February 1, 1999) in accordance with
this Section 2.08, the amount of the Offered Borrowing Base
shall be $20,000,000. The Offered Borrowing Base shall be
redetermined in accordance with Sections 2.08(b), 2.08(c)
and 2.08(d) by the Agent with the concurrence of the
Majority Lenders. Upon any redetermination of the Offered
Borrowing Base, such redetermination shall remain in effect
until the next successive Redetermination Date.
"Redetermination Date" shall mean the date that the
redetermined Offered Borrowing Base becomes effective
subject to the notice requirements specified in Section
2.08(e) both for scheduled redeterminations and unscheduled
redeterminations.
(b) Upon receipt of the reports required by Section
8.07 and such other reports, data and supplemental
information as may from time to time be reasonably requested
by the Agent (the "Engineering Reports"), the Agent will
redetermine the Offered Borrowing Base. Such
<PAGE> 20
redetermination will be in accordance with its normal and
customary procedures for evaluating oil and gas reserves and
other related assets as such exist at that particular time.
The Agent, in its sole discretion, may make adjustments to
the rates, volumes and prices and other assumptions set
forth therein in accordance with its normal and customary
procedures for evaluating oil and gas reserves and other
related assets as such exist at that particular time. The
Agent shall propose to the Lenders a new Offered Borrowing
Base within 45 days following receipt by the Agent and the
Lenders of the Engineering Reports in a timely and complete
manner. After having received notice of such proposal by
the Agent, the Majority Lenders shall have 7 days to agree
or disagree with such proposal. If at the end of the 7
days, the Majority Lenders have not communicated their
approval or disapproval, such silence shall be deemed to be
an approval and the Agent's proposal shall be the new
Offered Borrowing Base. If however, the Majority Lenders
notify Agent within 7 days of their disapproval, the
Majority Lenders shall, within a reasonable period of time,
agree on a new Offered Borrowing Base. The first interim
redetermination of the Offered Borrowing Base is to occur on
February 1, 1999.
(c) The Agent may exclude any Oil and Gas Property or
portion of production therefrom or any income from any other
Property from the Offered Borrowing Base, at any time,
because title information is not reasonably satisfactory,
such Property is not Mortgaged Property or such Property is
not assignable.
(d) In addition to the initial redetermination of the
Offered Borrowing Base pursuant to Section 2.08(h), so long
as any of the Commitments are in effect and until payment in
full of all Loans hereunder, on or around the first Business
Day of each December and June, commencing December 1, 1999
(each being a "Scheduled Redetermination Date"), the Lenders
shall redetermine the amount of the Offered Borrowing Base
in accordance with Section 2.08(b). In addition, at any
time after the first Scheduled Redetermination Date, the
Majority Lenders or the Borrower may each initiate a
redetermination of the Offered Borrowing Base as they so
elect; provided, however, only one such unscheduled
redetermination may be elected between each Scheduled
Redetermination Date. If such redetermination is initiated
by the Majority Lenders, the Agent shall specify in writing
to the Borrower the date on which the Borrower is to furnish
a Reserve Report in accordance with Section 8.07(b) and the
date on which such redetermination is to occur.
(e) The Agent shall promptly notify in writing the
Borrower and the Lenders of the new Offered Borrowing Base.
Any redetermination of the Offered Borrowing Base shall not
be in effect until written notice is received by the
Borrower.
(f) Upon the Borrower's receipt of written notice from
the Agent of the amount of the Offered Borrowing Base then
in effect, the Agent and the Borrower shall mutually agree
on the amount of such Offered Borrowing Base to be accepted
by the Borrower as the Borrowing Base. During the period
from and after the Closing Date to and including the
effective date of the next designation of the Borrowing Base
in accordance with this Section 2.08(f), the amount of the
Borrowing Base shall be $15,000,000.
(g) In addition to the scheduled and unscheduled
redeterminations of the Offered Borrowing Base pursuant to
this Section 2.08, the Offered Borrowing Base in effect from
<PAGE> 21
time to time is subject to reductions and adjustments made
in accordance with Sections 2.07(e), 2.07(f), 8.08(c),
9.01(e), 9.03(i) or 9.13.
(h) Notwithstanding anything to the contrary contained
herein, the Lenders will initially redetermine the amount of
the Offered Borrowing Base in accordance with Section
2.08(b) on or around February 1, 1999. A second interim
redetermination of the Offered Borrowed Base will occur on
or around August 1, 1999.
(i) The Borrowing Base shall reduce automatically on
each Quarterly Date by the amounts which shall be
redetermined at the Scheduled Redetermination Dates (the
"Scheduled Borrowing Base Reductions"), provided, however,
that the Scheduled Borrowing Base Reductions for the period
from the Closing Date through February 1, 1999 shall each be
$0.
(j) So long as any of the Commitments are in effect or
any LC Exposure or Loans are outstanding hereunder, the
Loans and Letters of Credit shall be governed by the then
effective Borrowing Base.
Section 2.09 Assumption of Risks. The Borrower
assumes all risks of the acts or omissions of any beneficiary of
any Letter of Credit or any transferee thereof with respect to
its use of such Letter of Credit. Neither the Agent (except in
the case of willful misconduct or bad faith on the part of the
Agent or any of its employees), its correspondents nor any Lender
shall be responsible for the validity, sufficiency or genuineness
of certificates or other documents or any endorsements thereon,
even if such certificates or other documents should in fact prove
to be invalid, insufficient, fraudulent or forged; for errors,
omissions, interruptions or delays in transmissions or delivery
of any messages by mail, telex, or otherwise, whether or not they
be in code; for errors in translation or for errors in
interpretation of technical terms; the validity or sufficiency of
any instrument transferring or assigning or purporting to
transfer or assign any Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may
prove to be invalid or ineffective for any reason; the failure of
any beneficiary or any transferee of any Letter of Credit to
comply fully with conditions required in order to draw upon any
Letter of Credit; or for any other consequences arising from
causes beyond the Agent's control or the control of the Agent's
correspondents. In addition, neither the Agent nor any Lender
shall be responsible for any error, neglect, or default of any of
the Agent's correspondents; and none of the above shall affect,
impair or prevent the vesting of any of the Agent's or any
Lender's rights or powers hereunder or under the Letter of Credit
Agreements, all of which rights shall be cumulative. The Agent
and its correspondents may accept certificates or other documents
that appear on their face to be in order, without responsibility
for further investigation of any matter contained therein
regardless of any notice or information to the contrary. In
furtherance and not in limitation of the foregoing provisions,
the Borrower agrees that any action, inaction or omission taken
or not taken by the Agent or by any correspondent for the Agent
in good faith in connection with any Letter of Credit, or any
related drafts, certificates, documents or instruments, shall be
binding on the Borrower and shall not put the Agent or its
correspondents under any resulting liability to the Borrower.
<PAGE> 22
Section 2.10 Obligation to Reimburse and to Prepay.
(a) If a disbursement by the Agent is made under any
Letter of Credit, the Borrower shall pay to the Agent within
two (2) Business Days after notice of any such disbursement
is received by the Borrower, the amount of each such
disbursement made by the Agent under the Letter of Credit
(if such payment is not sooner effected as may be required
under this Section 2.10 or under other provisions of the
Letter of Credit), together with interest on the amount
disbursed from and including the date of disbursement until
payment in full of such disbursed amount at a varying rate
per annum equal to (i) the then applicable interest rate for
Base Rate Loans through the second Business Day after notice
of such disbursement is received by the Borrower and (ii)
thereafter, the Post-Default Rate for Base Rate Loans (but
in no event to exceed the Highest Lawful Rate) for the
period from and including the third Business Day following
the date of notice of such disbursement to and including the
date of repayment in full of such disbursed amount. The
obligations of the Borrower under this Agreement with
respect to each Letter of Credit shall be absolute,
unconditional and irrevocable and shall be paid or performed
strictly in accordance with the terms of this Agreement
under all circumstances whatsoever, including, without
limitation, but only to the fullest extent permitted by
applicable law, the following circumstances: (i) any lack of
validity or enforceability of this Agreement, any Letter of
Credit or any of the Security Instruments; (ii) any
amendment or waiver of (including any default), or any
consent to departure from this Agreement (except to the
extent permitted by any amendment or waiver), any Letter of
Credit or any of the Security Instruments; (iii) the
existence of any claim, set-off, defense or other rights
which the Borrower may have at any time against the
beneficiary of any Letter of Credit or any transferee of any
Letter of Credit (or any Persons for whom any such
beneficiary or any such transferee may be acting), the
Agent, any Lender or any other Person, whether in connection
with this Agreement, any Letter of Credit, the Security
Instruments, the transactions contemplated hereby or any
unrelated transaction; (iv) any statement, certificate,
draft, notice or any other document presented under any
Letter of Credit proves to have been forged, fraudulent,
insufficient or invalid in any respect or any statement
therein proves to have been untrue or inaccurate in any
respect whatsoever; (v) payment by the Agent under any
Letter of Credit against presentation of a draft or
certificate which appears on its face to comply, but does
not comply, with the terms of such Letter of Credit; and
(vi) any other circumstance or happening whatsoever, whether
or not similar to any of the foregoing.
Notwithstanding anything in this Agreement to the contrary,
the Borrower will not be liable for payment or performance
that results from the gross negligence or willful misconduct
of the Agent, except (i) where the Borrower or any
Subsidiary actually recovers the proceeds for itself or the
Agent of any payment made by the Agent in connection with
such gross negligence or willful misconduct or (ii) in cases
where the Agent makes payment to the named beneficiary of a
Letter of Credit.
(b) In the event of the occurrence of any Event of
Default, a payment or prepayment pursuant to Sections
2.07(b), (c) and (d) hereof or the maturity of the Notes,
whether by acceleration or otherwise, an amount equal to the
LC Exposure (or the excess in the case of Section 2.07(b))
shall be deemed to be forthwith due and owing by the
Borrower to the Agent and the Lenders as of the date of any
such occurrence; and the Borrower's obligation to pay such
<PAGE> 23
amount shall be absolute and unconditional, without regard
to whether any beneficiary of any such Letter of Credit has
attempted to draw down all or a portion of such amount under
the terms of a Letter of Credit, and, to the fullest extent
permitted by applicable law, shall not be subject to any
defense or be affected by a right of set-off, counterclaim
or recoupment which the Borrower may now or hereafter have
against any such beneficiary, the Agent, the Lenders or any
other Person for any reason whatsoever. Such payments shall
be held by the Agent on behalf of the Lenders as cash
collateral securing the LC Exposure in an interest bearing
account or accounts at the Principal Office; and the
Borrower hereby grants to and by its deposit with the Agent
grants to the Agent a secuurity interest Borrower of
amounts contingently owing under outstanding
Letters of Credit and in the event that thereafter drafts or
other demands for payment complying with the terms of such
Letters of Credit are not made prior to the respective
expiration dates thereof, the Agent agrees, if no Event of
Default has occurred and is continuing or if no other
amounts are outstanding under this Agreement, the Notes or
the Security Instruments, to remit to the Borrower amounts
for which the contingent obligations evidenced by the
Letters for which the contingent obligations evidenced by
the Letters of Credit have ceased.
(c) Each Lender severally and unconditionally agrees
that it shall promptly reimburse the Agent an amount equal
to such Lender's Percentage Share of any disbursement made
by the Agent under any Letter of Credit that is not
reimbursed according to this Section 2.10.
Section 2.11 Lending Offices. The Loans of each Type
made by each Lender shall be made and maintained at such Lender's
Applicable Lending Office for Loans of such Type.
ARTICLE III
Payments of Principal and Interest
Section 3.01 Repayment of Loans. The Borrower will
pay to the Agent, for the account of each Lender, the principal
payments required by this Section 3.01. On the Termination Date
the Borrower shall repay the outstanding aggregate principal and
accrued and unpaid interest under the Notes.
Section 3.02 Interest. The Borrower will pay to the
Agent, for the account of each Lender, interest on the unpaid
principal amount of each Loan made by such Lender for the period
commencing on the date such Loan is made to but excluding the
date such Loan shall be paid in full, at the following rates per
annum:
(i) if such a Loan is a Base Rate Loan, the Base
Rate (as in effect from time to time) plus the
Applicable Margin, but in no event to exceed the
Highest Lawful Rate; and
(ii) if such a Loan is a Eurodollar Loan, for each
Interest Period relating thereto, the Eurodollar Rate
for such Loan plus the Applicable Margin, but in no
event to exceed the Highest Lawful Rate.
<PAGE> 24
Notwithstanding the foregoing, the Borrower will pay to the
Agent, for the account of each Lender interest at the applicable
Post-Default Rate on any principal of any Loan made by such
Lender, and (to the fullest extent permitted by law) on any other
amount payable by the Borrower hereunder, under any Loan Document
or under any Note held by such Lender to or for account of such
Lender, for the period commencing on the date of an Event of
Default until the same is paid in full or all Events of Default
are cured or waived.
Accrued interest on Base Rate Loans shall be payable on each
Quarterly Date commencing on September 30, 1998, and accrued
interest on each Eurodollar Loan shall be payable on the last day
of the Interest Period therefor and, if such Interest Period is
longer than three months at three-month intervals following the
first day of such Interest Period, except that interest payable
at the Post-Default Rate shall be payable from time to time on
demand and interest on any Eurodollar Loan that is converted into
a Base Rate Loan (pursuant to Section 5.04) shall be payable on
the date of conversion (but only to the extent so converted).
Promptly after the determination of any interest rate
provided for herein or any change therein, the Agent shall notify
the Lenders to which such interest is payable and the Borrower
thereof. Each determination by the Agent of an interest rate or
fee hereunder shall, except in cases of manifest error, be final,
conclusive and binding on the parties.
ARTICLE IV
Payments; Pro Rata Treatment; Computations; Etc.
Section 4.01 Payments. Except to the extent otherwise
provided herein, all payments of principal, interest and other
amounts to be made by the Borrower under the Loan Documents shall
be made in Dollars, in immediately available funds, to the Agent
at such account as the Agent shall specify by notice to the
Borrower from time to time, not later than 11:00 a.m. Houston,
Texas time on the date on which such payments shall become due
(each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day).
Such payments shall be made without (to the fullest extent
permitted by applicable law) defense, set-off or counterclaim.
Each payment received by the Agent under this Agreement or any
Note for account of a Lender shall be paid promptly to such
Lender in immediately available funds. Except as provided in
clause (iii) of the definition of "Interest Period", if the due
date of any payment under this Agreement or any Note would
otherwise fall on a day which is not a Business Day such date
shall be extended to the next succeeding Business Day and
interest shall be payable for any principal so extended for the
period of such extension. At the time of each payment to the
Agent of any principal of or interest on any borrowing, the
Borrower shall notify the Agent of the Loans to which such
payment shall apply. In the absence of such notice the Agent may
specify the Loans to which such payment shall apply, but to the
extent possible such payment or prepayment will be applied first
to the Loans comprised of Base Rate Loans.
Section 4.02 Pro Rata Treatment. Except to the extent
otherwise provided herein each Lender agrees that: (i) each
borrowing from the Lenders under Section 2.01 and each
continuation and conversion under Section 2.02 shall be made from
the Lenders pro rata in accordance with their Percentage Share,
each payment of commitment fee or other fees under
<PAGE> 25
Sections 2.04(a), (b) and (c) shall be made for account of the
Lenders pro rata in accordance with their Percentage Share, and
each termination or reduction of the amount of the Aggregate
Maximum Credit Amounts under Section 2.03(d) shall be applied to
the Commitment of each Lender, pro rata according to the amounts
of its respective Commitment; (ii) each payment of principal of
Loans by the Borrower shall be made for account of the Lenders
pro rata in accordance with the respective unpaid principal
amount of the Loans held by the Lenders; and (iii) each payment
of interest on Loans by the Borrower shall be made for account of
the Lenders pro rata in accordance with the amounts of interest
due and payable to the respective Lenders; and (iv) each
reimbursement by the Borrower of disbursements under Letters of
Credit shall be made for account of the Agent or, if funded by
the Lenders, pro rata for the account of the Lenders, in
accordance with the amounts of reimbursement obligations due and
payable to each respective Lender.
Section 4.03 Computations. Interest on Eurodollar
Loans shall be computed on the basis of a year of 360 days and
actual days elapsed (including the first day but excluding the
last day) occurring in the period for which such interest is
payable, unless such calculation would exceed the Highest Lawful
Rate, in which case interest shall be calculated on the per annum
basis of a year of 365 or 366 days, as the case may be. Interest
on Base Rate Loans and fees shall be computed on the basis of a
year of 365 or 366 days, as the case may be, and actual days
elapsed (including the first day but excluding the last day)
occurring in the period for which such interest is payable.
Section 4.04 Non-receipt of Funds by the Agent.
Unless the Agent shall have been notified by a Lender or the
Borrower prior to the date on which such notifying party is
scheduled to make payment to the Agent (in the case of a Lender)
of the proceeds of a Loan or a payment under a Letter of Credit
to be made by it hereunder or (in the case of the Borrower) a
payment to the Agent for account of one or more of the Lenders
hereunder (such payment being herein called the "Required
Payment"), which notice shall be effective upon receipt, that it
does not intend to make the Required Payment to the Agent, the
Agent may assume that the Required Payment has been made and may,
in reliance upon such assumption (but shall not be required to),
make the amount thereof available to the intended recipient(s) on
such date and, if such Lender or the Borrower (as the case may
be) has not in fact made the Required Payment to the Agent, the
recipient(s) of such payment shall, on demand, repay to the Agent
the amount so made available together with interest thereon in
respect of each day during the period commencing on the date such
amount was so made available by the Agent until but excluding the
date the Agent recovers such amount at a rate per annum which,
for any Lender as recipient, will be equal to the Federal Funds
Rate, and for the Borrower as recipient, will be equal to the
Base Rate plus the Applicable Margin.
Section 4.05 Set-off, Sharing of Payments, Etc.
(a) The Borrower agrees that, in addition to (and
without limitation of) any right of set-off, bankers' lien
or counterclaim a Lender may otherwise have, each Lender
shall have the right and be entitled (after consultation
with the Agent), at its option, to offset balances held by
it or by any of its Affiliates for account of the Borrower
or any Restricted Subsidiary at any of its offices, in
Dollars or in any other currency, against any principal of
or interest on any of such Lender's Loans, or any other
amount payable to such Lender hereunder, which is not paid
when due (regardless of whether such balances are then due
to the Borrower), in which case it shall promptly notify the
Borrower and the Agent thereof, provided that such Lender's
failure to give such notice shall not affect the validity
thereof.
<PAGE> 26
(b) If any Lender shall obtain payment of any
principal of or interest on any Loan made by it to the
Borrower under this Agreement (or reimbursement as to any
Letter of Credit) through the exercise of any right of set-
off, banker's lien or counterclaim or similar right or
otherwise, and, as a result of such payment, such Lender
shall have received a greater percentage of the principal or
interest (or reimbursement) then due hereunder by the
Borrower to such Lender than the percentage received by any
other Lenders, it shall promptly (i) notify the Agent and
each other Lender thereof and (ii) purchase from such other
Lenders participations in (or, if and to the extent
specified by such Lender, direct interests in) the Loans (or
participations in Letters of Credit) made by such other
Lenders (or in interest due thereon, as the case may be) in
such amounts, and make such other adjustments from time to
time as shall be equitable, to the end that all the Lenders
shall share the benefit of such excess payment (net of any
expenses which may be incurred by such Lender in obtaining
or preserving such excess payment) pro rata in accordance
with the unpaid principal and/or interest on the Loans held
by each of the Lenders (or reimbursements of Letters of
Credit). To such end all the Lenders shall make appropriate
adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is
rescinded or must otherwise be restored. The Borrower
agrees that any Lender so purchasing a participation (or
direct interest) in the Loans made by other Lenders (or in
interest due thereon, as the case may be) may exercise all
rights of set-off, banker's lien, counterclaim or similar
rights with respect to such participation as fully as if
such Lender were a direct holder of Loans (or Letters of
Credit) in the amount of such participation. Nothing
contained herein shall require any Lender to exercise any
such right or shall affect the right of any Lender to
exercise, and retain the benefits of exercising, any such
right with respect to any other indebtedness or obligation
of the Borrower. If under any applicable bankruptcy,
insolvency or other similar law, any Lender receives a
secured claim in lieu of a set-off to which this
Section 4.05 applies, such Lender shall, to the extent
practicable, exercise its rights in respect of such secured
claim in a manner consistent with the rights of the Lenders
entitled under this Section 4.05 to share the benefits of
any recovery on such secured claim.
Section 4.06 Taxes.
(a) Payments Free and Clear. Any and all payments by
the Borrower hereunder shall be made, in accordance with
Section 4.01, free and clear of and without deduction for
any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities
with respect thereto, excluding, in the case of each Lender
and the Agent, taxes imposed on its income, and franchise or
similar taxes imposed on it, by (i) any jurisdiction (or
political subdivision thereof) of which the Agent or such
Lender, as the case may be, is a citizen or resident or in
which such Lender has an Applicable Lending Office, (ii) the
jurisdiction (or any political subdivision thereof) in which
the Agent or such Lender is organized, or (iii) any
jurisdiction (or political subdivision thereof) in which
such Lender or the Agent is presently doing business in
which taxes are imposed solely as a result of doing business
in such jurisdiction (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities
being hereinafter referred to as "Taxes"). If the Borrower
shall be required by law to deduct any Taxes from or in
respect of any sum payable hereunder to the Lenders or the
Agent (i) the sum payable shall be increased by the amount
necessary so that after making all required deductions
(including deductions applicable to additional sums payable
under this Section 4.06) such Lender or the Agent (as the
<PAGE> 27
case may be) shall receive an amount equal to the sum it
would have received had no such deductions been made,
(ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant
taxing authority or other Governmental Authority in
accordance with applicable law.
(b) Other Taxes. In addition, to the fullest extent
permitted by applicable law, the Borrower agrees to pay any
present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies that
arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to,
this Agreement, any Assignment or any Security Instrument
(hereinafter referred to as "Other Taxes").
(c) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, BUT SUBJECT TO SECTION 4.06(d)(ii), THE
BORROWER WILL INDEMNIFY EACH LENDER AND THE AGENT FOR THE
FULL AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, BUT NOT
LIMITED TO, ANY TAXES OR OTHER TAXES IMPOSED BY ANY
GOVERNMENTAL AUTHORITY ON AMOUNTS PAYABLE UNDER THIS SECTION
4.06) PAID BY SUCH LENDER OR THE AGENT (ON THEIR BEHALF OR
ON BEHALF OF ANY LENDER), AS THE CASE MAY BE, AND ANY
LIABILITY (INCLUDING PENALTIES, INTEREST AND EXPENSES)
ARISING THEREFROM OR WITH RESPECT THERETO, WHETHER OR NOT
SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED
UNLESS THE PAYMENT OF SUCH TAXES WAS NOT CORRECTLY OR
LEGALLY ASSERTED AND SUCH LENDER'S PAYMENT OF SUCH TAXES OR
OTHER TAXES WAS THE RESULT OF ITS GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT. ANY PAYMENT PURSUANT TO SUCH
INDEMNIFICATION SHALL BE MADE WITHIN THIRTY (30) DAYS AFTER
THE DATE ANY LENDER OR THE AGENT, AS THE CASE MAY BE, MAKES
WRITTEN DEMAND THEREFOR. IF ANY LENDER OR THE AGENT
RECEIVES A REFUND OR CREDIT IN RESPECT OF ANY TAXES OR OTHER
TAXES FOR WHICH SUCH LENDER OR THE AGENT HAS RECEIVED
PAYMENT FROM THE BORROWER IT SHALL PROMPTLY NOTIFY THE
BORROWER OF SUCH REFUND OR CREDIT AND SHALL, IF NO DEFAULT
HAS OCCURRED AND IS CONTINUING, WITHIN THIRTY (30) DAYS
AFTER RECEIPT OF A REQUEST BY THE BORROWER (OR PROMPTLY UPON
RECEIPT, IF THE BORROWER HAS REQUESTED APPLICATION FOR SUCH
REFUND OR CREDIT PURSUANT HERETO), PAY AN AMOUNT EQUAL TO
SUCH REFUND OR CREDIT TO THE BORROWER WITHOUT INTEREST (BUT
WITH ANY INTEREST SO REFUNDED OR CREDITED), PROVIDED THAT
THE BORROWER, UPON THE REQUEST OF SUCH LENDER OR THE AGENT,
AGREES TO RETURN SUCH REFUND OR CREDIT (PLUS PENALTIES,
INTEREST OR OTHER CHARGES) TO SUCH LENDER OR THE AGENT IN
THE EVENT SUCH LENDER OR THE AGENT IS REQUIRED TO REPAY SUCH
REFUND OR CREDIT.
(d) Lender Representations.
(i) Each Lender represents that it is either
(1) a corporation or banking association organized
under the laws of the United States of America or any
state thereof or (2) it is entitled to complete
exemption from United States withholding tax imposed on
or with respect to any payments, including fees, to be
made to it pursuant to this Agreement (A) under an
applicable provision of a tax convention to which the
United States of America is a party or (B) because it
is acting through a branch, agency or office in the
<PAGE> 28
United States of America and any payment to be received
by it hereunder is effectively connected with a trade
or business in the United States of America. Each
Lender that is not a corporation or banking association
organized under the laws of the United States of
America or any state thereof agrees to provide to the
Borrower and the Agent on the Closing Date, or on the
date of its delivery of the Assignment pursuant to
which it becomes a Lender, and at such other times as
required by United States law or as the Borrower or the
Agent shall reasonably request, two accurate and
complete original signed copies of either (A) Internal
Revenue Service Form 4224 (or successor form)
certifying that all payments to be made to it hereunder
will be effectively connected to a United States trade
or business (the "Form 4224 Certification") or (B)
Internal Revenue Service Form 1001 (or successor form)
certifying that it is entitled to the benefit of a
provision of a tax convention to which the United
States of America is a party which completely exempts
from United States withholding tax all payments to be
made to it hereunder (the "Form 1001 Certification").
In addition, each Lender agrees that if it previously
filed a Form 4224 Certification, it will deliver to the
Borrower and the Agent a new Form 4224 Certification
prior to the first payment date occurring in each of
its subsequent taxable years; and if it previously
filed a Form 1001 Certification, it will deliver to the
Borrower and the Agent a new certification prior to the
first payment date falling in the third year following
the previous filing of such certification. Each Lender
also agrees to deliver to the Borrower and the Agent
such other or supplemental forms as may at any time be
required as a result of changes in applicable law or
regulation in order to confirm or maintain in effect
its entitlement to exemption from United States
withholding tax on any payments hereunder, provided
that the circumstances of such Lender at the relevant
time and applicable laws permit it to do so. If a
Lender determines, as a result of any change in either
(i) a Governmental Requirement or (ii) its
circumstances, that it is unable to submit any form or
certificate that it is obligated to submit pursuant to
this Section 4.06, or that it is required to withdraw
or cancel any such form or certificate previously
submitted, it shall promptly notify the Borrower and
the Agent of such fact. If a Lender is organized under
the laws of a jurisdiction outside the United States of
America, unless the Borrower and the Agent have
received a Form 1001 Certification or Form 4224
Certification satisfactory to them indicating that all
payments to be made to such Lender hereunder are not
subject to United States withholding tax, the Borrower
shall withhold taxes from such payments at the
applicable statutory rate. Each Lender agrees to
indemnify and hold harmless the Borrower or Agent, as
applicable, from any United States taxes, penalties,
interest and other expenses, costs and losses incurred
or payable by (i) the Agent as a result of such
Lender's failure to submit any form or certificate that
it is required to provide pursuant to this Section 4.06
or (ii) the Borrower or the Agent as a result of their
reliance on any such form or certificate which such
Lender has provided to them pursuant to this Section
4.06.
(ii) For any period with respect to which a Lender
has failed to provide the Borrower with the form
required pursuant to this Section 4.06, if any, (other
than if such failure is due to a change in a
Governmental Requirement occurring subsequent to the
date on which a form originally was required to be
provided), such Lender shall not be entitled to
indemnification under Section 4.06 with respect to
<PAGE> 29
taxes imposed by the United States which taxes would
not have been imposed but for such failure to provide
such forms; provided, however, that should a Lender,
which is otherwise exempt from or subject to a reduced
rate of withholding tax becomes subject to taxes
because of its failure to deliver a form required
hereunder, the Borrower shall take such steps as such
Lender shall reasonably request to assist such Lender
to recover such taxes.
(iii) Any Lender claiming any additional
amounts payable pursuant to this Section 4.06 shall use
reasonable efforts (consistent with legal and
regulatory restrictions) to file any certificate or
document requested by the Borrower or the Agent or to
change the jurisdiction of its Applicable Lending
Office or to contest any tax imposed if the making of
such a filing or change or contesting such tax would
avoid the need for or reduce the amount of any such
additional amounts that may thereafter accrue and would
not, in the sole determination of such Lender, be
otherwise disadvantageous to such Lender.
Section 4.07 Disposition of Proceeds. The Security
Instruments contain an assignment by the Borrower unto and in
favor of the Agent for the benefit of the Lenders of all
production and all proceeds attributable thereto which may be
produced from or allocated to the Mortgaged Property, and the
Security Instruments further provide in general for the
application of such proceeds to the satisfaction of the
Indebtedness and other obligations described therein and secured
thereby. Notwithstanding the assignment contained in such
Security Instruments, until the occurrence of an Event of
Default, the Lenders agree that they will neither notify the
purchaser or purchasers of such production nor take any other
action to cause such proceeds to be remitted to the Lenders, but
the Lenders will instead permit such proceeds to be paid to the
Borrower.
ARTICLE V
Capital Adequacy
Section 5.01 Additional Costs.
(a) Eurodollar Regulations, etc. The Borrower shall
pay directly to each Lender from time to time such amounts
as such Lender may determine to be necessary to compensate
such Lender for any costs which it determines are
attributable to its making or maintaining of any Eurodollar
Loans or issuing or participating in Letters of Credit
hereunder or its obligation to make any Eurodollar Loans or
issue or participate in any Letters of Credit hereunder, or
any reduction in any amount receivable by such Lender
hereunder in respect of any of such Eurodollar Loans,
Letters of Credit or such obligation (such increases in
costs and reductions in amounts receivable being herein
called "Additional Costs"), resulting from any Regulatory
Change which: (i) changes the basis of taxation of any
amounts payable to such Lender under this Agreement or any
Note in respect of any of such Eurodollar Loans or Letters
of Credit (other than taxes imposed on the overall net
income of such Lender or of its Applicable Lending Office
for any of such Eurodollar Loans by the jurisdiction in
which such Lender has its principal office or Applicable
Lending Office); or (ii) imposes or modifies any reserve,
special deposit, minimum capital, capital ratio or similar
requirements relating to any extensions of credit or other
assets of, or any deposits with or other liabilities of such
<PAGE> 30
Lender, or the Commitment or Loans of such Lender or the
Eurodollar interbank market; or (iii) imposes any other
condition affecting this Agreement or any Note (or any of
such extensions of credit or liabilities) or such Lender's
Commitment or Loans. Each Lender will notify the Agent and
the Borrower of any event occurring after the Closing Date
which will entitle such Lender to compensation pursuant to
this Section 5.01(a) as promptly as practicable after it
obtains knowledge thereof and determines to request such
compensation, and will designate a different Applicable
Lending Office for the Loans of such Lender affected by such
event if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the sole
opinion of such Lender, be disadvantageous to such Lender,
provided that such Lender shall have no obligation to so
designate an Applicable Lending Office located in the United
States. If any Lender requests compensation from the
Borrower under this Section 5.01(a), the Borrower may, by
notice to such Lender, suspend the obligation of such Lender
to make additional Loans of the Type with respect to which
such compensation is requested until the Regulatory Change
giving rise to such request ceases to be in effect (in which
case the provisions of Section 5.04 shall be applicable).
(b) Regulatory Change. Without limiting the effect of
the provisions of Section 5.01(a), in the event that, by
reason of any Regulatory Change or any other circumstances
arising after the Closing Date affecting such Lender, the
Eurodollar interbank market or such Lender's position in
such market, any Lender either (i) incurs Additional Costs
based on or measured by the excess above a specified level
of the amount of a category of deposits or other liabilities
of such Lender which includes deposits by reference to which
the interest rate on Eurodollar Loans is determined as
provided in this Agreement or a category of extensions of
credit or other assets of such Lender which includes
Eurodollar Loans or (ii) becomes subject to restrictions on
the amount of such a category of liabilities or assets which
it may hold, then, if such Lender so elects by notice to the
Borrower, the obligation of such Lender to make additional
Eurodollar Loans shall be suspended until such Regulatory
Change or other circumstances ceases to be in effect (in
which case the provisions of Section 5.04 shall be
applicable).
(c) Capital Adequacy. Without limiting the effect of
the foregoing provisions of this Section 5.01 (but without
duplication), the Borrower shall pay directly to any Lender
from time to time on request such amounts as such Lender may
reasonably determine to be necessary to compensate such
Lender or its parent or holding company for any costs which
it determines are attributable to the maintenance by such
Lender or its parent or holding company (or any Applicable
Lending Office), pursuant to any Governmental Requirement
following any Regulatory Change, of capital in respect of
its Commitment, its Notes, its Loans or any interest held by
it in any Letter of Credit, such compensation to include,
without limitation, an amount equal to any reduction of the
rate of return on assets or equity of such Lender or its
parent or holding company (or any Applicable Lending Office)
to a level below that which such Lender or its parent or
holding company (or any Applicable Lending Office) could
have achieved but for such Governmental Requirement. Such
Lender will notify the Borrower that it is entitled to
compensation pursuant to this Section 5.01(c) as promptly as
practicable after it determines to request such
compensation.
<PAGE> 31
(d) Compensation Procedure. Any Lender notifying the
Borrower of the incurrence of additional costs under this
Section 5.01 shall deliver such notice to the Borrower as
soon as practicable and in any event within ninety (90) days
after the change or other event giving rise to the
incurrence of such additional costs and shall in such notice
to the Borrower and the Agent set forth in reasonable detail
the basis and amount of its request for compensation.
Determinations and allocations by each Lender for purposes
of this Section 5.01 of the effect of any Regulatory Change
pursuant to Section 5.01(a) or (b), or of the effect of
capital maintained pursuant to Section 5.01(c), on its costs
or rate of return of maintaining Loans or its obligation to
make Loans or issue Letters of Credit, or on amounts
receivable by it in respect of Loans or Letters of Credit,
and of the amounts required to compensate such Lender under
this Section 5.01, shall be conclusive and binding for all
purposes, provided that such determinations and allocations
are made on a reasonable basis. Any request for additional
compensation under this Section 5.01 shall be paid by the
Borrower within thirty (30) days of the receipt by the
Borrower of the notice described in this Section 5.01(d).
Section 5.02 Limitation on Eurodollar Loans. Anything
herein to the contrary notwithstanding, if, on or prior to the
determination of any Eurodollar Rate for any Interest Period:
(i) the Agent determines (which determination
shall be conclusive, absent manifest error) that
quotations of interest rates for the relevant deposits
referred to in the definition of "Eurodollar Rate" in
Section 1.02 are not being provided in the relevant
amounts or for the relevant maturities for purposes of
determining rates of interest for Eurodollar Loans as
provided herein; or
(ii) the Agent determines (which determination
shall be conclusive, absent manifest error) that the
relevant rates of interest referred to in the
definition of "Eurodollar Rate" in Section 1.02 upon
the basis of which the rate of interest for Eurodollar
Loans for such Interest Period is to be determined are
not sufficient to adequately cover the cost to the
Lenders of making or maintaining Eurodollar Loans;
then the Agent shall give the Borrower prompt notice thereof, and
so long as such condition remains in effect, the Lenders shall be
under no obligation to make additional Eurodollar Loans.
Section 5.03 Illegality. Notwithstanding any other
provision of this Agreement, in the event that it becomes
unlawful for any Lender or its Applicable Lending Office to honor
its obligation to make or maintain Eurodollar Loans hereunder,
then such Lender shall promptly notify the Borrower thereof and
such Lender's obligation to make Eurodollar Loans shall be
suspended until such time as such Lender may again make and
maintain Eurodollar Loans (in which case the provisions of
Section 5.04 shall be applicable).
Section 5.04 Base Rate Loans Pursuant to Sections
5.01, 5.02 and 5.03. If the obligation of any Lender to make
Eurodollar Loans shall be suspended pursuant to Sections 5.01,
5.02 or 5.03 ("Affected Loans"), all Affected Loans which would
otherwise be made by such Lender shall be made instead as Base
Rate Loans (and, if an event referred to in Section 5.01(b) or
Section 5.03 has occurred and such Lender so requests by notice
to the Borrower, all Affected Loans of such Lender then
outstanding shall be automatically converted into Base Rate Loans
<PAGE> 32
on the date specified by such Lender in such notice) and, to the
extent that Affected Loans are so made as (or converted into)
Base Rate Loans, all payments of principal which would otherwise
be applied to such Lender's Affected Loans shall be applied
instead to its Base Rate Loans.
Section 5.05 Compensation. The Borrower shall pay to
each Lender within thirty (30) days of receipt of written request
of such Lender (which request shall set forth, in reasonable
detail, the basis for requesting such amounts and which shall be
conclusive and binding for all purposes provided that such
determinations are made on a reasonable basis), such amount or
amounts as shall compensate it for any loss, cost, expense or
liability which such Lender determines are attributable to:
(i) any payment, prepayment or conversion of a
Eurodollar Loan properly made by such Lender or the
Borrower for any reason (including, without limitation,
the acceleration of the Loans pursuant to Section
10.02) on a date other than the last day of the
Interest Period for such Loan;
(ii) any failure by the Borrower for any reason
(including but not limited to, the failure of any of
the conditions precedent specified in Article VI to be
satisfied) to borrow, continue or convert a Eurodollar
Loan from such Lender on the date for such borrowing,
continuation or conversion specified in the relevant
notice given pursuant to Section 2.02(c); or
(iii) the revocation by the Borrower of (a) a
revocable notice of borrowing delivered pursuant to
Section 2.02(c) or (b) a revocable request for the
issuance of a Letter of Credit delivered pursuant to
Section 2.02(g) or (c) a revocable notice of reduction
or termination delivered pursuant to Section 2.03(c) or
(d) a revocable notice of prepayment delivered pursuant
to Section 2.07(a).
Without limiting the effect of the preceding sentence, such
compensation shall include an amount equal to the excess, if any,
of (i) the amount of interest which would have accrued on the
principal amount so paid, prepaid or converted or not borrowed
for the period from the date of such payment, prepayment or
conversion or failure to borrow to the last day of the Interest
Period for such Loan (or, in the case of a failure to borrow, the
Interest Period for such Loan which would have commenced on the
date specified for such borrowing) at the applicable rate of
interest for such Loan provided for herein over (ii) the interest
component of the amount such Lender would have bid in the London
interbank market for Dollar deposits of leading banks in amounts
comparable to such principal amount and with maturities
comparable to such period (as reasonably determined by such
Lender).
Section 5.06 Replacement Lenders.
(a) If any Lender has notified the Borrower and the
Agent of its incurring additional costs under Section 5.01
hereof or has required the Borrower to make payments for
Taxes under Section 4.06 hereof, then the Borrower may,
unless such Lender has notified the Borrower and the Agent
that the circumstances giving rise to such notice no longer
apply, terminate, in whole but not in part, the Commitment
of any Lender (other than the Agent) (the "Terminated
Lender") at any time upon five (5) Business Days' prior
<PAGE> 33
written notice to the Terminated Lender and the Agent (such
notice referred to herein as a "Notice of Termination").
(b) In order to effect the termination of the
Commitment of the Terminated Lender, the Borrower shall: (i)
obtain an agreement with one or more Lenders to increase
their Commitment or Commitments and/or (ii) request any one
or more other banking institutions to become parties to this
Agreement in place and instead of such Terminated Lender and
agree to accept a Commitment or Commitments; provided,
however, that such one or more other banking institutions
are reasonably acceptable to the Agent and become parties by
executing an Assignment (the Lenders or other banking
institutions that agree to accept in whole or in part the
Commitment of the Terminated Lender being referred to herein
as the "Replacement Lenders"), such that the aggregate
increased and/or accepted Commitments of the Replacement
Lenders under clauses (i) and (ii) above equal the
Commitment of the Terminated Lender.
(c) The Notice of Termination shall include the name
of the Terminated Lender, the date the termination will
occur (the "Termination Date"), and the Replacement Lender
or Replacement Lenders to which the Terminated Lender will
assign its Commitment and, if there will be more than one
Replacement Lender, the portion of the Terminated Lender's
Commitment to be assigned to each Replacement Lender.
(d) On the Termination Date, (i) the Terminated Lender
shall by execution and delivery of an Assignment assign its
Commitment to the Replacement Lender or Replacement Lenders
(pro rata, if there is more than one Replacement Lender, in
proportion to the portion of the Terminated Lender's Commit-
ment to be assigned to each Replacement Lender) indicated in
the Notice of Termination and shall assign to the
Replacement Lender or Replacement Lenders each of its Loans
(if any) then outstanding and participation interests in
Letters of Credit (if any) then outstanding (pro rata as
aforesaid), (ii) the Terminated Lender shall endorse its
Notes, payable without recourse, representation or warranty
to the order of the Replacement Lender or Replacement
Lenders (pro rata as aforesaid), (iii) the Replacement
Lender or Replacement Lenders shall purchase the Notes held
by the Terminated Lender (pro rata as aforesaid) at a price
equal to the unpaid principal amount thereof plus interest
and facility and other fees accrued and unpaid to the
Termination Date, and (iv) the Replacement Lender or
Replacement Lenders will thereupon (pro rata as aforesaid)
succeed to and be substituted in all respects for the
Terminated Lender with like effect as if becoming a Lender
pursuant to the terms of Section 12.06(b), and the
Terminated Lender will have the rights and benefits of an
assignor under Section 12.06(b). To the extent not in
conflict, the terms of Section 12.06(b) shall supplement the
provisions of this Section 5.06(d). For each assignment
made under this Section 5.06, the Replacement Lender shall
pay to the Agent the processing fee provided for in Section
12.06(b). The Borrower will be responsible for the payment
of any breakage costs associated with termination of the
Terminated Lender, as set forth in Section 5.05.
<PAGE> 34
ARTICLE VI
Conditions Precedent
Section 6.01 Initial Funding.
The obligation of the Lenders to make the Initial
Funding is subject to the receipt by the Agent and the Lenders of
all fees payable pursuant to Section 2.04 on or before the
Closing Date and the receipt by the Agent of the following
documents and satisfaction of the other conditions provided in
this Section 6.01, each of which shall be satisfactory to the
Agent in form and substance:
(a) A certificate of the Secretary or an Assistant
Secretary of the Borrower setting forth (i) resolutions of
its board of directors with respect to the authorization of
the Borrower to execute and deliver the Loan Documents to
which it is a party and to enter into the transactions
contemplated in those documents, (ii) the officers of the
Borrower (y) who are authorized to sign the Loan Documents
to which Borrower is a party and (z) who will, until
replaced by another officer or officers duly authorized for
that purpose, act as its representative for the purposes of
signing documents and giving notices and other
communications in connection with this Agreement and the
transactions contemplated hereby, (iii) specimen signatures
of the authorized officers, and (iv) the articles or
certificate of incorporation and bylaws of the Borrower,
certified as being true and complete. The Agent and the
Lenders may conclusively rely on such certificate until the
Agent receives notice in writing from the Borrower to the
contrary.
(b) Certificates of the appropriate state agencies
with respect to the existence, qualification and good
standing of the Borrower.
(c) A compliance certificate which shall be
substantially in the form of Exhibit C, duly and properly
executed by a Responsible Officer and dated as of the date
of the Initial Funding.
(d) The Notes, duly completed and executed.
(e) An opinion of Jones, Walker, Waechter, Poitevent,
Carrere & Denegre, L.L.P. special counsel to the Borrower,
substantially in the form of Exhibit D hereto.
(f) A certificate of insurance coverage of the
Borrower evidencing that the Borrower is carrying insurance
in accordance with Section 7.19 hereof.
Section 6.02 Initial Borrowing Base Redetermination.
The obligation of the Lenders to increase the Borrowing Base from
$15,000,000 to $20,000,000 is subject to receipt by the Agent of
the following documents or instruments and satisfaction of the
other conditions provided in this Section 6.02, on or before the
date which is ten (10) Business Days after the Bridge Facility
Termination Date:
(a) Receipt by the Agent of the fees due and payable
after the Closing Date as provided for in the Fee Letter.
<PAGE> 35
(b) Receipt by the Agent of each of the Security
Instruments, including those described on Exhibit E, duly
completed and executed in sufficient number of counterparts
for recording, if necessary, and otherwise in recordable
form and substance satisfactory to the Agent.
(c) Receipt by the Agent of title information as the
Agent may require from attorneys satisfactory to the Agent
setting forth the status of title to at least 100% of the
value of the Hydrocarbon Interests included in the Borrowing
Base.
(d) The Agent shall have been furnished with
appropriate UCC search certificates reflecting no prior
liens or security interests.
(e) The Borrower shall have complied with the
provisions of Section 8.11.
(f) Receipt by the Agent of such other documents as
the Agent or any Lender or special counsel to the Agent may
reasonably request.
(g) Receipt by the Agent of a supplemental legal
opinion as to the due authorization, execution, delivery and
enforceability of the Security Instruments, reasonably
satisfactory to the Agent.
If the conditions precedent set forth in subsections
(a) through (g) of this Section 6.02 are satisfied after
February 1, 1999, then the obligation of the Lenders to
increase the Borrowing Base to $20,000,000 shall be subject
to, in addition to the satisfaction of such other conditions
precedent, the Lenders having redetermined the amount of the
Offered Borrowing Base in accordance with Section 2.08(b).
Following such redetermination of the Offered Borrowing
Base, the Agent and the Borrower will designate a new
Borrowing Base pursuant to Section 2.08(f).
Section 6.03 Initial and Subsequent Loans and Letters
of Credit. The obligation of the Lenders to make Loans to the
Borrower upon the occasion of each borrowing hereunder and to
issue, renew, extend or reissue Letters of Credit for the account
of the Borrower (including the Initial Funding) and to increase
the Borrowing Base in accordance with Section 6.02 is subject to
the further conditions precedent that, as of the date of such
Loans or Letters of Credit or increase, as the case may be, and
after giving effect thereto: (i) no Default shall have occurred
and be continuing; (ii) no Material Adverse Effect shall have
occurred; and (iii) the representations and warranties made by
the Borrower in Article VII and in the Security Instruments shall
be true on and as of the date of the making of such Loans or
issuance, renewal, extension or reissuance of a Letter of Credit
or increase of the Borrowing Base, as the case may be, with the
same force and effect as if made on and as of such date and
following such new borrowing, issuance or increase, except to the
extent such representations and warranties are expressly limited
to an earlier date or the Majority Lenders may expressly consent
in writing to the contrary. Each request for a borrowing or
issuance, renewal, extension or reissuance of a Letter of Credit
by the Borrower hereunder shall constitute a certification by the
Borrower to the effect set forth in the preceding sentence (both
as of the date of such notice and, unless the Borrower otherwise
notifies the Agent prior to the date of and immediately following
such borrowing or issuance, renewal, extension or reissuance of a
Letter of Credit, as of the date thereof).
<PAGE> 36
Section 6.04 Conditions Relating to Letters of Credit.
In addition to the satisfaction of all other conditions precedent
set forth in this Article VI, the issuance, renewal, extension or
reissuance of the Letters of Credit referred to in Section
2.01(b) hereof is subject to the following conditions precedent:
(a) At least three (3) Business Days prior to the date
of the issuance and at least thirty (30) Business Days prior
to the date of the renewal, extension or reissuance of each
Letter of Credit, the Agent shall have received a written
request for a Letter of Credit, in accordance with Section
2.02(g) hereof.
(b) Each of the Letters of Credit shall (i) be issued
by the Agent, (ii) contain such terms and provisions as are
reasonably required by the Agent, (iii) be for the account
of the Borrower and (iv) expire not later than the earlier
of one (1) year from the date of issuance, renewal,
extension or reissuance or two (2) days before the
Termination Date; provided, however, Borrower may request
that any one-year Letter of Credit be renewed annually up to
two (2) days prior to the Termination Date.
(c) The Borrower shall have duly and validly executed
and delivered to the Agent a Letter of Credit Agreement
pertaining to the Letter of Credit.
ARTICLE VII
Representations and Warranties
The Borrower represents and warrants to the Agent and the
Lenders that (each representation and warranty herein is given as
of the Closing Date and shall be deemed repeated and reaffirmed
on the dates of each borrowing and issuance, renewal, extension
or reissuance of a Letter of Credit as provided in Section 6.03):
Section 7.01 Corporate Existence. Each of the
Borrower and each Restricted Subsidiary: (i) is a corporation or
limited liability company duly organized, legally existing and in
good standing under the laws of the jurisdiction of its
incorporation or formation; (ii) has all requisite power, and has
all material governmental licenses, authorizations, consents and
approvals necessary to own its assets and carry on its business
as now being or as proposed to be conducted; and (iii) is
qualified to do business in all jurisdictions in which the nature
of the business conducted by it makes such qualification
necessary and where failure so to qualify would have a Material
Adverse Effect.
Section 7.02 Financial Condition. The audited
consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as at December 31, 1997 and the related consolidated
statement of income, stockholders' equity and cash flow of the
Borrower and its Consolidated Subsidiaries for the fiscal year
ended on said date, with the opinion thereon of Arthur Andersen
LLP heretofore furnished to each of the Lenders and the unaudited
consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as at March 31, 1998 and the related consolidated
statements of income, stockholders' equity and cash flow of the
Borrower and its Consolidated Subsidiaries for the three-month
period ended on such date heretofore furnished to the Agent, are
<PAGE> 37
complete and correct and fairly present the consolidated
financial condition of the Borrower and its Consolidated
Subsidiaries as at said dates and the results of its operations
for the fiscal year and the three-month period ended on said
dates, all in accordance with GAAP, as applied on a consistent
basis (subject, in the case of the interim financial statements,
to normal year-end adjustments). Neither the Borrower nor any
Subsidiary has on the Closing Date any material Debt, contingent
liabilities, liabilities for taxes, unusual forward or long-term
commitments or unrealized or anticipated losses from any
unfavorable commitments, in each case, that would be required to
be reserved for in the Financial Statements in accordance with
GAAP, except as referred to or reflected or provided for in the
Financial Statements or in Schedule 7.02. Since March 31, 1998,
there has been no change or event having a Material Adverse
Effect. Since the date of the Financial Statements, neither the
business nor the Properties of the Borrower or any Subsidiary
have been materially and adversely affected as a result of any
fire, explosion, earthquake, flood, drought, windstorm, accident,
strike or other labor disturbance, embargo, requisition or taking
of Property or cancellation of contracts, permits or concessions
by any Governmental Authority, riot, activities of armed forces
or acts of God or of any public enemy.
Section 7.03 Litigation. Except as disclosed to the
Lenders in Schedule 7.03 hereto, at the Closing Date there is no
litigation, legal, administrative or arbitral proceeding,
investigation or other action of any nature pending or, to the
knowledge of the Borrower threatened against or affecting the
Borrower or any Restricted Subsidiary as to which there is a
reasonable possibility of an adverse determination and which, if
adversely determined, could, individually or in the aggregate,
materially impair the ability of the Borrower to conduct its
business substantially as now conducted, or materially and
adversely affect the businesses, assets, operations, prospects or
condition, financial or otherwise, of the Borrower, or impair the
validity or enforceability of, or the ability of the Borrower to
perform its obligations under, this Agreement or any of the other
Loan Documents to which it is a party, in each case, taking into
account any applicable insurance.
Section 7.04 No Breach. Neither the execution and
delivery of the Loan Documents, nor compliance with the terms and
provisions hereof will conflict with or result in a breach of, or
require any consent which has not been obtained as of the Closing
Date under, the respective charter or by-laws of the Borrower or
any Restricted Subsidiary, or any Governmental Requirement or any
agreement or instrument to which the Borrower or any Restricted
Subsidiary is a party or by which it is bound or to which it or
its Properties are subject, or constitute a default under any
such agreement or instrument, or result in the creation or
imposition of any Lien upon any of the revenues or assets of the
Borrower or any Restricted Subsidiary pursuant to the terms of
any such agreement or instrument other than the Liens created by
the Loan Documents and those permitted under Section 9.02.
Section 7.05 Authority. The Borrower and each
Restricted Subsidiary have all necessary power and authority to
execute, deliver and perform its obligations under the Loan
Documents to which it is a party; and the execution, delivery and
performance by the Borrower and each Restricted Subsidiary of the
Loan Documents to which it is a party, have been duly authorized
by all necessary corporate action on its part; and the Loan
Documents constitute the legal, valid and binding obligations of
the Borrower and each Restricted Subsidiary, enforceable in
accordance with their terms.
<PAGE> 38
Section 7.06 Approvals. No authorizations, approvals
or consents of, and no filings or registrations with, any
Governmental Authority are necessary for the execution, delivery
or performance by the Borrower or any Restricted Subsidiary of
the Loan Documents or for the validity or enforceability thereof,
except for the recording and filing of the Security Instruments
as required by this Agreement.
Section 7.07 Use of Loans. The proceeds of the Loans
shall be used to develop the Borrower's proven reserves from its
Oil and Gas Properties and for general corporate purposes. The
Borrower is not engaged principally, or as one of its important
activities, in the business of extending credit for the purpose,
whether immediate, incidental or ultimate, of buying or carrying
margin stock (within the meaning of Regulation G, U or X of the
Board of Governors of the Federal Reserve System) and no part of
the proceeds of any Loan hereunder will be used to buy or carry
any margin stock.
Section 7.08 ERISA.
(a) The Borrower and each Restricted Subsidiary have
complied in all material respects with ERISA and, where
applicable, the Code regarding each Plan.
(b) Each Plan of the Borrower and of each Restricted
Subsidiary is, and has been, maintained in substantial
compliance with ERISA and, where applicable, the Code.
(c) No act, omission or transaction has occurred which
could result in imposition on the Borrower or on any
Restricted Subsidiary (whether directly or indirectly) of
(i) either a civil penalty assessed pursuant to section
502(c), (i) or (l) of ERISA or a tax imposed pursuant to
Chapter 43 of Subtitle D of the Code or (ii) breach of
fiduciary duty liability damages under section 409 of ERISA.
(d) No Plan (other than a defined contribution plan)
or any trust created under any such Plan has been terminated
since September 2, 1974. No liability to the PBGC (other
than for the payment of current premiums which are not past
due) by the Borrower, any Subsidiary or any ERISA Affiliate
has been or is expected by the Borrower, any Subsidiary or
any ERISA Affiliate to be incurred with respect to any Plan.
No ERISA Event with respect to any Plan has occurred.
(e) Full payment when due has been made of all amounts
which the Borrower, any Subsidiary or any ERISA Affiliate is
required under the terms of each Plan or applicable law to
have paid as contributions to such Plan, and no accumulated
funding deficiency (as defined in section 302 of ERISA and
section 412 of the Code), whether or not waived, exists with
respect to any Plan.
(f) The actuarial present value of the benefit
liabilities under each Plan which is subject to Title IV of
ERISA does not, as of the end of the Borrower's most
recently ended fiscal year, exceed the current value of the
assets (computed on a plan termination basis in accordance
with Title IV of ERISA) of such Plan allocable to such
benefit liabilities. The term "actuarial present value of
the benefit liabilities" shall have the meaning specified in
section 4041 of ERISA.
<PAGE> 39
(g) Neither the Borrower nor any Restricted Subsidiary
sponsors, maintains, or contributes to an employee welfare
benefit plan, as defined in section 3(1) of ERISA, includ-
ing, without limitation, any such plan maintained to provide
benefits to former employees of such entities, that may not
be terminated by the Borrower or a Restricted Subsidiary or
any ERISA Affiliate in its sole discretion at any time
without any material liability.
(h) None of the Borrower, any Subsidiary or any ERISA
Affiliate sponsors, maintains or contributes to, or has at
any time in the preceding six calendar years, sponsored,
maintained or contributed to, any Multiemployer Plan.
(i) None of the Borrower, any Subsidiary or any ERISA
Affiliate is required to provide security under section
401(a)(29) of the Code due to a Plan amendment that results
in an increase in current liability for the Plan.
Section 7.09 Taxes. Except as set out in
Schedule 7.09, each of the Borrower and the Restricted
Subsidiaries has filed all United States Federal income tax
returns and all other tax returns which are required to be filed
by them and have paid all material taxes due pursuant to such
returns or pursuant to any assessment received by the Borrower or
any Restricted Subsidiary, other than any taxes the validity of
which the Borrower or the relevant Restricted Subsidiary is
contesting in good faith by appropriate proceedings, and with
respect to which the Borrower or such Restricted Subsidiary
shall, to the extent required by GAAP, have set aside on its
books adequate reserves. The charges, accruals and reserves on
the books of the Borrower and the Restricted Subsidiaries in
respect of taxes and other governmental charges are, in the
opinion of the Borrower, adequate. No tax lien has been filed
and, to the knowledge of the Borrower, no claim is being asserted
with respect to any such tax, fee or other charge.
Section 7.10 Titles, etc.
(a) Except as set out in Schedule 7.10, each of the
Borrower and the Restricted Subsidiaries has good and
defensible title to its material (individually or in the
aggregate) Properties, free and clear of all Liens except
Liens permitted by Section 9.02. Except as set forth in
Schedule 7.10, after giving full effect to the Excepted
Liens, the Borrower owns the net interests in production
attributable to the Hydrocarbon Interests reflected in the
most recently delivered Reserve Report and the ownership of
such Properties shall not in any material respect obligate
the Borrower to bear the costs and expenses relating to the
maintenance, development and operations of each such
Property in an amount in excess of the working interest of
each Property set forth in the most recently delivered
Reserve Report. All factual information contained in the
most recently delivered Reserve Report is true and correct
in all material respects as of the date thereof.
(b) All leases and agreements necessary for the
conduct of the business of the Borrower and the Restricted
Subsidiaries are valid and subsisting, in full force and
effect and there exists no default or event or circumstance
which with the giving of notice or the passage of time or
both would give rise to a default under any such lease or
leases, which would affect in any material respect the
conduct of the business of the Borrower and the Restricted
Subsidiaries.
<PAGE> 40
(c) The rights, Properties and other assets presently
owned, leased or licensed by the Borrower and the Restricted
Subsidiaries including, without limitation, all easements
and rights of way, include all rights, Properties and other
assets necessary to permit the Borrower and the Restricted
Subsidiaries to conduct their business in all material
respects in the same manner as its business has been
conducted prior to the Closing Date.
(d) All of the assets and Properties of the Borrower
and the Restricted Subsidiaries which are reasonably
necessary for the operation of its business are in good
working condition and are maintained in accordance with
prudent business standards.
Section 7.11 No Material Misstatements. No written
information, statement, exhibit, certificate, document or report
furnished to the Agent and the Lenders (or any of them) by the
Borrower or any Subsidiary in connection with the negotiation of
this Agreement contained any material misstatement of fact or
omitted to state a material fact or any fact necessary to make
the statement contained therein not materially misleading in the
light of the circumstances in which made and with respect to the
Borrower and the Subsidiaries taken as a whole. There is no fact
peculiar to the Borrower or any Subsidiary which has a Material
Adverse Effect or in the future is reasonably likely to have (so
far as the Borrower can now foresee) a Material Adverse Effect
and which has not been set forth in this Agreement or the other
documents, certificates and statements furnished to the Agent by
or on behalf of the Borrower or any Subsidiary prior to, or on,
the Closing Date in connection with the transactions contemplated
hereby.
Section 7.12 Investment Company Act. Neither the
Borrower nor any Subsidiary is an "investment company" or a
company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
Section 7.13 Public Utility Holding Company Act.
Neither the Borrower nor any Subsidiary is a "holding company,"
or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company," or a "public utility" within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
Section 7.14 Subsidiaries. Except as set forth on
Schedule 7.14 which indicates all Restricted Subsidiaries and all
Unrestricted Subsidiaries, the Borrower has no Subsidiaries other
than those formed pursuant to Section 9.16 prior to the quarterly
report required by Section 8.01(i).
Section 7.15 Location of Business and Offices. The
Borrower's principal place of business and chief executive
offices are located at the address stated on the signature page
of this Agreement. The principal place of business and chief
executive office of each Subsidiary are located at the addresses
stated on Schedule 7.14.
Section 7.16 Defaults. Neither the Borrower nor any
Subsidiary is in default nor has any event or circumstance
occurred which, but for the expiration of any applicable grace
period or the giving of notice, or both, would constitute a
default under any material agreement or instrument to which the
Borrower or any Subsidiary is a party or by which the Borrower or
any Subsidiary is bound which default would have a Material
Adverse Effect. No Default hereunder has occurred and is
continuing.
<PAGE> 41
Section 7.17 Environmental Matters. Except (i) as
provided in Schedule 7.17 or (ii) as would not have a Material
Adverse Effect (or with respect to (c), (d) and (e) below, where
the failure to take such actions would not have a Material
Adverse Effect):
(a) Neither any Property of the Borrower or any
Subsidiary nor the operations conducted thereon violate any
order or requirement of any court or Governmental Authority
or any Environmental Laws;
(b) Without limitation of clause (a) above, no
Property of the Borrower or any Subsidiary nor the
operations currently conducted thereon or, to the best
knowledge of the Borrower, by any prior owner or operator of
such Property or operation, are in violation of or subject
to any existing, pending or threatened action, suit,
investigation, inquiry or proceeding by or before any court
or Governmental Authority or to any remedial obligations
under Environmental Laws;
(c) All notices, permits, licenses or similar
authorizations, if any, required to be obtained or filed in
connection with the operation or use of any and all Property
of the Borrower and each Subsidiary, including without
limitation past or present treatment, storage, disposal or
release of a hazardous substance or solid waste into the
environment, have been duly obtained or filed, and the
Borrower and each Subsidiary are in compliance with the
terms and conditions of all such notices, permits, licenses
and similar authorizations;
(d) All hazardous substances, solid waste, and oil and
gas exploration and production wastes, if any, generated at
any and all Property of the Borrower or any Subsidiary have
in the past been transported, treated and disposed of in
accordance with Environmental Laws and so as not to pose an
imminent and substantial endangerment to public health or
welfare or the environment, and, to the best knowledge of
the Borrower, all such transport carriers and treatment and
disposal facilities have been and are operating in
compliance with Environmental Laws and so as not to pose an
imminent and substantial endangerment to public health or
welfare or the environment, and are not the subject of any
existing, pending or threatened action, investigation or
inquiry by any Governmental Authority in connection with any
Environmental Laws;
(e) The Borrower has taken all steps reasonably
necessary to determine and has determined that no hazardous
substances, solid waste, or oil and gas exploration and
production wastes, have been disposed of or otherwise
released and there has been no threatened release of any
hazardous substances on or to any Property of the Borrower
or any Subsidiary except in compliance with Environmental
Laws and so as not to pose an imminent and substantial
endangerment to public health or welfare or the environment;
(f) To the extent applicable, all Property of the
Borrower and each Subsidiary currently satisfies all design,
operation, and equipment requirements imposed by the OPA or
scheduled as of the Closing Date to be imposed by OPA during
the term of this Agreement, and the Borrower does not have
any reason to believe that such Property, to the extent
subject to OPA, will not be able to maintain compliance with
the OPA requirements during the term of this Agreement; and
<PAGE> 42
(g) Neither the Borrower nor any Subsidiary has any
known contingent liability in connection with any release or
threatened release of any oil, hazardous substance or solid
waste into the environment.
Section 7.18 Compliance with the Law. Neither the
Borrower nor any Subsidiary has violated any Governmental
Requirement or failed to obtain any license, permit, franchise or
other governmental authorization necessary for the ownership of
any of its Properties or the conduct of its business, which
violation or failure would have (in the event such violation or
failure were asserted by any Person through appropriate action) a
Material Adverse Effect. Except for such acts or failures to act
as would not have a Material Adverse Effect, the Oil and Gas
Properties (and properties unitized therewith) have been
maintained, operated and developed in a good and workmanlike
manner and in conformity with all applicable laws and all rules,
regulations and orders of all duly constituted authorities having
jurisdiction and in conformity with the provisions of all leases,
subleases or other contracts comprising a part of the Hydrocarbon
Interests and other contracts and agreements forming a part of
the Oil and Gas Properties; specifically in this connection, (i)
after the Closing Date, no Oil and Gas Property is subject to
having allowable production reduced below the full and regular
allowable (including the maximum permissible tolerance) because
of any overproduction (whether or not the same was permissible at
the time) prior to the Closing Date and (ii) none of the wells
comprising a part of the Oil and Gas Properties (or properties
unitized therewith) are deviated from the vertical more than the
maximum permitted by applicable laws, regulations, rules and
orders, and such wells are, in fact, bottomed under and are
producing from, and the producing intervals are wholly within the
Oil and Gas Properties (or in the case of wells located on
properties unitized therewith, such unitized properties).
Section 7.19 Insurance. Schedule 7.19 attached hereto
contains an accurate and complete description of all material
policies of fire, liability, workmen's compensation and other
forms of insurance maintained by or on behalf of the Borrower and
each Restricted Subsidiary. All such policies are in full force
and effect, all premium payments with respect thereto covering
all periods up to and including the date of the closing are
current, and no notice of cancellation or termination has been
received with respect to any such policy. Such policies are
sufficient for compliance with all requirements of law and of all
agreements to which the Borrower or any Restricted Subsidiary is
a party; are valid, outstanding and enforceable policies; provide
adequate insurance coverage in at least such amounts and against
at least such risks (but including in any event public liability)
as are usually insured against in the same general area by
companies engaged in the same or a similar business for the
assets and operations of the Borrower and each Restricted
Subsidiary; will remain in full force and effect through the
respective dates set forth in Schedule 7.19 without the payment
of additional premiums (except for adjustments); and will not in
any way be affected by, or terminate or lapse by reason of, the
transactions contemplated by this Agreement. Schedule 7.19
identifies all material risks, if any, which the Borrower and the
Restricted Subsidiaries and their respective board of directors
or officers have designated as being self-insured. Neither the
Borrower nor any Restricted Subsidiary has been refused any
insurance with respect to its assets or operations, nor has its
coverage been limited below usual and customary policy limits, by
an insurance carrier to which it has applied for any such
insurance or with which it has carried insurance during the last
three years.
Section 7.20 Hedging Agreements. Schedule 7.20 sets
forth, as of the Closing Date, a true and complete list of all
Hedging Agreements (including commodity price swap agreements,
<PAGE> 43
forward agreements or contracts of sale which provide for
prepayment for deferred shipment or delivery of oil, gas or other
commodities) of the Borrower and each Restricted Subsidiary, the
material terms thereof (including the type, term, effective date,
termination date and notional amounts or volumes), the net mark
to market value thereof, all credit support agreements relating
thereto (including any margin required or supplied), and the
counterparty to each such agreement.
Section 7.21 Restriction on Liens. Neither the
Borrower nor any of the Restricted Subsidiaries is a party to any
agreement or arrangement (other than this Agreement and the
Security Instruments), or subject to any order, judgment, writ or
decree, which either restricts or purports to restrict its
ability to grant Liens to other Persons on or in respect of their
respective assets or Properties.
Section 7.22 Material Agreements. Set forth on
Schedule 7.22 hereto (as same may be amended quarterly and
delivered together with the reports required in Sections 8.01(a)
and 8.01(b) hereof for leases, agreements, and other documents,
entered into after the Closing Date) is a complete and correct
list of all material agreements, leases, indentures, purchase
agreements, obligations in respect of letters of credit,
guarantees, joint venture agreements, and other instruments in
effect or to be in effect as of the Closing Date (other than
Hedging Agreements) providing for, evidencing, securing or
otherwise relating to any Debt of the Borrower or any of the
Restricted Subsidiaries, and all obligations of the Borrower or
any of the Restricted Subsidiaries to issuers of surety or appeal
bonds issued for account of the Borrower or any such Restricted
Subsidiary, and such list correctly sets forth the names of the
debtor or lessee and creditor or lessor with respect to the Debt
or lease obligations outstanding or to be outstanding and the
property subject to any Lien securing such Debt or lease
obligation. Also set forth on Schedule 7.22 hereto is a complete
and correct list of all material agreements and other instruments
of the Borrower and the Restricted Subsidiaries relating to the
purchase, transportation by pipeline, gas processing, marketing,
sale and supply of natural gas and other Hydrocarbons, but in any
event, any such agreement or other instrument that will account
for more than 20% of the sales of the Borrower and the Restricted
Subsidiaries during the Borrower's current fiscal year.
Section 7.23 Gas Imbalances. As of the Closing Date,
except as set forth on Schedule 7.23 or on the most recent
certificate delivered pursuant to Section 8.07(c), on a net basis
there are no gas imbalances, take or pay or other prepayments
with respect to the Borrower's Oil and Gas Properties which would
require the Borrower to deliver Hydrocarbons produced from the
Oil and Gas Properties at some future time without then or
thereafter receiving full payment therefor exceeding one billion
cubic feet of gas in the aggregate.
Section 7.24 Year 2000. Any reprogramming required to
permit the proper functioning in and following the year 2000 of
(i) the Borrower's and its Subsidiaries' critical and material
computer systems and (ii) equipment containing embedded
microchips (including systems and equipment supplied by others or
with which Borrower's or its Subsidiaries' systems interface) and
the testing of all such systems and equipment, as so
reprogrammed, will be completed by June 30, 1999. The cost to
the Borrower and its Subsidiaries of such reprogramming and
testing and of the reasonably foreseeable consequences of year
2000 to the Borrower and its Subsidiaries (including, without
limitation, reprogramming errors and the failure of others'
systems or equipment) will not result in a Default or a Material
Adverse Effect. Except for such of the reprogramming referred to
in the preceding sentence as may be necessary, the computer and
<PAGE> 44
management information systems of the Borrower and its
Subsidiaries are and, with ordinary course upgrading and
maintenance, will continue to be, sufficient to permit the
Borrower to conduct its business without Material Adverse Effect.
ARTICLE VIII
Affirmative Covenants
The Borrower covenants and agrees that, so long as any of
the Commitments are in effect and until payment in full of all
Indebtedness hereunder, all interest thereon and all other
amounts payable by the Borrower hereunder:
Section 8.01 Financial Statements. The Borrower shall
deliver, or shall cause to be delivered, to the Agent with
sufficient copies for each for the Lenders:
(a) As soon as available and in any event within 90
days after the end of each fiscal year of the Borrower, the
audited consolidated statements of income, stockholders'
equity, and cash flow of the Borrower and its Consolidated
Subsidiaries for such fiscal year, and the related
consolidated balance sheets of the Borrower and its
Consolidated Subsidiaries as at the end of such fiscal year,
and setting forth in each case in comparative form the
corresponding figures for the preceding fiscal year, and
accompanied by the related opinion of independent public
accountants of recognized national standing acceptable to
the Agent which opinion shall state that said financial
statements fairly present the consolidated financial
condition and results of operations of the Borrower and its
Consolidated Subsidiaries as at the end of, and for, such
fiscal year and that such financial statements have been
prepared in accordance with GAAP except for such changes in
such principles with which the independent public
accountants shall have concurred and such opinion shall not
contain a "going concern" or like qualification or
exception, and a certificate of such accountants stating
that, in making the examination necessary for their opinion,
they obtained no knowledge, except as specifically stated,
of any Default.
(b) As soon as available and in any event within 60
days after the end of each of the first three fiscal
quarterly periods of each fiscal year of the Borrower,
consolidated statements of income, stockholders' equity, and
cash flow of the Borrower and its Consolidated Subsidiaries
for such period and for the period from the beginning of the
respective fiscal year to the end of such period, and the
related consolidated balance sheets as at the end of such
period, and setting forth in each case in comparative form
the corresponding figures for the corresponding period in
the preceding fiscal year, accompanied by the certificate of
a Responsible Officer, which certificate shall state that
said financial statements fairly present the consolidated
financial condition and results of operations of the
Borrower and its Consolidated Subsidiaries in accordance
with GAAP, as at the end of, and for, such period (subject
to normal year-end audit adjustments).
(c) Promptly after the Borrower knows that any Default
or any Material Adverse Effect has occurred, a notice of
such Default or Material Adverse Effect, describing the same
in reasonable detail and the action the Borrower proposes to
take with respect thereto.
<PAGE> 45
(d) Promptly upon receipt thereof, a copy of each
other report or letter submitted to the Borrower or any
Restricted Subsidiary by independent accountants in
connection with any annual, interim or special audit made by
them of the books of the Borrower and the Restricted
Subsidiaries, and a copy of any response by the Borrower or
any Restricted Subsidiary of the Borrower, or the board of
directors of the Borrower or any Restricted Subsidiary of
the Borrower, to such letter or report.
(e) Promptly upon its becoming available, each
financial statement, report, notice or proxy statement sent
by the Borrower to stockholders generally and each regular
or periodic report and any registration statement,
prospectus or written communication (other than transmittal
letters) in respect thereof filed by the Borrower with or
received by the Borrower in connection therewith from any
securities exchange or the SEC or any successor agency.
(f) Promptly after the furnishing thereof, copies of
any material statement, report or notice furnished by the
Borrower to any Person pursuant to the terms of any material
(i.e., over $1,500,000, if permitted) indenture, loan or
credit or other similar agreement, other than this Agreement
and not otherwise required to be furnished to the Lenders
pursuant to any other provision of this Section 8.01.
(g) From time to time such other information regarding
the business, affairs or financial condition of the Borrower
or any Restricted Subsidiary (including, without limitation,
any Plan or Multiemployer Plan and any reports or other
information required to be filed under ERISA) as any Lender
or the Agent may reasonably request.
(h) Simultaneously with the delivery of the Financial
Statements referred to in clauses (a) and (b) above, a
report, in form and substance satisfactory to the Agent,
setting forth as of the last Business Day of such calendar
quarter a true and complete list of all Hedging Agreements
(including commodity price swap agreements, forward
agreements or contracts of sale which provide for prepayment
for deferred shipment or delivery of oil, gas or other
commodities) of the Borrower and each Restricted Subsidiary,
the material terms thereof (including the type, term,
effective date, termination date and notional amounts or
volumes), the net mark to market value therefor, any new
credit support agreements relating thereto not listed on
Schedule 7.20, any margin required or supplied under any
credit support document, and the counterparty to each such
agreement.
(i) Simultaneously with the delivery of the Financial
Statements referred to in clause (b) above, an update to
Schedule 7.14 setting forth all Subsidiaries of the Borrower
as of the last Business Day of such calendar quarter.
The Borrower will furnish to the Agent, at the time it furnishes
each set of financial statements pursuant to paragraph (a) or (b)
above, a certificate substantially in the form of Exhibit C
hereto executed by a Responsible Officer (i) certifying as to the
matters set forth therein and stating that no Default has
occurred and is continuing (or, if any Default has occurred and
is continuing, describing the same in reasonable detail), and
(ii) setting forth in reasonable detail the computations
<PAGE> 46
necessary to determine whether the Borrower is in compliance with
Sections 9.11 and 9.12 as of the end of the respective fiscal
quarter or fiscal year.
Section 8.02 Litigation. The Borrower shall promptly
give to the Agent notice of all legal or arbitral proceedings,
and of all proceedings before any Governmental Authority
affecting the Borrower or any Restricted Subsidiary, except
proceedings which, if adversely determined, would not have a
Material Adverse Effect. The Borrower will, and will cause each
of the Restricted Subsidiaries to, promptly notify the Agent and
each of the Lenders of any claim, judgment, Lien or other
encumbrance affecting any Property of the Borrower or any
Restricted Subsidiary if the value of the claim, judgment, Lien,
or other encumbrance affecting such Property shall exceed
$1,000,000.
Section 8.03 Maintenance, Etc.
(a) The Borrower shall and shall cause each Restricted
Subsidiary to: preserve and maintain its corporate existence
and all of its material rights, privileges and franchises;
keep books of record and account in which full, true an
correct entries will be made of all dealings or transactions
in relation to its business and activities; comply with all
Governmental Requirements if failure to comply with such
requirements will have a Material Adverse Effect; pay and
discharge all taxes, assessments and governmental charges or
levies imposed on it or on its income or profits or on any
of its Property prior to the date on which penalties attach
thereto, except for any such tax, assessment, charge or levy
the payment of which is being contested in good faith and by
proper proceedings and against which adequate reserves are
being maintained; upon reasonable notice, permit
representatives of the Agent or any Lender, during normal
business hours, to examine, copy and make extracts from its
books and records, to inspect its Properties, and to discuss
its business and affairs with its officers, all to the
extent reasonably requested by such Lender or the Agent (as
the case may be); and keep, or cause to be kept, insured by
financially sound and reputable insurers all Property of a
character usually insured by Persons engaged in the same or
similar business similarly situated against loss or damage
of the kinds and in the amounts customarily insured against
by such Persons and carry such other insurance as is usually
carried by such Persons including, without limitation,
pollution insurance to the extent reasonably available.
(b) Contemporaneously with the delivery of the
financial statements required by Section 8.01(a) to be
delivered for each year, the Borrower will furnish or cause
to be furnished to the Agent and the Lenders a certificate
of insurance coverage from the insurer in form and substance
satisfactory to the Agent and, if requested, will furnish
the Agent and the Lenders copies of the applicable policies.
(c) The Borrower will and will cause each Restricted
Subsidiary to operate its Properties or cause such
Properties to be operated in a good and workmanlike manner
in accordance with the standard practices of the industry
and in compliance with all applicable contracts and
agreements and in compliance in all material respects with
all Governmental Requirements.
(d) The Borrower will and will cause each Restricted
Subsidiary to, at its own expense, do or cause to be done
all things reasonably necessary to preserve and keep in good
repair, working order and efficiency all of its Oil and Gas
<PAGE> 47
Properties included in the Borrowing Base and other material
Properties including, without limitation, all equipment,
machinery and facilities, and from time to time will make
all the reasonably necessary repairs, renewals and
replacements so that at all times the state and condition of
its Oil and Gas Properties included in the Borrowing Base
and other material Properties will be fully preserved and
maintained, except (1) for ordinary wear and tear, (2) for
equipment, machinery and facilities no longer used or useful
in the Borrower's or such Restricted Subsidiary's business,
(3) for casualty losses being handled in accordance with
Section 2.07(e) and (4) to the extent a portion of such
Properties is no longer capable of producing Hydrocarbons in
economically reasonable amounts. The Borrower will and will
cause each Restricted Subsidiary to promptly: (i) pay and
discharge, or make reasonable and customary efforts to cause
to be paid and discharged, all delay rentals, royalties,
expenses and indebtedness accruing under the leases or other
agreements affecting or pertaining to its Oil and Gas
Properties included in the Borrowing Base, to the extent
that any failure to so pay or discharge would have a
Material Adverse Effect, (ii) perform or make reasonable and
customary efforts to cause to be performed, in accordance
with industry standards, the material obligations required
by each and all of the assignments, deeds, leases,
subleases, contracts and agreements affecting its interests
in its Oil and Gas Properties included in the Borrowing Base
and other material Properties, (iii) do all other things
necessary to keep unimpaired, except for Liens described in
Section 9.02, its rights with respect to its Oil and Gas
Properties included in the Borrowing Base and other material
Properties and prevent any forfeiture thereof or a default
thereunder, except to the extent a portion of such
Properties is no longer capable of producing Hydrocarbons in
economically reasonable amounts. The Borrower will and will
cause each Restricted Subsidiary to operate its Oil and Gas
Properties included in the Borrowing Base and other material
Properties or cause or make reasonable and customary efforts
to cause such Oil and Gas Properties and other material
Properties to be operated in a good and workmanlike manner
in accordance with the standard practices of the industry
and in compliance with all applicable contracts and
agreements and in compliance in all material respects with
all Governmental Requirements.
Section 8.04 Environmental Matters.
(a) The Borrower will and will cause each Subsidiary,
to the extent not already in place, to establish and
implement such procedures as may be reasonably necessary to
continuously determine and assure that any failure of the
following does not have a Material Adverse Effect: (i) all
Property of the Borrower and the Subsidiaries and the
operations conducted thereon and other activities of the
Borrower and the Subsidiaries are in compliance with and do
not violate the requirements of any Environmental Laws,
(ii) no oil, hazardous substances or solid wastes are
disposed of or otherwise released on or to any Property
owned by any such party except in compliance with
Environmental Laws, (iii) no hazardous substance will be
released on or to any such Property in a quantity equal to
or exceeding that quantity which requires reporting pursuant
to Section 103 of CERCLA, and (iv) no oil, oil and gas
exploration and production wastes or hazardous substance is
released on or to any such Property so as to pose an
imminent and substantial endangerment to public health or
welfare or the environment.
<PAGE> 48
(b) The Borrower will promptly notify the Agent and
the Lenders in writing of any material threatened action,
investigation or inquiry by any Governmental Authority of
which the Borrower has knowledge in connection with any
Environmental Laws, excluding routine testing and corrective
action.
(c) The Borrower will and will cause each Subsidiary
to provide environmental audits and tests in accordance with
American Society for Testing and Materials standards as
reasonably requested by the Agent and the Lenders (or as
otherwise required to be obtained by the Agent or the
Lenders by any Governmental Authority) in connection with
any future acquisitions of Oil and Gas Properties or other
material Properties.
Section 8.05 Further Assurances. The Borrower will
and will cause each Restricted Subsidiary to cure promptly any
defects in the creation and issuance of the Notes and the
execution and delivery of the Security Instruments and this
Agreement. The Borrower at its expense will and will cause each
Restricted Subsidiary to promptly execute and deliver to the
Agent upon request all such other documents, agreements and
instruments to comply with or accomplish the covenants and
agreements of the Borrower or any Restricted Subsidiary, as the
case may be, in the Security Instruments and this Agreement, or
to further evidence and more fully describe the collateral
intended as security for the Notes, or to correct any omissions
in the Security Instruments, or to state more fully the security
obligations set out herein or in any of the Security Instruments,
or to perfect, protect or preserve any Liens created pursuant to
any of the Security Instruments, or to make any recordings, to
file any notices or obtain any consents, all as may be necessary
or appropriate in connection therewith.
Section 8.06 Performance of Obligations. The Borrower
will pay the Notes according to the reading, tenor and effect
thereof; and the Borrower will and will cause each Restricted
Subsidiary to do and perform every act and discharge all of the
obligations to be performed and discharged by them under the
Security Instruments and this Agreement, at the time or times and
in the manner specified.
Section 8.07 Engineering Reports.
(a) Not less than 30 days prior to each Scheduled
Redetermination Date, commencing with the Scheduled
Redetermination Date to occur on December 1, 1999, the
Borrower shall furnish to the Agent and the Lenders a
Reserve Report. The Reserve Report to be delivered by April
1 of each year shall be prepared by certified independent
petroleum engineers or other independent petroleum
consultant(s) acceptable to the Agent and the Reserve Report
to be delivered by October 1 of each year shall be prepared
by or under the supervision of the chief engineer of the
Borrower who shall certify such Reserve Report to be true
and accurate and to have been prepared in accordance with
the procedures used in the immediately preceding April 1
Reserve Report.
(b) In the event of an unscheduled redetermination,
the Borrower shall furnish to the Agent and the Lenders a
Reserve Report prepared by or under the supervision of the
chief engineer of the Borrower who shall certify such
Reserve Report to be true and accurate and to have been
prepared in accordance with the procedures used in the
immediately preceding Reserve Report. For any unscheduled
redetermination requested by the Majority Lenders or the
<PAGE> 49
Borrower pursuant to Section 2.08(d), the Borrower shall
provide such Reserve Report with an "as of" date as required
by the Majority Lenders as soon as possible, but in any
event no later than 30 days following the receipt of the
request by the Agent on behalf of the Majority Lenders.
(c) With the delivery of each Reserve Report, the
Borrower shall provide to the Agent and the Lenders, a
certificate from a Responsible Officer certifying that, to
the best of his knowledge and in all material respects: (i)
the information contained in the Reserve Report and any
other information delivered in connection therewith is true
and correct, (ii) the Borrower owns good and defensible
title to the Oil and Gas Properties evaluated in such
Reserve Report and such Properties are free of all Liens
except for Liens permitted by Section 9.02, (iii) except as
set forth on an exhibit to the certificate, on a net basis
there are no gas imbalances, take or pay or other
prepayments with respect to its Oil and Gas Properties
evaluated in such Reserve Report which would require the
Borrower to deliver Hydrocarbons produced from such Oil and
Gas Properties at some future time without then or
thereafter receiving full payment therefor, (iv) none of its
Oil and Gas Properties included in the Borrowing Base have
been sold since the date of the last Borrowing Base
determination except as set forth on an exhibit to the
certificate, which certificate shall list all of its Oil and
Gas Properties sold and in such detail as reasonably
required by the Majority Lenders, (v) attached to the
certificate is a list of its Oil and Gas Properties included
in the Borrowing Base added to and deleted from the
immediately prior Reserve Report and a list showing any
change in working interest or net revenue interest in its
Oil and Gas Properties occurring and the reason for such
change, (vi) attached to the certificate is a list of all
Persons disbursing proceeds to the Borrower from its Oil and
Gas Properties included in the Borrowing Base and (vii)
Schedule B attached to such Reserve Report is a listing of
the Oil and Gas Properties to be considered in the
determination of the Borrowing Base.
(d) As soon as available and in any event within 60
days after the end of each calendar quarter, the Borrower
shall provide production reports and lease operating
summaries by lease for its Oil and Gas Properties included
in the Borrowing Base, which reports shall include
quantities or volume of production, revenue, realized
product prices, operating expenses, taxes, capital
expenditures and lease operating costs which have accrued to
the Borrower's accounts in such period, and such other
information with respect thereto as the Agent may reasonably
require.
(e) In regards to the redetermination of the Offered
Borrowing Base according to Section 2.08(h), the Borrower
shall furnish to the Bank prior to January 2, 1999 a Ryder
Scott Report prepared as of June 30, 1998, along with
supplemental information on the Oil and Gas Properties to be
designated as Borrowing Base properties. The second interim
redetermination of the Offered Borrowing Base will utilize
the April 1st report updated by the Borrower.
Section 8.08 Title Information.
(a) On or before the delivery to the Agent and the
Lenders of each Reserve Report required by Section 8.07(a),
the Borrower will deliver title information in form and
<PAGE> 50
substance acceptable to the Agent covering enough of the
Hydrocarbon Interests included in the Borrowing Base that
were not included in the immediately preceding Reserve
Report, so that the Agent shall have received together with
title information previously delivered to the Agent,
satisfactory title information on 100% of the value of the
Hydrocarbon Interests included in the Borrowing Base.
(b) The Borrower shall cure any title defects or
exceptions which are not Excepted Liens raised by such
information, or substitute acceptable Mortgaged Properties
with no title defects or exceptions except for Excepted
Liens covering Mortgaged Properties of an equivalent value,
within 30 days after a request by the Agent or the Lenders
to cure such defects or exceptions.
(c) If the Borrower is unable to cure any title defect
requested by the Agent or the Lenders to be cured within the
30-day period or the Borrower does not comply with the
requirements to provide acceptable title information
covering 100% of the value of the Oil and Gas Properties
evaluated in the most recent Reserve Report, such default
shall not be a Default or an Event of Default, but instead
the Agent and the Lenders shall have the right to exercise
the following remedy in their sole discretion from time to
time, and any failure to so exercise this remedy at any time
shall not be a waiver as to future exercise of the remedy by
the Agent or the Lenders. To the extent that the Agent or
the Lenders are not satisfied with title to any Mortgaged
Property after the time period in Section 8.08(b) has
elapsed, such unacceptable Mortgaged Property shall not
count towards the 100% requirement, and the Agent may send a
notice to the Borrower and the Lenders that the then
outstanding Borrowing Base shall be reduced by an amount as
determined by the Majority Lenders to cause the Borrower to
be in compliance with the requirement to provide acceptable
title information on 100% of the value of the Hydrocarbon
Interests included in the Borrowing Base. This new
Borrowing Base shall become effective immediately after
receipt of such notice.
Section 8.09 Collateral.
(a) Granting of Liens. (i) If, at any time the
Indebtedness is unsecured,
(A) the sum of the aggregate outstanding
principal balance of the Loans plus the LC Exposure
exceeds 75% of the Offered Borrowing Base then in
effect, and the Borrower elects not to prepay the Loans
in an aggregate principal amount equal to or greater
than such excess, or
(B) the Borrower shall default in the performance
of any of its obligations under Article IX of this
Agreement, or
(C) the Aggregate Commitments have not been
terminated and the Indebtedness shall not have been
paid in full on or before the date which is twelve (12)
months after the Closing Date,
then the Borrower shall, and, if applicable, shall cause a
Restricted Subsidiary to, grant to the Agent as security for
the Indebtedness a first-priority Lien (subject only to
<PAGE> 51
Liens permitted under Section 9.02) on all Oil and Gas
Properties included in the Borrowing Base. Said Lien will
be created and perfected by and in accordance with the
provisions of mortgages, deeds of trust, security agreements
and financing statements, or other Security Instruments, all
in form and substance satisfactory to the Agent in its sole
discretion and in sufficient executed (and acknowledged
where necessary or appropriate) counterparts for recording
purposes.
(ii) Concurrently with the granting of the Lien or
other action referred to in Section 8.09(a)(i) above, the
Borrower will provide to the Agent title information in form
and substance satisfactory to the Agent in its reasonable
discretion with respect to the Borrower's or Restricted
Subsidiary's, as applicable, interest in all Oil and Gas
Properties subject to such Liens.
(iii) Promptly after the filing of each new
Security Instrument delivered pursuant to Section
8.09(a)(i), upon the reasonable request of the Agent, the
Borrower will provide an opinion addressed to the Agent for
the benefit of the Lenders in form and substance
satisfactory to the Agent in its sole discretion from
counsel acceptable to the Agent, stating that such Security
Instrument is valid, binding and enforceable in accordance
with its terms and in legally sufficient form for
recordation in such jurisdiction.
(iv) Prior to filing of record any Security Instruments
pursuant to this Agreement, the Borrower will cause all
offshore leases relating to any Oil and Gas Property
included in the Borrowing Base to be filed of record in all
appropriate counties or parishes adjacent to the Property
covered by such offshore leases.
(b) Acquisitions. (i) Should the Borrower acquire any
additional Oil and Gas Properties which will be part of the
Oil and Gas Properties included in the Borrowing Base, to
the extent that the Borrower is required to provide security
in accordance with Section 8.09(a), the Borrower will grant
to the Agent as security for the Indebtedness a first-prior-
ity Lien interest (subject only to Liens permitted under
Section 9.02) on the Borrower's interest in any such Oil and
Gas Properties included in the Borrowing Base not already
subject to a Lien of the Security Instruments, which Lien
will be created and perfected by and in accordance with the
provisions of mortgages, deeds of trust, security agreements
and financing statements, or other Security Instruments, all
in form and substance satisfactory to the Agent in its sole
discretion and in sufficient executed (and acknowledged
where necessary or appropriate) counterparts for recording
purposes.
(ii) Concurrently with the granting of the Lien or
other action referred to in Section 8.09(b)(i) above, the
Borrower will provide to the Agent title information in form
and substance satisfactory to the Agent in its reasonable
discretion with respect to the Borrower's interests in such
Oil and Gas Properties.
(c) Also, promptly after the filing in any state of
each new Security Instrument delivered pursuant to Section
8.09(b)(i), upon the reasonable request of the Agent, the
Borrower will provide to the Agent an opinion addressed to
the Agent for the benefit of the Lenders in form and
substance satisfactory to the Agent in its sole discretion
<PAGE> 52
from counsel acceptable to the Agent, stating that such
Security Instrument is valid, binding and enforceable in
accordance with its terms and in legally sufficient form for
recordation in such jurisdiction.
Section 8.10 ERISA Information and Compliance. When
requested by the Agent, the Borrower will promptly furnish and
will cause the Subsidiaries and any ERISA Affiliate to promptly
furnish to the Agent with sufficient copies to the Lenders copies
of each annual and other report with respect to each Plan or any
trust created thereunder filed with the United States Secretary
of Labor, the Internal Revenue Service or the PBGC. The Borrower
will promptly notify the Agent immediately upon becoming aware of
the occurrence of any ERISA Event or, with respect to any
Restricted Subsidiary or Plan thereof, of any "prohibited
transaction," as described in section 406 of ERISA or in section
4975 of the Code, in connection with any Plan or any trust
created thereunder, in a written notice signed by a Responsible
Officer specifying the nature thereof, what action the Borrower,
the Subsidiary or the ERISA Affiliate is taking or proposes to
take with respect thereto, and, when known, any action taken or
proposed by the Internal Revenue Service, the Department of Labor
or the PBGC with respect thereto. Immediately upon receipt
thereof, the Borrower will promptly send to the Agent, with
sufficient copies to the Lenders, copies of any notice of the
PBGC's intention to terminate or to have a trustee appointed to
administer any Plan. With respect to each Plan (other than a
Multiemployer Plan), the Borrower will, and will cause each
Subsidiary and ERISA Affiliate to, (i) satisfy in full, without
giving rise to any lien, all of the contribution and funding
requirements of section 412 of the Code (determined without
regard to subsections (d), (e), (f) and (k) thereof) and of
section 302 of ERISA (determined without regard to sections 303,
304 and 306 of ERISA), and (ii) pay, or cause to be paid, to the
PBGC all premiums required pursuant to sections 4006 and 4007 of
ERISA.
ARTICLE IX
Negative Covenants
The Borrower covenants and agrees that, so long as any of
the Commitments are in effect and until payment in full of Loans
hereunder, all interest thereon and all other amounts payable by
the Borrower hereunder, without the prior written consent of the
Majority Lenders:
Section 9.01 Debt. Neither the Borrower nor any
Restricted Subsidiary will incur, create, assume or suffer to
exist any Debt, except:
(a) the Notes or other Indebtedness arising under the
Loan Documents or any guaranty of or suretyship arrangement
for the Notes or other Indebtedness arising under the Loan
Documents;
(b) Debt existing on the Closing Date which is
reflected in the Financial Statements or is disclosed in
Schedule 9.01, and any renewals, extensions or refinancings
(but not increases) thereof;
(c) Debt (unrelated to Unrestricted Subsidiaries and
other than for borrowed money) incurred in the ordinary
course of business in connection with Hydrocarbon
<PAGE> 53
transportation, Hydrocarbon purchasing or other similar
arrangements, provided that such arrangements are disclosed
to the Agent and the costs of the financing related to such
arrangements are incorporated into the Engineering Reports
provided to the Agent;
(d) Debt under Hedging Agreements with a Lender or
another investment grade counterparty, the notional amounts
of which, with respect to commodity Hedging Agreements, do
not exceed 80% of Borrower's anticipated oil and/or gas
production from producing wells to be produced during the
term of such Hedging Agreements, entered into as a part of
its normal business operations as a risk management strategy
and/or hedge against changes resulting from market
conditions related to the Borrower's and its Subsidiaries'
operations;
(e) additional Debt (including, without limitation,
guarantees of Debt of Unrestricted Subsidiaries) with an
outstanding aggregate principal amount not at any time in
excess of (when aggregated with investments permitted under
Section 9.03(i)) $5,000,000; provided, however, that the
Offered Borrowing Base shall be reduced by the amount of all
such Debt outstanding at any time which, when added to the
amount of investments outstanding at any time under Section
9.03(i), is in excess of $1,500,000;
(f) Debt secured by the Liens permitted by clause (x)
of the definition of "Excepted Liens"; provided that such
Debt is discharged within 180 days of the relevant
acquisition or merger;
(g) Debt consisting of a pledge of investments in
Unrestricted Subsidiaries permitted by clause (xii) of the
definition of "Excepted Liens"; provided that such Debt is
recourse solely to the investment so pledged;
(h) loans and advances between the Restricted
Subsidiaries, to any Restricted Subsidiary from the Borrower
and to the Borrower from any Restricted Subsidiary;
(i) Debt approved by the Majority Lenders which is
subordinated on terms satisfactory to the Majority Lenders
to the payment of the Indebtedness (with the Offered
Borrowing Base in effect from time to time being reduced by
an amount equal to any effect upon the Offered Borrowing
Base occasioned by such subordinated Debt in the judgment of
the Majority Lenders).
Section 9.02 Liens. Neither the Borrower nor any
Restricted Subsidiary will create, incur, assume or permit to
exist any Lien on any of its Properties included in the Borrowing
Base (now owned or hereafter acquired), except:
(a) Liens securing the payment of any Indebtedness;
(b) Excepted Liens;
(c) Liens securing capital leases allowed under
Section 9.01(e) but only on the Property under lease;
<PAGE> 54
(d) Liens disclosed on Schedule 9.02; and
(e) Liens on cash or securities of the Borrower
securing the Debt described in Sections 9.01(c) and (d);
Section 9.03 Investments, Loans and Advances. Neither
the Borrower nor any Restricted Subsidiary will make or permit to
remain outstanding any loans or advances to or investments in any
Person which is not the Borrower or a Restricted Subsidiary, but
which does include Unrestricted Subsidiaries (each such Person
being a "Third Party") (which shall include any payments on
behalf of any Unrestricted Subsidiary and shall include the
Borrower's investments in and any loans and advances to any
Restricted Subsidiaries that become Unrestricted Subsidiaries in
accordance with Section 9.16 and the definition of "Unrestricted
Subsidiary"), except that the foregoing restriction shall not
apply to:
(a) investments, loans or advances reflected in the
Financial Statements or which are disclosed to the Lenders
in Schedule 9.03;
(b) accounts receivable arising in the ordinary course
of business;
(c) direct obligations of the United States or any
agency thereof, or obligations guaranteed by the United
States or any agency thereof, in each case maturing within
one year from the date of creation thereof;
(d) commercial paper maturing within one year from the
date of creation thereof rated in the highest grade by
Standard & Poors Corporation or Moody's Investors Service,
Inc.;
(e) deposits maturing within one year from the date of
creation thereof with, including certificates of deposit
issued by, any Lender or any office located in the United
States of any other bank or trust company which is organized
under the laws of the United States or any state thereof,
has capital, surplus and undivided profits aggregating at
least $100,000,000.00 (as of the date of such Lender's or
bank or trust company's most recent financial reports) and
has a short term deposit rating of no lower than A2 or P2,
as such rating is set forth from time to time, by Standard &
Poors Corporation or Moody's Investors Service, Inc.,
respectively;
(f) deposits in money market funds investing
exclusively in investments described in Section 9.03(c),
9.03(d) or 9.03(e);
(g) investments in direct ownership interests in
additional Oil and Gas Properties and gas gathering systems
related thereto;
(h) investments in Unrestricted Subsidiaries in the
form of Oil and Gas Properties which are included in the
Borrowing Base with adjustments to be made to the Borrowing
Base with respect to the elimination of such properties from
the Borrowing Base; provided, however, the approval of the
Majority Lenders shall be required for such removal of a
property from the Borrowing Base and a redetermination of
<PAGE> 55
the Borrowing Base shall have been made prior to such
removal in all such cases in which the Borrower has not
secured the Indebtedness pursuant to Sections 6.02 and 8.09
hereof; and
(i) investments of cash and any other Property not
included in the Borrowing Base in an aggregate outstanding
amount not at any time in excess of (when aggregated with
Debt permitted under Section 9.01(e)) $5,000,000; provided
that, with respect to investments of Property, only the
amount of the excess (if any) of the book value of such
Property over the consideration received by the transferor
in connection with the investment of such Property shall
count against such $5,000,000 limit; and provided further
that the Offered Borrowing Base shall be reduced by the
amount of all such investments (net of any such
consideration received by the transferor) outstanding at any
time which, when added to the amount of Debt outstanding at
any time under Section 9.01(e), is in excess of $1,500,000.
Section 9.04 Dividends, Distributions and Redemptions.
The Borrower will not declare or pay any dividend, purchase,
redeem or otherwise acquire for value any of its stock now or
hereafter outstanding, return any capital to its stockholders or
make any distribution of its assets to its stockholders, except
(with consent of the Majority Lenders which will not be
unreasonably withheld) to the extent of cash contributions made
to the capital of the Borrower by the shareholders thereof after
the date of the Merger; provided, however, that such cash
distributions shall not be permitted hereunder if an Event of
Default has occurred and is continuing or would result therefrom.
Section 9.05 Sales and Leasebacks. Neither the
Borrower nor any Restricted Subsidiary will enter into any
arrangement, directly or indirectly, with any Person whereby the
Borrower or any Restricted Subsidiary shall sell or transfer any
of its Property included in the Borrowing Base, whether now owned
or hereafter acquired, and whereby the Borrower or any Restricted
Subsidiary shall then or thereafter rent or lease as lessee such
Property or any part thereof or other Property which the Borrower
or any Restricted Subsidiary intends to use for substantially the
same purpose or purposes as the Property sold or transferred.
Section 9.06 Nature of Business. Neither the Borrower
nor any Restricted Subsidiary will allow any material change to
be made in the character of its business as an independent oil
and gas exploration and production company.
Section 9.07 Mergers Etc. Neither the Borrower nor
any Restricted Subsidiary will merge into or with or consolidate
with any other Person, or sell, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all
or substantially all of its Property or assets to any other
Person, except that:
(a) the Borrower or any Restricted Subsidiary may
merge or liquidate any other Person into itself, so long as
the surviving entity will be in compliance with all of the
terms of this Agreement immediately following the merger or
liquidation;
(b) the Borrower may enter into the Merger upon the
material terms set forth in the Registration Statement;
(c) any Restricted Subsidiary may merge or liquidate
into the Borrower or another Restricted Subsidiary; and
<PAGE> 56
(d) any Restricted Subsidiary may be merged into any
other Person; provided that such other Person, immediately
following such merger, shall be deemed a Restricted
Subsidiary and shall comply with the provisions of Section
9.16 hereof;
provided, however, that in the case of a merger permitted by
clauses (a) and (c) above, immediately thereafter and giving
effect thereto, the Borrower or, as the case may be, a
Restricted Subsidiary would be the surviving Person and, in
the case of a merger permitted by clause (a), (b), (c), or
(d) above, no Default or Event of Default would, immediately
thereafter and giving effect thereto, have occurred and be
continuing.
Section 9.08 Proceeds of Notes. The Borrower will not
permit the proceeds of the Notes to be used for any purpose other
than those permitted by Section 7.07. Neither the Borrower nor
any Person acting on behalf of the Borrower has taken or will
take any action which might cause any of the Loan Documents to
violate Regulation G, U or X or any other regulation of the Board
of Governors of the Federal Reserve System or to violate Section
7 of the Securities Exchange Act of 1934 or any rule or
regulation thereunder, in each case as now in effect or as the
same may hereinafter be in effect.
Section 9.09 ERISA Compliance. The Borrower will not
at any time:
(a) Engage in, or permit any Restricted Subsidiary or
ERISA Affiliate to engage in, any transaction in connection
with which the Borrower, any Restricted Subsidiary or any
ERISA Affiliate could be subjected to either a civil penalty
assessed pursuant to section 502(c), (i) or (l) of ERISA or
a tax imposed by Chapter 43 of Subtitle D of the Code;
(b) Terminate, or permit any Subsidiary or ERISA
Affiliate to terminate, any Plan in a manner, or take any
other action with respect to any Plan, which could result in
any liability of the Borrower, any Subsidiary or any ERISA
Affiliate to the PBGC;
(c) Fail to make, or permit any Restricted Subsidiary
to fail to make, full payment of all amounts which, under
the provisions of any Plan, agreement relating thereto or
applicable law, the Borrower or a Restricted Subsidiary is
required to pay as contributions thereto;
(d) Permit to exist, or allow any Subsidiary or ERISA
Affiliate to permit to exist, any accumulated funding
deficiency within the meaning of Section 302 of ERISA or
Section 412 of the Code, whether or not waived, with respect
to any Plan;
(e) Permit, or allow any Subsidiary or ERISA Affiliate
to permit, the actuarial present value of the benefit
liabilities under any Plan maintained by the Borrower, any
Subsidiary or any ERISA Affiliate which is regulated under
Title IV of ERISA to exceed the current value of the assets
(computed on a plan termination basis in accordance with
Title IV of ERISA) of such Plan allocable to such benefit
liabilities. The term "actuarial present value of the
benefit liabilities" shall have the meaning specified in
section 4041 of ERISA;
<PAGE> 57
(f) Contribute to or assume an obligation to
contribute to, or permit any Subsidiary or ERISA Affiliate
to contribute to or assume an obligation to contribute to,
any Multiemployer Plan;
(g) Acquire, or permit any Subsidiary or ERISA
Affiliate to acquire, an interest in any Person that causes
such Person to become an ERISA Affiliate with respect to the
Borrower, any Subsidiary or any ERISA Affiliate if such
Person sponsors, maintains or contributes to, or at any time
in the six-year period preceding such acquisition has spon-
sored, maintained, or contributed to, (1) any Multiemployer
Plan, or (2) any other Plan that is subject to Title IV of
ERISA under which the actuarial present value of the benefit
liabilities under such Plan exceeds the current value of the
assets (computed on a plan termination basis in accordance
with Title IV of ERISA) of such Plan allocable to such
benefit liabilities;
(h) Incur, or permit any Subsidiary or ERISA Affiliate
to incur, a liability to or on account of a Plan under
sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA;
(i) Contribute to or assume an obligation to
contribute to, or permit any Restricted Subsidiary to
contribute to or assume an obligation to contribute to, any
employee welfare benefit plan, as defined in section 3(1) of
ERISA, including, without limitation, any such plan
maintained to provide benefits to former employees of such
entities, that may not be terminated by such entities in
their sole discretion at any time without any material
liability; or
(j) Amend or permit any Subsidiary or ERISA Affiliate
to amend, a Plan resulting in an increase in current
liability such that the Borrower, any Subsidiary or any
ERISA Affiliate is required to provide security to such Plan
under section 401(a)(29) of the Code.
Section 9.10 Sale or Discount of Receivables. Neither
the Borrower nor any Restricted Subsidiary will discount or sell
(with or without recourse) any of its notes receivable or
accounts receivable except (i) in the ordinary course of
business, or (ii) in connection with a receivables asset
securitization, otherwise permitted under this Agreement.
Section 9.11 Ratio of Debt to EBITDAX. The Borrower
will not permit the ratio of Debt to EBITDAX as of the end of
any fiscal quarter of the Borrower (calculated on a rolling four
quarter basis) to be greater than 2.50 to 1.00 for any fiscal
quarter. As used in this Agreement, "rolling four quarter basis"
shall mean, as to any fiscal quarter, such quarter and the three
preceding fiscal quarters.
Section 9.12 Interest Coverage Ratio. The Borrower
will not permit its Interest Coverage Ratio as of the end of any
fiscal quarter of the Borrower (calculated on a rolling four
quarter basis) to be less than 3.00 to 1.00. For the purposes of
this Section 9.12, "Interest Coverage Ratio" shall mean the ratio
of (i) EBITDAX for the four fiscal quarters ending on such date
to (ii) cash interest payments made for such four fiscal quarters
of the Borrower and its Restricted Subsidiaries.
<PAGE> 58
Section 9.13 Sale of Oil and Gas Properties. The
Borrower will not, and will not permit any Restricted Subsidiary
to, sell, assign, farm-out, convey or otherwise transfer any Oil
and Gas Property included in the Borrowing Base or any interest
in any Oil and Gas Property included in the Borrowing Base,
unless (i) no Default shall have occurred and be continuing and
(ii) simultaneously with any such disposition, the Borrowing Base
is reduced by an amount reasonably determined at the time by the
Agent to reflect the contribution to the Borrowing Base of the
Oil and Gas Property so disposed of.
Section 9.14 Environmental Matters. Neither the
Borrower nor any Subsidiary will cause or permit any of its
Property to be in violation of, or do anything or permit anything
to be done which will subject any such Property to any remedial
obligations under any Environmental Laws, assuming disclosure to
the applicable Governmental Authority of all relevant facts,
conditions and circumstances, if any, pertaining to such Property
where such violations or remedial obligations would have a
Material Adverse Effect.
Section 9.15 Transactions with Affiliates. Neither
the Borrower nor any Restricted Subsidiary will enter into any
transaction, including, without limitation, any purchase, sale,
lease or exchange of Property or the rendering of any service,
with any Affiliate unless such transactions are otherwise
permitted under this Agreement, are in the ordinary course of its
business and are upon fair and reasonable terms no less favorable
to it than it would obtain in a comparable arm's length
transaction with a Person not an Affiliate.
Section 9.16 Subsidiaries. The Borrower shall not and
shall not permit any Restricted Subsidiary to sell or to issue
any stock or ownership interest of a Restricted Subsidiary except
to the Borrower or a Restricted Subsidiary and except in
compliance with Section 9.03. The Borrower shall not create any
additional Subsidiaries or permit any Restricted Subsidiary to do
so, except:
(a) the Borrower or any Restricted Subsidiary may
create (by formation or by an acquisition otherwise
permitted by this Agreement) a Restricted Subsidiary
provided, that:
(i) each new Restricted Subsidiary shall
forthwith execute and deliver to the Agent for the
benefit of the Lenders a written instrument of
guaranty, unconditionally guaranteeing payment of all
Indebtedness of the Borrower; and
(ii) simultaneously with the delivery of the
aforementioned written instrument of guaranty, each new
Restricted Subsidiary shall deliver to the Agent a
certificate of the Secretary or Assistant Secretary of
such Restricted Subsidiary setting forth (A)
resolutions of its board of directors with respect to
the authorization of such Restricted Subsidiary to
execute and deliver such written instrument of guaranty
and to enter into the transactions contemplated
thereby, (B) the officers of such Restricted Subsidiary
(y) who are authorized to sign such written instrument
of guaranty, and (z) who will, until replaced by
another officer or officers duly authorized for that
purpose, act as its representative for the purposes of
signing documents and giving notices and other
communications in connection with such written
instrument of guaranty and the transactions
contemplated thereby, (C) specimen signatures for such
officers, and (D) the articles or certificate of
<PAGE> 59
incorporation and bylaws of such Restricted Subsidiary,
certified as being true and complete. The Agent and
the Lenders may conclusively rely on such certificate
until the Agent receives notice in writing from the
Borrower or such Restricted Subsidiary to the contrary;
(b) the Borrower or a Restricted Subsidiary may create
(by formation or by an acquisition otherwise permitted by
this Agreement) additional Subsidiaries provided, that, such
Subsidiary is designated as an Unrestricted Subsidiary by a
certificate of the Borrower signed by both of the chief
financial officer (or treasurer) and the general counsel of
the Borrower, which certificate shall be delivered to the
Agent.
Section 9.17 Negative Pledge Agreements. Neither the
Borrower nor any Restricted Subsidiary will create, incur,
assume or suffer to exist any contract, agreement or
understanding (other than this Agreement and the Security
Instruments) which in any way prohibits or restricts the
granting, conveying, creation or imposition of any Lien on any of
its Property included in the Borrowing Base or restricts any
Restricted Subsidiary from paying dividends to the Borrower, or
which requires the consent of or notice to other Persons in
connection therewith.
Section 9.18 Gas Imbalances, Take-or-Pay or Other
Prepayments. The Borrower will not allow gas imbalances, take-
or-pay or other prepayments with respect to the Oil and Gas
Properties of the Borrower which would require the Borrower to
deliver Hydrocarbons produced on Oil and Gas Properties at some
future time without then or thereafter receiving full payment
therefor to exceed one billion cubic feet of gas in the aggregate
on a net basis for the Borrower.
ARTICLE X
Events of Default; Remedies
Section 10.01 Events of Default. One or more of the
following events shall constitute an "Event of Default":
(a) the Borrower shall default in the payment or
prepayment (including, without limitation, prepayments
resulting from a Borrowing Base Deficiency, but excluding
prepayment to be made pursuant to revocable notices
delivered pursuant to Section 2.07(a) hereof) when due of
any principal of or interest on any Loan, or any
reimbursement obligation for a disbursement made under any
Letter of Credit, or any fees or other amount payable by it
hereunder or under any Security Instrument and such default,
other than a default of a payment or prepayment of principal
(which shall have no cure period) shall continue unremedied
for a period of 3 Business Days; or
(b) the Borrower or any Restricted Subsidiary shall
default in the payment when due of any principal of or
interest on any of its other Debt aggregating $500,000 or
more, or any event specified in any note, agreement,
indenture or other document evidencing or relating to any
such Debt shall occur if the effect of such event is to
cause, or (with the giving of any notice or the lapse of
time or both) to permit the holder or holders of such Debt
(or a trustee or agent on behalf of such holder or holders)
<PAGE> 60
to cause, such Debt to become due prior to its stated
maturity; or
(c) any representation, warranty or certification made
or deemed made herein or in any Security Instrument by the
Borrower or any Restricted Subsidiary, or any certificate
furnished to any Lender or the Agent pursuant to the
provisions hereof or any Security Instrument, shall prove to
have been false or misleading as of the time made or
furnished in any material respect; or
(d) the Borrower shall default in the performance of
any of its obligations under Article IX or any other Article
of this Agreement other than under Article VIII; or the
Borrower shall default in the performance of any of its
obligations under Article VIII or any Security Instrument
(other than the payment of amounts due which shall be
governed by Section 10.01(a)) and such default shall
continue unremedied for a period of thirty (30) days after
the earlier to occur of (i) notice thereof to the Borrower
by the Agent or any Lender (through the Agent), or (ii) the
Borrower otherwise becoming aware of such default; or
(e) the Borrower shall admit in writing its inability
to, or be generally unable to, pay its debts as such debts
become due; or
(f) the Borrower shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) make a general
assignment for the benefit of its creditors, (iii) commence
a voluntary case under the Federal Bankruptcy Code (as now
or hereafter in effect), (iv) file a petition seeking to
take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up, liquidation or
composition or readjustment of debts, (v) fail to controvert
in a timely and appropriate manner, or acquiesce in writing
to, any petition filed against it in an involuntary case
under the Federal Bankruptcy Code, or (vi) take any
corporate action for the purpose of effecting any of the
foregoing; or
(g) a proceeding or case shall be commenced, without
the application or consent of the Borrower, in any court of
competent jurisdiction, seeking (i) its liquidation,
reorganization, dissolution or winding-up, or the
composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or
the like of the Borrower of all or any substantial part of
its assets, or (iii) similar relief in respect of the
Borrower under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of
debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue
unstayed and in effect, for a period of 60 days; or (iv) an
order for relief against the Borrower shall be entered in an
involuntary case under the Federal Bankruptcy Code; or
(h) a judgment or judgments for the payment of money
in excess of $500,000 in the aggregate shall be rendered by
a court against the Borrower or any Restricted Subsidiary
and the same shall not be discharged (or provision shall not
be made for such discharge), or a stay of execution thereof
shall not be procured, within thirty (30) days from the date
of entry thereof and the Borrower or such Restricted
<PAGE> 61
Subsidiary shall not, within said period of 30 days, or such
longer period during which execution of the same shall have
been stayed, appeal therefrom and cause the execution
thereof to be stayed during such appeal; or
(i) the Security Instruments after delivery thereof
shall for any reason, except to the extent permitted by the
terms thereof, cease to be in full force and effect and
valid, binding and enforceable in accordance with their
terms, or cease to create a valid and perfected Lien of the
priority required thereby on any of the collateral purported
to be covered thereby, except to the extent permitted by the
terms of this Agreement, or the Borrower shall so state in
writing; or
(j) any Letter of Credit becomes the subject matter of
any order, judgment, injunction or any other such
determination, or if the Borrower or any other Person shall
petition or apply for or obtain any order restricting
payment by the Agent under any Letter of Credit or extending
the Lenders' liability under any Letter of Credit beyond the
expiration date stated therein or otherwise agreed to by the
Agent; or
(k) the Borrower discontinues its usual business or
suffers to exist any material change in its ownership,
control or management, except in connection with the Merger;
or
(l) any Restricted Subsidiary takes, suffers or
permits to exist any of the events or conditions referred to
in paragraphs (e), (f), (g) or (h) hereof; or
(m) a Borrowing Base Deficiency shall remain after the
185 day period provided for in Section 2.07(c).
Section 10.02 Remedies.
(a) In the case of an Event of Default other than one
referred to in clauses (e), (f) or (g) of Section 10.01 or
in clause (l) to the extent it relates to clauses (e), (f)
or (g), the Agent, upon request of the Majority Lenders,
shall, by notice to the Borrower, cancel the Commitments
and/or declare the principal amount then outstanding of, and
the accrued interest on, the Loans and all other amounts
payable by the Borrower hereunder and under the Notes
(including without limitation the payment of cash collateral
to secure the LC Exposure as provided in Section 2.10(b)
hereof) to be forthwith due and payable, whereupon such
amounts shall be immediately due and payable without
presentment, demand, protest, notice of intent to
accelerate, notice of acceleration or other formalities of
any kind, all of which are hereby expressly waived by the
Borrower.
(b) In the case of the occurrence of an Event of
Default referred to in clauses (e), (f) or (g) of Section
10.01 or in clause (l) to the extent it relates to clauses
(e), (f) or (g), the Commitments shall be automatically
cancelled and the principal amount then outstanding of, and
the accrued interest on, the Loans and all other amounts
payable by the Borrower hereunder and under the Notes
(including without limitation the payment of cash collateral
to secure the LC Exposure as provided in Section 2.10(b)
hereof) shall become automatically immediately due and
payable without presentment, demand, protest, notice of
intent to accelerate, notice of acceleration or other
formalities of any kind, all of which are hereby expressly
waived by the Borrower.
<PAGE> 62
(c) All proceeds received after maturity of the Notes,
whether by acceleration or otherwise shall be applied first
to reimbursement of expenses and indemnities provided for in
this Agreement and the Security Instruments; second to
accrued interest on the Notes; third to fees; fourth pro
rata to principal outstanding on the Notes and other
Indebtedness; fifth to serve as cash collateral to be held
by the Agent to secure the LC Exposure; and any excess shall
be paid to the Borrower or as otherwise required by any
Governmental Requirement.
ARTICLE XI
The Agent
Section 11.01 Appointment, Powers and Immunities.
Each Lender hereby irrevocably appoints and authorizes the Agent
to act as its agent hereunder and under the Security Instruments
with such powers as are specifically delegated to the Agent by
the terms of this Agreement and the Security Instruments,
together with such other powers as are reasonably incidental
thereto. The Agent (which term as used in this sentence and in
Section 11.05 and the first sentence of Section 11.06 shall
include reference to its Affiliates and its and its Affiliates'
officers, directors, employees, attorneys, accountants, experts
and agents): (i) shall have no duties or responsibilities except
those expressly set forth in the Loan Documents, and shall not by
reason of the Loan Documents be a trustee or fiduciary for any
Lender; (ii) makes no representation or warranty to any Lender
and shall not be responsible to the Lenders for any recitals,
statements, representations or warranties contained in this
Agreement, or in any certificate or other document referred to or
provided for in, or received by any of them under, this
Agreement, or for the value, validity, effectiveness,
genuineness, execution, legality, enforceability or sufficiency
of this Agreement, any Note or any other document referred to or
provided for herein or for any failure by the Borrower or any
other Person (other than the Agent) to perform any of its
obligations hereunder or thereunder or for the existence, value,
perfection or priority of any collateral security or the
financial or other condition of the Borrower, the Subsidiaries or
any other obligor or guarantor; (iii) except pursuant to Section
11.07 shall not be required to initiate or conduct any litigation
or collection proceedings hereunder; and (iv) shall not be
responsible for any action taken or omitted to be taken by it
hereunder or under any other document or instrument referred to
or provided for herein or in connection herewith including its
own ordinary negligence, except for its own gross negligence or
willful misconduct. The Agent may employ agents, accountants,
attorneys and experts and shall not be responsible for the
negligence or misconduct of any such agents, accountants,
attorneys or experts selected by it in good faith or any action
taken or omitted to be taken in good faith by it in accordance
with the advice of such agents, accountants, attorneys or
experts. The Agent may deem and treat the payee of any Note as
the holder thereof for all purposes hereof unless and until a
written notice of the assignment or transfer thereof permitted
hereunder shall have been filed with the Agent. The Agent is
authorized to release any collateral that is permitted to be sold
or released pursuant to the terms of the Loan Documents.
Section 11.02 Reliance by Agent. The Agent shall be
entitled to rely upon any certification, notice or other
communication (including any thereof by telephone, telex,
telecopier, telegram or cable) believed by it to be genuine and
correct and to have been signed or sent by or on behalf of the
proper Person or Persons, and upon advice and statements of legal
counsel, independent accountants and other experts selected by
the Agent.
<PAGE> 63
Section 11.03 Defaults. The Agent shall not be deemed
to have knowledge of the occurrence of a Default (other than the
non-payment of principal of or interest on Loans or of fees or
failure to reimburse for Letter of Credit drawings) unless the
Agent has received notice from a Lender or the Borrower
specifying such Default and stating that such notice is a "Notice
of Default." In the event that the Agent receives such a notice
of the occurrence of a Default, the Agent shall give prompt
notice thereof to the Lenders. In the event of a payment
Default, the Agent shall give each Lender prompt notice of each
such payment Default.
Section 11.04 Rights as a Lender. With respect to
its Commitments and the Loans made by it and its participation in
the issuance of Letters of Credit, Chase (and any successor
acting as Agent) in its capacity as a Lender hereunder shall have
the same rights and powers hereunder as any other Lender and may
exercise the same as though it were not acting as the Agent, and
the term "Lender" or "Lenders" shall, unless the context
otherwise indicates, include the Agent in its individual
capacity. Chase (and any successor acting as Agent) and its
Affiliates may (without having to account therefor to any Lender)
accept deposits from, lend money to and generally engage in any
kind of banking, trust or other business with the Borrower (and
any of its Affiliates) as if it were not acting as the Agent, and
Chase and its Affiliates may accept fees and other consideration
from the Borrower for services in connection with this Agreement
or otherwise without having to account for the same to the
Lenders.
Section 11.05 INDEMNIFICATION. THE LENDERS AGREE TO
INDEMNIFY THE AGENT RATABLY IN ACCORDANCE WITH THEIR PERCENTAGE
SHARES FOR THE INDEMNITY MATTERS AS DESCRIBED IN SECTION 12.03 TO
THE EXTENT NOT INDEMNIFIED OR REIMBURSED BY THE BORROWER UNDER
SECTION 12.03, BUT WITHOUT LIMITING THE OBLIGATIONS OF THE
BORROWER UNDER SAID SECTION 12.03 AND FOR ANY AND ALL OTHER
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND
AND NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY OR
ASSERTED AGAINST THE AGENT IN ANY WAY RELATING TO OR ARISING OUT
OF: (I) THIS AGREEMENT, THE SECURITY INSTRUMENTS OR ANY OTHER
DOCUMENTS CONTEMPLATED BY OR REFERRED TO HEREIN OR THE
TRANSACTIONS CONTEMPLATED HEREBY, BUT EXCLUDING, UNLESS A DEFAULT
HAS OCCURRED AND IS CONTINUING, NORMAL ADMINISTRATIVE COSTS AND
EXPENSES INCIDENT TO THE PERFORMANCE OF ITS AGENCY DUTIES
HEREUNDER OR (II) THE ENFORCEMENT OF ANY OF THE TERMS OF THIS
AGREEMENT, ANY SECURITY INSTRUMENT OR OF ANY SUCH OTHER
DOCUMENTS; WHETHER OR NOT ANY OF THE FOREGOING SPECIFIED IN THIS
SECTION 11.05 ARISES FROM THE SOLE OR CONCURRENT NEGLIGENCE OF
THE AGENT, PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY OF THE
FOREGOING TO THE EXTENT THEY ARISE FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF THE AGENT.
Section 11.06 Non-Reliance on Agent and other Lenders.
Each Lender acknowledges and agrees that it has, independently
and without reliance on the Agent or any other Lender, and based
on such documents and information as it has deemed appropriate,
made its own credit analysis of the Borrower and its decision to
enter into this Agreement, and that it will, independently and
without reliance upon the Agent or any other Lender, and based on
such documents and information as it shall deem appropriate at
the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement. The Agent
shall not be required to keep itself informed as to the
performance or observance by the Borrower of this Agreement, the
Notes, the Security Instruments or any other document referred to
<PAGE> 64
or provided for herein or to inspect the properties or books of
the Borrower. Except for notices, reports and other documents
and information expressly required to be furnished to the Lenders
by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other
information concerning the affairs, financial condition or
business of the Borrower (or any of its Affiliates) which may
come into the possession of the Agent or any of its Affiliates.
In this regard, each Lender acknowledges that Vinson & Elkins
L.L.P. is acting in this transaction as special counsel to the
Agent only, except to the extent otherwise expressly stated in
any legal opinion or any Loan Document. Each Lender will consult
with its own legal counsel to the extent that it deems necessary
in connection with the Loan Documents and the matters
contemplated therein.
Section 11.07 Action by Agent. Except for action or
other matters expressly required of the Agent hereunder, the
Agent shall in all cases be fully justified in failing or
refusing to act hereunder unless it shall (i) receive written
instructions from the Majority Lenders (or all of the Lenders as
expressly required by Section 12.04) specifying the action to be
taken, and (ii) be indemnified to its satisfaction by the Lenders
against any and all liability and expenses which may be incurred
by it by reason of taking or continuing to take any such action.
The instructions of the Majority Lenders (or all of the Lenders
as expressly required by Section 12.04) and any action taken or
failure to act pursuant thereto by the Agent shall be binding on
all of the Lenders. If a Default has occurred and is continuing,
the Agent shall take such action with respect to such Default as
shall be directed by the Majority Lenders (or all of the Lenders
as required by Section 12.04) in the written instructions (with
indemnities) described in this Section 11.07, provided that,
unless and until the Agent shall have received such directions,
the Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, with respect to such Default
as it shall deem advisable in the best interests of the Lenders.
In no event, however, shall the Agent be required to take any
action which exposes the Agent to personal liability or which is
contrary to this Agreement and the Security Instruments or
applicable law.
Section 11.08 Resignation or Removal of Agent.
Subject to the appointment and acceptance of a successor Agent as
provided below, the Agent may resign at any time by giving notice
thereof to the Lenders and the Borrower, and the Agent may be
removed at any time with or without cause by the Majority
Lenders. Upon any such resignation or removal, the Majority
Lenders shall have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Majority
Lenders and shall have accepted such appointment within thirty
(30) days after the retiring Agent's giving of notice of
resignation or the Majority Lenders' removal of the retiring
Agent, then the retiring Agent may, on behalf of the Lenders,
appoint a successor Agent. Upon the acceptance of such
appointment hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights,
powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Article XI and
Section 12.03 shall continue in effect for its benefit in respect
of any actions taken or omitted to be taken by it while it was
acting as the Agent.
<PAGE> 65
ARTICLE XII
Miscellaneous
Section 12.01 Waiver. No failure on the part of the
Agent or any Lender to exercise and no delay in exercising, and
no course of dealing with respect to, any right, power or
privilege under any of the Loan Documents shall operate as a
waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under any of the Loan Documents
preclude any other or further exercise thereof or the exercise of
any other right, power or privilege. The remedies provided
herein are cumulative and not exclusive of any remedies provided
by law.
Section 12.02 Notices. All notices and other
communications provided for herein and in the other Loan
Documents (including, without limitation, any modifications of,
or waivers or consents under, this Agreement or the other Loan
Documents) shall be given or made by telecopy, personal
delivery, nationally recognized overnight courier or U.S. Mail in
writing and telecopied, mailed or delivered to the intended
recipient at the "Address for Notices" specified below its name
on the signature pages hereof or in the Loan Documents or, as to
any party, at such other address as shall be designated by such
party in a notice to each other party. Except as otherwise
provided in this Agreement or in the other Loan Documents, all
such communications shall be deemed to have been duly given when
transmitted, if transmitted before 1:00 p.m. local time on a
Business Day (otherwise on the next succeeding Business Day) by
telecopier to the extent that confirmation of receipt is
obtained, or personally delivered or, in the case of a mailed
notice, three (3) Business Days after the date deposited in the
mails, postage prepaid, or, in the case of a nationally
recognized overnight courier, one (1) day after the date
delivered to such courier with guaranteed next day delivery, in
each case given or addressed as aforesaid.
Section 12.03 Payment of Expenses, Indemnities, etc.
The Borrower agrees:
(a) whether or not the transactions hereby
contemplated are consummated, pay all reasonable expenses of
the Agent in the administration (both before and after the
execution hereof and including advice of counsel as to the
rights and duties of the Agent and the Lenders with respect
thereto) of, and in connection with the negotiation,
syndication, investigation, preparation, execution and
delivery of, recording or filing of, preservation of rights
under, enforcement of, and refinancing, renegotiation or
restructuring of, the Loan Documents and any amendment,
waiver or consent relating thereto (including, without
limitation, travel, photocopy, mailing, courier, telephone
and other similar expenses of the Agent, the cost of
environmental audits, surveys and appraisals at reasonable
intervals, the reasonable fees and disbursements of counsel
and other outside consultants for the Agent and, in the case
of enforcement, the reasonable fees and disbursements of
counsel for the Agent and any of the Lenders); and promptly
reimburse the Agent for all amounts expended, advanced or
incurred by the Agent or the Lenders to satisfy any
obligation of the Borrower under this Agreement or any
Security Instrument, including without limitation, all costs
and expenses of foreclosure;
(b) TO INDEMNIFY THE AGENT AND EACH LENDER AND EACH OF
THEIR AFFILIATES AND EACH OF THEIR OFFICERS, DIRECTORS,
<PAGE> 66
EMPLOYEES, REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS
AND EXPERTS ("INDEMNIFIED PARTIES") FROM, HOLD EACH OF THEM
HARMLESS AGAINST AND PROMPTLY UPON DEMAND PAY OR REIMBURSE
EACH OF THEM FOR, THE INDEMNITY MATTERS WHICH MAY BE
INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM
(WHETHER OR NOT ANY OF THEM IS DESIGNATED A PARTY THERETO)
AS A RESULT OF, ARISING OUT OF OR IN ANY WAY RELATED TO (I)
ANY ACTUAL OR PROPOSED USE BY THE BORROWER OF THE PROCEEDS
OF ANY OF THE LOANS OR LETTERS OF CREDIT, (II) THE
EXECUTION, DELIVERY AND PERFORMANCE OF THE LOAN DOCUMENTS,
(III) THE OPERATIONS OF THE BUSINESS OF THE BORROWER AND THE
SUBSIDIARIES, (IV) THE FAILURE OF THE BORROWER OR ANY
SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY SECURITY
INSTRUMENT OR THIS AGREEMENT, OR WITH ANY GOVERNMENTAL
REQUIREMENT, (V) ANY INACCURACY OF ANY REPRESENTATION OR ANY
BREACH OF ANY WARRANTY OF THE BORROWER SET FORTH IN ANY OF
THE LOAN DOCUMENTS, (VI) THE ISSUANCE, EXECUTION AND
DELIVERY OR TRANSFER OF OR PAYMENT OR FAILURE TO PAY UNDER
ANY LETTER OF CREDIT, OR (VII) THE PAYMENT OF A DRAWING
UNDER ANY LETTER OF CREDIT NOTWITHSTANDING THE NON-
COMPLIANCE, NON-DELIVERY OR OTHER IMPROPER PRESENTATION OF
THE MANUALLY EXECUTED DRAFT(S) AND CERTIFICATION(S), (VIII)
ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE
THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS
OR (IX) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, INCLUDING,
WITHOUT LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF
COUNSEL AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH
INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH
ACTION, SUIT, PROCEEDING (INCLUDING ANY INVESTIGATIONS,
LITIGATION OR INQUIRIES) OR CLAIM AND INCLUDING ALL
INDEMNITY MATTERS ARISING BY REASON OF THE ORDINARY
NEGLIGENCE OF ANY INDEMNIFIED PARTY, BUT EXCLUDING ALL
INDEMNITY MATTERS ARISING SOLELY BY REASON OF CLAIMS BETWEEN
THE LENDERS OR ANY LENDER AND THE AGENT OR A LENDER'S
SHAREHOLDERS AGAINST THE AGENT OR LENDER OR BY REASON OF THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF THE
INDEMNIFIED PARTY OR ITS AFFILIATE; AND
(c) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME
THE INDEMNIFIED PARTY FROM AND AGAINST ANY AND ALL LOSSES,
CLAIMS, COST RECOVERY ACTIONS, ADMINISTRATIVE ORDERS OR
PROCEEDINGS, DAMAGES AND LIABILITIES TO WHICH ANY SUCH
PERSON MAY BECOME SUBJECT (I) UNDER ANY ENVIRONMENTAL LAW
APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY OR ANY OF THEIR
PROPERTIES, INCLUDING WITHOUT LIMITATION, THE TREATMENT OR
DISPOSAL OF HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES,
(II) AS A RESULT OF THE BREACH OR NON-COMPLIANCE BY THE
BORROWER OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW
APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY, (III) DUE TO
PAST OWNERSHIP BY THE BORROWER OR ANY SUBSIDIARY OF ANY OF
THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES
WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME,
COULD RESULT IN PRESENT LIABILITY, (IV) THE PRESENCE, USE,
RELEASE, STORAGE, TREATMENT OR DISPOSAL OF HAZARDOUS
SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED
BY THE BORROWER OR ANY SUBSIDIARY, OR (V) ANY OTHER
ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH
THE LOAN DOCUMENTS, PROVIDED, HOWEVER, NO INDEMNITY SHALL BE
AFFORDED UNDER THIS SECTION 12.03(C) IN RESPECT OF ANY
PROPERTY FOR ANY OCCURRENCE ARISING FROM THE ACTS OR
<PAGE> 67
OMISSIONS OF THE AGENT OR ANY LENDER DURING THE PERIOD AFTER
WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS SHALL HAVE
OBTAINED POSSESSION OF SUCH PROPERTY (WHETHER BY FORECLOSURE
OR DEED IN LIEU OF FORECLOSURE, AS MORTGAGEE-IN-POSSESSION
OR OTHERWISE).
(d) No Indemnified Party may settle any claim to be
indemnified without the consent of the indemnitor, such
consent not to be unreasonably withheld; provided, that the
indemnitor may not reasonably withhold consent to any
settlement that an Indemnified Party proposes, if the
indemnitor does not have the financial ability to pay all
its obligations outstanding and asserted against the
indemnitor at that time, including the maximum potential
claims against the Indemnified Party to be indemnified
pursuant to this Section 12.03.
(e) In the case of any indemnification hereunder, the
Agent or Lender, as appropriate shall give notice to the
Borrower of any such claim or demand being made against the
Indemnified Party and the Borrower shall have the
non-exclusive right to join in the defense against any such
claim or demand provided that if the Borrower provides a
defense, the Indemnified Party shall bear its own cost of
defense unless there is a conflict between the Borrower and
such Indemnified Party.
(f) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE
INDEMNIFIED PARTIES NOTWITHSTANDING THE SOLE OR CONCURRENT
NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER (OTHER THAN
GROSS NEGLIGENCE), WHETHER ACTIVE OR PASSIVE, WHETHER AN
AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT
LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE
RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE
INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY IMPOSED
WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNIFIED PARTIES.
TO THE EXTENT THAT AN INDEMNIFIED PARTY IS FOUND TO HAVE
COMMITTED AN ACT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT,
THIS CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL
CONTINUE BUT SHALL ONLY EXTEND TO THE PORTION OF THE CLAIM
THAT IS DEEMED TO HAVE OCCURRED BY REASON OF EVENTS OTHER
THAN THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE
INDEMNIFIED PARTY.
(g) The Borrower's obligations under this
Section 12.03 shall survive any termination of this
Agreement and the payment of the Notes and shall continue
thereafter in full force and effect.
(h) The Borrower shall pay any amounts due under this
Section 12.03 within thirty (30) days of the receipt by the
Borrower of notice of the amount due.
Section 12.04 Amendments, Etc. Any provision of this
Agreement or any Security Instrument may be amended, modified or
waived with the Borrower's and the Majority Lenders' prior
written consent; provided that (i) no amendment, modification or
waiver which extends the final maturity of the Loans, increases
the Aggregate Maximum Credit Amounts, forgives the principal
amount of any Indebtedness outstanding under this Agreement,
releases any guarantor of the Indebtedness or releases all or
substantially all of the collateral, reduces the interest rate
<PAGE> 68
applicable to the Loans or the fees payable to the Lenders
generally, affects Sections 2.03(a) or (b), this Section 12.04 or
Section 12.06(a) or modifies the definition of "Majority Lenders"
shall be effective without consent of all Lenders; (ii) no
amendment, modification or waiver which increases the Maximum
Credit Amount of any Lender shall be effective without the
consent of such Lender; and (iii) no amendment, modification or
waiver which modifies the rights, duties or obligations of the
Agent shall be effective without the consent of the Agent.
Section 12.05 Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
Section 12.06 Assignments and Participations.
(a) The Borrower may not assign its rights or
obligations hereunder or under the Notes or any Letters of
Credit without the prior consent of all of the Lenders and
the Agent.
(b) Any Lender may, upon the written consent of the
Agent and the Borrower (which consent will not be
unreasonably withheld), assign to one or more assignees all
or a portion of its rights and obligations under this
Agreement pursuant to an Assignment Agreement substantially
in the form of Exhibit F (an "Assignment") provided,
however, that (i) any such assignment shall be in the amount
of at least $10,000,000 or such lesser amount to which the
Borrower has consented and (ii) the assignee or assignor
shall pay to the Agent a processing and recordation fee of
$2,500 for each assignment. Any such assignment will become
effective upon the execution and delivery to the Agent of
the Assignment and the consent of the Agent. Promptly after
receipt of an executed Assignment, the Agent shall send to
the Borrower a copy of such executed Assignment. Upon
receipt of such executed Assignment, the Borrower, will, at
its own expense, execute and deliver new Notes to the
assignor and/or assignee, as appropriate, in accordance with
their respective interests as they appear. Upon the
effectiveness of any assignment pursuant to this Section
12.06(b), the assignee will become a "Lender," if not
already a "Lender," for all purposes of this Agreement and
the Security Instruments. The assignor shall be relieved of
its obligations hereunder to the extent of such assignment
(and if the assigning Lender no longer holds any rights or
obligations under this Agreement, such assigning Lender
shall cease to be a "Lender" hereunder except that its
rights under Sections 4.06, 5.01, 5.05 and 12.03 shall not
be affected). The Agent will prepare on the last Business
Day of each month during which an assignment has become
effective pursuant to this Section 12.06(b), a new Annex I
giving effect to all such assignments effected during such
month, and will promptly provide the same to the Borrower
and each of the Lenders.
(c) Each Lender may transfer, grant or assign
participations in all or any part of such Lender's interests
hereunder pursuant to this Section 12.06(c) to any Person,
provided that: (i) such Lender shall remain a "Lender" for
all purposes of this Agreement and the transferee of such
participation shall not constitute a "Lender" hereunder; and
(ii) no participant under any such participation shall have
rights to approve any amendment to or waiver of any of the
Loan Documents except to the extent such amendment or waiver
would (x) forgive any principal owing on any Indebtedness or
extend the final maturity of the Loans, (y) reduce the
interest rate (other than as a result of waiving the
applicability of any post-default increases in interest
rates) or fees applicable to any of the Commitments or Loans
<PAGE> 69
or Letters of Credit in which such participant is
participating, or postpone the payment of any thereof, or
(z) release any guarantor of the Indebtedness or release all
or substantially all of the collateral (except as provided
in the Loan Documents) supporting any of the Commitments or
Loans or Letters of Credit in which such participant is
participating. In the case of any such participation, the
participant shall not have any rights under this Agreement
or any of the Security Instruments (the participant's rights
against the granting Lender in respect of such participation
to be those set forth in the agreement with such Lender
creating such participation), and all amounts payable by the
Borrower hereunder shall be determined as if such Lender had
not sold such participation, provided that such participant
shall be entitled to receive additional amounts under
Article V on the same basis as if it were a Lender and be
indemnified under Section 12.03 as if it were a Lender. In
addition, each agreement creating any participation must
include an agreement by the participant to be bound by the
provisions of Section 12.15.
(d) The Lenders may furnish any information concerning
the Borrower in the possession of the Lenders from time to
time to assignees and participants (including prospective
assignees and participants); provided that, such Persons
agree to be bound by the provisions of Section 12.15 hereof.
(e) Notwithstanding anything in this Section 12.06 to
the contrary, any Lender may assign and pledge all or any of
its Notes to any Federal Reserve Bank or the United States
Treasury as collateral security pursuant to Regulation A of
the Board of Governors of the Federal Reserve System and any
operating circular issued by such Federal Reserve System
and/or such Federal Reserve Bank. No such assignment and/or
pledge shall release the assigning and/or pledging Lender
from its obligations hereunder.
(f) Notwithstanding any other provisions of this
Section 12.06, no transfer or assignment of the interests or
obligations of any Lender or any grant of participations
therein shall be permitted if such transfer, assignment or
grant would require the Borrower to file a registration
statement with the SEC or to qualify the Loans under the
"Blue Sky" laws of any state.
Section 12.07 Invalidity. In the event that any one
or more of the provisions contained in any of the Loan Documents
or the Letters of Credit, the Letter of Credit Agreements shall,
for any reason, be held invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall
not affect any other provision of the Notes, this Agreement or
any Security Instrument.
Section 12.08 Counterparts. This Agreement may be
executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument and any of
the parties hereto may execute this Agreement by signing any such
counterpart.
Section 12.09 References. The words "herein,"
"hereof," "hereunder" and other words of similar import when used
in this Agreement refer to this Agreement as a whole, and not to
any particular article, section or subsection. Any reference
<PAGE> 70
herein to a Section shall be deemed to refer to the applicable
Section of this Agreement unless otherwise stated herein. Any
reference herein to an exhibit or schedule shall be deemed to
refer to the applicable exhibit or schedule attached hereto
unless otherwise stated herein.
Section 12.10 Survival. The obligations of the parties
under Section 4.06, Article V, and Sections 11.05 and 12.03 shall
survive the repayment of the Loans and the termination of the
Commitments. To the extent that any payments on the Indebtedness
or proceeds of any collateral are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required
to be repaid to a trustee, debtor in possession, receiver or
other Person under any bankruptcy law, common law or equitable
cause, then to such extent, the Indebtedness so satisfied shall
be revived and continue as if such payment or proceeds had not
been received and the Agent's and the Lenders' Liens, security
interests, rights, powers and remedies under this Agreement and
each Security Instrument shall continue in full force and effect.
In such event, each Security Instrument shall be automatically
reinstated and the Borrower shall take such action as may be
reasonably requested by the Agent and the Lenders to effect such
reinstatement.
Section 12.11 Captions. Captions and section headings
appearing herein are included solely for convenience of reference
and are not intended to affect the interpretation of any
provision of this Agreement.
Section 12.12 NO ORAL AGREEMENTS. THE LOAN DOCUMENT
EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES
AND SUPERSEDE ALL OTHER AGREEMENTS AND UNDERSTANDINGS BETWEEN
SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF.
THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CON-
TEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 12.13 GOVERNING LAW; SUBMISSION TO
JURISDICTION.
(a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
TEXAS EXCEPT TO THE EXTENT THAT UNITED STATES FEDERAL LAW
PERMITS ANY LENDER TO CHARGE INTEREST AT THE RATE ALLOWED BY
THE LAWS OF THE STATE WHERE SUCH LENDER IS LOCATED. TEX.
REV. CIV STAT. ANN. ART. 5069, CH. 15 (WHICH REGULATES
CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-
PARTY ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR THE
NOTES.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE
LOAN DOCUMENTS SHALL BE BROUGHT IN THE COURTS OF THE STATE
OF TEXAS OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN
DISTRICT OF TEXAS, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, THE BORROWER HEREBY ACCEPTS FOR ITSELF AND (TO
THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS. THE BORROWER HEREBY IRREVOCABLY WAIVES
ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION
TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE
<PAGE> 71
JURISDICTIONS. THIS SUBMISSION TO JURISDICTION IS NON-
EXCLUSIVE AND DOES NOT PRECLUDE THE AGENT OR ANY LENDER FROM
OBTAINING JURISDICTION OVER THE BORROWER IN ANY COURT
OTHERWISE HAVING JURISDICTION.
(c) THE BORROWER HEREBY IRREVOCABLY DESIGNATES C.T.
CORPORATION LOCATED IN HOUSTON, TEXAS, AS THE DESIGNEE,
APPOINTEE AND AGENT OF THE BORROWER TO RECEIVE, FOR AND ON
BEHALF OF THE BORROWER, SERVICE OF PROCESS IN SUCH
RESPECTIVE JURISDICTIONS IN ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THE LOAN DOCUMENTS. IT IS UNDERSTOOD THAT A
COPY OF SUCH PROCESS SERVED ON SUCH AGENT WILL BE PROMPTLY
FORWARDED BY OVERNIGHT COURIER TO THE BORROWER AT ITS
ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW, BUT THE FAILURE
OF THE BORROWER TO RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY
WAY THE SERVICE OF SUCH PROCESS. THE BORROWER FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY
THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO THE BORROWER AT ITS SAID ADDRESS,
SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH
MAILING.
(d) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT
OR ANY LENDER OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY
OTHER JURISDICTION.
(e) EACH OF THE BORROWER AND EACH LENDER HEREBY (I)
IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT
PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY SECURITY
INSTRUMENT AND FOR ANY COUNTERCLAIM THEREIN; (II)
IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT NOT PROHIBITED BY
LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL
DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL
DAMAGES; (III) CERTIFY THAT NO PARTY HERETO NOR ANY
REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH
PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE
THE FOREGOING WAIVERS, AND (IV) ACKNOWLEDGE THAT IT HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT, THE SECURITY
INSTRUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND
THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS CONTAINED IN THIS SECTION 12.13.
Section 12.14 Interest. It is the intention of the
parties hereto that each Lender shall conform strictly to usury
laws applicable to it. Accordingly, if the transactions
contemplated hereby would be usurious as to any Lender under laws
applicable to it (including the laws of the United States of
America and the State of Texas or ny other jurisdiction whose
laws may bee mmaandatorily applicable to such Lender notwithstanding
the other provisions of this Agreement), then, in that event,
notwithstanding anything to the contrary in any of the Loan
Documents or any agreement entered into in connection with or as
security for the Notes, it is agreed as follows: (i) the
aggregate of all consideration which constitutes interest under
law applicable to any Lender that is contracted for, taken,
reserved, charged or received by such Lender under any of the
<PAGE> 72
Loan Documents or agreements or otherwise in connection with the
Notes shall under no circumstances exceed the maximum amount
allowed by such applicable law, and any excess shall be canceled
automatically and if theretofore paid shall be credited by such
Lender on the principal amount of the Indebtedness (or, to the
extent that the principal amount of the Indebtedness shall have
been or would thereby be paid in full, refunded by such Lender to
the Borrower); and (ii) in the event that the maturity of the
Notes is accelerated by reason of an election of the holder
thereof resulting from any Event of Default under this Agreement
or otherwise, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest
under law applicable to any Lender may never include more than
the maximum amount allowed by such applicable law, and excess
interest, if any, provided for in this Agreement or otherwise
shall be canceled automatically by such Lender as of the date of
such acceleration or prepayment and, if theretofore paid, shall
be credited by such Lender on the principal amount of the
Indebtedness (or, to the extent that the principal amount of the
Indebtedness shall have been or would thereby be paid in full,
refunded by such Lender to the Borrower). All sums paid or
agreed to be paid to any Lender for the use, forbearance or
detention of sums due hereunder shall, to the extent permitted by
law applicable to such Lender, be amortized, prorated, allocated
and spread throughout the full term of the Loans evidenced by the
Notes until payment in full so that the rate or amount of
interest on account of any Loans hereunder does not exceed the
maximum amount allowed by such applicable law. If at any time
and from time to time (i) the amount of interest payable to any
Lender on any date shall be computed at the Highest Lawful Rate
applicable to such Lender pursuant to this Section 12.14 and
(ii) in respect of any subsequent interest computation period the
amount of interest otherwise payable to such Lender would be less
than the amount of interest payable to such Lender computed at
the Highest Lawful Rate applicable to such Lender, then the
amount of interest payable to such Lender in respect of such
subsequent interest computation period shall continue to be
computed at the Highest Lawful Rate applicable to such Lender
until the total amount of interest payable to such Lender shall
equal the total amount of interest which would have been payable
to such Lender if the total amount of interest had been computed
without giving effect to this Section 12.14. To the extent that
Article 5069-1.04 of the Texas Revised Civil Statutes is relevant
for the purpose of determining the Highest Lawful Rate, such
Lender elects to determine the applicable rate ceiling under such
Article by the indicated weekly rate ceiling from time to time in
effect.
Section 12.15 Confidentiality. In the event that the
Borrower provides to the Agent or the Lenders written
confidential information belonging to the Borrower, if the
Borrower shall denominate such information in writing as
"confidential", the Agent and the Lenders shall thereafter
maintain such information in confidence in accordance with the
standards of care and diligence that each utilizes in maintaining
its own confidential information. This obligation of confidence
shall not apply to such portions of the information which (i) are
in the public domain, (ii) hereafter become part of the public
domain without the Agent or the Lenders breaching their
obligation of confidence to the Borrower, (iii) are previously
known by the Agent or the Lenders from some source other than the
Borrower, (iv) are hereafter developed by the Agent or the
Lenders without using the Borrower's information, (v) are
hereafter obtained by or available to the Agent or the Lenders
from a third party who owes no obligation of confidence to the
Borrower with respect to such information or through any other
means other than through disclosure by the Borrower, (vi) are
disclosed with the Borrower's consent, (vii) must be disclosed
either pursuant to any Governmental Requirement or to Persons
regulating the activities of the Agent or the Lenders, or (viii)
as may be required by law or regulation or order of any
Governmental Authority in any judicial, arbitration or
governmental proceeding. Further, the Agent or a Lender may
disclose any such information to any other Lender, any
<PAGE> 73
independent petroleum engineers or consultants, any independent
certified public accountants, any legal counsel employed by such
Person in connection with this Agreement or any Security
Instrument, including without limitation, the enforcement or
exercise of all rights and remedies thereunder, or any assignee
or participant (including prospective assignees and participants)
in the Loans; provided, however, that the Agent or the Lenders
shall receive a confidentiality agreement from the Person to whom
such information is disclosed such that said Person shall have
the same obligation to maintain the confidentiality of such
information as is imposed upon the Agent or the Lenders
hereunder. Notwithstanding anything to the contrary provided
herein, this obligation of confidence shall cease three (3) years
from the date the information was furnished, unless the Borrower
requests in writing at least thirty (30) days prior to the
expiration of such three year period, to maintain the
confidentiality of such information for an additional three year
period. The Borrower waives any and all other rights it may have
to confidentiality as against the Agent and the Lenders arising
by contract, agreement, statute or law except as expressly stated
in this Section 12.15.
Section 12.16 Effectiveness. This Agreement shall be
effective on the Closing Date (the "Effective Date").
Section 12.17 EXCULPATION PROVISIONS. EACH OF THE
PARTIES HERETO SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ
THIS AGREEMENT AND THE SECURITY INSTRUMENTS AND AGREES THAT IT IS
CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS AGREEMENT
AND THE SECURITY INSTRUMENTS; THAT IT HAS IN FACT READ THIS
AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE
OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT
HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE
THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS
AGREEMENT AND THE SECURITY INSTRUMENTS; AND HAS RECEIVED THE
ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE
SECURITY INSTRUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE
TERMS OF THIS AGREEMENT AND THE SECURITY INSTRUMENTS RESULT IN
ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE
TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY
FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT
IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY
EXCULPATORY PROVISION OF THIS AGREEMENT AND THE SECURITY
INSTRUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR
KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT
"CONSPICUOUS."
<PAGE> 74
The parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
BORROWER: McMoRan OIL & GAS CO.
By:/s/ Robert R. Boyce
-------------------------
Name: Robert R. Boyce
Title:Treasurer
ddress for Notices:
1615 Poydras Street
New Orleans, Louisiana 70112
Telecopier: (504) 582-4511
Telephone: (504) 582-4144
Attention: Treasurer
with copy to:
Jones, Walker, Waechter,
Poitevent,Carrere & Denegre, L.L.P.
201 St. Charles Avenue
50th Floor
New Orleans, Louisiana 70170
Telephone:(504) 582-8000
Facsimile:(504) 582-8583
Attention:Relationship Partner
<PAGE> 75
LENDER AND AGENT: CHASE BANK OF TEXAS, N.A.
By:/s/ Paul J. Nidoh
----------------------
Name: Paul J. Nidoh
Title: Vice President
Lending Office for Base Rate Loans
and Eurodollar Loans and Address for
Notice:
Chase Bank of Texas, N.A.
600 Travis, 20th Floor
Houston, Texas 77002
Telecopier No. 713/216-4295
Telephone No. 713/216-4110
Attn: Debra Harris
with copies to:
Chase Bank of Texas, N.A.
P. O. Box 2558
Houston, Texas 77252
Attn:Manager,Loan Agreements Division
and
Chase Bank of Texas, N.A.
712 Main Street
Houston, Texas 77002
Attn: Manager, Syndications
<PAGE> 76
ANNEX 1
LIST OF MAXIMUM CREDIT AMOUNTS
Name of Lender Percentage Share Maximum Credit Amount
Chase Bank of Texas, N.A. 100% $20,000,000
<PAGE> 77
Exhibit 15.1
October 20, 1998
McMoRan Oil & Gas Co.
1615 Poydras St.
New Orleans, LA 70112
Gentlemen:
We are aware that McMoRan Oil & Gas Co. Inc. has incorporated by
reference in its Registration Statements (File Nos. 33-82866, 33-
80369, 33-80371, and 333-44561) its Form 10-Q for the quarter
ended September 30, 1998, which includes our report dated October
20, 1998 covering the unaudited interim financial information
contained therein. Pursuant to Regulation C of the Securities Act
of 1933 (the Act), this report is not considered a part of the
registration statements prepared or certified by our firm or a
report prepared or certified by our firm within the meaning of
Sections 7 and 11 of the Act.
Very truly yours,
/s/ Arthur Andersen LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from McMoRan Oil
& Gas Co. financial statements at September 30, 1998 and the nine months then
ended, and is qualified in its entirety by reference to such statements. The
earnings per share (EPS) data shown was prepared in accordance with Statement of
Financial Accounting Standards No. 128 "Earning Per Share," with basic and
diluted EPS replacing the captions of primary and fully-diluted, repectively.
</LEGEND>
<CIK> 0000921941
<NAME> MCMORAN OIL & GAS CO.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 11,271
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,291
<PP&E> 95,627
<DEPRECIATION> 23,820
<TOTAL-ASSETS> 88,263
<CURRENT-LIABILITIES> 10,790
<BONDS> 0
0
0
<COMMON> 429
<OTHER-SE> 75,138
<TOTAL-LIABILITY-AND-EQUITY> 88,263
<SALES> 15,925
<TOTAL-REVENUES> 15,925
<CGS> 16,421
<TOTAL-COSTS> 16,421
<OTHER-EXPENSES> 13,835
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (15,980)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,980)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,980)
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
