SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ____________________
Commission file number: 0-8043
SOUTHERN MINERAL CORPORATION
(Exact Name of Small Business Issuer as Specified In Its Charter)
Nevada 36-2068676
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1201 Louisiana, Suite 3350 77002-5686
Houston, Texas (Zip Code)
(Address of Principal Executive Offices)
Issuer's Telephone Number, Including Area Code: (713) 658-9444
Check whether the issuer: (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 such shorter period that the issuer was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: As of August 14, 1998, there
were 12,873,698 shares of the Issuer's common stock outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
SOUTHERN MINERAL CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets as of
June 30, 1998 and December 31,1997 ........................ 3
Condensed Consolidated Statements of Operations for the
three and six months ended June 30, 1998 and 1997 ......... 4
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1998 and 1997 ................... 5
Notes to Consolidated Financial Statements .................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition and Results of Operations ................. 11
Liquidity and Capital Resources ............................... 13
PART II. OTHER INFORMATION ........................................ 16
Item 4. Submission of Matters to a Vote of Security Holders ...... 16
Item 6. Exhibits and Reports on Form 8-K ......................... 16
2
<PAGE>
SOUTHERN MINERAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(thousands omitted)
June 30, December 31,
1998 1997
------------ ------------
(Unaudited)
ASSETS
Current Assets
Cash ........................................... $ 562 $ 10,011
Receivables and other .......................... 7,377 3,444
--------- --------
Total current assets ...................... 7,939 13,455
Property and equipment, at cost using successful
efforts method for oil and gas activities
Property and equipment ......................... 147,515 54,461
Accumulated depreciation, depletion
and amortization ............................. (16,141) (12,168)
--------- --------
131,374 42,293
Properties held for sale and other ............. 7,011 6,127
--------- --------
Total assets .............................. $ 146,324 $ 61,875
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities ....... $ 8,657 $ 2,749
Notes Payable .................................. -- 207
--------- --------
Total current liabilities ................. 8,657 2,956
Long-term Debt ................................... 98,232 41,400
Deferred Income Taxes ............................ 9,665 1,039
Stockholders' Equity
Preferred stock, par value $.01 per share;
authorized 5,000,000 shares at
June 30, 1998 and December 31, 1997;
none issued ................................ -- --
Common stock, par value $.01 per share;
authorized 50,000,000 shares at
June 30, 1998; issued 12,827,530
and 9,133,033 shares at June 30, 1998
and December 31, 1997 respectively .......... 128 91
Additional paid-in capital ..................... 30,370 14,152
Retained earnings (deficit) .................... (316) 2,516
Accumulative other comprehensive
income ....................................... (360) (227)
--------- --------
29,822 16,532
Less: Treasury stock ........................... (52) (52)
--------- --------
Total stockholders' equity .................. 29,770 16,480
--------- --------
Total liabilities and stockholders' equity ...... $ 146,324 $ 61,875
========= ========
The accompanying notes are an integral part of this statement.
3
<PAGE>
SOUTHERN MINERAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(thousands omitted, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ---------------------------
1998 1997 1998 1997
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue
Oil and gas ............................. $ 4,367 $ 2,888 $ 8,777 $ 6,720
Gain (loss) on sale ..................... (7) 359 (3) 544
------------ ----------- ------------ -----------
4,360 3,247 8,774 7,264
Expenses
Production .............................. 2,023 810 3,186 1,611
Exploration ............................. 1,527 -- 1,666 283
Depreciation, depletion and amortization 1,619 801 3,229 1,492
General and administrative 842 512 1,902 1,134
------------ ----------- ------------ -----------
6,011 2,123 9,983 4,520
------------ ----------- ------------ -----------
Income (loss) from operations ............. (1,651) 1,124 (1,209) 2,744
Other income, expenses and deductions
Interest and other income ............... 48 108 140 122
Interest and debt expense ............... (952) (174) (1,786) (239)
------------ ----------- ------------ -----------
Income (loss) before income taxes ......... (2,555) 1,058 (2,855) 2,627
Provision (benefit) for federal and
state
Current provision (benefit) ............. (37) (143) (12) 338
Deferred provision (benefit) ............ 19 650 (11) 627
------------ ----------- ------------ -----------
(18) 507 (23) 965
------------ ----------- ------------ -----------
Net income (loss) ......................... $ (2,537) $ 551 $ (2,832) $ 1,662
============ =========== ============ ===========
Net income (loss) per share-basic ......... ($ 0.20) $ 0.06 ($ 0.24) $ 0.18
Net income (loss) per share-diluted ....... ($ 0.20) $ 0.06 ($ 0.24) $ 0.17
Weighted average shares outstanding-basic . 12,502,511 9,104,876 11,997,009 9,100,081
Weighted average shares outstanding-diluted 12,502,511 9,754,293 11,997,009 9,802,712
</TABLE>
The accompanying notes are an integral part of this statement.
SOUTHERN MINERAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands omitted)
SIX MONTHS ENDED
JUNE 30,
-----------------------
1998 1997
------- -------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income ................................ $ (2,832) $ 1,662
Adjustments to net income ........................ 3,797 2,462
-------- --------
Net cash provided by operating activities ........ 965 4,124
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of properties ................ 19 1,038
Capital expenditures ............................. (10,841) (20,691)
Acquisition of
Amerac, net of cash and proceeds
of sale of assets .............................. (2,187) --
Acquisition of Neutrino, net of cash ............. (34,200) --
Other ............................................ (2) --
-------- --------
Net cash used in investing activities ............ (47,211) (19,653)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt ....................... (6,500) (1,900)
Proceeds from long-term debt ..................... 43,700 17,200
Payments on note payable ......................... (208) --
Loan acquisition costs ........................... (156) --
Debenture offering costs ......................... (12) --
Proceeds from issuance
of common stock ................................. (7) (74)
-------- --------
Net cash provided by
financing activities ............................ 36,817 15,226
-------- --------
Effect of exchange rate on cash .................... (20) --
Net decrease in cash ............................... (9,449) (303)
Cash at beginning of period ........................ 10,011 471
-------- --------
Cash at end of period .............................. $ 562 $ 168
======== ========
The accompanying notes are an integral part of this statement.
<PAGE>
SOUTHERN MINERAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands omitted)
Six Months Ended
June 30,
------------------
1998 1997
------- -------
(unaudited)
SUPPLEMENTAL CASH FLOW DISCLOSURE
CASH PAID FOR INTEREST: ................................ $ 1,609 $ 221
CASH PAID FOR TAXES: ................................... $ 109 $ 411
NON CASH TRANSACTIONS:
Acquisition of Amerac
Property and equipment additions ................ 17,167 --
Issuance of common stock ........................ 15,000 --
Accounts receivable and other current assets .... 1,527 --
Accounts payable ................................ 1,507 --
Acquisition of Neutrino for cash, common stock
and assumption of debt
Property and equipment additions ................ 65,193 --
Issuance of common stock ........................ 1,095 --
Accounts receivable ............................. 3,350 --
Prepaids and other current assets ............... 363 --
Accounts payable ................................ 5,368 --
Other assets .................................... 53 --
Long term debt .................................. 19,632 --
Deferred tax liability .......................... 8,664 --
Issuance of common stock for property
acquisition ....................................... 50 --
Director's fees and employee compensation
for stock ......................................... 107 69
The accompanying notes are an integral part of this statement.
6
<PAGE>
SOUTHERN MINERAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, though the Company believes that the
disclosures are adequate to make the information presented not misleading.
These condensed consolidated financial statements should be read in conjunction
with the financial statements and the notes thereto included in the Company's
latest Annual Report to the Securities and Exchange Commission on Form 10-KSB
for the year ended December 31, 1997. In the opinion of the Company, all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position as of June 30, 1998, and December 31,
1997, the results of operations for the three and six months ended June 30,
1998 and 1997 and statements of cash flows for the six months then ended have
been included.
USE OF ESTIMATES -The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
EARNINGS (LOSS) PER SHARE - Statements of Financial Accounting Standards No.
128, "Earnings per Share", specifies new measurement, presentation and
disclosure requirements for earnings per share and is required to be applied
retroactively upon initial adoption. The Company has adopted SFAS No. 128
effective with the release of December 31, 1997 earnings data, and accordingly,
has restated all previously reported earnings per share data. Basic earnings per
share is based on the weighted average shares out standing without any dilutive
effects considered. Diluted earnings per share reflects dilution from all
potential common shares, including options, warrants and convertible debt. A
reconciliation of such earnings per share data is as follows (stated in
thousands except per share data):
<TABLE>
<CAPTION>
NET INCOME PER SHARE
(LOSS) SHARES AMOUNTS
------ ------ -------
<S> <C> <C> <C>
QUARTER ENDED JUNE 30, 1998
Basic earnings per share .............. $(2,537) 12,503 $ (0.20)
Effect of dilutive warrants ........... -- 323 --
Effect of dilutive stock options ...... -- 229 --
------ ------ -------
Diluted earnings per share ............ $(2,537) 13,055 $ (0.20)
====== ====== =======
QUARTER ENDED JUNE 30, 1997
Basic earnings per share .............. $ 551 9,105 $ 0.06
Effect of dilutive warrants ........... -- 394 --
Effect of dilutive stock options ...... -- 255 --
------ ------ -------
Diluted earnings per share ............ $ 551 9,754 $ 0.06
====== ====== =======
SIX MONTHS ENDED JUNE 30, 1998
Basic earnings per share .............. $(2,832) 11,997 $ (0.24)
Effect of dilutive warrants ........... -- 346 --
Effect of dilutive stock options ...... -- 241 --
------ ------ -------
Diluted earnings per share ............ $(2,832) 12,584 $ (0.24)
====== ====== =======
SIX MONTHS ENDED JUNE 30, 1997
Basic earnings per share .............. $ 1,662 9,100 $ 0.18
Effect of dilutive warrants ........... -- 431 --
Effect of dilutive stock options ...... -- 272 --
------ ------ -------
Diluted earnings per share ............ $ 1,662 9,803 $ 0.17
====== ====== =======
</TABLE>
7
<PAGE>
Common stock equivalents with a weighted average of 552,000 and 587,000 common
stock equivalents are not considered in the calculation of diluted earnings per
share due to the net loss recorded during the quarter and the six month period
ended June 30, 1998, respectively. No adjustment to net income was made in
calculating diluted earnings per share for the quarter and the six month period
ended June 30, 1997.
Reclassifications - Certain amounts in prior financial statements have been
reclassified to conform to the 1998 financial statement presentation.
Note 2 - Adoption of Accounting Standards
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which establishes
standards for reporting and display of comprehensive income and its components
in a full set of financial statements. Comprehensive income includes all changes
in a company's equity, including, among other things, foreign currency
translation adjustments and unrealized gains (losses) on marketable securities
classified as available-for-sale. The Company's total comprehensive income
(loss) for the six months ended June 30, 1998 and 1997 were as follows (in
thousands):
Six months ended
June 30,
----------------------
1998 1997
------- --------
Net (loss) income ........................ $(2,832) $ 1,662
Foreign currency translation adjustment .. (133) (45)
----- -----
Total comprehensive (loss) income .... $(2,965) $ 1,617
===== =====
Note 3 - Acquisitions
On June 23, 1998, the Company agreed to acquire 92.3% of the outstanding common
shares of Neutrino Resources, Inc. ("Neutrino"), which was effective as of June
30, 1998 and funded on July 2, 1998. On July 3, 1998, the Company initiated a
compulsory acquisition of the remaining shares outstanding, which was effective
as of June 30, 1998 and funded on July 21, 1998. The acquisition was accounted
for as if it had occurred on June 30, 1998. The Company acquired Neutrino
through a cash tender offer for the common shares outstanding, and assumed
Neutrino's bank debt and working capital deficiency. Neutrino is an independent
oil and gas company located in Calgary, Canada. The merger was effective on June
30, 1998, and was accounted for as a purchase. The total purchase price is
approximately $56,582,000, consisting of the following:
Cash consideration for common stock ............ $ 34,200,000
Fair value of 324,400 shares of common
stock issued ................................. 1,095,000
Debt assumed and working capital ............... 19,943,000
Legal, accounting and transaction costs ........ 1,344,000
----------
$ 56,582,000
==========
The allocation of the purchase price is
summarized as follows:
Oil and gas properties and other assets ........ $ 65,246,000
Deferred income taxes .......................... (8,664,000)
----------
$ 56,582,000
==========
On January 28, 1998, the shareholders of both the Company and Amerac Energy
Corporation ("Amerac") approved the merger of Amerac into a subsidiary of
Southern Mineral Corporation. Pursuant to the merger agreement, the Company
issued 3,333,333 shares of its common stock to acquire the shares of Amerac
common stock and assumed the outstanding debt, which was approximately
$8,700,000. The debt was paid upon consummation of the acquisition. The merger
was effective on January 28, 1998, and was accounted for as a purchase. The
total purchase price was approximately $24,000,000. The purchase price was
reduced by the subsequent sale of Amerac's Golden Trend properties for
$6,969,000 on June 30, 1998.
8
<PAGE>
On May 20, 1997, the Company purchased from Mario Garcia and Dolores E. Garcia,
the outstanding capital stock of BEC Energy, Inc. ("BEC"). The purchase price
was $10,640,000. BEC's assets consist of working interests in fourteen oil and
gas wells located in the Big Escambia Creek Field, Escambia County, Alabama. The
Company financed the acquisition with a $10,600,000 advance under the Company's
credit facility with Compass Bank-Houston. The acquisition was accounted for as
a purchase. The Company has since acquired additional interest in the field in
three transactions totaling $6,300,000.
In addition, during 1997, the Company acquired other interests, including a 10%
interest in a concession in the Santa Elena Peninsula in Ecuador for
approximately $2,800,000, which did not have a material effect on the
historical results of the Company.
The following summarizes pro forma (unaudited) information and assumes the
acquisitions of Neutrino, Amerac and BEC had occurred on January 1, 1997.
Six months ended June 30,
------------------------------
(000's omitted, except per share data)
1998 1997
------- --------
Revenues ........................ $ 14,462 $18,932
Net (loss) income ............... (5,829) 2
Net income per share ............ $ (.45) $ .00
These pro forma results are not necessarily indicative of those that would have
occurred had the acquisitions taken place at the beginning of 1998 and 1997. The
above amounts reflect adjustments for interest on notes payable issued as part
of the purchase price and depreciation on revalued property.
Note 4 - Long-Term Debt
Effective May 29, 1998, the Company amended its domestic bank credit agreement
increasing its borrowing base from $38,400,000 to $45,000,000. As of August 12,
1998, the borrowing base under the credit facility had been reduced to
$36,850,000 as a result of the transfer of the Company's Canadian assets to
Neutrino and the sale of certain domestic assets for cash. Outstanding
borrowings as of August 12, 1998 are $34,200,000, leaving $2,650,000 available
to borrow.
The domestic credit facility borrowing base reduces $40,000 per month commencing
July 1, 1998, and is reviewed by the bank semi-annually until maturity on June
1, 2001. The obligations under the credit facility are secured by substantially
all of the assets of the Company and its subsidiaries. The credit facility
contains certain covenants relating to the financial condition of the Company.
As of June 30, 1998, the Company was in compliance with the terms of the credit
facility. The credit facility bears interest at the Company's option, of either
prime rate floating or at the LIBOR rate plus one and one-half percent to two
percent, depending upon the level of debt outstanding.
On October 2, 1997, the Company issued $41,400,000 of 6.875% convertible
subordinated debentures due on October 1, 2007. The debentures are convertible
at any time prior to maturity, at a conversion price of $8.26 per share.
Effective June 25, 1998, Neutrino entered into a new credit facility and has an
available Cdn $40,000,000 (U.S.$27,254,000) revolving demand loan facility under
which it can borrow at bank prime or at Bankers Acceptance Rates plus a 1%
stamping fee. As of June 30, 1998, the Canadian bank prime rate was 6.5% and the
Banker Acceptance Rates for 30 day maturities was 4.99%. As of August 12, 1998,
outstanding borrowings thereunder were Cdn $34,700,000, (U.S. $ 23,601,000)
leaving Cdn $5,360,000 (U.S. $3,652,000) available to borrow. The credit
facility borrowing base will be reviewed by September 30, 1998, and is reviewed
thereafter by the bank semi-annually, however, no principal payments are
scheduled providing certain conditions of the bank agreement continue to be
satisfied. The obligations under the credit facility are secured by
substantially all of the assets of Neutrino. The credit facility contains
certain covenants relating to the financial condition of the Company. As of June
30, 1998, the Company was in compliance with the terms of the credit facility.
9
<PAGE>
Note 4 - Long-Term Debt-Continued
June 30, June 30,
1998 1997
----------- -----------
Domestic bank credit facility ................... $37,200 $19,200
Canadian bank credit facility (U.S. Dollars) .... 19,632 --
Convertible subordinated debentures ............. 41,400 --
------ ------
Long-term debt .................................. $98,232 $19,200
====== ======
Note 5 - Natural Gas Hedging
During the second quarter of 1998, the Company entered into natural gas price
swaps with a third party. The natural gas price swaps hedge against potential
adverse effects of fluctuations in future prices for the Company's anticipated
production volumes based on current engineering estimates. The natural gas price
swaps qualify as hedges and correlate to gas production; therefore, any gains
and losses will be recorded when the related gas production has been delivered.
Gains and losses on closed natural gas price swap agreements will be deferred
and amortized over the original term of the agreement. Should the natural gas
price swaps cease to become recognized as a hedge, subsequent changes in value
will be recorded in the Statement of Operations. While the swaps are intended to
reduce the Company's exposure to declines in the market price of natural gas,
they may limit the Company's gain from increases in the market price. At June
30, 1998, the natural gas price swap agreements were for the Company's gas
production of 100,000 Mmbtu of gas per month for July through October 1998 at a
weighted average price of $2.42 per Mmbtu. At June 30, 1998, the Company
estimates the loss of unwinding this position to be approximately $18,600.
10
<PAGE>
SOUTHERN MINERAL CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition and Results of Operations
For the Quarter Ended June 30, 1998
As Compared to the Quarter Ended June 30, 1997
Oil and gas revenues for the quarter ended June 30,1998, are $4,367,000,
compared to oil and gas revenues for the same period in 1997 of $2,888,000. The
increase in revenues reflects higher production volumes of both natural gas and
crude oil, which were partially offset by lower commodity prices for crude oil
and higher prices for natural gas. Higher production volumes are primarily due
to the acquisition of Amerac Energy Corporation, acquired on January 28, 1998; a
working interest in Lake Raccourci Field, acquired on November 24, 1997 and the
acquisition of BEC Energy, Inc., acquired on May 20, 1997. The Company also
acquired a 10% interest in the Santa Elena Concession located in the Santa Elena
Peninsula in Ecuador for approximately $2,800,000 in June of 1997.
Natural gas production for the three months ended June 30, 1998 is 1,043 Mmcf, a
15% increase as compared to production for the same period in 1997 of 908 Mmcf.
The Company's crude oil production for the three months ended June 30, 1998
increased 86% to 111,503 barrels as compared to 59,932 barrels for the same
period in 1997.
The average natural gas price in 1998 increased 35% to $2.19 per Mcf compared to
$1.62 per Mcf in 1997, which was caused by an increase in the domestic gas
sales, resulting in a reduction in the percentage of Canadian gas sales to total
gas sales. Historically Canadian gas prices have been lower than domestic gas
prices. Crude oil prices decreased 30% in 1998 to $13.10 per barrel, compared to
$18.67 per barrel in 1997.
As part of the Company's on-going operations, the Company may sell non-strategic
assets or oil and gas properties. The proceeds would be used to pay down debt or
redeploy capital to opportunities that may have a higher rate of return. These
activities have resulted in the sale of the Company's Golden Trend properties
for $6,969,000. The sales proceeds were applied to the purchase price of Amerac,
resulting in no gain or loss on the transaction. Gain on sale of assets in the
second quarter of 1997 was $359,000. The gain on sale of assets in 1997 was
primarily the result of the sale of a non-strategic oil and gas interest in
Canada, which the Company sold for approximately $360,000.
Production costs, including production and ad valorem taxes, increased in 1998
to $2,023,000, up 150% from $810,000 in 1997, primarily due to the above
mentioned acquisitions and gas plant maintenance at the Company's Big Escambia
Creek Field for a period of 18 days during the second quarter. On a cost per
Mcfe basis, production costs for 1998 increased to $1.08 per Mcfe, or 74% from
$0.62 per Mcfe in 1997.
General and administrative expenses increased as a result of the above mentioned
acquisitions to $842,000 in 1998, up 64% from $512,000 in 1997. On a cost per
Mcfe basis, general and administrative expenses increased to $0.45 per Mcfe, or
15% from $0.39 Mcfe in 1997.
Exploration, dry hole and lease impairment expenses increased to $1,527,000 in
1998, compared to none in the same period of 1997. The 1998 expense is due
primarily to a dry hole drilled in Lafourche Parish, Louisiana in which the
Company had a 93% working interest. Since the Company uses the successful
efforts method of accounting, exploration expenses may vary greatly from year to
year based upon the level of exploration activity during the year.
Depreciation, depletion and amortization ("DD&A") expense for 1998 increased to
$1,619,000, up 102% from $801,000 in 1997, which was due primarily to the above
mentioned acquisitions. The Company computes depreciation and depletion on each
producing property on a unit-of-production method. Since this method employs
estimates of remaining reserves, depreciation and depletion expenses may vary
from period to period because of revisions to reserve estimates, production
rates and other factors. DD&A expenses increased in 1998 to $0.86 per Mcfe, up
43% from $0.60 per Mcfe in 1997.
11
<PAGE>
Interest and debt expense in the quarter ended June 30, 1998 is $952,000,
compared to $174,000 in 1997. During the 1998 second quarter, funded debt
increased to fund capital expenditures, and to consummate the above mentioned
acquisitions.
Tax (benefit) expense in 1998 and 1997 is ($18,000) and $507,000, respectively.
.
The Company reported a net loss in the quarter ended June 30, 1998 of
$2,537,000, or $0.20 per share, compared to earnings of $551,000, or $0.06 per
share, in the same period in 1997.
For the Six Months Ended June 30, 1998
As Compared to the Six Months Ended June 30, 1997
Oil and gas revenues for the six months ended June 30, 1998 are $8,777,000, up
31% compared to oil and gas revenues for the same period in 1997 of $6,720,000.
The increase in revenues reflects higher production volumes of both natural gas
and crude oil which is offset by lower commodity prices for both natural gas and
crude oil. Higher production volumes are primarily due to the acquisition of
Amerac Energy Corporation , acquired on January 28, 1998; a working interest in
Lake Raccourci Field, acquired on November 24, 1997; BEC Energy, Inc., acquired
on May 20, 1997, and the acquisition of a working interest in the A. Philyaw 8-1
#1, acquired on April 7, 1997. The Company also acquired a 10% interest in the
Santa Elena Concession located in the Santa Elena Peninsula in Ecuador for
approximately $2,800,000 in June of 1997.
Natural gas production in the first six months of 1998 is 2,277 Mmcf, a 26%
increase compared to 1997 production of 1,801 Mmcf. The Company's crude oil
production in the first six months of 1998 increased 94% to 211,141 barrels
compared to 108,890 barrels in 1997.
The average natural gas price in the first six months of 1998 decreased 8% to
$2.06 per Mcf compared to $2.24 per Mcf in the same period of 1997. Crude oil
prices decreased 31% in the first six months of 1998 to $13.75 compared to
$20.06 per barrel in the same period of 1997.
As part of the Company's on-going operations, the Company may sell non-strategic
assets or oil and gas properties. The proceeds would be used to pay down debt or
redeploy capital to opportunities that may have a higher rate of return. These
activities have resulted in the sale of the Company's Golden Trend properties
for $6,969,000 in the second quarter of 1998. The sales proceeds were applied to
the purchase price of Amerac, resulting in no gain or loss on the transaction.
In 1997, the gain on sale of assets was $544,000. The gain on sale in 1997 was
primarily the result of the sales of an oil and gas prospect located in the
state waters offshore Texas and a working interest in an oil and gas property in
Canada, which the Company has agreed to sell for approximately $360,000.
Production costs, including production and ad valorem taxes, increased in the
first six months of 1998 to $3,186,000, up 98% from $1,611,000 in the same
period of 1997, primarily due to the above mentioned acquisitions and gas plant
maintenance at the Company's Big Escambia Creek Field for a period of 18 days
during the second quarter. On a cost per Mcfe basis, production costs for 1998
increased to $0.82 per Mcfe, or 28%, from $0.64 per Mcfe in 1997.
General and administrative expenses increased as a result of the above mentioned
acquisitions to $1,902,000 in the first six months of 1998, up 68% from
$1,134,000 in 1997. On a cost per Mcfe basis, general and administrative
expenses increased in 1998 to $0.49 per Mcfe, or 9% from $0.45 Mcfe in 1997.
Exploration, dry hole and lease impairment expenses increased in the six months
of 1998 to $1,666,000, compared to $283,000 in the same period of 1997, which is
due primarily to a dry hole drilled in Lafourche Parish, Louisiana in 1998 in
which the Company had a 93% working interest compared to a dry hole drilled in
Jefferson Parish, Louisiana in the first quarter of 1997. Since the Company uses
the successful efforts method of accounting, exploration expenses may vary
greatly from year to year based upon the level of exploration activity during
the year.
12
<PAGE>
DD&A expense for the first six months of 1998 increased to $3,229,000, up 116%
from $1,492,000 in 1997, primarily due to the above mentioned acquisitions. The
Company computes depreciation and depletion on each producing property on a
unit-of-production method. Since this method employs estimates of remaining
reserves, depreciation and depletion expenses may vary from period to period
because of revisions to reserve estimates, production rates and other factors.
DD&A expenses increased in 1998 to $0.83 per Mcfe, up 41% from $0.59 per Mcfe in
1997.
Interest and debt expense increased in the first six months of 1998 to
$1,786,000, up 647% compared to $239,000 in 1997. During the 1998 second
quarter, funded debt increased to fund capital expenditures, and to consummate
the above mentioned acquisitions.
Tax (benefit) expense in 1998 and 1997 is ($23,000) and $965,000, respectively.
The Company reports a loss in 1998 of $2,832,000, or $0.24 per basic share,
compared to earnings of $1,662,000, or $0.18 per basic share in 1997. The number
of shares outstanding increased by 3,333,000 in January, 1998, as a result of
the acquisition of Amerac Energy Corporation.
Liquidity and Capital Resources
For the Period Ended June 30, 1998
The Company has historically funded its operations, acquisitions, exploration
and development expenditures from cash flows from operating activities, bank
borrowings, issuance of common stock and sales of non-strategic assets and oil
and gas properties.
The Company's cash flows provided by operating activities for the six months
ended June 30, 1998 and 1997 are $965,000 and $4,124,000, respectively.
Additional cash of $6,074,000 and $1,038,000 was realized in the first six
months of 1998 and 1997, respectively, from property sales of non-strategic
assets.
Effective May 29, 1998, the Company amended its domestic bank credit agreement
increasing its borrowing base from $38,400,000 to $45,000,000. As of August 12,
1998, the borrowing base under the credit facility had been reduced to
$36,850,000 as a result of the transfer of the Company's Canadian assets to
Neutrino and the sale of certain domestic assets. Outstanding borrowings as of
August 12, 1998 are $34,200,000, leaving $2,650,000 available to borrow.
The domestic credit facility borrowing base reduces $40,000 per month commencing
July 1, 1998, and is reviewed by the bank semi-annually until maturity on June
1, 2001. The obligations under the credit facility are secured by substantially
all of the assets of the Company and its subsidiaries. The credit facility
contains certain covenants relating to the financial condition of the Company.
As of June 30, 1998, the Company was in compliance with the terms of the credit
facility. The credit facility bears interest at the Company's option, of either
prime rate floating or at the LIBOR rate plus one and one-half percent to two
percent, depending upon the level of debt outstanding.
Effective June 25, 1998, Neutrino entered into a new credit facility and has an
available Cdn $40,000,000 (U.S.$27,254,000) revolving demand loan facility under
which it can borrow at bank prime or at Bankers Acceptance Rates plus a 1%
stamping fee. As of June 30, 1998, the Canadian bank prime rate was 6.5% and the
Banker Acceptance Rates for 30 day maturities was 4.99%. As of August 12, 1998,
outstanding borrowings thereunder are Cdn $34,700,000, (U.S. $ 23,601,000)
leaving Cdn $5,360,000 (U.S. $3,652,000) available to borrow. The credit
facility borrowing base, will be reviewed by September 30, 1998, and is reviewed
thereafter by the bank semi-annually, however, no principal payments are
scheduled providing certain conditions of the bank agreement continue to be
satisfied. The obligations under the credit facility are secured by
substantially all of the assets of Neutrino. The credit facility contains
certain covenants relating to the financial condition of the Company. As of June
30, 1998, the Company was in compliance with the terms of the credit facility.
Subsequent to determining the current borrowing bases for the domestic and
Canadian credit facilities, oil and gas prices have declined. The lenders
judgement of future oil and gas prices will impact their borrowing base
redeterminations and therefore required principal payments may increase or
decrease in future periods.
13
<PAGE>
Capital spending in the first six months of 1998 totaled $10,841,000 for
properties, and $36,387,000 for acquisitions, and was primarily funded from bank
debt and cash flow generated from operations. The Company will evaluate its
level of capital spending throughout the year based upon drilling results,
commodity prices, cash flows from operations and property acquisitions.
The Company believes that it will have sufficient capital available from the
credit facility described above, together with cash flows from operating
activities, to fund its 1998 capital expenditure program, and to meet the
Company's other obligations. The Company also believes that the funds available
from such sources will enable the Company to continue to pursue strategic
corporate and property acquisitions.
The Company's debt to total capitalization ratio is 77% at June 30, 1998, as
compared to 49% at June 30, 1997. The Company's interest coverage ratio
(calculated as net income plus depreciation, depletion and amortization,
deferred income taxes, and exploration expenses divided by cash expenditures for
interest) is 1.34 to 1 for the first six months of 1998.
The Company did not declare dividends in the six months ended June 30, 1998,
fiscal 1997, 1996 or 1995. It is likely that for the foreseeable future funds
available for dividends on common stock, if any, will be retained by the Company
to finance future growth.
Year 2000 Compliance
The Company does not expect that the cost of converting its computer system to
year 2000 compliance will be material to its financial condition. The Company
believes that it will be able to achieve year 2000 compliance by the end of
1999, and it does not currently anticipate any disruption in its operations as
the result of any failure by the Company to be in compliance. The Company does
not currently have any information concerning the year 2000 compliance status of
its customers and vendors.
Recent Accounting Pronouncements
In June, 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for the way public enterprises are
to report information about operating segments in annual financial statements
and requires the reporting of selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, and major customers. SFAS
131 is effective for periods beginning after December 15, 1997, but need not be
applied to interim financial statements in the initial year of application.
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), was issued by the Financial
Accounting Standards Board in June 1998. SFAS 133 standardizes the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts. Under the standard, entities are required to carry all
derivative instruments in the statement of financial position at fair value. The
accounting for changes in the fair value (i.e., gains or losses) of a
derivative instrument depends on whether it has been designated and qualifies as
part of a hedging relationship and, if so, on the reason for holding it. If
certain conditions are met, entities may elect to designate a derivative
instrument as a hedge of exposures to changes in fair values, cash flows or
foreign currencies. If the hedged exposure is a fair value exposure, the gain or
loss on the derivative instrument is recognized in earnings in the period of
change together with the offsetting loss or gain on the hedged item
attributable to the risk being hedged. If the hedged exposure is a cash flow
exposure, the effective portion of the gain or loss on the derivative instrument
is reported initially as a component of other comprehensive income (outside
earnings) and subsequently reclassified into earnings when the forecasted
transaction affects earnings. Any amounts excluded from the assessment of hedge
effectiveness, as well as the ineffective portion of the gain or loss, is
reported in earnings immediately. Accounting for foreign currency hedges is
similar to the accounting for fair value and cash flow hedges. If the derivative
instrument is not designated as a hedge, the gain or loss is recognized in
earnings in the period of change.
14
<PAGE>
The Company will adopt SFAS 133 beginning in fiscal 2000. The Company has not
determined the impact that SFAS 133 will have on its financial statements and
believes that such determination will not be meaningful until closer to the date
of initial adoption.
Forward-Looking Statements
The Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1937, as amended (the
"Exchange Act"). All statements other than statements of historical fact
included in MD&A, including statements regarding the Company's operating
strategy, plans, objectives and beliefs of management for future operations,
planned capital expenditures and acquisitions are forward-looking statements.
Although the Company believes that the assumptions upon which such
forward-looking statements are based are reasonable, it can give no assurance
that such assumptions will prove to be correct.
15
<PAGE>
PART II
OTHER INFORMATION
Items 1, 2, 3, and 5 for which provision is made in the applicable regulations
of the Securities and Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's 1998 annual stockholders meeting was held on May 13, 1998. At the
meeting, the following matters were voted upon:
1. Election of eleven directors to serve until the next annual meeting of
stockholders and until their successors are elected and qualified;
2. Appointment of KPMG Peat Marwick LLP as auditors of the Company for the
year ending December 31, 1998; and
3. To consider and act upon such other business as may properly be presented
to the meeting or an adjournment thereof.
A total of 12,402,916 shares of the Company's common stock, par value $.01 per
share, were entitled to vote at the meeting. Of these shares, 7,369,602 shares
were present at the meeting and voted as follows:
With respect to each of the following nine nominees for reelection to the
Board of Directors, shares were voted for election as follows: B. Travis
Basham, Thomas R. Fuller, Donald H. Wiese, Jr. and Spencer L. Youngblood,
Robert R. Hillery, E. Ralph Hines, Jr., Steven H. Mikel and James E.
Nielson, Howell H. Howard, Jeffery B. Robinson and Michael D. Watford,
shares voted for: 7,364,405; Withheld: 5,197.
Voting results on the other matters, all of which were approved, are as
follows:
With respect to the approval of the appointment of KPMG Peat Marwick, LLP
as auditors for the period ended 12/31/98, shares voted For: 7,357,992;
Against/Abstain: 11,610.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 AMENDED AND RESTATED CREDIT AGREEMENT BETWEEN THE
COMPANY, COMPASS BANK-HOUSTON AND FIRST UNION NATIONAL
BANK DATED JUNE 19, 1998 (FILED HEREWITH)
10.2 CREDIT AGREEMENT BETWEEN NEUTRINO RESOURCES INC INC. AND
NATIONAL BANK OF CANADA DATED JUNE 25, 1998 (FILED
HEREWITH)
10.3 GAS PURCHASE CONTRACT BETWEEN NEUTRINO RESOURCES INC AND
PROGAS LIMITED DATED NOVEMBER 1, 1997 (FILED HEREWITH)
10.4 EMPLOYEE AGREEMENT BETWEEN DAVID BECKWERMERT AND
NEUTRINO RESOURCES INC. DATED JULY 1, 1998 (FILED
HEREWITH)
10.5 EMPLOYEE AGREEMENT BETWEEN JEFFERY W.C. ARSENYCH AND
NEUTRINO RESOURCES INC. DATED JULY 1, 1998 (FILED
HEREWITH)
10.6 EMPLOYEE AGREEMENT BETWEEN GORDON THOMPSON VAND NEUTRINO
RESOURCES INC. DATED JULY 1, 1998 (FILED HEREWITH)
10.7 EMPLOYEE AGREEMENT BETWEEN STEVEN M. TRAVIS AND NEUTRINO
RESOURCES INC. DATED JULY 1, 1998 (FILED HEREWITH)
27.1 FINANCIAL DATA SCHEDULE
(b) Report on Form 8-K:
Form 8-K of the Company, dated May 13, 1998, reporting the signing
of a definitive agreement to acquire Neutrino Resources, Inc.
Form 8-K of the Company, dated July 2, 1998, reporting the
completion of a cash tender offer for the acquisition of Neutrino
Resources, Inc.
<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE COMPANY
HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED
THEREUNTO DULY AUTHORIZED.
SOUTHERN MINERAL CORPORATION
DATE: AUGUST 31, 1998 BY /s/ JAMES H. PRICE
-----------------------------------
JAMES H PRICE
VICE PRESIDENT-FINANCE
- ------------------------------------------------------------------------------
AMENDED AND RESTATED CREDIT AGREEMENT
BETWEEN
SOUTHERN MINERAL CORPORATION
SMC ECUADOR, INC.
SMC PRODUCTION CO.
BEC ENERGY, INC.
AND
AMERAC ENERGY CORPORATION
AND
COMPASS BANK, AS AGENT AND LENDER
AND
FIRST UNION NATIONAL BANK AS A LENDER
JUNE 19, 1998
------------------------------------
REVOLVING LINE OF CREDIT OF UP TO $200,000,000
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above...........................................1
1.2 Additional Defined Terms......................................1
1.3 Undefined Financial Accounting Terms.........................16
1.4 References...................................................16
1.5 Articles and Sections........................................16
1.6 Number and Gender............................................16
1.7 Incorporation of Exhibits....................................17
ARTICLE II TERMS OF FACILITY
2.1 Revolving Line of Credit.....................................17
2.2 Letter of Credit Facility....................................18
2.3 Use of Loan Proceeds and Letters of Credit. ................20
2.4 Interest.....................................................20
2.5 Repayment of Loans and Interest..............................20
2.6 Outstanding Amounts..........................................21
2.7 Time, Place, and Method of Payments..........................21
2.8 Pro Rata Treatment; Adjustments..............................21
2.9 Borrowing Base Determinations................................22
2.10 Mandatory Prepayments........................................23
2.11 Voluntary Prepayments and Conversions of Loans...............23
2.12 Commitment Fee...............................................24
2.13 Facility Fee.................................................24
2.14 Letter of Credit Fee.........................................24
2.15 Agency Fee...................................................25
2.16 Loans to Satisfy Obligations of Borrower.....................25
2.17 Security Interest in Accounts; Right of Offset...............25
2.18 General Provisions Relating to Interest......................25
2.19 Yield Protection.............................................27
2.20 Limitation on Types of Loans.................................28
2.21 Illegality...................................................29
2.22 Regulatory Change............................................29
2.23 Limitations on Interest Periods..............................29
2.24 Letters in Lieu of Transfer Orders...........................30
2.25 Power of Attorney............................................30
ARTICLE III CONDITIONS
3.1 Receipt of Loan Documents and Other Items....................31
-i-
<PAGE>
3.2 Each Loan....................................................33
3.3 Each Letter of Credit........................................34
ARTICLE IV REPRESENTATIONS AND WARRANTIES
4.1 Due Authorization............................................35
4.2 Corporate Existence..........................................35
4.3 Valid and Binding Obligations................................35
4.4 Security Instruments.........................................36
4.5 Title to Assets..............................................36
4.6 Scope and Accuracy of Financial Statements...................36
4.7 No Material Misstatements....................................36
4.8 Liabilities, Litigation, and Restrictions....................36
4.9 Compliance with Laws.........................................36
4.10 ERISA........................................................37
4.11 Environmental Laws...........................................37
4.12 Compliance with Federal Reserve Regulations..................37
4.13 Investment Company Act Compliance............................37
4.14 Public Utility Holding Company Act Compliance................37
4.15 Proper Filing of Tax Returns; Payment of Taxes Due...........38
4.16 Refunds......................................................38
4.17 Gas Contracts................................................38
4.18 Intellectual Property........................................38
4.19 Casualties or Taking of Property.............................38
4.20 Locations of Borrower........................................39
4.21 Subsidiaries.................................................39
ARTICLE V AFFIRMATIVE COVENANTS
5.1 Maintenance and Access to Records............................39
5.2 Quarterly Financial Statements; Compliance Certificates......39
5.3 Annual Financial Statements..................................39
5.4 Oil and Gas Reserve Reports..................................40
5.5 Title Opinions; Title Defects................................40
5.6 Notices of Certain Events....................................41
5.7 Letters in Lieu of Transfer Orders; Division Orders..........42
5.8 Additional Information.......................................42
5.9 Compliance with Laws.........................................42
5.10 Payment of Assessments and Charges...........................42
5.11 Maintenance of Corporate Existence and Good Standing.........43
5.12 Payment of Notes; Performance of Obligations.................43
5.13 Further Assurances...........................................43
5.14 Initial Fees and Expenses of Counsel to Agent................43
5.15 Subsequent Fees and Expenses of Agent and Lenders............43
5.16 Operation of Oil and Gas Properties..........................44
-ii-
<PAGE>
5.17 Maintenance and Inspection of Properties.....................44
5.18 Maintenance of Insurance.....................................44
5.19 INDEMNIFICATION..............................................45
ARTICLE VI NEGATIVE COVENANTS
6.1 Indebtedness.................................................46
6.2 Contingent Obligations.......................................46
6.3 Liens........................................................47
6.4 Sales of Assets..............................................47
6.5 Leasebacks...................................................47
6.6 Loans or Advances............................................47
6.7 Investments..................................................47
6.8 Dividends and Distributions..................................48
6.9 Issuance of Stock; Changes in Corporate Structure............48
6.10 Transactions with Affiliates.................................48
6.11 Lines of Business............................................48
6.12 Plan Obligations.............................................48
6.13 New Subsidiaries.............................................48
6.14 Tangible Net Worth...........................................48
6.15 Cash Flow Coverage...........................................49
ARTICLE VII EVENTS OF DEFAULT
7.1 Enumeration of Events of Default.............................49
7.2 Remedies.....................................................51
ARTICLE VIII THE AGENT
8.1 Appointment..................................................52
8.2 Waivers, Amendments..........................................52
8.3 Delegation of Duties.........................................52
8.4 Exculpatory Provisions.......................................52
8.5 Reliance by Agent............................................53
8.6 Notice of Default............................................53
8.7 Non-Reliance on Agent and Other Lenders......................54
8.8 Indemnification..............................................54
8.9 Restitution..................................................55
8.10 Agent in Its Individual Capacity.............................56
8.11 Successor Agent..............................................56
8.12 Applicable Parties...........................................56
ARTICLE IX MISCELLANEOUS
9.1 Assignments; Participations..................................56
9.2 Survival of Representations, Warranties, and Covenants.......58
9.3 Notices and Other Communications.............................58
-iii-
<PAGE>
9.4 Parties in Interest..........................................59
9.5 Rights of Third Parties......................................59
9.6 Renewals; Extensions.........................................59
9.7 No Waiver; Rights Cumulative.................................59
9.8 Survival Upon Unenforceability...............................60
9.9 Amendments; Waivers..........................................60
9.10 Controlling Agreement........................................60
9.11 Disposition of Collateral....................................60
9.12 GOVERNING LAW................................................60
9.13 JURISDICTION AND VENUE.......................................60
9.14 WAIVER OF RIGHTS TO JURY TRIAL...............................61
9.15 ENTIRE AGREEMENT.............................................61
9.16 Counterparts.................................................61
LIST OF EXHIBITS
Exhibit I - Form of Notes
Exhibit II - Form of Borrowing Request
Exhibit III - Form of Opinion of Counsel
Exhibit IV - Form of Compliance Certificate
Exhibit V - Form of Borrowing Base Utilization
Exhibit VI - Disclosures
Exhibit VII - Form of Lender Assignment Agreement
-iv-
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT is made and entered into
this 19th day of June, 1998, by and between SOUTHERN MINERAL CORPORATION, a
Nevada corporation, (the "BORROWER"), SMC PRODUCTION CO., a Texas corporation,
AMERAC ENERGY CORPORATION, a Delaware corporation, SMC ECUADOR, INC., a Texas
corporation, and BEC ENERGY, INC., a Texas corporation ("CO-BORROWERS") and
COMPASS BANK, a Texas state chartered banking institution ("COMPASS"), and FIRST
UNION NATIONAL BANK, a national banking association ("FIRST UNION"), with each
other lender that becomes a signatory hereto as provided in Section 9.1,
individually, together with its successors and assigns, the "Lenders", and
Compass, as Agent for the Lenders in such capacity together with its successors
in such capacity pursuant to the terms hereof, the "AGENT".
W I T N E S S E T H:
In consideration of the mutual covenants and agreements herein
contained, the parties hereto hereby agree as follows, amending and restating in
its entirety, the Credit Agreement dated December 20, 1995, by and between
Southern Mineral Corporation, SMC Production Co., San Salvador Development
Company, Inc., Venture Resources, Inc., Venture Pipeline Company, Vengas
Pipeline Company, and Spruce Hills Production Company, Inc., and Compass (as
heretofore amended, the "AGREEMENT"). San Salvador Development Company, Inc. has
merged into the Borrower. Venture Resources, Inc., Venture Pipeline Company and
Vengas Pipeline Company have been sold and the proceeds paid to Compass. Spruce
Hills Production Company, Inc. is being released from this Agreement.
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 TERMS DEFINED ABOVE. As used in this Credit Agreement, the terms
"AGENT", "AGREEMENt", "BORROWER", "CO-BORROWERS", "COMPASS", "FIRST UNION",
"LENDER" and "LENDERS" shall have the meaning assigned to them hereinabove.
1.2 ADDITIONAL DEFINED TERMS. As used in this Credit Agreement, each
of the following terms shall have the meaning assigned thereto in this Section,
unless the context otherwise requires:
"779776 ALBERTA, LTD." shall mean the Alberta, Canada corporation
organized to purchase the common stock of Neutrino Resources, Inc.
"ADDITIONAL COSTS" shall mean costs which the Agent or any Lender
determines are attributable to its obligation to make or its making or
maintaining any LIBO Rate Loan or issuing or participating in Letters of
Credit, or any reduction in any amount receivable by the Agent or any
Lender in respect of any such obligation
1
<PAGE>
or any LIBO Rate Loan or Letter of Credit, resulting from any Regulatory
Change which (a) changes the basis of taxation of any amounts payable to
the Agent or such Lender under this Agreement or any Note in respect of
any LIBO Rate Loan or Letter of Credit (other than taxes imposed on the
overall net income of the Agent or such Lender or its Applicable Lending
Office for any such LIBO Rate Loan by the jurisdiction in which the Agent
or such Lender has its principal office or Applicable Lending Office), (b)
imposes or modifies any reserve, special deposit, minimum capital, capital
ratio, or similar requirements (other than the Reserve Requirement
utilized in the determination of the Adjusted LIBO Rate for such Loan)
relating to any extensions of credit or other assets of, or any deposits
with or other liabilities of, the Agent or such Lender (including LIBO
Rate Loans and Dollar deposits in the London interbank market in
connection with LIBO Rate Loans), or the Commitment of the Agent or such
Lender, or the London interbank market, or (c) imposes any other condition
affecting this Agreement or any Note or any of such extensions of credit,
liabilities, or Commitments.
"ADJUSTED LIBO RATE" shall mean, for any LIBO Rate Loan, an interest
rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
determined by the Agent to be equal to the sum of the LIBO Rate for such
Loan plus the Applicable Margin, but in no event exceeding the Highest
Lawful Rate.
"AFFILIATE" shall mean any Person directly or indirectly
controlling, or under common control with, the Borrower and includes any
Subsidiary of the Borrower and any "affiliate" of the Borrower within the
meaning of Reg. ss.240.12b-2 of the Securities Exchange Act of 1934, as
amended, with "control," as used in this definition, meaning possession,
directly or indirectly, of the power to direct or cause the direction of
management, policies or action through ownership of voting securities,
contract, voting trust, or membership in management or in the group
appointing or electing management or otherwise through formal or informal
arrangements or business relationships.
"AGENCY FEE LETTER" shall mean the letter agreement dated as of June
__, 1998, between Compass Bank and the Borrower and Co-Borrowers
concerning certain fees in connection with the transactions contemplated
hereby, and any agreements or instruments executed in connection
therewith, as amended, restated, or supplemented from time to time.
"AGENT" shall mean Compass Bank.
"AGREEMENT" shall mean this Credit Agreement, as it may be amended,
supplemented, or restated from time to time.
2
<PAGE>
"APPLICABLE LENDING OFFICE" shall mean, for each Lender and type of
Loan, the lending office of such Lender (or an affiliate of such Lender)
designated for such type of Loan on the signature pages hereof or such
other office of such Lender (or an affiliate of such Lender) as such
Lender may from time to time specify to the Agent and the Borrower as the
office by which Loans of such type are to be made and maintained.
"APPLICABLE MARGIN" shall mean as to each LIBO Rate Loan, the
following:
BORROWING BASE LIBO RATE LOAN
UTILIZATION APPLICABLE MARGIN
----------------------- --------------------
1) greater than 66-2/3% two percent (2%)
of Borrowing Base
2) less than or equal to one and three-fourths
66-2/3% and greater than percent (1-3/4%)
33-1/3% of Borrowing Base
3) less than or equal to one and one-half
33-1/3% of Borrowing Base percent (1-1/2%)
The Borrowing Base Utilization and the corresponding LIBO Rate shall
be set at each quarter end for the next quarter. Borrower will furnish to
the Agent a Form of Borrowing Base Utilization, which is attached as
Exhibit V to this Agreement, which shall stipulate the Borrowing Base
Utilization level at the end of such quarter. Such form shall be furnished
to the Agent within five (5) days of the end of such quarter.
"ASSIGNMENT" shall mean that certain Assignment of Notes and Liens
assigning the Existing Note and Existing Liens by Compass to Agent for the
benefit of the Lenders.
"AVAILABLE COMMITMENT" shall mean, at any time, an amount equal to
the remainder, if any, of (a) the Borrowing Base in effect at such time
MINUS (b) the sum of the Loan Balance at such time and the L/C Exposure at
such time.
"BORROWING BASE" shall mean, at any time, the amount determined by
the Lenders in accordance with Section 2.9 and then in effect.
3
<PAGE>
"BORROWING BASE UTILIZATION" shall mean the aggregate principal
amount of Loans outstanding hereunder, plus any L/C Exposure hereunder as
a percentage of the Borrowing Base.
"BORROWING REQUEST" shall mean each written request, in
substantially the form attached hereto as Exhibit II, by the Borrower
and/or the Co-Borrowers to the Agent for a borrowing or conversion
pursuant to Sections 2.1 or 2.11, each of which shall:
(a) be signed by a Responsible Officer of the Borrower
and/or the Co-Borrowers;
(b) specify the amount and type of Loan requested, and, as
applicable, the Loan to be converted or prepaid and the date of the
borrowing, conversion, or prepayment (which shall be a Business
Day);
(c) when requesting a Floating Rate Loan, be delivered to the
Agent no later than 10:00 a.m., Central Standard or Daylight Savings
Time, as the case may be, on the Business Day of the requested
borrowing, conversion, or prepayment;
(d) when requesting a LIBO Rate Loan, be delivered to the
Agent no later than 10:00 a.m., Central Standard or Daylight Savings
Time, as the case may be, two Business Days preceding the requested
borrowing, conversion, or prepayment and designate the Interest
Period requested with respect to such Loan.
"BUSINESS DAY" shall mean (a) for all purposes other than as covered
by clause (b) of this definition, a day other than a Saturday, Sunday,
legal holiday for commercial banks under the laws of the State of Texas,
or any other day when banking is suspended in the State of Texas, and (b)
with respect to all requests, notices, and determinations in connection
with, and payments of principal and interest on, LIBO Rate Loans, a day
which is a Business Day described in clause (a) of this definition and
which is a day for trading by and between banks for Dollar deposits in the
London interbank market.
"CASH FLOW" shall mean, for any period, Net Income of the Borrower
and the Co-Borrowers for such period plus, without duplication and to the
extent deducted from revenues in determining Net Income for the period,
depreciation, amortization, depletion, and other non-cash expenses less,
without duplication and to the extent added to revenues in determining Net
Income for that period, all non-cash revenue and non-recurring gains of
the Borrower and the Co-Borrowers for such period.
4
<PAGE>
"CLOSING DATE" shall mean the date of this Agreement.
"CODE" shall mean the United States Internal Revenue Code of 1986,
as amended from time to time.
"COLLATERAL" shall mean the Mortgaged Properties and any other
Property now or at any time used or intended as security for the payment
or performance of all or any portion of the Obligations which is subject
to a Security Instrument.
"COMMITMENTS" shall mean the several obligation of the Lenders,
subject to applicable provisions of this Agreement, to make Loans to or
for the benefit of the Borrower and the Co-Borrowers pursuant to Section
2.1.
"COMMITMENT AMOUNT" shall mean for Compass, $29,250,000 and for
First Union, $15,750,000 as of the Closing Date.
"COMMITMENT FEE" shall mean each fee payable to the Lenders by the
Borrower and the Co-Borrowers pursuant to Section 2.12.
"COMMITMENT PERIOD" shall mean the period from and including the
Closing Date to but not including the Commitment Termination Date.
"COMMITMENT TERMINATION DATE" shall mean June 1, 2001.
"COMMONLY CONTROLLED ENTITY" shall mean any Person which is under
common control with the Borrower and/or the Co-Borrowers within the
meaning of Section 4001 of ERISA.
"COMPLIANCE CERTIFICATE" shall mean each certificate, substantially
in the form attached hereto as Exhibit IV, executed by a Responsible
Officer of the Borrower and the Co-Borrowers and furnished to the Agent
from time to time in accordance with Section 5.2.
"CONTINGENT OBLIGATION" shall mean, as to any Person, any obligation
of such Person guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends, or other obligations of any other Person (for purposes
of this definition, a "PRIMARY OBLIGATION") in any manner, whether
directly or indirectly, including, without limitation, any obligation of
such Person, regardless of whether such obligation is contingent, (a) to
purchase any primary obligation or any Property constituting direct or
indirect security therefor, (b) to advance or supply funds (i)
5
<PAGE>
for the purchase or payment of any primary obligation, or (ii) to maintain
working or equity capital of any other Person in respect of any primary
obligation, or otherwise to maintain the net worth or solvency of any
other Person, (c) to purchase Property, securities or services primarily
for the purpose of assuring the owner of any primary obligation of the
ability of the Person primarily liable for such primary obligation to make
payment thereof, or (d) otherwise to assure or hold harmless the owner of
any such primary obligation against loss in respect thereof, with the
amount of any Contingent Obligation being deemed to be equal to the stated
or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined
by such Person in good faith.
"DEBT SERVICE" shall mean an amount equal to (i) actual principal
amounts paid on Indebtedness other than the Obligations during each
quarter, including all consolidated debt of the Borrower and/or the
Co-Borrowers, plus (ii) principal amounts required to be paid on the
Obligations during such quarter.
"DEFAULT" shall mean any event or occurrence which with the lapse of
time or the giving of notice or both would become an Event of Default.
"DEFAULT RATE" shall mean a per annum interest rate equal to the
Index Rate plus five percent (5%), but in no event exceeding the Highest
Lawful Rate.
"DOLLARS" and "$" shall mean dollars in lawful currency of the
United States of America.
"ENVIRONMENTAL COMPLAINT" shall mean any written or oral complaint,
order, directive, claim, citation, notice of environmental report or
investigation, or other notice by any Governmental Authority with respect
to (a) air emissions, (b) spills, releases, or discharges to soils, any
improvements located thereon, surface water, groundwater, or the sewer,
septic, waste treatment, storage, or disposal systems servicing any
Property of the Borrower and/or the Co-Borrowers, (c) solid or liquid
waste disposal, (d) the use, generation, storage, transportation, or
disposal of any Hazardous Substance, or (e) other environmental, health,
or safety matters affecting any Property of the Borrower and/or the
Co-Borrowers or the business conducted thereon.
"ENVIRONMENTAL LAWS" shall mean (a) the following federal laws as
they may be cited, referenced, and amended from time to time: the Clean
Air Act, the Clean Water Act, the Safe Drinking Water Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Endangered Species Act, the Resource Conservation and Recovery Act, the
Occupational Safety and Health Act,
6
<PAGE>
the Hazardous Materials Transportation Act, the Superfund Amendments and
Reauthorization Act, and the Toxic Substances Control Act; (b) any and all
equivalent environmental statutes of any state in which Property of the
Borrower and/or the Co-Borrowers is situated, as they may be cited,
referenced and amended from time to time; (c) any rules or regulations
promulgated under or adopted pursuant to the above federal and state laws;
and (d) any other equivalent foreign, federal, state, or local statute or
any requirement, rule, regulation, code, ordinance, or order adopted
pursuant thereto, including, without limitation, those relating to the
generation, transportation, treatment, storage, recycling, disposal,
handling, or release of Hazardous Substances.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations thereunder and
interpretations thereof.
"EVENT OF DEFAULT" shall mean any of the events specified in
Section 7.1.
"EXISTING CREDIT AGREEMENT" shall mean that certain credit agreement
dated December 20, 1995, between Borrower and Co-Borrowers as were in
effect at that time and Compass Bank, individually.
"EXISTING INDEBTEDNESS" shall mean the Obligations as defined under
the Existing Credit Agreement outstanding as of the Closing Date.
"EXISTING NOTE" shall mean that certain promissory note dated
January 28, 1998, in the amount of $100,000,000 from Borrower to Compass.
"EXISTING LIENS" shall mean the Liens securing the Existing
Indebtedness in effect as of the Closing Date from Borrower to Compass
which are assigned to Agent for the benefit of the Lenders under the
Assignment.
"FACILITY FEE" shall mean the fee payable to the Lenders by the
Borrower and the Co-Borrowers pursuant to Section 2.13.
"FINAL MATURITY" shall mean June 1, 2001.
"FINANCIAL STATEMENTS" shall mean statements of the financial
condition of the Borrower and the Co-Borrowers as at the point in time and
for the period indicated and consisting of at least a balance sheet and
related statements of operations, common stock and other stockholders'
equity, and cash flows for the Borrower on a consolidated and
consolidating basis with the Co-Borrowers, when required by applicable
provisions of this Agreement to be audited, accompanied by the unqualified
certification of a nationally-recognized firm of independent certified
7
<PAGE>
public accountants or other independent certified public accountants
acceptable to the Agent and footnotes to any of the foregoing, all of
which shall be prepared in accordance with GAAP consistently applied and
in comparative form with respect to the corresponding period of the
preceding fiscal period.
"FIXED RATE LOAN" shall mean any LIBO Rate Loan.
"FLOATING RATE" shall mean an interest rate per annum equal to the
Index Rate from time to time in effect, but in no event exceeding the
Highest Lawful Rate.
"FLOATING RATE LOAN" shall mean any Loan and any portion of the Loan
Balance which the Borrower and/or the Co-Borrowers have requested, in the
initial Borrowing Request for such Loan or a subsequent Borrowing Request
for such portion of the Loan Balance, bear interest at the Floating Rate,
or which pursuant to the terms hereof is otherwise required to bear
interest at the Floating Rate.
"GAAP" shall mean generally accepted accounting principles
established by the Financial Accounting Standards Board or the American
Institute of Certified Public Accountants and in effect in the United
States from time to time.
"GOVERNMENTAL AUTHORITY" shall mean any nation, country,
commonwealth, territory, government, state, county, parish, municipality,
or other political subdivision and any entity exercising executive,
legislative, judicial, regulatory, or administrative functions of or
pertaining to government.
"HAZARDOUS SUBSTANCES" shall mean flammables, explosives,
radioactive materials, hazardous wastes, asbestos, or any material
containing asbestos, polychlorinated biphenyls (PCBs), toxic substances or
related materials, petroleum, petroleum products, associated oil or
natural gas exploration, production, and development wastes, or any
substances defined as "hazardous substances," "hazardous materials,"
"hazardous wastes," or "toxic substances" under the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the
Superfund Amendments and Reauthorization Act, as amended, the Hazardous
Materials Transportation Act, as amended, the Resource Conservation and
Recovery Act, as amended, the Toxic Substances Control Act, as amended, or
any other law or regulation now or hereafter enacted or promulgated by any
Governmental Authority.
"HIGHEST LAWFUL RATE" shall mean the maximum non-usurious interest
rate, if any (or, if the context so requires, an amount calculated at such
rate), that at any time or from time to time may be contracted for, taken,
reserved, charged, or received under applicable laws of the State of North
Carolina, or if applicable, the
8
<PAGE>
State of Texas or the United States of America, whichever authorizes the
greater rate, as such laws are presently in effect or, to the extent
allowed by applicable law, as such laws may hereafter be in effect and
which allow a higher maximum non-usurious interest rate than such laws now
allow.
"INDEBTEDNESS" shall mean, as to any Person, without duplication,
(a) all liabilities (excluding reserves for deferred income taxes,
deferred compensation liabilities, and other deferred liabilities and
credits) which in accordance with GAAP would be included in determining
total liabilities as shown on the liability side of a balance sheet, (b)
all obligations of such Person evidenced by bonds, debentures, promissory
notes, or similar evidences of indebtedness, (c) all other indebtedness of
such Person for borrowed money, (d) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than
trade payables, which include amounts owed to drilling contractors,
entered into in the ordinary course of business on ordinary terms); (e)
all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with
respect to property acquired by the Person (even though the rights and
remedies of the seller or bank under such agreement in the event of
default are limited to repossession or sale of such property) including,
without limitation, production payments, net profit interests and other
hydrocarbon interests subject to repayment out of future oil and gas
production; (f) all obligations with respect to capital leases; (g) all
net obligations with respect to derivative contracts; and (h) all
obligations, including Contingent Obligations of others, to the extent any
such obligation is secured by a Lien on the assets of such Person (whether
or not such Person has assumed or become liable for the obligation secured
by such Lien).
"INDEX RATE" shall mean the prime rate established in THE WALL
STREET JOURNAL'S "MONEY RATES" or similar table. If multiple prime rates
are quoted in the table, then the highest prime rate will be the Index
Rate. In the event that the prime rate is no longer published by THE WALL
STREET JOURNAL in the "MONEY RATES" or similar table, then Agent may
select an alternative published index based upon comparable information as
a substitute Index Rate. Upon the selection of a substitute Index Rate,
the applicable interest rate shall thereafter vary in relation to the
substitute index. Such substitute index shall be the same index that is
generally used as a substitute by Agent on all Index Rate loans.
"INSOLVENCY PROCEEDING" shall mean application (whether voluntary or
instituted by another Person) for or the consent to the appointment of a
receiver, trustee, conservator, custodian, or liquidator of any Person or
of all or a substantial part of the Property of such Person, or the filing
of a petition (whether voluntary or instituted by another Person)
commencing a case under Title 11 of the United States Code, seeking
liquidation, reorganization, or rearrangement or taking
9
<PAGE>
advantage of any bankruptcy, insolvency, debtor's relief, or other similar
law of the United States, the State of Texas, or any other jurisdiction.
"INTELLECTUAL PROPERTY" shall mean patents, patent applications,
trademarks, tradenames, copyrights, technology, know-how, and processes.
"INTEREST PERIOD" shall mean, subject to the limitations set forth
in Section 2.23, and with respect to any LIBO Rate Loan, a period
commencing on the date such Loan is made or converted from a Loan of
another type pursuant to this Agreement or the last day of the next
preceding Interest Period with respect to such Loan and ending on the
numerically corresponding day in the calendar month that is one, two,
three, or, subject to availability, six months thereafter, as the Borrower
and/or the Co-Borrowers may request in the Borrowing Request for such
Loan.
"INVESTMENT" in any Person shall mean any stock, bond, note, or
other evidence of Indebtedness, or any other security (other than current
trade and customer accounts) of, investment or partnership interest in or
loan to, such Person.
"L/C EXPOSURE" shall mean, at any time, the aggregate maximum amount
available to be drawn under outstanding Letters of Credit at such time.
"LETTER OF CREDIT" shall mean any standby letter of credit issued by
the Agent for the account of the Borrower and/or the Co-Borrowers pursuant
to Section 2.23.
"LETTER OF CREDIT APPLICATION" shall mean the standard letter of
credit application employed by the Agent as the issuer of the Letters of
Credit, from time to time, in connection with Letters of Credit.
"LETTER OF CREDIT FEE" shall mean each fee payable to the Agent for
the account of the Lenders by the Borrower and the Co-Borrowers pursuant
to Section 2.25 upon or in connection with the issuance or renewal of each
Letter of Credit.
"LETTER OF CREDIT PAYMENT" shall mean any payment made by the Agent
on behalf of the Lenders under a Letter of Credit, to the extent that such
payment has not been repaid by the Borrower and/or the Co-Borrowers.
"LIBO RATE" shall mean, with respect to any Interest Period for any
LIBO Rate Loan, the lesser of (a) the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) equal to the average of the offered
quotations appearing on Telerate Page 3750 (or if such Telerate Page shall
not be available, any
10
<PAGE>
successor or similar service selected by the Agent and the Borrower and/or
the Co- Borrowers) as of approximately 11:00 a.m., Central Standard or
Daylight Savings Time, as the case may be, on the day two Business Days
prior to the first day of such Interest Period for Dollar deposits in an
amount comparable to the principal amount of such LIBO Rate Loan and
having a term comparable to the Interest Period for such LIBO Rate Loan,
or (b) the Highest Lawful Rate. If neither such Telerate Page 3750 nor any
successor or similar service is available, the term "LIBO Rate" shall
mean, with respect to any Interest Period for any LIBO Rate Loan, the
lesser of (a) the rate per annum (rounded upwards if necessary, to the
nearest 1/100 of 1%) quoted by the Agent at approximately 11:00 a.m.,
London time (or as soon thereafter as practicable) two Business Days prior
to the first day of the Interest Period for such LIBO Rate Loan for the
offering by the Agent to leading banks in the London interbank market of
Dollar deposits in an amount comparable to the principal amount of such
LIBO Rate Loan and having a term comparable to the Interest Period for
such LIBO Rate Loan, or (b) the Highest Lawful Rate.
"LIBO RATE LOAN" shall mean any Loan and any portion of the Loan
Balance which the Borrower and/or the Co-Borrowers have requested, in the
initial Borrowing Request for such Loan or a subsequent Borrowing Request
for such portion of the Loan Balance, bear interest at the Adjusted LIBO
Rate and which is permitted by the terms hereof to bear interest at the
Adjusted LIBO Rate.
"LIEN" shall mean any interest in Property securing an obligation
owed to, or a claim by, a Person other than the owner of such Property,
whether such interest is based on common law, statute, or contract, and
including, but not limited to, the lien or security interest arising from
a mortgage, ship mortgage, encumbrance, pledge, security agreement,
conditional sale or trust receipt, or a lease, consignment, or bailment
for security purposes (other than true leases or true consignments), liens
of mechanics, materialmen, and artisans, maritime liens and reservations,
exceptions, encroachments, easements, rights of way, covenants,
conditions, restrictions, leases, and other title exceptions and
encumbrances affecting Property which secure an obligation owed to, or a
claim by, a Person other than the owner of such Property (for the purpose
of this Agreement, the Borrower and/or the Co-Borrowers shall be deemed to
be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement, financing lease, or other arrangement pursuant
to which title to the Property has been retained by or vested in some
other Person for security purposes), and the filing or recording of any
financing statement or other security instrument in any public office.
"LIMITATION PERIOD" shall mean any period while any amount remains
owing on the Notes and interest on such amount, calculated at the
applicable interest rate,
11
<PAGE>
plus any fees or other sums payable under any Loan Document and deemed to
be interest under applicable law, would exceed the amount of interest
which would accrue at the Highest Lawful Rate.
"LOAN" shall mean any loan made by any Lender to or for the benefit
of the Borrower and/or the Co-Borrowers pursuant to this Agreement and any
payment made by any Lender under a Letter of Credit.
"LOAN BALANCE" shall mean, at any time, the outstanding principal
balance of the Notes at such time.
"LOAN DOCUMENTS" shall mean this Agreement, Assignment of Notes and
Liens, the Notes, the Letter of Credit Applications, the Letters of
Credit, the Security Instruments, and all other documents and instruments
now or hereafter delivered pursuant to the terms of or in connection with
this Agreement, the Notes, the Letter of Credit Applications, the Letters
of Credit, or the Security Instruments, and all renewals and extensions
of, amendments and supplements to, and restatements of, any or all of the
foregoing from time to time in effect.
"MATERIAL ADVERSE EFFECT" shall mean (a) any material adverse effect
on the business, operations, properties, condition (financial or
otherwise), or prospects of the Borrower and/or the Co-Borrowers taken as
a whole, or (b) any adverse effect upon the Collateral taken as a whole.
"MAXIMUM COMMITMENT AMOUNT" shall mean the sum of the Commitment
Amounts of all Lenders.
"MORTGAGED PROPERTIES" shall mean all Oil and Gas Properties of the
Borrower and Co-Borrowers subject to a perfected first-priority Lien in
favor of the Agent for the benefit of the Lenders, subject only to
Permitted Liens, as security for the Obligations.
"NET INCOME" shall mean, for any period, the net income of the
Borrower on a consolidated basis for such period, determined in accordance
with GAAP.
"NOTES" shall mean, collectively, each of the promissory notes of
the Borrower and Co-Borrowers, which Notes shall be in partial renewal,
extension and modification, but not discharge or novation of the Existing
Note, and shall be in the form attached hereto as Exhibit I, together with
all renewals, extensions for any period, increases, and rearrangements
thereof.
"OBLIGATIONS" shall mean, without duplication, (a) all Indebtedness
evidenced by the Notes, (b) the undrawn, unexpired amount of all
outstanding
12
<PAGE>
Letters of Credit, (c) the obligation of the Borrower and the Co-Borrowers
for the payment of Commitment Fees, Facility Fees and Letter of Credit
Fees, and (e) all other obligations and liabilities of the Borrower and
the Co-Borrowers to the Agent and the Lenders, now existing or hereafter
incurred, under, arising out of or in connection with any Loan Document,
and to the extent that any of the foregoing includes or refers to the
payment of amounts deemed or constituting interest, only so much thereof
as shall have accrued, been earned and which remains unpaid at each
relevant time of determination.
"OIL AND GAS PROPERTIES" shall mean fee, leasehold, or other
interests in or under mineral estates or oil, gas, and other liquid or
gaseous hydrocarbon leases with respect to Properties situated in the
United States or offshore from any State of the United States, including,
without limitation, overriding royalty and royalty interests, leasehold
estate interests, net profits interests, production payment interests, and
mineral fee interests, together with contracts executed in connection
therewith and all tenements, hereditaments, appurtenances and Properties
appertaining, belonging, affixed, or incidental thereto.
"PERCENTAGE SHARE" shall mean, as to each Lender, the percentage
such Lender's Commitment Amount constitutes of the Maximum Commitment
Amount.
"PERMITTED INDEBTEDNESS" shall mean (a) the Obligations under the
Loan Documents, (b) Indebtedness arising from endorsing negotiable
instruments for deposit or collection in the ordinary course of business,
(c) current liabilities incurred in the ordinary course of business, (d)
purchase money Indebtedness which does not exceed an aggregate principal
amount of $750,000 during the term of this Agreement, (e) Indebtedness
existing by virtue of the requirements of GAAP or any changes in the
requirements of GAAP, (f) the existing $41,400,000 aggregate principal
amount of 6-7/8% convertible subordinated debentures due 2007, but not any
renewal or rearrangement thereof, and (g) debt of 779776 Alberta, Ltd.
and/or Neutrino Resources, Inc. to National Bank of Canada structured on a
senior secured basis.
"PERMITTED LIENS" shall mean (a) Liens for taxes, assessments, or
other governmental charges or levies not yet due or which (if foreclosure,
distraint, sale, or other similar proceedings shall not have been
initiated) are being contested in good faith by appropriate proceedings,
and such reserve as may be required by GAAP shall have been made therefor,
(b) Liens in connection with workers' compensation, unemployment insurance
or other social security (other than Liens created by Section 4068 of
ERISA), old-age pension, or public liability obligations which are not yet
due or which are being contested in good faith by appropriate proceedings,
if such reserve as may be required by GAAP shall have been made therefor,
(c) Liens in favor of vendors, carriers, warehousemen, repairmen,
13
<PAGE>
mechanics, workmen, materialmen, construction, or similar Liens arising by
operation of law in the ordinary course of business in respect of
obligations which are not yet due or which are being contested in good
faith by appropriate proceedings, if such reserve as may be required by
GAAP shall have been made therefor, (d) Liens in favor of operators and
non-operators under joint operating agreements or similar contractual
arrangements arising in the ordinary course of the business of the
Borrower and/or the Co-Borrowers to secure amounts owing, which amounts
are not yet due or are being contested in good faith by appropriate
proceedings, if such reserve as may be required by GAAP shall have been
made therefor, (e) Liens under production sales agreements, division
orders, operating agreements, and other agreements customary in the oil
and gas business for processing, producing, and selling hydrocarbons
securing obligations not constituting Indebtedness and provided that such
Liens do not secure obligations to deliver hydrocarbons at some future
date without receiving full payment therefor within 90 days of delivery,
(f) easements, rights of way, restrictions, and other similar
encumbrances, and minor defects in the chain of title which are
customarily accepted in the oil and gas financing industry, none of which
interfere with the ordinary conduct of the business of the Borrower and/or
the Co-Borrowers or materially detract from the value or use of the
Property to which they apply, and (g) Liens in favor of the Agent for the
benefit of the Lenders and other Liens expressly permitted under the
Security Instruments.
"PERSON" shall mean an individual, corporation, partnership, trust,
unincorporated organization, government, any agency or political
subdivision of any government, or any other form of entity.
"PLAN" shall mean, at any time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrower or any Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"PRINCIPAL OFFICE" shall mean the principal office of the Agent in
Houston, Texas, presently located at 24 Greenway Plaza, 14th Floor,
Houston, Texas
77046.
"PROPERTY" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.
"REGULATION D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System, as the same may be amended or supplemented
from time to time.
14
<PAGE>
"REGULATORY CHANGE" shall mean the passage, adoption, institution,
or amendment of any federal, state, local, or foreign Requirement of Law
(including, without limitation, Regulation D), or any interpretation,
directive, or request of any Governmental Authority or monetary authority
charged with the enforcement, interpretation, or administration thereof,
occurring after the Closing Date and applying to a class of banks
including any Lender or its Applicable Lending Office.
"RELEASE OF HAZARDOUS SUBSTANCES" shall mean any emission, spill,
release, disposal, or discharge, except in accordance with the Requirement
of Law, a valid permit, license, certificate, or approval of the relevant
Governmental Authority, of any Hazardous Substance into or upon (a) the
air, (b) soils or any improvements located thereon, (c) surface water or
groundwater, or (d) the sewer or septic system, or the waste treatment,
storage, or disposal system servicing any Property of the Borrower and/or
the Co-Borrowers.
"REQUIRED LENDERS" shall mean, Lenders (including the Agent) holding
at least 80% of the then aggregate outstanding principal amount of the
Notes then held by the Lenders, or, if no such principal amount is then
outstanding, Lenders (including the Agent) having at least 80% of the
aggregate amount of the Commitments.
"REQUIREMENT OF LAW" shall mean, as to any Person, the certificate
or articles of incorporation and by-laws or other organizational or
governing documents of such Person, and any applicable law, treaty,
ordinance, order, judgment, rule, decree, regulation, or determination of
an arbitrator, court, or other Governmental Authority, including, without
limitation, rules, regulations, orders, and requirements for permits,
licenses, registrations, approvals, or authorizations, in each case as
such now exist or may be hereafter amended and are applicable to or
binding upon such Person or any of its Property or to which such Person or
any of its Property is subject.
"RESERVE REPORT" shall mean each report delivered to the Agent and
each Lender pursuant to Section 5.4.
"RESPONSIBLE OFFICER" shall mean, as to any Person, its President,
Chief Executive Officer, Chief Financial Officer or any Vice President.
"SCHEDULED REDUCTION AMOUNT" shall mean the amount by which the
Borrowing Base shall be reduced each calendar month as determined by the
Lenders under Section 2.9(b) from time to time.
"SECURITY INSTRUMENTS" shall mean the security instruments executed
and delivered in satisfaction of the condition set forth in Section
3.1(f), and all other
15
<PAGE>
documents and instruments at any time executed as security for all or any
portion of the Obligations, as such instruments may be amended, restated,
or supplemented from time to time.
"SUBSIDIARY" shall mean, as to any Person, a corporation of which
shares of stock having ordinary voting power (other than stock having such
power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such corporation
are at the time owned, or the management of which is otherwise controlled,
directly or indirectly through one or more intermediaries, or both, by
such Person.
"SUPERFUND SITE" shall mean those sites listed on the Environmental
Protection Agency National Priority List and eligible for remedial action
or any comparable state registries or list in any state of the United
States.
"TANGIBLE NET WORTH" shall mean (a) total assets, as would be
reflected on a balance sheet of the Borrower prepared on a consolidated
basis and in accordance with GAAP, exclusive of Intellectual Property,
experimental or organization expenses, franchises, licenses, permits, and
other intangible assets, treasury stock, unamortized underwriters' debt
discount and expenses, and goodwill minus (b) total liabilities, as would
be reflected on a balance sheet of the Borrower prepared on a consolidated
basis and in accordance with GAAP.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the State of Texas.
"YEAR 2000 COMPLIANCE" shall mean, with regard to any entity, that
all software, embedded microchips, and other processing capabilities
utilized by, and material to the business operations or financial
condition of, such entity are able to interpret and manipulate data on and
involving all calendar dates correctly and without causing any abnormal
ending scenario, including in relation to dates in and after the year
2000.
1.3 UNDEFINED FINANCIAL ACCOUNTING TERMS. Undefined financial
accounting terms used in this Agreement shall be defined according to GAAP at
the time in effect.
1.4 REFERENCES. References in this Agreement to Exhibit, Article, or
Section numbers shall be to Exhibits, Articles, or Sections of this Agreement,
unless expressly stated to the contrary. References in this Agreement to
"hereby," "herein," "hereinafter," "hereinabove," "hereinbelow," "hereof,"
"hereunder" and words of similar import shall be to this Agreement in its
entirety and not only to the particular Exhibit, Article, or Section in which
such reference appears.
16
<PAGE>
1.5 ARTICLES AND SECTIONS. This Agreement, for convenience only, has
been divided into Articles and Sections; and it is understood that the rights
and other legal relations of the parties hereto shall be determined from this
instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.
1.6 NUMBER AND GENDER. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural; and
likewise, the plural shall be understood to include the singular. Definitions of
terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise indicated. Words
denoting sex shall be construed to include the masculine, feminine and neuter,
when such construction is appropriate; and specific enumeration shall not
exclude the general but shall be construed as cumulative.
1.7 INCORPORATION OF EXHIBITS. The Exhibits attached to this
Agreement are incorporated herein and shall be considered a part of this
Agreement for all purposes.
ARTICLE II
TERMS OF FACILITY
2.1 REVOLVING LINE OF CREDIT. (a) Upon the terms and conditions
(including, without limitation, the right of the Lenders to decline to make any
Loan so long as any Default or Event of Default exists) and relying on the
representations and warranties contained in this Agreement, the Lenders
severally agree, during the Commitment Period, to make Loans, in immediately
available funds at the Applicable Lending Office or the Principal Office, to or
for the benefit of the Borrower and/or the Co-Borrowers, from time to time on
any Business Day designated by the Borrower and/or the Co-Borrowers following
receipt by the Agent of a Borrowing Request; provided, however, no Loan at the
time it is made shall exceed the then existing Available Commitment.
(b) Subject to the terms of this Agreement, during the Commitment
Period, the Borrower and/or the Co-Borrowers may borrow, repay, and reborrow and
convert Loans of one type or with one Interest Period into Loans of another type
or with a different Interest Period. Except for prepayments made pursuant to
Section 2.10, each borrowing, conversion, and prepayment of principal of Loans
shall be in an aggregate amount at least equal to $100,000. Each borrowing,
prepayment, or conversion of or into a Loan of a different type or, in the case
of a Fixed Rate Loan, having a different Interest Period, shall be deemed a
separate borrowing, conversion, or prepayment for purposes of the foregoing, one
for each type of Loan or Interest Period. Anything in this Agreement to the
contrary notwithstanding, the aggregate principal amount of LIBO Rate Loans
having the same Interest Period shall be at least equal to $100,000;
17
<PAGE>
and if any LIBO Rate Loan would otherwise be in a lesser aggregate principal
amount for any period, such Loan shall be a Floating Rate Loan during such
period.
(c) The Loans shall be made and maintained at the Applicable Lending
Office or the Principal Office and shall be evidenced by the Notes.
(d) Not later than 3:00 p.m., Central Standard or Daylight Savings
Time, as the case may be, on the date specified for each borrowing, each Lender
shall make available an amount equal to its Percentage Share of the borrowing to
be made on such date to the Agent, at an account designated by the Agent, in
immediately available funds, for the account of the Borrower. The amount so
received by the Agent shall, subject to the terms and conditions hereof, be made
available to the Borrower in immediately available funds at the Principal
Office. All Loans by each Lender shall be maintained at the Applicable Lending
Office of such Lender and shall be evidenced by the Note of such Lender.
(e) The failure of any Lender to make any Loan required to be made
by it hereunder shall not relieve any other Lender of its obligation to make any
Loan required to be made by it, and no Lender shall be responsible for the
failure of any other Lender to make any Loan.
(f) The face amounts of the Notes have been established as an
administrative convenience and do not commit any Lender to advance funds
hereunder in excess of the then current Borrowing Base.
2.2 LETTER OF CREDIT FACILITY. (a) Upon the terms and conditions and
relying on the representations and warranties contained in this Agreement, the
Agent, as issuing bank for the Lenders, agrees from the date of this Agreement
until the date which is thirty days prior to the Commitment Termination Date, to
issue on behalf of the Lenders in their respective Percentage Shares Letters of
Credit for the account of the Borrower and/or any Co-Borrower and to renew and
extend such Letters of Credit. Letters of Credit shall be issued, renewed, or
extended from time to time on any Business Day designated by the Borrower or any
Co-Borrower following the receipt in accordance with the terms hereof by the
Agent of the written (or oral, confirmed promptly in writing) request by a
Responsible Officer of the Borrower and/or any Co-Borrower therefor and a Letter
of Credit Application. Letters of Credit shall be issued in such amounts as the
Borrower or any Co-Borrower may request; provided, however, that (i) no Letter
of Credit shall have an expiration date which is more than 365 days after the
issuance thereof or subsequent to Final Maturity, (ii) each automatically
renewable Letter of Credit shall provide that it may be terminated by the Agent
at its then current expiry date by not less than 30 days' written notice by the
Agent to the beneficiary of such Letter of Credit, and (iii) the Agent shall not
be obligated to issue any Letter of Credit if (A) the face amount thereof would
exceed the Available Commitment, or (B) after giving effect to the issuance
thereof, (I) the L/C Exposure, when added to the Loan Balance then outstanding,
would exceed the lesser of the Maximum Commitment Amount or the Borrowing Base,
or (II) the L/C Exposure would exceed $5,000,000.
18
<PAGE>
(b) Prior to any Letter of Credit Payment in respect of any Letter
of Credit, each Lender shall be deemed to be a participant through the Agent
with respect to the relevant Letter of Credit in the obligation of the Agent, as
the issuer of such Letter of Credit, in an amount equal to the Percentage Share
of such Lender of the maximum amount which is or at any time may become
available to be drawn thereunder. Upon delivery by such Lender of funds
requested pursuant to Section 2.2(c), such Lender shall be treated as having
purchased a participating interest in an amount equal to such funds delivered by
such Lender to the Agent in the obligation of the Borrower to reimburse the
Agent, as the issuer of such Letter of Credit, for any amounts payable, paid, or
incurred by the Agent, as the issuer of such Letter of Credit, with respect to
such Letter of Credit.
(c) Each Lender shall be unconditionally and irrevocably liable,
without regard to the occurrence of any Default or Event of Default, to the
extent of the Percentage Share of such Lender at the time of issuance of each
Letter of Credit, to reimburse, on demand, the Agent, as the issuer of such
Letter of Credit, for the amount of each Letter of Credit Payment under such
Letter of Credit. Each Letter of Credit Payment shall be deemed to be a Floating
Rate Loan by each Lender to the extent of funds delivered by such Lender to the
Agent with respect to such Letter of Credit Payment and shall to such extent be
deemed a Floating Rate Loan under and shall be evidenced by the Note of such
Lender and shall be payable by the Borrower and the Co- Borrowers upon demand by
the Agent.
(D) EACH LENDER AGREES TO SEVERALLY INDEMNIFY THE AGENT, AS THE
ISSUER OF EACH LETTER OF CREDIT, AND THE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS-IN-FACT AND AFFILIATES OF THE AGENT (TO THE EXTENT NOT REIMBURSED BY
THE BORROWER AND/OR THE CO-BORROWERS AND WITHOUT LIMITING THE OBLIGATION OF THE
BORROWER AND/OR THE CO-BORROWERS TO DO SO), RATABLY ACCORDING TO THE PERCENTAGE
SHARE OF SUCH LENDER AT THE TIME OF ISSUANCE OF SUCH LETTER OF CREDIT, FROM AND
AGAINST ANY AND ALL LIABILITIES, CLAIMS, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS OF ANY
KIND WHATSOEVER WHICH MAY AT ANY TIME (INCLUDING, WITHOUT LIMITATION, ANY TIME
FOLLOWING THE PAYMENT AND PERFORMANCE OF ALL OBLIGATIONS AND THE TERMINATION OF
THIS AGREEMENT) BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE AGENT AS THE
ISSUER OF SUCH LETTER OF CREDIT OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES IN ANY WAY RELATING TO OR ARISING OUT OF
THIS AGREEMENT OR SUCH LETTER OF CREDIT OR ANY ACTION TAKEN OR OMITTED BY THE
AGENT AS THE ISSUER OF SUCH LETTER OF CREDIT OR ANY OF ITS OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES UNDER OR IN CONNECTION WITH
ANY OF THE FOREGOING, INCLUDING, WITHOUT LIMITATION, ANY LIABILITIES, CLAIMS,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
19
<PAGE>
SUITS, COSTS, EXPENSES AND DISBURSEMENTS IMPOSED, INCURRED OR ASSERTED AS A
RESULT OF THE NEGLIGENCE, WHETHER SOLE OR CONCURRENT, OF THE AGENT AS THE ISSUER
OF SUCH LETTER OF CREDIT OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS-IN-FACT OR AFFILIATES; PROVIDED THAT NO LENDER (OTHER THAN THE AGENT
AS THE ISSUER OF A LETTER OF CREDIT) SHALL BE LIABLE FOR THE PAYMENT OF ANY
PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS RESULTING FROM THE GROSS
NEGLIGENCE WHETHER SOLE OR CONCURRENT OR WILLFUL MISCONDUCT OF THE AGENT AS THE
ISSUER OF A LETTER OF CREDIT. THE AGREEMENTS IN THIS SECTION 2.2(D) SHALL
SURVIVE THE PAYMENT AND PERFORMANCE OF ALL OBLIGATIONS AND THE TERMINATION OF
THIS AGREEMENT.
2.3 USE OF LOAN PROCEEDS AND LETTERS OF CREDIT. (a) On the Closing
Date, each of the Lenders shall pay to Compass the Loan Balance outstanding
under the Existing Credit Agreement times such Lender's Percentage Share. Such
Existing Indebtedness under the Existing Credit Agreement shall be assigned,
renewed, extended, and rearranged pursuant to the terms of this Agreement and
the Notes and shall, for all purposes, be deemed a borrowing hereunder,
(b) Proceeds of all subsequent Loans shall be used for general
corporate purposes of the Borrower and Co-Borrowers, provided, however, that no
funds can be used to purchase margin stock as defined in Regulation U of Code of
Federal Regulations.
(c) Letters of Credit shall be used solely for general
corporate purposes of the Borrower and Co-Borrowers; provided, however, no
Letter of Credit may be used in lieu or in support of stay or appeal bonds.
2.4 INTEREST. Subject to the terms of this Agreement (including,
without limitation, Section 2.18), interest on the Loans shall accrue and be
payable at a rate per annum equal to the Floating Rate for each Floating Rate
Loan and the Adjusted LIBO Rate for each LIBO Rate Loan. Interest on all
Floating Rate Loans 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) during the period for which payable. Interest on all
LIBO Rate 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) during the
period for which payable. Notwithstanding the foregoing, interest on past-due
principal and, to the extent permitted by applicable law, past-due interest,
shall accrue at the Default Rate, computed on the basis of a year of 365 or 366
days, as the case may be, and actual days elapsed (including the first day but
excluding the last day) during the period for which payable, and shall be
payable upon demand by the Lender at any time as to all or any portion of such
interest. In the event that the Borrower and/or the Co-Borrowers fail to select
the duration of any Interest Period for any Fixed Rate Loan within the time
period and otherwise as provided herein, such Loan (if outstanding as a Fixed
Rate Loan) will be automatically converted into a
20
<PAGE>
Floating Rate Loan on the last day of the then current Interest Period for such
Loan or (if outstanding as a Floating Rate Loan) will remain as, or (if not then
outstanding) will be made as, a Floating Rate Loan. Interest provided for herein
shall be calculated on unpaid sums actually advanced and outstanding pursuant to
the terms of this Agreement and only for the period from the date or dates of
such advances until repayment.
2.5 REPAYMENT OF LOANS AND INTEREST. Accrued and unpaid interest on
each outstanding Floating Rate Loan shall be due and payable monthly commencing
on the first day of July, 1998, and continuing on the first day of each calendar
month thereafter while any Floating Rate Loan remains outstanding, the payment
in each instance to be the amount of interest which has accrued and remains
unpaid in respect of the relevant Loan. Accrued and unpaid interest on each
outstanding Fixed Rate Loan shall be due and payable on the last day of the
Interest Period for such Fixed Rate Loan and, in the case of any Interest Period
in excess of three months, on the day of the third calendar month following the
commencement of such Interest Period corresponding to the day of the calendar
month on which such Interest Period commenced, the payment in each instance to
be the amount of interest which has accrued and remains unpaid in respect of the
relevant Loan. The Loan Balance, together with all accrued and unpaid interest
thereon, shall be due and payable at Final Maturity. At the time of making each
payment hereunder or under the Notes, the Borrower and the Co-Borrowers shall
specify to the Agent the Loans or other amounts payable by the Borrower and/or
the Co-Borrowers hereunder to which such payment is to be applied. In the event
the Borrower and the Co-Borrowers fail to so specify, or if an Event of Default
has occurred and is continuing, the Agent may apply such payment as it may elect
in its sole discretion.
2.6 OUTSTANDING AMOUNTS. The Loan Balance of the Notes reflected by
the notations by the Lenders on their records shall be deemed rebuttably
presumptive evidence of the Loan Balance. The liability for payment of principal
and interest evidenced by the Notes shall be limited to principal amounts
actually advanced and outstanding pursuant to this Agreement and interest on
such amounts calculated in accordance with this Agreement.
2.7 TIME, PLACE, AND METHOD OF PAYMENTS. All payments required
pursuant to this Agreement or the Notes shall be made in lawful money of the
United States of America and in immediately available funds, shall be deemed
received by the Lenders on the next Business Day following receipt if such
receipt is after 2:00 p.m., Central Standard or Daylight Savings Time, as the
case may be, on any Business Day, and shall be made to the Agent at the
Principal Office. Except as provided to the contrary herein, if the due date of
any payment hereunder or under the Notes would otherwise fall on a day which is
not a Business Day, such date shall be extended to the next succeeding Business
Day, and interest shall be payable for any principal so extended for the period
of such extension.
2.8 PRO RATA TREATMENT; ADJUSTMENTS. (a) Except to the extent
otherwise expressly provided herein, (i) each borrowing made pursuant to this
Agreement shall be from the Lenders pro rata in accordance with their Percentage
Shares, (ii) each payment by the Borrower
21
<PAGE>
and/or Co-Borrowers of Commitment Fees shall be made for the account of the
Lenders pro rata in accordance with their respective Percentage Shares, (iii)
Facility Fees and Letter of Credit Fees shall be made for the account of the
Lenders in accordance with each Lender's Percentage Share of any increase in the
Commitment Amount or Letter of Credit issued, (iv) each payment of principal of
Loans shall be made for the account of the Lenders pro rata in accordance with
their respective Percentage Shares of the Loan Balance, and (v) each payment of
interest on Loans shall be made for the account of the Lenders pro rata in
accordance with their Percentage Shares of the aggregate amount of interest due
and payable to the Lenders.
(b) The Agent shall distribute all payments with respect to the
Obligations to the Lenders promptly upon receipt in like funds as received. In
the event that any payments made hereunder by the Borrower and/or Co-Borrowers
at any particular time are insufficient to satisfy in full the Obligations due
and payable at such time, such payments shall be applied (a) first, to fees and
expenses due pursuant to the terms of this Agreement or any other Loan Document,
(b) second, to accrued interest, (c) third, to the Loan Balance, and (d) last,
to any other Obligations.
(c) If any Lender (for purposes of this Section, a "BENEFITTED
LENDER") shall at any time receive any payment of all or part of its portion of
the Obligations, or receive any Collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in Sections 7.1(f) or 7.1(g), or otherwise) in an amount
greater than such Lender was entitled to receive pursuant to the terms hereof,
such benefitted Lender shall purchase for cash from the other Lenders such
portion of the Obligations of such other Lenders or shall provide such other
Lenders with the benefits of any such Collateral or the proceeds thereof as
shall be necessary to cause such benefitted Lender to share the excess payment
or benefits of such Collateral or proceeds with each of the Lenders according to
the terms hereof. If all or any portion of such excess payment or benefits is
thereafter recovered from such benefitted Lender, such purchase shall be
rescinded and the purchase price and benefits returned by such Lender, to the
extent of such recovery, but without interest. The Borrower agrees that each
such Lender so purchasing a portion of the Obligations of another Lender may
exercise all rights of payment (including, without limitation, rights of
set-off) with respect to such portion as fully as if such Lender were the direct
holder of such portion. If any Lender ever receives, by voluntary payment,
exercise of rights of set-off or banker's lien, counterclaim, cross-action or
otherwise, any funds of the Borrower to be applied to the Obligations, or
receives any proceeds by realization on or with respect to any Collateral, all
such funds and proceeds shall be immediately forwarded to the Agent for
distribution in accordance with the terms of this Agreement.
2.9 BORROWING BASE DETERMINATIONS. (a) The Borrowing Base as of May
29, 1998, is acknowledged by the Borrower and the Co-Borrowers and the Lenders
to be $45,000,000. Commencing on July 1, 1998, and continuing thereafter on the
first day of each calendar month until the earlier of the date such amount is
redetermined or the Commitment Termination Date, the Scheduled Reduction Amount
shall be $40,000. Upon Lender's receipt of acceptable documentation, the
Borrowing Base shall automatically reduce by (i) $3,000,000 upon
22
<PAGE>
the Borrower's sale of its Golden Trend properties, and (ii) an additional
$5,000,000 upon the transfer or sale of the Borrower's Spruce Hill properties.
(b) The Borrowing Base and the Scheduled Reduction Amount shall be
redetermined semi-annually by unanimous consent of the Lenders beginning
December 1, 1998, on the basis of information supplied by the Borrower in
compliance with the provisions of this Agreement, including, without limitation,
Reserve Reports, and all other information available to the Lenders. In
addition, the Lenders shall, in the normal course of business following a
request of the Borrower, redetermine the Borrowing Base; provided, however, the
Lenders shall not be obligated to respond to more than four such requests during
any calendar year, and in no event shall the Lenders be required to redetermine
the Borrowing Base more than once in any three-month period, including, without
limitation, each scheduled semi-annual redetermination provided for above.
Notwithstanding the foregoing, the Lenders may at their discretion and by
unanimous consent redetermine the Borrowing Base and the Scheduled Reduction
Amount at any time and from time to time.
(c) Upon each determination of the Borrowing Base and the Scheduled
Reduction Amount by the Lenders, the Agent shall notify the Borrower orally
(confirming such notice promptly in writing) of such determination, and the
Borrowing Base and the Scheduled Reduction Amount shall become effective upon
such written notification and shall remain in effect until the next subsequent
determination of the Borrowing Base.
(d) The Borrowing Base shall represent the determination by the
Lenders, in accordance with the applicable definitions and provisions herein
contained and their customary lending practices for loans of this nature, of the
value, for loan purposes, of the Mortgaged Properties, plus certain other oil
and gas properties to be determined in sole discretion of the Lenders subject,
in the case of any increase in the Borrowing Base, to the credit approval
process of the Lenders. Furthermore, the Borrower and/or the Co-Borrowers
acknowledge that the determination of the Borrowing Base contains an equity
cushion (market value in excess of loan value), which is acknowledged by the
Borrower and/or the Co-Borrowers to be essential for the adequate protection of
the Lenders. The Borrowing Base shall be determined by using the Lenders' then
current engineering and credit standards.
2.10 MANDATORY PREPAYMENTS. If at any time the sum of the Loan
Balance and the L/C Exposure exceeds the Borrowing Base then in effect, the
Borrower and the Co-Borrowers shall, within 30 days of notice from the Agent of
such occurrence, (a) prepay, or make arrangements acceptable to the Lenders for
the prepayment of, the amount of such excess for application on the Loan
Balance, (b) provide additional Collateral, of character and value satisfactory
to the Lenders in their sole discretion, to secure the amount of such excess by
the execution and delivery to the Lenders of Security Instruments in form and
substance satisfactory to the Lenders, or (c) effect any combination of the
alternatives described in clauses (a) and (b) of this Section and acceptable to
the Lenders in their sole discretion. In the event that a mandatory prepayment
is required under this Section and the Loan Balance is less than the amount
required
23
<PAGE>
to be prepaid, the Borrower and the Co-Borrowers shall repay the entire Loan
Balance and, in accordance with the provisions of the relevant Letter of Credit
Applications executed by the Borrower and/or the Co-Borrowers or otherwise to
the satisfaction of the Lenders, deposit with the Agent for the benefit of the
Lenders, as additional collateral securing the Obligations, an amount of cash,
in immediately available funds, equal to the L/C Exposure minus the lesser of
the aggregate Commitment Amounts or the Borrowing Base. The cash deposited with
the Agent for the benefit of the Lenders in satisfaction of the requirement
provided in this Section may be invested, at the sole discretion of the Lenders
and then only at the express direction of the Borrower and/or Co-Borrowers as to
investment vehicle and maturity (which shall be no later than the latest expiry
date of any then outstanding Letter of Credit), for the account of the Borrower
and/or Co-Borrowers in cash or cash equivalent investments offered by or through
the Lenders.
2.11 VOLUNTARY PREPAYMENTS AND CONVERSIONS OF LOANS. Subject to
applicable provisions of this Agreement, the Borrower and/or the Co-Borrowers
shall have the right at any time or from time to time to prepay Loans and to
convert Loans of one type or with one Interest Period into Loans of another type
or with a different Interest Period; provided, however, that (a) the Borrower
and/or the Co-Borrowers shall give the Agent notice of each such prepayment or
conversion of all or any portion of a Fixed Rate Loan no less than two Business
Days prior to prepayment or conversion, (b) any Fixed Rate Loan may be prepaid
or converted only on the last day of an Interest Period for such Loan, (c) the
Borrower and/or the Co-Borrowers shall pay all accrued and unpaid interest on
the amounts prepaid or converted, and (d) no such prepayment or conversion shall
serve to postpone the repayment when due of any Obligation.
2.12 COMMITMENT FEE. In addition to interest on the Notes as
provided herein and other fees payable hereunder and to compensate the Lenders
for maintaining funds available, the Borrower and Co-Borrowers shall pay to the
Agent for the account of the Lenders in immediately available funds, on the
first day of July, 1998, and on the first day of each third calendar month
thereafter during the Commitment Period and on the Commitment Termination Date,
a fee in the amount per annum as set forth below, calculated on the basis of a
year of 365 or 366 days, as the case may be, and actual days elapsed (including
the first day but excluding the last day), on the average daily amount of the
Available Commitment during the preceding quarterly period as follows:
BORROWING BASE
UTILIZATION COMMITMENT FEE
-------------------- ----------------------
1) greater than 50% one-half percent (1/2%)
of Borrowing Base
2) less than or equal to 50% three-eighths percent (3/8%)
of Borrowing Base
The Borrowing Base Utilization and the corresponding Commitment Fee
shall be set at each quarter end for the next quarter.
24
<PAGE>
2.13 FACILITY FEE. In addition to interest on the Notes as provided
herein and other fees payable hereunder and to compensate the Lenders for the
costs of the extension of credit hereunder, the Borrower and/or the Co-Borrowers
shall pay to the Agent for the account of the Lenders, in immediately available
funds, a facility fee of one-half percent (1/2%) on any future increase in the
Borrowing Base at the time of such increase.
2.14 LETTER OF CREDIT FEE. In addition to interest on the Notes as
provided herein and Commitment Fees and Facility Fees payable hereunder, the
Borrower and/or the Co- Borrowers agree to pay to the Agent for the account of
the Lenders, on the date of issuance or renewal of each Letter of Credit, a fee
equal to the greater of $300 or one percent (1%) per annum, calculated on the
basis of a year of 365 or 366 days, as the case may be, and actual days elapsed
(including the first day but excluding the last day), on the face amount of such
Letter of Credit during the period for which such Letter of Credit is issued or
renewed; provided, however, in the event such Letter of Credit is canceled prior
to its original expiry date or a payment is made by the Agent for the account of
the Lenders with respect to such Letter of Credit, the Agent and the Lenders
shall, within 30 days after such cancellation or the making of such payment,
rebate to the Borrower and/or the Co-Borrowers the unearned portion of such fee.
The Borrower and/or the Co-Borrowers also agree to pay on demand to the Agent
for its own account as the issuer of the Letters of Credit its customary letter
of credit transactional fees, including, without limitation, amendment fees,
payable with respect to each Letter of Credit.
2.15 AGENCY FEE. The Borrower shall pay to the Agent for its own
account all fees owing or which may become owing under the Agency Fee Letter as
provided therein.
2.16 LOANS TO SATISFY OBLIGATIONS OF BORROWER. The Lenders may, by
unanimous consent, but shall not be obligated to, make Loans for the benefit of
the Borrower and/or the Co- Borrowers and apply proceeds thereof to the
satisfaction of any condition, warranty, representation, or covenant of the
Borrower and/or the Co-Borrowers contained in this Agreement or any other Loan
Document. Any such Loan shall be evidenced by the Notes and shall be made as a
Floating Rate Loan.
2.17 SECURITY INTEREST IN ACCOUNTS; RIGHT OF OFFSET. As security for
the payment and performance of the Obligations, the Borrower and the
Co-Borrowers hereby transfer, assign, and pledge to the Agent for the benefit of
the Lenders and grants to the Agent for the benefit of the Lenders a security
interest in all funds of the Borrower and the Co-Borrowers now or hereafter or
from time to time on deposit with the Agent and such Lender, with such interest
of the Lenders to be retransferred, reassigned, and/or released by the Agent and
each Lender, as the case may be, at the expense of the Borrower and the
Co-Borrowers upon payment in full and complete performance by the Borrower and
the Co-Borrowers of all Obligations. All remedies as secured party or assignee
of such funds shall be exercisable by the Agent and each Lender upon the
occurrence of any Event of Default, regardless of whether the exercise of any
such remedy would result in any penalty or loss of interest or profit with
respect to any withdrawal of funds deposited in a time deposit account prior to
the maturity thereof. Furthermore, the Borrower and the Co- Borrowers hereby
grant to the Agent and each Lender the right, exercisable at such time as any
Obligation shall mature, whether by acceleration of maturity or otherwise, of
offset or banker's lien against all funds of the Borrower and the Co-Borrowers
now or hereafter or from time to time on deposit with the Agent and each Lender,
regardless of whether the exercise of any such remedy would result in any
penalty or loss of interest or profit with respect to any withdrawal of funds
deposited in a time deposit account prior to the maturity thereof.
25
<PAGE>
2.18 GENERAL PROVISIONS RELATING TO INTEREST. Subject to the choice
of law provision Section 9.12 hereof, (a) it is the intention of the parties
hereto to comply strictly with the usury laws of the State of Texas to the
extent applicable to each Lender and the United States of America. In this
connection, there shall never be collected, charged, or received on the sums
advanced hereunder interest in excess of that which would accrue at the Highest
Lawful Rate. To the extent deemed applicable, for purposes of Tex. Fin. Code
Ann. ss. 303.301 (Vernon 1998), the Borrower and the Co-Borrowers agree that the
Highest Lawful Rate shall be the "indicated (weekly) rate ceiling" as defined in
such Article, provided that the Agent and the Lenders may also rely, to the
extent permitted by applicable laws of the State of North Carolina, or if
applicable, the State of Texas or the United States of America, on alternative
maximum rates of interest under other laws of the State of North Carolina, or if
applicable, the State of Texas or other states or the United States of America
applicable to the Agent and/or such Lender, if greater.
(b) Notwithstanding anything herein or in the Notes to the contrary,
during any Limitation Period, the interest rate to be charged on amounts
evidenced by the Notes shall be the Highest Lawful Rate, and the obligation, if
any, of the Borrower and the Co-Borrowers for the payment of fees or other
charges deemed to be interest under applicable law shall be suspended. During
any period or periods of time following a Limitation Period, to the extent
permitted by applicable laws of the State of North Carolina, or if applicable,
the State of Texas or other states or the United States of America, the interest
rate to be charged hereunder shall remain at the Highest Lawful Rate until such
time as there has been paid to the Agent for the account of each Lender (i) the
amount of interest in excess of that accruing at the Highest Lawful Rate that
the Agent and the Lenders would have received during the Limitation Period had
the interest rate remained at the otherwise applicable rate, and (ii) all
interest and fees otherwise payable to the Agent and the Lenders but for the
effect of such Limitation Period.
(c) If, under any circumstances, the aggregate amounts paid on the
Notes or under this Agreement or any other Loan Document include amounts which
by law are deemed interest and which would exceed the amount permitted if the
Highest Lawful Rate were in effect, the Borrower and the Co-Borrowers stipulate
that such payment and collection will have been and will be deemed to have been,
to the greatest extent permitted by applicable laws of the State of North
Carolina, or if applicable, the State of Texas any other applicable states' laws
or the United States of America, the result of mathematical error on the part of
the Borrower and the Co-Borrowers and the Agent and the Lenders; and the Agent
and the Lenders shall promptly refund the amount of such excess (to the extent
only of such interest payments in excess of that which would have accrued and
been payable on the basis of the Highest Lawful Rate) upon discovery of such
error
26
<PAGE>
by the Agent and the Lenders or notice thereof from the Borrower and the
Co-Borrowers. In the event that the maturity of any Obligation is accelerated,
by reason of an election by the Agent and the Lenders or otherwise, or in the
event of any required or permitted prepayment, then the consideration
constituting interest under applicable laws may never exceed the Highest Lawful
Rate; and excess amounts paid which by law are deemed interest, if any, shall be
credited by the Lenders on the principal amount of the Obligations, or if the
principal amount of the Obligations shall have been paid in full, refunded to
the Borrower and the Co-Borrowers.
(d) All sums paid, or agreed to be paid, to the Agent and the
Lenders for the use, forbearance and detention of the proceeds of any advance
hereunder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full term hereof until paid in
full so that the actual rate of interest is uniform but does not exceed the
Highest Lawful Rate throughout the full term hereof.
2.19 YIELD PROTECTION. (a) Without limiting the effect of the other
provisions of this Section (but without duplication), the Borrower and/or the
Co-Borrowers shall pay to the Agent and each Lender from time to time such
amounts as the Agent and such Lender may determine are necessary to compensate
it for any Additional Costs incurred by the Agent and such Lender.
(b) Without limiting the effect of the other provisions of this
Section (but without duplication), the Borrower and/or the Co-Borrowers shall
pay to each Lender from time to time on request such amounts as each Lender may
determine are necessary to compensate each Lender for any costs attributable to
the maintenance by each Lender (or any Applicable Lending Office), pursuant to
any Regulatory Change, of capital in respect of the Commitment, such
compensation to include, without limitation, an amount equal to any reduction of
the rate of return on assets or equity of each Lender (or any Applicable Lending
Office) to a level below that which each Lender (or any Applicable Lending
Office) could have achieved but for such Regulatory Change.
(c) Without limiting the effect of the other provisions of this
Section (but without duplication), the Borrower and/or the Co-Borrowers shall
pay to each Lender the administrative and re-employment costs customarily
charged by Lenders as a result of:
(i) any payment, prepayment, or conversion by the Borrower and/or the
Co-Borrowers of a Fixed Rate Loan on a date other than the last day of an
Interest Period for such Loan; or
(ii) any failure by the Borrower and/or the Co-Borrowers to borrow a Fixed
Rate Loan from the Lenders on the date for such borrowing specified in the
relevant Borrowing Request;
such compensation to include, without limitation, with respect to any LIBO Rate
Loan, an amount equal to the excess, if any and only to the extent actually
incurred by such Lender, of (A) the
27
<PAGE>
amount of interest which would have accrued on the principal amount so paid,
prepaid, converted, or not borrowed for the period from the date of such
payment, prepayment, conversion, or failure to borrow to the last day of the
then current Interest Period for such Loan (or, in the case of a failure to
borrow, the Interest Period for such Loan which would have commenced on the date
of such failure to borrow) at the applicable rate of interest for such Loan
provided for herein over (B) the interest component (as reasonably determined by
the Lenders) of the amount (as reasonably determined by the Agent and such
Lender) the Agent and such Lender would have bid in the London interbank market
for Dollar deposits of amounts comparable to such principal amount and
maturities comparable to such period.
(d) Determinations by the Agent and any Lender for purposes of this
Section of the effect of any Regulatory Change on capital maintained, their
costs or rate of return, maintaining Loans, their obligation to make Loans or on
amounts receivable by it in respect of Loans or such obligations, and the
additional amounts required to compensate the Agent and the Lenders under this
Section shall be conclusive, absent manifest error, provided that such
determinations are made on a reasonable basis. The Agent and such Lender shall
furnish the Borrower with a certificate setting forth in reasonable detail the
basis and amount of increased costs incurred or reduced amounts receivable as a
result of any such event, and the statements set forth therein shall be
conclusive, absent manifest error. The Agent and such Lender shall (i) notify
the Borrower, as promptly as practicable after the Lenders obtain knowledge of
any Additional Costs or other sums payable pursuant to this Section and
determine to request compensation therefor, of any event occurring after the
Closing Date which will entitle the Agent and such Lender to compensation
pursuant to this Section; provided that the Borrower shall not be obligated for
the payment of any Additional Costs or other sums payable pursuant to this
Section to the extent such Additional Costs or other sums accrued more than 30
days prior to the date upon which the Borrower was given such notice; and (ii)
designate a different Applicable Lending Office for the Loans of the Lenders
affected by such event if such designation will avoid the need for or reduce the
amount of such compensation. If the Agent or any Lender requests compensation
from the Borrower and/or the Co-Borrowers under this Section, the Borrower
and/or the Co-Borrowers may, by notice to the Agent and any Lender, require that
the Loans by the Lenders of the type with respect to which such compensation is
requested be converted into Floating Rate Loans in accordance with Section 2.11.
Any compensation requested by the Lenders pursuant to this Section shall be due
and payable to the Lenders within five days of delivery of any such notice by
the Lenders to the Borrower.
(e) Each Lender agrees that it shall not request, and the Borrower
and/or the Co- Borrowers shall not be obligated to pay, any Additional Costs or
other sums payable pursuant to this Section unless similar additional costs and
other sums payable are also generally assessed by the Lenders against other
customers of such Lenders similarly situated where such customers are subject to
documents providing for such assessment.
2.20 LIMITATION ON TYPES OF LOANS. Anything herein to the contrary
notwithstanding, no more than 6 separate Loans shall be outstanding at any one
time, with, for
28
<PAGE>
purposes of this Section, all Floating Rate Loans constituting one Loan and all
LIBO Rate Loans for the same Interest Period constituting one Loan. Anything
herein to the contrary notwithstanding, if, on or prior to the determination of
any interest rate for any LIBO Rate Loan for any Interest Period therefor:
(a) the Agent determines (which determination shall be conclusive)
that quotations of interest rates for the deposits referred to in the
definition of "LIBO Rate" in Section 1.2 are not being provided in the
relevant amounts or for the relevant maturities for purposes of
determining the rate of interest for such Loan as provided in this
Agreement; or
(b) the Agent determines (which determination shall be conclusive)
that the rates of interest referred to in the definition of "LIBO Rate" in
Section 1.2 upon the basis of which the rate of interest for such Loan for
such Interest Period is to be determined do not accurately reflect the
cost to the Lender of making or maintaining such Loan for such Interest
Period,
then the Agent shall give the Borrower and/or the Co-Borrowers prompt notice
thereof; and so long as such condition remains in effect, the Lenders shall be
under no obligation to make LIBO Rate Loans or to convert Loans of any other
type into LIBO Rate Loans, and the Borrower and/or the Co-Borrowers shall, on
the last day of the then current Interest Period for each outstanding LIBO Rate
Loan, either prepay such LIBO Rate Loan or convert such Loan into another type
of Loan in accordance with Section 2.11. Before giving such notice pursuant to
this Section, the Agent will designate a different available Applicable Lending
Office for LIBO Rate Loans or take such other action as the Borrower and/or the
Co-Borrowers may request if such designation or action will avoid the need to
suspend the obligation of the Lenders to make LIBO Rate Loans hereunder and will
not, in the unanimous opinion of the Lenders, be disadvantageous to the Lenders.
2.21 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to (a) honor its obligation to make any type of Fixed
Rate Loans hereunder, or (b) maintain any type of Fixed Rate Loans hereunder,
then such Lender shall promptly notify the Agent and the Borrower and the
Co-Borrowers thereof; and the obligation of such Lender hereunder to make such
type of Fixed Rate Loans and to convert other types of Loans into Fixed Rate
Loans of such type shall be suspended until such time as such Lender may again
make and maintain Fixed Rate Loans of such type, and the outstanding Fixed Rate
Loans of such type shall be converted into Floating Rate Loans in accordance
with Section 2.11. Before giving such notice pursuant to this Section, such
Lender will designate a different available Applicable Lending Office for Fixed
Rate Loans or take such other action as the Borrower and the Co-Borrowers may
request if such designation or action will avoid the need to suspend the
obligation of the Lenders to make Fixed Rate Loans and will not, in the opinion
of any Lender, be disadvantageous to the Lenders.
29
<PAGE>
2.22 REGULATORY CHANGE. In the event that by reason of any
Regulatory Change, any Lender (a) incurs Additional Costs based on or measured
by the excess above a specified level of the amount of a category of deposits or
other liabilities of such Lender which includes deposits by reference to which
the interest rate on any Fixed Rate Loan is determined as provided in this
Agreement or a category of extensions of credit or other assets of such Lender
which includes any Fixed Rate Loan, or (b) becomes subject to restrictions on
the amount of such a category of liabilities or assets which it may hold, then,
at the election of such Lender with notice to the Agent and the Borrower and the
Co-Borrowers, the obligation of the Lender to make such Fixed Rate Loans and to
convert Floating Rate Loans into such Fixed Rate Loans shall be suspended until
such time as such Regulatory Change ceases to be in effect, and all such
outstanding Fixed Rate Loans shall be converted into Floating Rate Loans in
accordance with Section 2.11.
2.23 LIMITATIONS ON INTEREST PERIODS. Each Interest Period selected
by the Borrower and/or the Co-Borrowers (a) which commences on the last Business
Day of a calendar month (or, with respect to any LIBO Rate Loan, any day for
which there is no numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last Business Day of the appropriate subsequent
calendar month, (b) which would otherwise end on a day which is not a Business
Day shall end on the next succeeding Business Day (or, if such next succeeding
Business Day falls in the next succeeding calendar month, on the next preceding
Business Day), (c) which would otherwise commence before and end after Final
Maturity shall end on Final Maturity, and (d) shall have a duration of not less
than one month, as to any LIBO Rate Loan, and, if any Interest Period would
otherwise be a shorter period, the relevant Loan shall be a Floating Rate Loan
during such period.
2.24 LETTERS IN LIEU OF TRANSFER ORDERS. The Agent agrees that none
of the letters in lieu of transfer or division orders provided by the Borrower
and/or the Co-Borrowers pursuant to Section 3.1(f)(iii) or Section 5.7 will be
sent to the addressees thereof prior to the occurrence of an Event of Default,
at which time the Agent may, at its option and in addition to the exercise of
any of its other rights and remedies, send any or all of such letters.
2.25 POWER OF ATTORNEY. The Borrower and the Co-Borrowers hereby
designate the Agent as their agent and attorney-in-fact, to act in their name,
place, and stead for the purpose of completing and, upon the occurrence of an
Event of Default, delivering any and all of the letters in lieu of transfer
orders delivered by the Borrower and/or the Co-Borrowers to the Agent pursuant
to Section 3.1(f)(iii) or Section 5.7, including, without limitation, completing
any blanks contained in such letters and attaching exhibits thereto describing
the relevant Collateral. The Borrower and the Co-Borrowers hereby ratify and
confirm all that the Agent shall lawfully do or cause to be done by virtue of
this power of attorney and the rights granted with respect to such power of
attorney. This power of attorney is coupled with the interests of the Agent in
the Collateral, shall commence and be in full force and effect as of the Closing
Date and shall remain in full force and effect and shall be irrevocable so long
as any Obligation remains outstanding or unpaid or any Commitment exists. The
powers conferred on the Agent by this appointment are solely to protect the
interests of the Agent and the Lenders under the Loan Documents and shall
30
<PAGE>
not impose any duty upon the Agent to exercise any such powers. The Agent shall
be accountable only for amounts that it actually receives as a result of the
exercise of such powers and shall not be responsible to the Borrower and the
Co-Borrowers or any other Person for any act or failure to act with respect to
such powers, except for gross negligence or willful misconduct.
ARTICLE III
CONDITIONS
The obligations of the Lenders to enter into this Agreement and to
make Loans are subject to the satisfaction of the following conditions
precedent:
3.1 RECEIPT OF LOAN DOCUMENTS AND OTHER ITEMS. The Lenders shall
have no obligation under this Agreement unless and until all matters incident to
the consummation of the transactions contemplated herein, including, without
limitation, the review by the Agent or its counsel of the title of the Borrower
and/or the Co-Borrowers shall be satisfactory to the Agent, and the Agent shall
have received, reviewed, and approved the following documents and other items,
appropriately executed when necessary and, where applicable, acknowledged by one
or more authorized officers of the Borrower and/or the Co-Borrowers all in form
and substance satisfactory to the Agent and dated, where applicable, of even
date herewith or a date prior thereto and acceptable to the Agent:
(a) multiple counterparts of this Agreement as requested by the
Lenders;
(b) the Notes;
(c) copies of the Articles of Incorporation or Certificate of
Incorporation and all amendments thereto and the bylaws and all amendments
thereto of the Borrower and the Co-Borrowers accompanied by a certificate
issued by the secretary or an assistant secretary of the Borrower and the
Co-Borrowers as the case may be, to the effect that each such copy is
correct and complete;
(d) certificates of incumbency and signatures of all officers of the
Borrower and the Co-Borrowers who are authorized to execute Loan Documents
on behalf of the Borrower and the Co-Borrowers, each such certificate
being executed by the secretary or an assistant secretary of the Borrower
and the Co-Borrowers;
(e) copies of corporate resolutions approving the Loan Documents and
authorizing the transactions contemplated herein and therein, duly adopted
by the boards of directors of the Borrower and the Co-Borrowers
accompanied by certificates of the secretary or an assistant secretary of
the Borrower and the Co- Borrowers to the effect that such copies are true
and correct copies of resolutions
31
<PAGE>
duly adopted at a meeting or by unanimous consent of the board of
directors of the Borrower and the Co-Borrowers and that such resolutions
constitute all the resolutions adopted with respect to such transactions,
have not been amended, modified, or revoked in any respect, and are in
full force and effect as of the date of such certificate;
(f) multiple counterparts, as requested by the Lenders, of the
following Security Instruments creating, evidencing, perfecting, and
otherwise establishing Liens in favor of the Agent for the benefit of the
Lenders in and to the Collateral:
(i) Ratification and Amendment to Mortgage, Deed of Trust, Indenture,
Security Agreement, Assignment of Production, and Financing Statement from the
Borrower and SMC Production Co., Amerac Energy Corporation, and BEC Energy, Inc.
covering all Oil and Gas Properties of the Borrower and SMC Production Co.,
Amerac Energy Corporation, and BEC Energy, Inc. and all improvements, personal
property, and fixtures related thereto;
(ii) Financing Statements from the Borrower and SMC Production Co., Amerac
Energy Corporation, and BEC Energy, Inc., as debtor, constituent to the
instrument described in clause (i) above;
(iii) Assignment of Notes and Liens from Compass to Agent for the benefit of
the Lenders as consented to and acknowledged by Borrower and Financing Statement
Assignment from Compass to Agent for the benefit of the Lenders;
(iv) undated letters, in form and substance satisfactory to the Agent, from
the Borrower and SMC Production Co., Amerac Energy Corporation, and BEC Energy,
Inc. to each purchaser of production and disburser of the proceeds of production
from or attributable to the Mortgaged Properties, together with additional
letters with the addressees left blank, authorizing and directing the addressees
to make future payments attributable to production from the Mortgaged Properties
directly to the Agent;
(v) Security Agreement (Stock Pledge) by Borrower of
Stock of SMC Production Co., SMC Ecuador, Inc., BEC Energy,
Inc., Amerac Energy Corporation and 779776 Alberta, Ltd. and/or
Neutrino Resources, Inc.;
32
<PAGE>
(vi) Financing Statement to be filed electronically in Alberta, Canada;
(vii) Security Agreement from Borrower and Co- Borrowers pledging all
personal property;
(viii) Financing Statement
(g) unaudited Financial Statements of the Borrower and Co-Borrowers
as of March 31, 1998;
(h) certificates dated as of a recent date from the Secretary of
State or other appropriate Governmental Authority evidencing the existence
or qualification and good standing of the Borrower and Co-Borrowers in
their respective jurisdictions of incorporation and in any other
jurisdictions where any of them does business;
(i) results of searches of the UCC Records of the Secretary of State
of the States of Alabama, Arkansas, Louisiana, Michigan, Mississippi,
Oklahoma, Texas and Wyoming from a source acceptable to the Lender and
reflecting no Liens other than Permitted Liens against any of the
Collateral as to which perfection of a Lien is accomplished by the filing
of a financing statement other than in favor of the
Agent or Compass;
(j) confirmation, acceptable to the Agent, of the title of the
Borrower and/or Co-Borrowers to the Mortgaged Properties, free and clear
of Liens other than Permitted Liens;
(k) all operating, lease, sublease, royalty, sales, exchange,
processing, farmout, bidding, pooling, unitization, communitization, and
other agreements relating to the Mortgaged Properties requested by the
Agent;
(l) engineering reports covering the Mortgaged Properties;
(m) the opinion of Akin, Gump, Strauss, Hauer, & Feld, counsel to
the Borrower and Co-Borrowers, in the form attached hereto as Exhibit III,
with such changes thereto as may be approved by the Agent and Lenders;
(n) certificates evidencing the insurance coverage required pursuant
to Section 5.18; and
(o) such other agreements, documents, instruments, opinions,
certificates, waivers, consents, and evidence as the Agent or Lenders may
reasonably request.
33
<PAGE>
3.2 EACH LOAN. In addition to the conditions precedent stated
elsewhere herein, the Lenders shall not be obligated to make any Loan unless:
(a) the Borrower and/or the Co-Borrowers shall have delivered to the Agent
a Borrowing Request at least the requisite time prior to the requested date for
the relevant Loan, and each statement or certification made in such Borrowing
Request shall be true and correct in all material respects on the requested date
for such Loan;
(b) no Event of Default or Default shall exist or will occur as a result
of the making of the requested Loan;
(c) if requested by the Agent or any Lender, the Borrower and/or the
Co-Borrowers shall have delivered evidence satisfactory to the Agent or such
Lender substantiating any of the matters contained in this Agreement which are
necessary to enable the Borrower and/or the Co-Borrowers to qualify for such
Loan;
(d) the Agent shall have received, reviewed, and approved such additional
documents and items as described in Section 3.1 as may be requested by any
Lender with respect to such Loan;
(e) no event shall have occurred which, in the reasonable opinion of the
Lenders, could have a Material Adverse Effect;
(f) each of the representations and warranties contained in this Agreement
shall be true and correct and shall be deemed to be repeated by the Borrower
and/or the Co-Borrowers as if made on the requested date for such Loan;
(g) the Security Instruments shall be in full force and effect and provide
to the Lenders the security intended thereby;
(h) neither the consummation of the transactions contemplated hereby nor
the making of such Loan shall contravene, violate, or conflict with any
Requirement of Law;
(i) the Borrower and/or Co-Borrowers shall hold full legal title to the
Collateral pledged by such entities and be the sole beneficial owners thereof;
(j) the Agent and/or each Lender shall have received the payment of all
Facility Fees, Letter of Credit Fees, and other fees payable to the Agent and/or
each Lender hereunder and reimbursement from the Borrower and/or the
Co-Borrowers, or special legal counsel for the Agent shall have received payment
from the Borrower and/or the Co-Borrowers, for (i) all reasonable fees and
expenses of counsel to the Agent for which the Borrower and/or the Co-Borrowers
are responsible pursuant to applicable provisions of this Agreement and for
which invoices have been presented as of or prior to the date of the relevant
Loan, and (ii) estimated fees charged by filing officers and other public
officials incurred or to be incurred in connection with the filing and
34
<PAGE>
recordation of any Security Instruments, for which invoices have been presented
as of or prior to the date of the requested Loan; and
(k) all matters incident to the consummation of the transactions hereby
contemplated shall be satisfactory to the Agent and each Lender.
3.3 EACH LETTER OF CREDIT. The obligation of the Agent, as the
issuer of the Letters of Credit, to issue, renew, or extend any Letter of Credit
is subject to the satisfaction of the following additional conditions precedent:
(a) the Borrower shall have delivered to the Agent a written (or
oral, confirmed promptly in writing) request for the issuance, renewal, or
extension of a Letter of Credit at least two Business Days prior to the
requested issuance, renewal, or extension date and a Letter of Credit
Application at least two Business Days prior to the requested issuance
date; and each statement or certification made in such Letter of Credit
Application shall be true and correct in all material respects on the
requested date for the issuance of such Letter of Credit;
(b) no Default or Event of Default shall exist or will occur as a
result of the issuance, renewal, or extension of such Letter of Credit;
and
(c) the terms, provisions, and beneficiary of the Letter of Credit
or such renewal or extension shall be satisfactory to the Agent, as the
issuer of the Letters of Credit, in its sole discretion.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this Agreement and
to make the Loans, the Borrower and each Co-Borrower, respectively, represent
and warrant to the Agent and the Lenders (which representations and warranties
shall survive the delivery of the Notes) that:
4.1 DUE AUTHORIZATION. The execution and delivery by the Borrower
and Co- Borrowers of this Agreement and the borrowings hereunder, the execution
and delivery by the Borrower and Co-Borrowers of the Notes, the repayment of the
Notes and interest and fees provided for in the Notes and this Agreement, the
execution and delivery of the Security Instruments by the Borrower and
Co-Borrowers and the performance of all obligations of the Borrower and
Co-Borrowers under the Loan Documents are within the power of the Borrower and
Co-Borrowers, have been duly authorized by all necessary corporate action by the
Borrower and Co-Borrowers, and do not and will not to our knowledge, (a) require
the consent of any Governmental Authority, (b) contravene or conflict with any
Requirement of Law, (c) contravene
35
<PAGE>
or conflict with any indenture, instrument, or other agreement to which the
Borrower and Co- Borrowers are a party or by which any Property of the Borrower
and Co-Borrowers may be presently bound or encumbered, or (d) result in or
require the creation or imposition of any Lien in, upon or of any Property of
the Borrower and Co-Borrowers under any such indenture, instrument, or other
agreement, other than the Loan Documents.
4.2 CORPORATE EXISTENCE. The Borrower and Co-Borrowers are
corporations duly organized, legally existing, and in good standing under the
laws of their states of incorporation and are duly qualified as foreign
corporations and are in good standing in all jurisdictions wherein the ownership
of Property or the operation of their business necessitates same, other than
those jurisdictions wherein the failure to so qualify will not have a Material
Adverse Effect.
4.3 VALID AND BINDING OBLIGATIONS. All Loan Documents, when duly
executed and delivered by the Borrower and/or the Co-Borrowers, as applicable,
will be the legal, valid, and binding obligations of the Borrower and/or the
Co-Borrowers, enforceable against the Borrower and/or the Co-Borrowers, as
applicable, in accordance with their respective terms.
4.4 SECURITY INSTRUMENTS. The provisions of each Security Instrument
are effective to create in favor of the Agent for the benefit of the Lenders, a
legal, valid, and enforceable Lien in all right, title, and interest of the
Borrower and/or the Co-Borrowers in the Collateral described therein, which
Liens, assuming the accomplishment of recording and filing in accordance with
applicable laws prior to the intervention of rights of other Persons, shall
constitute fully perfected first-priority Liens on all right, title, and
interest of the Borrower and/or the Co-Borrowers in the Collateral described
therein. Existing Liens as assigned by Compass to Agent for the benefit of the
Lenders continue to constitute good and valid liens as of the original date of
recordation thereof.
4.5 TITLE TO ASSETS. The Borrower and/or the Co-Borrowers have good
and defensible title to all of their respective Properties, free and clear of
all Liens except Permitted Liens.
4.6 SCOPE AND ACCURACY OF FINANCIAL STATEMENTS. The Financial
Statements of the Borrower and Co-Borrowers as of March 31, 1998, present fairly
the financial position and results of operations and cash flows of the Borrower
and Co-Borrowers in accordance with GAAP as at the relevant point in time or for
the period indicated, as applicable. No event or circumstance has occurred since
March 31, 1998, which could reasonably be expected to have a Material Adverse
Effect.
4.7 NO MATERIAL MISSTATEMENTS. To our knowledge, no information,
exhibit, statement, or report furnished to the Lenders by or at the direction of
the Borrower and the Co- Borrowers in connection with this Agreement contains
any material misstatement of fact or omits
36
<PAGE>
to state a material fact or any fact necessary to make the statements contained
therein not misleading as of the date made or deemed made.
4.8 LIABILITIES, LITIGATION, AND RESTRICTIONS. Other than as listed
under the heading "Liabilities" on Exhibit VI attached hereto, the Borrower
and/or the Co-Borrowers have no liabilities, direct, or contingent, which may
materially and adversely affect its business or operations or its ownership of
the Collateral. Except as set forth under the heading "Litigation" on Exhibit VI
hereto, no litigation or other action of any nature affecting the Borrower
and/or the Co-Borrowers is pending before any Governmental Authority or, to the
best knowledge of the Borrower and/or the Co-Borrowers, threatened against or
affecting the Borrower and/or the Co- Borrowers which might reasonably be
expected to result in any impairment of its ownership of any Collateral or have
a Material Adverse Effect. No unusual or unduly burdensome restriction,
restraint or hazard exists by contract, Requirement of Law, or otherwise
relative to the business or operations of the Borrower and/or the Co-Borrowers
or the ownership and operation of the Collateral other than such as relate
generally to Persons engaged in business activities similar to those conducted
by the Borrower and/or the Co-Borrowers.
4.9 COMPLIANCE WITH LAWS. The Borrower and/or the Co-Borrowers and
their Property, including, without limitation, the Mortgaged Property, are in
compliance with all applicable Requirements of Law, including, without
limitation, Environmental Laws, the Natural Gas Policy Act of 1978, as amended,
and ERISA, except to the extent non-compliance with any such Requirements of Law
could not reasonably be expected to have a Material Adverse Effect.
4.10 ERISA. Except as set out on Exhibit VI, the Borrower and the
Co- Borrowers do not maintain nor have they maintained any Plan. The Borrower
and the Co- Borrowers do not currently contribute to or have any obligation to
contribute to or otherwise have any liability with respect to any Plan.
4.11 ENVIRONMENTAL LAWS. To the best knowledge and belief of the
Borrower and/or the Co-Borrowers, except as would not have a Material Adverse
Effect, or as described on Exhibit VI under the heading "Environmental Matters:"
(a) no Property of the Borrower and/or the Co-Borrowers is currently
on or has ever been on, or is adjacent to any Property which is on or has
ever been on, any federal or state list of Superfund Sites;
(b) no Hazardous Substances have been generated, transported, and/or
disposed of by the Borrower and/or the Co-Borrowers at a site which was,
at the time of such generation, transportation, and/or disposal, or has
since become, a Superfund Site;
(c) except in accordance with applicable Requirements of Law or the
terms of a valid permit, license, certificate, or approval of the relevant
Governmental
37
<PAGE>
Authority, no Release of Hazardous Substances by the Borrower and/or the
Co- Borrowers or from, affecting, or related to any Property of the
Borrower and/or the Co-Borrowers or adjacent to any Property of the
Borrower and/or the Co- Borrowers has occurred; and
(d) no Environmental Complaint has been received by the Borrower
and/or the Co-Borrowers.
4.12 COMPLIANCE WITH FEDERAL RESERVE REGULATIONS. No transaction
contemplated by the Loan Documents is in violation of any regulations
promulgated by the Board of Governors of the Federal Reserve System, including,
without limitation, Regulations G, T, U, or X.
4.13 INVESTMENT COMPANY ACT COMPLIANCE. The Borrower and/or the Co-
Borrowers are not, nor are the Borrower and/or the Co-Borrowers directly or
indirectly controlled by or acting on behalf of any Person which is, an
"investment company" or an "affiliated person" of an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
4.14 PUBLIC UTILITY HOLDING COMPANY ACT COMPLIANCE. The Borrower
and/or the Co-Borrowers are not a "holding company," or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company," within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
4.15 PROPER FILING OF TAX RETURNS; PAYMENT OF TAXES DUE. The
Borrower and the Co-Borrowers have duly and properly filed a United States
income tax return and all other tax returns which are required to be filed and
have paid all taxes due except such as are being contested in good faith and as
to which adequate provisions and disclosures have been made. The respective
charges and reserves on the books of the Borrower and the Co-Borrowers with
respect to taxes and other governmental charges are adequate.
4.16 REFUNDS. Except as described on Exhibit VI under the heading
"Refunds," no orders of, proceedings pending before, or other requirements of
the Minerals Management Service, Bureau of Land Management, the Federal Energy
Regulatory Commission, the Texas Railroad Commission, or any Governmental
Authority exist which could result in the Borrower and/or the Co-Borrowers being
required to refund any material portion of the proceeds received or to be
received from the sale of hydrocarbons constituting part of the Mortgaged
Property.
4.17 GAS CONTRACTS. Except as described on Exhibit VI under the
heading "Gas Contracts," the Borrower and/or the Co-Borrowers (a) are not
obligated in any material respect by virtue of any prepayment made under any
contract containing a "take-or-pay" or "prepayment" provision or under any
similar agreement to deliver hydrocarbons produced from or allocated to any of
the Mortgaged Property at some future date without receiving full payment
therefor within 90 days of delivery, and (b) have not produced gas, in any
material amount, subject to, and neither
38
<PAGE>
the Borrower and/or the Co-Borrowers nor any of the Mortgaged Properties are
subject to, balancing rights of third parties or subject to balancing duties
under governmental requirements or joint operating agreements, except as to such
matters for which the Borrower and/or the Co- Borrowers have established
monetary reserves adequate in amount to satisfy such obligations and have
segregated such reserves from other accounts.
4.18 INTELLECTUAL PROPERTY. The Borrower and/or the Co-Borrowers own
or are licensed to use all Intellectual Property necessary to conduct all
business material to their condition (financial or otherwise), business, or
operations as such business is currently conducted. No claim has been asserted
or is pending by any Person with respect to the use of any such Intellectual
Property or challenging or questioning the validity or effectiveness of any such
Intellectual Property; and the Borrower and/or the Co-Borrowers knows of no
valid basis for any such claim. The use of such Intellectual Property by the
Borrower and/or the Co-Borrowers does not infringe on the rights of any Person,
except for such claims and infringements as do not, in the aggregate, give rise
to any material liability on the part of the Borrower and/or the Co-Borrowers.
4.19 CASUALTIES OR TAKING OF PROPERTY. Except as disclosed on
Exhibit VI under the heading "Casualties," since March 31, 1998, neither the
business nor any Property of the Borrower and/or the Co-Borrowers have been
materially 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.
4.20 LOCATIONS OF BORROWER. The principal place of business and
chief executive office of the Borrower and the Co-Borrowers is located at the
address of the Borrower set forth in Section 9.3 or at such other location as
the Borrower and the Co-Borrowers may have, by proper written notice hereunder,
advised the Lenders, provided that such other location is within a state in
which appropriate financing statements from the Borrower in favor of the Lenders
have been filed.
4.21 SUBSIDIARIES. The Borrower has no Subsidiaries other than the
Co- Borrowers and those listed on Exhibit VI.
39
<PAGE>
ARTICLE V
AFFIRMATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or any
Commitment exists, the Borrower and/or the Co-Borrowers shall:
5.1 MAINTENANCE AND ACCESS TO RECORDS. Keep adequate records, in
accordance with GAAP, of all its transactions so that at any time, and from time
to time, its true and complete financial condition may be readily determined,
and within 2 Business Days following the reasonable request of the Agent or any
Lender, make such records available for inspection by the Agent or any Lender
and, at the expense of the Borrower and/or the Co-Borrowers, allow the Agent or
any Lender to make and take away copies thereof.
5.2 QUARTERLY FINANCIAL STATEMENTS; COMPLIANCE CERTIFICATES. Deliver
to the Agent and each Lender, (a) on or before the 45th day after the close of
each of the first three quarterly periods of each fiscal year of the Borrower
and the Co-Borrowers, a copy of the unaudited consolidated and consolidating
Financial Statements of the Borrower and the Co- Borrowers as at the close of
such quarterly period and from the beginning of such fiscal year to the end of
such period, such Financial Statements to be certified by Responsible Officers
of the Borrower and the Co-Borrowers as having been prepared in accordance with
GAAP consistently applied and as a fair presentation of the condition of the
Borrower and the Co-Borrowers, subject to changes resulting from normal year-end
audit adjustments, and (b) on or before the 45th day after the close of each
fiscal quarter and on or before the 120th day after the close of the fiscal
year, a Compliance Certificate.
5.3 ANNUAL FINANCIAL STATEMENTS. Deliver to the Agent and each
Lender, on or before the 120th day after the close of each fiscal year of the
Borrower and the Co-Borrowers, a copy of the annual audited consolidated and
unaudited consolidating Financial Statements of the Borrower and the
Co-Borrowers.
5.4 OIL AND GAS RESERVE REPORTS. (a) Deliver to the Agent and each
Lender, no later than April 1 of each year during the term of this Agreement,
engineering reports in form and substance satisfactory to the Agent and the
Lenders, certified by any nationally- or regionally- recognized independent
consulting petroleum engineers acceptable to the Agent and the Lenders as fairly
and accurately setting forth (i) the proven and producing, shut-in, behind-pipe,
and undeveloped oil and gas reserves (separately classified as such)
attributable to the Mortgaged Properties, plus certain other oil and gas
properties, including, but not limited to, oil and gas properties situated in
Canada, to be determined in sole discretion of the Agent and the Lenders, as of
January 1 of the year for which such reserve reports are furnished, (ii) the
aggregate present value of the future net income with respect to such Mortgaged
Properties, plus certain other oil and gas properties to be determined in sole
discretion of the Agent and the Lenders, discounted at a stated per annum
discount rate of proven and producing reserves, (iii) projections of the annual
rate of production, gross income, and net income with respect to such proven and
producing reserves, and (iv) information with respect to the "take-or-pay,"
"prepayment," and gas- balancing liabilities of the Borrower and/or the
Co-Borrowers.
40
<PAGE>
(b) Deliver to the Agent and each Lender no later than October 1 of
each year during the term of this Agreement, engineering reports in form and
substance satisfactory to the Agent and the Lenders prepared by or under the
supervision of the chief petroleum engineer of the Borrower and/or the
Co-Borrowers evaluating the Mortgaged Properties, plus certain other oil and gas
properties to be determined in sole discretion of the Agent and the Lenders, as
of July 1 of the year for which such reserve reports are furnished and updating
the information provided in the reports pursuant to Section 5.4(a).
(c) Each of the reports provided pursuant to this Section shall be
submitted to the Agent and each Lender together with additional data concerning
pricing, quantities of production from the Mortgaged Properties, plus certain
other oil and gas properties to be determined in sole discretion of the Agent
and the Lenders, volumes of production sold, purchasers of production, gross
revenues, expenses, and such other information and engineering and geological
data with respect thereto as the Agent and the Lenders may reasonably request.
5.5 TITLE OPINIONS; TITLE DEFECTS. Promptly upon the request of the
Lenders, furnish to the Agent title opinions, in form and substance and by
counsel satisfactory to the Agent, or other confirmation of title acceptable to
the Lenders, covering not less than a percentage of the present value, agreed
upon by the Lenders, and determined by the Agent and the Lenders in their sole
discretion, of the Oil and Gas Properties, and promptly, but in any event within
60 days after notice by the Agent of any defect, material in the opinion of the
Agent and the Lenders in value, in the title of the Borrower and/or the
Co-Borrowers to any of their Oil and Gas Properties, clear such title defects,
and, in the event any such title defects are not cured in a timely manner, pay
all related costs and fees incurred by the Agent to do so. Provided, however, to
the extent it is determined by the Lenders that such title defects cannot be
cured or Borrower and/or Co- Borrowers so notify the Lenders, the Lenders may
reduce the Borrowing Base by the amount equal to the value of the oil and gas
lease affected by such title defect.
5.6 NOTICES OF CERTAIN EVENTS. Deliver to the Agent and each Lender,
immediately upon having knowledge of the occurrence of any of the following
events or circumstances, a written statement with respect thereto, signed by a
Responsible Officer of the Borrower and/or the Co-Borrowers and setting forth
the relevant event or circumstance and the steps being taken by the Borrower
and/or the Co-Borrowers with respect to such event or circumstance:
(a) any Default or Event of Default;
(b) any default or event of default under any contractual obligation
of the Borrower and/or the Co-Borrowers, or any litigation, investigation,
or proceeding between the Borrower and/or the Co-Borrowers and any
Governmental Authority which, in either case, if not cured or if adversely
determined, as the case may be, could reasonably be expected to have a
Material Adverse Effect;
(c) any litigation or proceeding involving the Borrower and/or the
Co- Borrowers as a defendant or in which any Property of the Borrower
and/or the Co- Borrowers are subject to a claim and in which the amount
involved is $100,000 or more and which is not covered by insurance or in
which injunctive or similar relief is sought;
41
<PAGE>
(d) the receipt by the Borrower and/or the Co-Borrowers of any
Environmental Complaint;
(e) any actual, proposed, or threatened testing or other
investigation by any Governmental Authority or other Person concerning the
environmental condition of, or relating to, any Property of the Borrower
and/or the Co-Borrowers or adjacent to any Property of the Borrower and/or
the Co-Borrowers following any allegation of a violation of any
Requirement of Law;
(f) any Release of Hazardous Substances by the Borrower and/or the
Co- Borrowers or from, affecting, or related to any Property of the
Borrower and/or the Co-Borrowers or adjacent to any Property of the
Borrower and/or the Co- Borrowers except in accordance with applicable
Requirements of Law or the terms of a valid permit, license, certificate,
or approval of the relevant Governmental Authority, or the violation of
any Environmental Law, or the revocation, suspension, or forfeiture of or
failure to renew, any permit, license, registration, approval, or
authorization which could reasonably be expected to have a Material
Adverse Effect;
(g) the change in identity or address of any Person remitting to the
Borrower and/or the Co-Borrowers proceeds from the sale of hydrocarbon
production from or attributable to any Mortgaged Property;
(h) any change in the senior management of the Borrower;
(i) any change in the terms of the National Bank of Canada facility
with 779776 Alberta, Ltd. and/or Neutrino Resources, Inc., and
(j) any other event or condition which could reasonably be expected
to have a Material Adverse Effect.
5.7 LETTERS IN LIEU OF TRANSFER ORDERS; DIVISION ORDERS. Promptly
upon request by the Agent at any time and from time to time, execute such
letters in lieu of transfer orders, in addition to the letters signed by the
Borrower and/or the Co-Borrowers and delivered to the Agent in satisfaction of
the condition set forth in Section 3.1 (f)(iii) and/or division and/or transfer
orders as are necessary or appropriate to transfer and deliver to the Agent
proceeds from or attributable to any Mortgaged Property.
5.8 ADDITIONAL INFORMATION. Furnish to the Agent and each Lender,
promptly upon the request of the Agent or any Lender, such additional financial
or other information concerning the assets, liabilities, operations, and
transactions of the Borrower and/or the Co- Borrowers as the Agent or any Lender
may from time to time request; and notify the Agent and each Lender not less
than ten Business Days prior to the occurrence of any condition or event that
42
<PAGE>
may change the proper location for the filing of any financing statement or
other public notice or recording for the purpose of perfecting a Lien in any
Collateral, including, without limitation, any change in its name or the
location of its principal place of business or chief executive office; and upon
the request of the Agent or any Lender, execute such additional Security
Instruments as may be necessary or appropriate in connection therewith.
5.9 COMPLIANCE WITH LAWS. Comply with all applicable Requirements of
Law, including, without limitation, (a) the Natural Gas Policy Act of 1978, as
amended, (b) ERISA, (c) Environmental Laws, and (d) all permits, licenses,
registrations, approvals, and authorizations issued to it or of which it has
knowledge (i) related to any natural or environmental resource or media located
on, above, within, in the vicinity of, related to or affected by any Property of
the Borrower and/or the Co-Borrowers, (ii) required for the performance of the
operations of the Borrower and/or the Co-Borrowers, or (iii) applicable to the
use, generation, handling, storage, treatment, transport, or disposal of any
Hazardous Substances; and instruct all employees, crew members, agents,
contractors, subcontractors, and future lessees (pursuant to appropriate lease
provisions) of the Borrower and/or the Co-Borrowers, while such Persons are
acting within the scope of their relationship with the Borrower and/or the
Co-Borrowers, to comply with all such Requirements of Law as may be necessary or
appropriate to enable the Borrower and/or the Co- Borrowers to so comply.
5.10 PAYMENT OF ASSESSMENTS AND CHARGES. Pay all taxes, assessments,
governmental charges, rent, and other Indebtedness which, if unpaid, might
become a Lien against the Property of the Borrower and/or the Co-Borrowers,
except any of the foregoing being contested in good faith and as to which
adequate reserve in accordance with GAAP has been established or unless failure
to pay would not have a Material Adverse Effect.
5.11 MAINTENANCE OF CORPORATE EXISTENCE AND GOOD STANDING. Maintain
their corporate existence or qualification and good standing in its
jurisdictions of incorporation and in all jurisdictions wherein the Property now
owned or hereafter acquired or business now or hereafter conducted necessitates
same, unless the failure to do so would not have a Material Adverse Effect.
5.12 PAYMENT OF NOTES; PERFORMANCE OF OBLIGATIONS. Pay the Notes
according to the reading, tenor, and effect thereof, as modified hereby, and do
and perform every act and discharge all of its other Obligations.
5.13 FURTHER ASSURANCES. Upon the Agent's written request, promptly
cure any defects in the execution and delivery of any of the Loan Documents and
all agreements contemplated thereby, and execute, acknowledge, and deliver such
other assurances and instruments as shall, in the opinion of the Agent, be
necessary to fulfill the terms of the Loan Documents.
43
<PAGE>
5.14 INITIAL FEES AND EXPENSES OF COUNSEL TO AGENT. Upon request by
the Agent, promptly reimburse the Agent for all reasonable fees and expenses of
Jackson Walker L.L.P., special counsel to the Agent, in connection with the
preparation of this Agreement and all documentation contemplated hereby, the
satisfaction of the conditions precedent set forth herein, the filing and
recordation of Security Instruments, and the consummation of the transactions
contemplated in this Agreement.
5.15 SUBSEQUENT FEES AND EXPENSES OF AGENT AND LENDERS. Upon request
by the Agent, promptly reimburse the Agent (to the fullest extent permitted by
law) for all amounts reasonably expended, advanced, or incurred by or on behalf
of the Agent to ratify, amend, restate, or prepare additional Loan Documents, as
the case may be; for the filing and recordation of Security Instruments.
Promptly reimburse the Agent and each Lender to satisfy any obligation of the
Borrower and/or the Co-Borrowers under any of the Loan Documents; to collect the
Obligations; to enforce the rights of the Agent and each Lender under any of the
Loan Documents; and to protect the Properties or business of the Borrower and/or
the Co-Borrowers, including, without limitation, the Collateral, which amounts
shall be deemed compensatory in nature and liquidated as to amount upon notice
to the Borrower and/or the Co-Borrowers by the Agent and each Lender and which
amounts shall include, but not be limited to (a) all court costs, (b) reasonable
attorneys' fees, (c) reasonable fees and expenses of auditors and accountants
incurred to protect the interests of the Agent and each Lender, (d) fees and
expenses incurred in connection with the participation by the Agent and each
Lender as a member of the creditors' committee in a case commenced under any
Insolvency Proceeding, (e) fees and expenses incurred in connection with lifting
the automatic stay prescribed in ss.362 Title 11 of the United States Code, and
(f) fees and expenses incurred in connection with any action pursuant to ss.1129
Title 11 of the United States Code all reasonably incurred by the Agent and each
Lender in connection with the collection of any sums due under the Loan
Documents, together with interest at the per annum interest rate equal to the
Floating Rate, calculated on a basis of a calendar year of 365 or 366 days, as
the case may be, counting the actual number of days elapsed, on each such amount
from the date of notification that the same was expended, advanced, or incurred
by the Agent and each Lender until the date it is repaid to the Agent and each
Lender, with the obligations under this Section surviving the non-assumption of
this Agreement in a case commenced under any Insolvency Proceeding and being
binding upon the Borrower and/or the Co-Borrowers and/or a trustee, receiver,
custodian, or liquidator of the Borrower and/or the Co-Borrowers appointed in
any such case.
5.16 OPERATION OF OIL AND GAS PROPERTIES. Develop, maintain, and
operate their Oil and Gas Properties in a prudent and workmanlike manner in
accordance with industry standards.
5.17 MAINTENANCE AND INSPECTION OF PROPERTIES. Maintain all of their
tangible Properties in good repair and condition, ordinary wear and tear
excepted; make all necessary replacements thereof and operate such Properties in
a good and workmanlike manner; and permit on 2 Business Days prior notice any
authorized representative of the Agent or any Lender to visit and inspect, any
tangible Property of the Borrower and/or the Co-Borrowers.
44
<PAGE>
5.18 MAINTENANCE OF INSURANCE. Maintain insurance with respect to
their Properties and businesses against such liabilities, casualties, risks, and
contingencies as is customary in the relevant industry and sufficient to prevent
a Material Adverse Effect, all such insurance to be in amounts and from insurers
acceptable to the Lenders and, within 60 days of the Closing Date for property
damage insurance covering Collateral and business interruption insurance, if
any, maintained by Borrower and/or the Co-Borrowers, naming the Agent as loss
payee, and, upon any renewal of any such insurance and at other times upon
request by the Agent or any Lender, furnish to the Agent or any Lender evidence,
satisfactory to the Agent and each Lender of the maintenance of such insurance.
The Agent shall have the right to collect, and the Borrower and/or the
Co-Borrowers hereby assigns to the Agent for the benefit of the Lenders, any and
all monies that may become payable under any policies of insurance relating to
business interruption or by reason of damage, loss, or destruction of any of the
Collateral. In the event of any damage, loss, or destruction for which insurance
proceeds relating to business interruption or Collateral exceed $100,000, the
Agent for the benefit of the Lenders may, at its option, apply all such sums or
any part thereof received by it toward the payment of the Obligations, whether
matured or unmatured, application to be made first to interest and then to
principal, and shall deliver to the Borrower and/or the Co-Borrowers the
balance, if any, after such application has been made. In the event of any such
damage, loss, or destruction for which insurance proceeds are $100,000 or less,
provided that no Default or Event of Default has occurred and is continuing, the
Agent shall deliver any such proceeds received by it to the Borrower and/or the
Co-Borrowers. In the event the Agent receives insurance proceeds not
attributable to Collateral or business interruption, the Agent shall deliver any
such proceeds to the Borrower and/or the Co-Borrowers.
5.19 INDEMNIFICATION. INDEMNIFY AND HOLD THE AGENT AND EACH LENDER
AND THEIR SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS-IN-FACT, AND AFFILIATES AND EACH TRUSTEE FOR THE BENEFIT OF THE AGENT
AND EACH LENDER UNDER ANY SECURITY INSTRUMENT HARMLESS FROM AND AGAINST ANY AND
ALL CLAIMS, LOSSES, DAMAGES, LIABILITIES, FINES, PENALTIES, CHARGES,
ADMINISTRATIVE AND JUDICIAL PROCEEDINGS AND ORDERS, JUDGMENTS, REMEDIAL ACTIONS,
REQUIREMENTS AND ENFORCEMENT ACTIONS OF ANY KIND, AND ALL COSTS AND EXPENSES
INCURRED IN CONNECTION THEREWITH (INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES
AND EXPENSES), ARISING DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, FROM (A) THE
PRESENCE OF ANY HAZARDOUS SUBSTANCES ON, UNDER, OR FROM ANY PROPERTY OF THE
BORROWER AND/OR THE CO- BORROWERS, WHETHER PRIOR TO OR DURING THE TERM HEREOF,
(B) ANY ACTIVITY CARRIED ON OR UNDERTAKEN ON OR OFF ANY PROPERTY OF THE BORROWER
AND/OR THE CO-BORROWERS , WHETHER PRIOR TO OR DURING THE TERM HEREOF, AND
WHETHER BY THE BORROWER AND/OR THE CO-BORROWERS OR ANY PREDECESSOR IN TITLE,
EMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER AND/OR THE
CO-BORROWERS OR ANY OTHER PERSON AT ANY TIME OCCUPYING OR PRESENT ON SUCH
PROPERTY, IN CONNECTION WITH THE HANDLING, TREATMENT, REMOVAL, STORAGE,
45
<PAGE>
DECONTAMINATION, CLEANUP, TRANSPORTATION, OR DISPOSAL OF ANY HAZARDOUS
SUBSTANCES AT ANY TIME LOCATED OR PRESENT ON OR UNDER SUCH PROPERTY, (C) ANY
RESIDUAL CONTAMINATION ON OR UNDER ANY PROPERTY OF THE BORROWER AND/OR THE
CO-BORROWERS, (D) ANY CONTAMINATION OF ANY PROPERTY OR NATURAL RESOURCES ARISING
IN CONNECTION WITH THE GENERATION, USE, HANDLING, STORAGE, TRANSPORTATION OR
DISPOSAL OF ANY HAZARDOUS SUBSTANCES BY THE BORROWER AND/OR THE CO-BORROWERS OR
ANY EMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER AND/OR THE CO-
BORROWERS WHILE SUCH PERSONS ARE ACTING WITHIN THE SCOPE OF THEIR RELATIONSHIP
WITH THE BORROWER AND/OR THE CO-BORROWERS, IRRESPECTIVE OF WHETHER ANY OF SUCH
ACTIVITIES WERE OR WILL BE UNDERTAKEN IN ACCORDANCE WITH APPLICABLE REQUIREMENTS
OF LAW, OR (E) THE PERFORMANCE OF ANY LOAN DOCUMENT, ANY ALLEGATION BY ANY
BENEFICIARY OF A LETTER OF CREDIT OF A WRONGFUL DISHONOR BY THE AGENT OR ANY
LENDER OF A CLAIM OR DRAFT PRESENTED THEREUNDER, OR ANY OTHER ACT OR OMISSION IN
CONNECTION WITH OR RELATED TO ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING, WITHOUT LIMITATION, ANY OF THE FOREGOING IN THIS SECTION
ARISING FROM NEGLIGENCE, OTHER THAN GROSS NEGLIGENCE, WHETHER SOLE OR
CONCURRENT, ON THE PART OF THE AGENT OR ANY LENDER OR ANY OF THEIR SHAREHOLDERS,
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN- FACT, OR AFFILIATES OR ANY
TRUSTEE FOR THE BENEFIT OF THE AGENT OR ANY LENDER UNDER ANY SECURITY
INSTRUMENT; WITH THE FOREGOING INDEMNITY SURVIVING SATISFACTION OF ALL
OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT, UNLESS ALL SUCH OBLIGATIONS
HAVE BEEN SATISFIED WHOLLY IN CASH FROM THE BORROWER AND NOT BY WAY OF
REALIZATION AGAINST ANY COLLATERAL OR THE CONVEYANCE OF ANY PROPERTY IN LIEU
THEREOF, PROVIDED THAT SUCH INDEMNITY SHALL NOT EXTEND TO ANY ACT OR OMISSION BY
THE AGENT OR ANY LENDER WITH RESPECT TO ANY PROPERTY SUBSEQUENT TO THE AGENT OR
ANY LENDER BECOMING THE OWNER OF SUCH PROPERTY AND WITH RESPECT TO WHICH
PROPERTY SUCH CLAIM, LOSS, DAMAGE, LIABILITY, FINE, PENALTY, CHARGE, PROCEEDING,
ORDER, JUDGMENT, ACTION, OR REQUIREMENT ARISES SUBSEQUENT TO THE ACQUISITION OF
TITLE THERETO BY THE AGENT OR ANY LENDER.
5.20 YEAR 2000 COMPLIANCE. On or prior to September 30, 1999,
Borrower shall have taken all action necessary to ensure that the automated
systems used by Borrower and Co- Borrowers that are material to their operations
shall operate properly and process data accurately, including dates before, as
of and after December 31, 1999, (collectively "Year 2000 Compliance"). Borrower
and Co-Borrowers agree that upon the reasonable request of Lender, Borrower and
Co- Borrowers will make their employees, consultants, premises, records and
documentation available to Lender with respect to Borrower's and Co-Borrowers'
Year 2000 Compliance efforts.
46
<PAGE>
5.21 TRANSFER OF CERTAIN OIL AND GAS PROPERTIES. Borrower will
transfer certain Oil and Gas Properties situated in the Yoakum Field, Lavaca and
DeWitt Counties, Texas, Lake Raccourci Field, Lafourche Parish, Louisiana, and
Brushy Creek Field, Lavaca and DeWitt Counties, Texas, within 120 days of
Closing Date to a Co-Borrower or a newly formed Subsidiary of Borrower which
will be a Co-Borrower or a guarantor.
ARTICLE VI
NEGATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or any
Commitment exists, the Borrower and/or the Co-Borrowers will not:
6.1 INDEBTEDNESS. Create, incur, assume, or suffer to exist any
Indebtedness, whether by way of loan or otherwise; provided, however, the
foregoing restriction shall not apply to (a) the Obligations, (b) Permitted
Indebtedness, and (c) unsecured accounts payable incurred in the ordinary course
of business, which are not unpaid in excess of 75 days beyond invoice date or
are being contested in good faith and as to which such reserve as is required by
GAAP has been made, and (d) crude oil, natural gas, or other hydrocarbon floor,
collar, cap, price protection, or swap agreements, in form and substance and
with a Person acceptable to the Lenders, (which shall include Koch Industries,
Inc., and/or any of its Subsidiaries and Enron Capital and Trade Resources
Corporation and/or any of its Subsidiaries) provided that (i) such agreements
shall not be entered into with respect to Mortgaged Properties constituting more
than 75% of the monthly production of proven producing reserves as forecast in
Lenders' most recent engineering evaluation, (ii) that the strike prices in
connection with option and swap agreements are not less than the prices used by
the Lenders in their most recent Borrowing Base determination, (iii) the
counterparty shall be approved by Lenders, (iv) Borrowers and/or Co-Borrowers
shall notify Lenders within five days of executing a hedge transaction of the
strike price and the volume of production, as well as the duration of the
transaction, (v) Borrowers and/or Co-Borrowers shall only enter into hedge
transactions with durations of eighteen months or less, (vi) Borrower and/or
Co-Borrowers shall pay any liabilities created under the hedge transactions as
they become due and in any event no later than 60 days from the date such
liability was incurred; and (vii) the Lenders shall receive a security interest
in the hedging contracts.
6.2 CONTINGENT OBLIGATIONS. Create, incur, assume, or suffer to
exist any Contingent Obligation; provided, however, the foregoing restriction
shall not apply to (a) performance guarantees and performance surety or other
bonds provided in the ordinary course of business, or (b) trade credit incurred
or operating leases entered into in the ordinary course of business.
47
<PAGE>
6.3 LIENS. Create, incur, assume, or suffer to exist any Lien on any
of its Oil and Gas Properties or any other Property, whether now owned or
hereafter acquired; provided, however, the foregoing restrictions shall not
apply to Permitted Liens.
6.4 SALES OF ASSETS. Without the prior written consent of the Agent
and the Lenders, Borrower and/or Co-Borrowers shall not sell, transfer, or
otherwise dispose of any assets, if such assets are material to the operations
of Borrower and/or the Co-Borrowers when taken as a whole, other than (a) sales
of inventory in the ordinary course of business, (b) occasional sales, leases or
other dispositions of immaterial assets for consideration not less than fair
market value, (c) sales, leases or other dispositions of assets that are
obsolete or have negligible fair market value, and (d) sales of equipment for
fair and adequate consideration. Between any two scheduled Borrowing Base
reviews the Agent and the Lenders will consent to sales of assets representing
up to 10% in the aggregate of the net present value of the Oil and Gas
Properties which comprise the Borrowing Base, as calculated by the Agent and the
Lenders pursuant to the terms of this Agreement, provided that the Borrowing
Base shall be reduced, and if necessary, proceeds from such sale shall be
applied to amounts outstanding in an amount equal to the loan value attributable
to such assets sold.
6.5 LEASEBACKS. Enter into any agreement to sell or transfer any
Property and thereafter rent or lease as lessee such Property or other Property
intended for the same use or purpose as the Property sold or transferred.
6.6 LOANS OR ADVANCES. Make or agree to make or allow to remain
outstanding any loans or advances to any Person other than Borrower and/or
Co-Borrowers in excess of $100,000; provided, however, the foregoing
restrictions shall not apply to (a) advances or extensions of credit in the form
of accounts receivable incurred in the ordinary course of business and upon
terms common in the industry for such accounts receivable, or (b) advances to
employees of the Borrower and/or the Co-Borrowers for the payment of expenses in
the ordinary course of business.
6.7 INVESTMENTS. Acquire Investments in, or purchase or otherwise
acquire all or substantially all of the assets of, any Person. This restriction
shall not apply to the following investments:
(a) marketable obligations issued or unconditionally guaranteed by
the United States Government or issued by any of its agencies
and backed by the full faith and credit of the United States
of America,
(b) short-term investment grade domestic or Eurodollar
certificates of deposit or time deposits that are fully
insured by the Federal Deposit Insurance Corporation,
48
<PAGE>
(c) commercial paper and similar obligations rated "P-1" or better
by Moody's Investors Services, Inc. or "A-1" or better by
Standard & Poors Corporation,
(d) intercompany loans to, advances to or investments in, wholly
owned Subsidiaries, as long as there is no Default or Event of
Default or such loans, advances or investments would not
result in a Default or Event of Default,
(e) readily marketable tax-free municipal bonds of a domestic
issuer or rated "aaa" or better by Moody's Investors Services,
Inc. or "AAA" by Standard & Poors Corporation, and
(f) demand deposit accounts maintained in the ordinary course of
business.
6.8 DIVIDENDS AND DISTRIBUTIONS. The Borrower shall not declare,
pay, or make, any cash dividend or distribution on, or purchase, redeem, or
otherwise acquire for value, any share of any class of its capital stock.
Subsidiaries of the Borrower can make distributions to the Borrower as long as
there is no Default or Event of Default or such distribution would not result in
a Default or Event of Default.
6.9 ISSUANCE OF STOCK; CHANGES IN CORPORATE STRUCTURE. Issue or
agree to issue additional shares of capital stock other than for cash, in one or
any series of transactions except to officers, directors or employees of
Borrower or any Co-Borrower as part of their compensation; enter into any
transaction of consolidation, merger, or amalgamation; liquidate, wind up, or
dissolve (or suffer any liquidation or dissolution).
6.10 TRANSACTIONS WITH AFFILIATES. Directly or indirectly, enter
into any transaction (including the sale, lease, or exchange of Property or the
rendering of service) with any of their Affiliates, other than upon fair and
reasonable terms no less favorable than could be obtained in an arm's length
transaction with a Person which was not an Affiliate.
6.11 LINES OF BUSINESS. Expand, on their own or through any
Subsidiary, into any line of business other than those in which the Borrower
and/or the Co-Borrowers are engaged as of the date hereof.
6.12 PLAN OBLIGATIONS. Except as disclosed in Exhibit VI, assume or
otherwise become subject to an obligation to contribute to or maintain any Plan
or acquire any Person which has at any time had an obligation to contribute to
or maintain any Plan.
6.13 NEW SUBSIDIARIES. Form any new Subsidiaries without the prior
written consent of the Lenders. The Lenders have approved the formation of
779776 Alberta, Ltd. and Neutrino Resources, Inc.
49
<PAGE>
6.14 TANGIBLE NET WORTH. Permit Tangible Net Worth as of the close
of any fiscal quarter to be less than $14,500,000 plus 50% of positive Net
Income and 75% of other increases in equity for all fiscal quarters ending
subsequent to December 31, 1997.
6.15 CASH FLOW COVERAGE. Permit as of the close of any fiscal
quarter, the ratio of Cash Flow to Debt Service to be less than 1.25 to 1.00.
6.16 CHANGES IN TERMS OF LOAN FROM NATIONAL BANK OF CANADA. Permit
any change in the provisions of the Credit Agreement by and between 779776
Alberta, Ltd. and/or Neutrino Resources, Inc. and National Bank of Canada in
regard to allowed or prohibited loans, distributions or dividends.
ARTICLE VII
EVENTS OF DEFAULT
7.1 ENUMERATION OF EVENTS OF DEFAULT. Any of the following events
shall constitute an Event of Default:
(a) default shall be made in the payment when due of any installment
of principal or interest under this Agreement or the Notes or in the
payment when due of any fee or other sum payable under any Loan Document,
or the Borrower and/or the Co-Borrowers fail to observe, perform or comply
with any covenant contained in Article VI;
(b) default shall be made by the Borrower and/or the Co-Borrowers in
the due observance or performance of any of their respective obligations
under the Loan Documents, excluding Article VI, and such default shall
continue for 30 days after the earlier of notice thereof to the Borrower
by the Agent or actual knowledge thereof by the Borrower and/or the
Co-Borrowers;
(c) any representation or warranty made by the Borrower and/or the
Co- Borrowers in any of the Loan Documents proves to have been untrue in
any material respect or any representation, statement (including Financial
Statements), certificate, or data furnished or made to the Agent and/or
the Lenders in connection herewith proves to have been untrue in any
material respect as of the date the facts therein set forth were stated or
certified;
50
<PAGE>
(d) default shall be made by the Borrower and/or the Co-Borrowers
(as principal or guarantor or other surety) in the payment or performance
of any Indebtedness, including, but not limited to 779776 Alberta, Ltd.
and/or Neutrino Resources, Inc. facility with National Bank of Canada, and
such default shall remain unremedied for in excess of the period of grace,
if any, with respect thereto;
(e) the Borrower and/or the Co-Borrowers shall be unable to satisfy
any condition or cure any circumstance specified in Article III, the
satisfaction or curing of which is precedent to the right of the Borrower
and/or the Co-Borrowers to obtain a Loan or for the issuance of a Letter
of Credit, and such inability shall continue for a period in excess of 30
days;
(f) the Borrower and/or the Co-Borrowers shall (i) apply for or
consent to the appointment of a receiver, trustee, or liquidator of their
or all or a substantial part of their assets, (ii) file a voluntary
petition commencing an Insolvency Proceeding, (iii) make a general
assignment for the benefit of creditors, (iv) be unable, or admit in
writing its inability, to pay its debts generally as they become due, or
(v) file an answer admitting the material allegations of a petition filed
against it in any Insolvency Proceeding;
(g) an order, judgment, or decree shall be entered against either
the Borrower and/or the Co-Borrowers by any court of competent
jurisdiction or by any other duly authorized authority, on the petition of
a creditor or otherwise, granting relief in any Insolvency Proceeding or
approving a petition seeking reorganization or an arrangement of their
debts or appointing a receiver, trustee, conservator, custodian, or
liquidator of their or all or any substantial part of their assets, and
such order, judgment, or decree shall not be dismissed or stayed within 90
days;
(h) the levy against any significant portion of the Property of the
Borrower and/or the Co-Borrowers or any execution, garnishment,
attachment, sequestration, or other writ or similar proceeding which is
not permanently dismissed or discharged within 30 days after the levy;
51
<PAGE>
(i) a final and non-appealable order, judgment, or decree shall be
entered against the Borrower and/or the Co-Borrowers for money damages
and/or Indebtedness due in an amount in excess of $250,000, and such
order, judgment, or decree shall not be dismissed or stayed within 30
days;
(j) any charges are filed or any other action or proceeding is
instituted by any Governmental Authority against the Borrower and/or the
Co-Borrowers under the Racketeering Influence and Corrupt Organizations
Statute (18 U.S.C. ss.1961 ET SEQ.), the result of which could be the
forfeiture or transfer of any material Property of the Borrower and/or the
Co-Borrowers subject to a Lien in favor of the Agent for the benefit of
the Lenders without (i) satisfaction or provision for satisfaction of such
Lien, or (ii) such forfeiture or transfer of such Property being expressly
made subject to such Lien;
(k) the Borrower and/or the Co-Borrowers shall have (i) concealed,
removed, or diverted, or permitted to be concealed, removed, or diverted,
any part of their Property, with intent to hinder, delay, or defraud their
creditors or any of them, (ii) made or suffered a transfer of any of their
Property which may be fraudulent under any bankruptcy, fraudulent
conveyance, or similar law, or (iii) shall have suffered or permitted,
while insolvent, any creditor to obtain a Lien upon any of their Property
through legal proceedings or distraint which is not vacated within 30 days
from the date thereof;
(l) any Security Instrument shall for any reason (other than Agent
or Lender's fault or negligence) not, or cease to, create valid and
perfected first-priority Liens against the Collateral purportedly covered
thereby;
(m) the occurrence of a Material Adverse Effect and the same shall
remain unremedied for in excess of 30 days after notice given by the
Agent.
7.2 REMEDIES. (a) Upon the occurrence of an Event of Default
specified in Sections 7.1(f) or 7.1(g), immediately and without notice, (i) all
Obligations shall automatically become immediately due and payable, without
presentment, demand, protest, notice of protest, default, or dishonor, notice of
intent to accelerate maturity, notice of acceleration of maturity, or other
notice of any kind, except as may be provided to the contrary elsewhere herein,
all of which are hereby expressly waived by the Borrower and the Co-Borrowers;
(ii) the Commitment shall immediately cease and terminate unless and until
reinstated by the Agent and the Lenders in writing; and (iii) to the extent
permitted by and in compliance with applicable law, the Agent and the Lenders
may set-off and apply any and all deposits (general or special, time or demand,
provisional or final) held by the Agent and the Lenders and any and all other
indebtedness at any time owing by the Agent and the Lenders to or for the credit
or account of the Borrower and the Co-Borrowers against any and all of the
Obligations although such Obligations may be unmatured.
52
<PAGE>
(b) Upon the occurrence of any Event of Default other than those
specified in Sections 7.1(f) or 7.1(g), (i) the Agent and the Lenders may, by
notice to the Borrower and the Co-Borrowers, declare all Obligations immediately
due and payable, without presentment, demand, protest, notice of protest,
default, or dishonor, notice of intent to accelerate maturity, notice of
acceleration of maturity, or other notice of any kind, except as may be provided
to the contrary elsewhere herein, all of which are hereby expressly waived by
the Borrower and the Co- Borrowers; (ii) the Commitments shall immediately cease
and terminate unless and until reinstated by the Agent and the Lenders in
writing; and (iii) to the extent permitted by and in compliance with applicable
law, the Agent and the Lenders may set-off and apply any and all deposits
(general or special, time or demand, provisional or final) held by the Agent and
the Lenders and any and all other indebtedness at any time owing by the Agent
and the Lenders to or for the credit or account of the Borrower and the
Co-Borrowers against any and all of the Obligations although such Obligations
may be unmatured.
(c) Upon the occurrence of any Event of Default, the Agent and the
Lenders may, in addition to the foregoing in this Section, exercise any or all
of their rights and remedies provided by law or pursuant to the Loan Documents.
ARTICLE VIII
THE AGENT
8.1 APPOINTMENT. Each Lender hereby designates and appoints the Agent
as the agent of such Lender under this Agreement and the other Loan Documents.
Each Lender authorizes the Agent, as the agent for such Lender, to take such
action on behalf of such Lender under the provisions of this Agreement and the
other Loan Documents and to exercise such powers and perform such duties as are
expressly delegated to the Agent by the terms of this Agreement and the other
Loan Documents, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere in this
Agreement or in any other Loan Document, the Agent shall not have any duties or
responsibilities except those expressly set forth herein or in any other Loan
Document or any fiduciary relationship with any Lender; and no implied
covenants, functions, responsibilities, duties, obligations, or liabilities on
the part of the Agent shall be read into this Agreement or any other Loan
Document or otherwise exist against the Agent.
8.2 WAIVERS, AMENDMENTS. The provisions of this Agreement and of each
other Loan Document may from time to time be amended, modified or waived, if
such amendment, modification, or waiver is in writing and consented to by the
Borrower and the Co-Borrowers and the Required Lenders; provided, however, that
no such amendment, modification or waiver would: (a) modify any requirement
hereunder that any particular action be taken by all of the Lenders or by the
Required Lenders unless consented to by each Lender; (b) modify this Section
8.2, change the definition of "Required Lenders", or change the Commitment
Amount or Percentage Share of any Lender, reduce the fees described in Article
II, extend the Commitment Termination Date or Final Maturity, release any
Security Instrument or Lien, or initiate any foreclosure, enforcement or
collection procedure without the consent of each Lender; (c) extend the due date
for, (or reduce the amount of any scheduled repayment or prepayment of principal
of or interest on any Loan) without the consent of the holder of that Note
evidencing such Loan; (d) affect, adversely the interests, rights, or
obligations of the Agent without the consent of the Agent; or (e) to modify the
Borrowing Base or modify the Scheduled Reduction Amount.
53
<PAGE>
8.3 DELEGATION OF DUTIES. The Agent may execute any of its duties
under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
8.4 EXCULPATORY PROVISIONS. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates shall be
(a) required to initiate or conduct any litigation or collection proceedings
hereunder, except with the concurrence of the Lenders and contribution by each
Lender of its Percentage Share of costs reasonably expected by the Agent to be
incurred in connection therewith, (b) liable for any action lawfully taken or
omitted to be taken by it or such Person under or in connection with this
Agreement or any other Loan Document (except for gross negligence or willful
misconduct of the Agent or such Person), or (c) responsible in any manner to any
Lender for any recitals, statements, representations or warranties made by the
Borrower or any officer thereof contained in this Agreement or any other Loan
Document or in any certificate, report, statement or other document referred to
or provided for in, or received by the Agent under or in connection with, this
Agreement or any other Loan Document, or for the sufficiency, accuracy, or
completeness of any materials provided by the Agent, or the failure of the Agent
to provide any materials or disclose any matter to any Lender except as may be
expressly required herein, or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document or for any failure of the Borrower to perform its obligations hereunder
or thereunder. The Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower.
8.5 RELIANCE BY AGENT. The Agent shall be entitled to rely, and shall
be fully protected in relying, upon any Note, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Borrower and/or the Co-Borrowers),
independent accountants and other experts selected by the Agent. The Agent may
deem and treat the payee of any Note as the owner thereof for all purposes
unless and until an executed Lender Assignment Agreement shall have been
received by the Agent. The Agent shall be fully justified in failing or refusing
to take any action under this Agreement or any other Loan Document unless it
shall first receive such advice or concurrence of the Lenders as it deems
appropriate and contribution by each Lender of its Percentage Share of costs
reasonably expected by the Agent to be incurred in connection therewith. The
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement and the other Loan Documents in accordance with a
request of the Lenders. Such request and any action taken or failure to act
pursuant thereto shall be binding upon the Lenders and all future holders of the
Notes. In no event shall the Agent be required to take any action that exposes
the Agent to personal liability or that is contrary to any Loan Document or
applicable Requirement of Law.
54
<PAGE>
8.6 NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default unless
the Agent has received notice from a Lender or the Borrower and/or the
Co-Borrowers referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default." In the event that
the Agent receives such a notice, the Agent shall promptly give written notice
thereof to the Lenders. The Agent shall take such action with respect to such
Default or Event of Default as shall be reasonably directed by the Lenders;
provided that unless and until the Agent shall have received such directions,
subject to the provisions of Section 7.2, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders. In the event that the officer of the Agent primarily
responsible for the lending relationship with the Borrower and/or the
Co-Borrowers or the officer of any Lender primarily responsible for the lending
relationship with the Borrower and/or the Co-Borrowers becomes aware that a
Default or Event of Default has occurred and is continuing, the Agent or such
Lender, as the case may be, shall use its good faith efforts to inform the other
Lenders and/or the Agent, as the case may be, promptly of such occurrence.
Notwithstanding the preceding sentence, failure to comply with the preceding
sentence shall not result in any liability to the Agent or any Lender.
8.7 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender expressly
acknowledges that neither the Agent nor any other Lender nor any of their
respective officers, directors, employees, agents, attorneys-in-fact or
affiliates has made any representation or warranty to such Lender and that no
act by the Agent or any other Lender hereafter taken, including any review of
the affairs of the Borrower and/or the Co-Borrowers, shall be deemed to
constitute any representation or warranty by the Agent or any Lender to any
other Lender. Each Lender represents to the Agent that it has, independently and
without reliance upon the Agent or any other Lender, and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, condition (financial and
otherwise) and creditworthiness of the Borrower and/or the Co-Borrowers and the
value of the Collateral and other Properties of the Borrower and/or the
Co-Borrowers and has made its own decision to enter into this Agreement. Each
Lender also represents that it will, independently and without reliance upon the
Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigation as it deems necessary
to inform itself as to the business, operations, property, condition (financial
and otherwise) and creditworthiness of the Borrower and/or the Co-Borrowers and
the value of the Collateral and other Properties of the Borrower and/or the
Co-Borrowers. Except for notices, reports and other documents 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 business, operations, property, condition (financial
and otherwise), or creditworthiness of the Borrower and/or the Co-Borrowers or
the value of the Collateral or other Properties of the Borrower and/or the
Co-Borrowers which may come into the possession of the Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates.
55
<PAGE>
8.8 INDEMNIFICATION. EACH LENDER AGREES TO SEVERALLY INDEMNIFY THE
AGENT AND ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT AND
AFFILIATES (TO THE EXTENT NOT REIMBURSED BY THE BORROWER AND THE CO-BORROWERS
AND WITHOUT LIMITING THE OBLIGATION OF THE BORROWER AND THE CO-BORROWERS TO DO
SO), RATABLY AND ACCORDING TO THE PERCENTAGE SHARE OF SUCH LENDER, FROM AND
AGAINST ANY AND ALL LIABILITIES, CLAIMS, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS OF ANY
KIND WHATSOEVER WHICH MAY AT ANY TIME (INCLUDING, WITHOUT LIMITATION, ANY TIME
FOLLOWING THE PAYMENT AND PERFORMANCE OF ALL OBLIGATIONS AND THE TERMINATION OF
THIS AGREEMENT) BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE AGENT OR ANY
OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES
IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR ANY OTHER DOCUMENT CONTEMPLATED OR REFERRED TO HEREIN OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACTION TAKEN OR OMITTED BY THE AGENT OR
ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN- FACT OR
AFFILIATES UNDER OR IN CONNECTION WITH ANY OF THE FOREGOING, INCLUDING, WITHOUT
LIMITATION, ANY LIABILITIES, CLAIMS, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES,
ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS IMPOSED, INCURRED
OR ASSERTED AS A RESULT OF THE NEGLIGENCE, WHETHER SOLE OR CONCURRENT, OF THE
AGENT OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR
AFFILIATES; PROVIDED THAT NO LENDER SHALL BE LIABLE FOR THE PAYMENT OF ANY
PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS RESULTING FROM THE GROSS
NEGLIGENCE, SOLE OR CONCURRENT OR WILLFUL MISCONDUCT OF THE AGENT OR ANY OF ITS
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES. THE
AGREEMENTS IN THIS SECTION SHALL SURVIVE THE PAYMENT AND PERFORMANCE OF ALL
OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT.
56
<PAGE>
8.9 RESTITUTION. Should the right of the Agent or any Lender to
realize funds with respect to the Obligations be challenged and any application
of such funds to the Obligations be reversed, whether by Governmental Authority
or otherwise, or should the Borrower and/or the Co- Borrowers otherwise be
entitled to a refund or return of funds distributed to the Lenders in connection
with the Obligations, the Agent or such Lender, as the case may be, shall
promptly notify the Lenders of such fact. Not later than Noon, Central Standard
or Daylight Savings Time, as the case may be, of the Business Day following such
notice, each Lender shall pay to the Agent an amount equal to the ratable share
of such Lender of the funds required to be returned to the Borrower and/or the
Co-Borrowers. The ratable share of each Lender shall be determined on the basis
of the percentage of the payment all or a portion of which is required to be
refunded originally distributed to such Lender, if such percentage can be
determined, or, if such percentage cannot be determined, on the basis of the
Percentage Share of such Lender. The Agent shall forward such funds to the
Borrower and/or the Co-Borrowers or to the Lender required to return such funds.
If any such amount due to the Agent is made available by any Lender after Noon,
Central Standard or Daylight Savings Time, as the case may be, of the Business
Day following such notice, such Lender shall pay to the Agent (or the Lender
required to return funds to the Borrower and/or the Co-Borrowers, as the case
may be) for its own account interest on such amount at a rate equal to the
Federal Funds Rate for the period from and including the date on which
restitution to the Borrower and/or the Co- Borrowers is made by the Agent (or
the Lender required to return funds to the Borrower and/or the Co-Borrowers, as
the case may be) to but not including the date on which such Lender failing to
timely forward its share of funds required to be returned to the Borrower and/or
the Co-Borrowers shall have made its ratable share of such funds available.
8.10 AGENT IN ITS INDIVIDUAL CAPACITY. The Agent and its affiliates
may make loans to, accept deposits from and generally engage in any kind of
business with the Borrower and/or the Co-Borrowers as though the Agent were not
the agent hereunder. With respect to any Note issued to the Lender serving as
the Agent, the Agent shall have the same rights and powers under this Agreement
as a Lender and may exercise such rights and powers as though it were not the
Agent. The terms "Lender" and "Lenders" shall include the Agent in its
individual capacity.
8.11 SUCCESSOR AGENT. The Agent may resign as Agent upon thirty days'
notice to the Lenders and the Borrower and Co-Borrowers. If the Agent shall
resign as Agent under this Agreement and the other Loan Documents, or if the
Agent shall assign all of its obligations, then the Lenders shall appoint from
among the Lenders a successor agent for the Lenders, whereupon such successor
agent shall succeed to the rights, powers and duties of the Agent. The term
"Agent" shall mean such successor agent effective upon its appointment. The
rights, powers, and duties of the former Agent as Agent shall be terminated,
without any other or further act or deed on the part of such former Agent or any
of the parties to this Agreement or any holders of the Notes. After the removal
or resignation of any Agent hereunder as Agent, the provisions of this Article
VIII and Sections 5.16 and 5.19, shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement and
the other Loan Documents.
57
<PAGE>
8.12 APPLICABLE PARTIES. The provisions of this Article are solely
for the benefit of the Agent and the Lenders, and the Borrower and Co-Borrowers
shall not have any rights as a third party beneficiary or otherwise under any of
the provisions of this Article. In performing functions and duties hereunder and
under the other Loan Documents, the Agent shall act solely as the agent of the
Lenders and does not assume, nor shall it be deemed to have assumed, any
obligation or relationship of trust or agency with or for the Borrower and
Co-Borrowers or any legal representative, successor, and assign of the Borrower
and Co-Borrowers.
ARTICLE IX
MISCELLANEOUS
9.1 ASSIGNMENTS; PARTICIPATIONS. Each Lender may assign or sell
participations in its Loans and Commitments to one or more other Persons in
accordance with this Section 9.1.
(a) ASSIGNMENTS. Any Lender,
(i) with the written consent of the Borrower and Co-Borrowers (in
their sole discretion) and the Agent (which consent shall not be
unreasonably delayed or withheld), may at any time, assign and
delegate to one or more commercial banks or other financial
institutions, and
(ii) with notice to the Borrower and Co-Borrowers and the Agent, but
without the consent of the Borrower and Co-Borrowers or the Agent,
may assign and delegate to any of its Affiliates or to any other
Lender
(each Person described in (i) or (ii) above as being the Person to
whom such assignment and delegation is to be made, being hereinafter referred to
as an "ASSIGNEE LENDER"), all or any fraction of such Lender's total Loans and
Commitments (which assignment and delegation shall be of a constant, and not a
varying percentage, of all the assigning Lender's Loans and Commitments), in a
minimum aggregate amount of $1,000,000 of such Lender's Percentage Share of the
Maximum Commitment Amount, if less; provided, however, that such Assignee Lender
will comply with all the provisions of this Agreement, and further, provided,
however, that the Borrower, Co-Borrowers and Agent shall be entitled to continue
to deal solely and directly with such assigning Lender in connection with the
interests so assigned and delegated to an Assignee Lender until:
(iii) written notice of such assignment and delegation together with
payment instructions, addresses and related information with respect
to such Assignee Lender, shall have been given to the Borrower,
Co-Borrowers and the Agent by such Lender and such Assignee Lender,
58
<PAGE>
(iv) such Assignee Lender shall have executed and delivered to the
Borrower, Co-Borrowers and the Agent a Lender Assignment Agreement,
accepted by the Borrower, Co-Borrower and the Agent
and attached hereto as Exhibit VII, and
(v) the processing fees described below shall have been paid.
From and after the date that the Borrower, Co-Borrowers and the
Agent accept such Lender Assignment Agreement, (a) the Assignee Lender
thereunder shall be deemed automatically to have become a party hereto and to
the extent that rights and obligations hereunder have been assigned and
delegated to such Assignee Lender in connection with such Lender Assignment
Agreement, shall have the rights and obligations of a Lender hereunder and under
the other Loan Documents, and (b) the Assignor Lender, to the extent that rights
and obligations hereunder have been assigned and delegated by it in connection
with such Lender Assignment Agreement, shall be released from its obligations
hereunder and under the other Loan Documents. Within five Business Days after
its receipt of notice that the Agent has received an executed Lender Assignment
Agreement, the Borrower shall execute and deliver to the Agent (for delivery to
the relevant Assignee Lender) new Notes evidencing such Assignee Lender's
assigned Loans and Commitments and, if the assignor Lender has retained Loans
and Commitments hereunder, replacement Notes in the principal amount of the
Loans and Commitments retained by the assignor Lender hereunder (such Notes to
be in exchange for, but not in payment of, those Notes then held by such
assignor Lender). Each such Note shall be dated the date of the predecessor
Notes. The assignor Lender shall mark the predecessor Notes "exchanged" and
deliver them to the Borrower and Co-Borrowers. Accrued interest on that part of
the predecessor Notes evidenced by the new Notes, and accrued fees, shall be
paid as provided in the Lender Assignment Agreement. Accrued interest on that
part of the predecessor Notes evidenced by the replacement Notes shall be paid
to the assignor Lender. Accrued interest and accrued fees shall be paid at the
same time or times provided in the predecessor Notes and in this Agreement. Such
assignor Lender or such assignee Lender must also pay a processing fee to the
Agent upon delivery of any Lender Assignment Agreement in the amount of $3,000.
Any attempted assignment and delegation not made in accordance with this Section
9.1 shall be null and void.
(b) PARTICIPATIONS. Any Lender, with the prior written consent of
the Borrower and Co-Borrowers in their sole discretion, may at any time sell to
one or more commercial banks (each of such commercial banks being herein called
a "PARTICIPANT") participating interests in any of the Loans, Commitments, or
other interests of such Lender hereunder; provided, however, that (a) no
participation contemplated in this Section 9.1 shall relieve such Lender from
its Commitments or its other obligations hereunder or under any other Loan
Document, (b) such Lender shall remain solely responsible for the performance of
its Commitments and such other obligations, (c) the Borrower and Co-Borrowers
and the Agent shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
each of the other Loan Documents, (d) no Participant shall be entitled to
require such Lender to take or refrain from taking any action hereunder or under
any other Loan Document.
59
<PAGE>
9.2 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS. All
representations and warranties of the Borrower and/or the Co-Borrowers and all
covenants and agreements herein made shall survive the execution and delivery of
the Notes and the Security Instruments and shall remain in force and effect so
long as any Obligation is outstanding or any Commitment exists.
9.3 NOTICES AND OTHER COMMUNICATIONS. Except as to oral notices
expressly authorized herein, which oral notices shall be confirmed in writing,
all notices, requests, and communications hereunder shall be in writing
(including by telecopy). Unless otherwise expressly provided herein, any such
notice, request, demand, or other communication shall be deemed to have been
duly given or made when delivered by hand, or, in the case of delivery by mail,
when deposited in the mail if concurrent telecopy notice is also given, or, if
no concurrent telecopy notice is given, three Business Days after deposited in
the mail, certified mail, return receipt requested, postage prepaid, or, in the
case of telecopy notice, when receipt thereof is acknowledged orally or by
written confirmation report, addressed as follows:
(a) if to the Agent and Lender:
Compass Bank
24 Greenway Plaza, 14th Floor
Houston, Texas 77046
Attention: Energy Lending Group
Telecopy: (713) 968-8292
(b) if to the Lender:
First Union National Bank
c/o First Union Capital Markets
1001 Fannin, Suite 2255
Houston, Texas 77002
Attention: Jay Chernosky
Telecopy: (713) 650-6354
(c) if to the Borrower or Co-Borrowers, to:
Southern Mineral Corporation
1201 Louisiana, Suite 3350
Houston, Texas 77002-5609
Attention: James H. Price
Telecopy: (713) 658-0016
60
<PAGE>
Any party may, by proper written notice hereunder to the others,
change the individuals or addresses to which such notices to it shall thereafter
be sent.
9.4 PARTIES IN INTEREST. Subject to the restrictions on changes in
corporate structure set forth in Section 6.9 and other applicable restrictions
contained herein, all covenants and agreements herein contained by or on behalf
of the Borrower and the Co-Borrowers or the Agent and each Lender shall be
binding upon and inure to the benefit of the Borrower and the Co- Borrowers or
the Agent and each Lender, as the case may be, and their respective legal
representatives, successors, and assigns.
9.5 RIGHTS OF THIRD PARTIES. All provisions herein are imposed
solely and exclusively for the benefit of the Agent and each Lender and the
Borrower and the Co-Borrowers. No other Person shall have any right, benefit,
priority, or interest hereunder or as a result hereof or have standing to
require satisfaction of provisions hereof in accordance with their terms, and
any or all of such provisions may be freely waived in whole or in part by the
Agent or the Lenders at any time if in their sole discretion they deem it
advisable to do so.
9.6 RENEWALS; EXTENSIONS. All provisions of this Agreement relating
to the Notes shall apply with equal force and effect to each promissory note
hereafter executed which in whole or in part represents a renewal or extension
of any part of the Indebtedness of the Borrower and the Co-Borrowers under this
Agreement, the Notes, or any other Loan Document.
9.7 NO WAIVER; RIGHTS CUMULATIVE. No course of dealing on the part
of the Agent or the Lenders, their officers or employees, nor any failure or
delay by the Agent or the Lenders with respect to exercising any of their rights
under any Loan Document shall operate as a waiver thereof. The rights of the
Agent and each Lender under the Loan Documents shall be cumulative and the
exercise or partial exercise of any such right shall not preclude the exercise
of any other right. The making of any Loan shall not constitute a waiver of any
of the covenants, warranties, or conditions of the Borrower and the Co-Borrowers
contained herein. In the event the Borrower and/or the Co-Borrowers are unable
to satisfy any such covenant, warranty, or condition, the making of any Loan
shall not have the effect of precluding the Agent and each Lender from
thereafter declaring such inability to be an Event of Default as hereinabove
provided.
9.8 SURVIVAL UPON UNENFORCEABILITY. In the event any one or more of
the provisions contained in any of the Loan Documents or in any other instrument
referred to herein or executed in connection with the Obligations shall, for any
reason, be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
of any Loan Document or of any other instrument referred to herein or executed
in connection with such Obligations.
61
<PAGE>
9.9 AMENDMENTS; WAIVERS. Neither this Agreement nor any provision
hereof may be amended, waived, discharged, or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of the
amendment, waiver, discharge, or termination is sought.
9.10 CONTROLLING AGREEMENT. In the event of a conflict between the
provisions of this Agreement and those of any other Loan Document, the
provisions of this Agreement shall control.
9.11 DISPOSITION OF COLLATERAL. Notwithstanding any term or
provision, express or implied, in any of the Security Instruments, the
realization, liquidation, foreclosure, or any other disposition on or of any or
all of the Collateral shall be in the order and manner and determined in the
sole discretion of the Agent and the Lenders; provided, however, that in no
event shall the Agent or any Lender violate applicable law or exercise rights
and remedies other than those provided in such Security Instruments or otherwise
existing at law or in equity.
9.12 GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE DEEMED TO
BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT TEX. FIN. CODE ANN. SS.
303.301 (VERNON 1998) (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS
AND REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY; AND PROVIDED FURTHER, THE
PARTIES AGREE THAT THE LAWS OF NORTH CAROLINA SHALL GOVERN AND CONTROL THE
LAWFULNESS OF THE AMOUNT OR RATE OF INTEREST CONTRACTED FOR, CHARGED OR RECEIVED
UNDER THE LOAN DOCUMENTS.
9.13 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT
TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR
FROM THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE SOLE
DISCRETION AND ELECTION OF THE LENDERS, IN COURTS HAVING SITUS IN HOUSTON,
HARRIS COUNTY, TEXAS. THE BORROWER AND THE CO-BORROWERS HEREBY SUBMIT TO THE
JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS
COUNTY, TEXAS, AND HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRANSFER OR CHANGE
THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST THEM BY THE LENDERS
IN ACCORDANCE WITH THIS SECTION.
62
<PAGE>
9.14 WAIVER OF RIGHTS TO JURY TRIAL. THE BORROWER, THE CO-BORROWERS
AND THE AGENT AND THE LENDERS HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY,
IRREVOCABLY, AND UNCONDITIONALLY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY
ACTION, SUIT, PROCEEDING, COUNTERCLAIM, OR OTHER LITIGATION THAT RELATES TO OR
ARISES OUT OF ANY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE ACTS OR
OMISSIONS OF THE AGENT OR ANY LENDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR
PROVISIONS OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR OTHERWISE WITH
RESPECT THERETO. THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT FOR
THE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT.
9.15 ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE
AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND
SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER WRITTEN
OR ORAL, RELATING TO THE SUBJECT HEREOF. FURTHERMORE, IN THIS REGARD, THIS
AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE
FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.
9.16 COUNTERPARTS. For the convenience of the parties, this
Agreement may be executed in multiple counterparts, each of which for all
purposes shall be deemed to be an original, and all such counterparts shall
together constitute but one and the same Agreement.
63
<PAGE>
IN WITNESS WHEREOF, this Agreement is deemed executed effective as
of the date first above written.
BORROWER:
SOUTHERN MINERAL CORPORATION
By: __________________________
James H. Price
Vice President-Finance
CO-BORROWERS:
SMC ECUADOR, INC.
SMC PRODUCTION CO.
BEC ENERGY, INC.
AMERAC ENERGY CORPORATION
By: _________________________
James H. Price
Vice President-Finance
LENDER AND AGENT:
COMPASS BANK
By: _________________________
Allison Hammer
Vice-President
LENDER:
FIRST UNION NATIONAL BANK
By: _________________________
Jay M. Chernosky
Senior Vice-President
64
<PAGE>
EXHIBIT I
[FORM OF NOTE]
PROMISSORY NOTE
$130,000,000 Houston, Texas June 19, 1998
FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned ("MAKER")
promises to pay to the order of COMPASS BANK ("PAYEE"), at its banking quarters
in Houston, Harris County, Texas, the sum of ONE HUNDRED THIRTY MILLION DOLLARS
($130,000,000), or so much thereof as may be advanced against this Note pursuant
to the Amended and Restated Credit Agreement dated of even date herewith by and
between Maker and Payee and others (as amended, restated, or supplemented from
time to time, the "CREDIT AGREEMENT"), together with interest at the rates and
calculated as provided in the Credit Agreement.
Reference is hereby made to the Credit Agreement for matters
governed thereby, including, without limitation, certain events which will
entitle the holder hereof to accelerate the maturity of all amounts due
hereunder. Capitalized terms used but not defined in this Note shall have the
meanings assigned to such terms in the Credit Agreement.
This Note is issued pursuant to, is the "Note" under, and is payable
as provided in the Credit Agreement. Subject to compliance with applicable
provisions of the Credit Agreement, Maker may at any time pay the full amount or
any part of this Note without the payment of any premium or fee, but such
payment shall not, until this Note is fully paid and satisfied, excuse the
payment as it becomes due of any payment on this Note provided for in the Credit
Agreement.
Without being limited thereto or thereby, this Note is secured by
the Security Instruments.
This Note is given in partial renewal, extension, modification, but
not in discharge or novation of Note dated January 28, 1998 from Maker to
Compass Bank and is secured by the Security Documents.
THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE STATE
OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF
LAW; PROVIDED, HOWEVER, THE LAWS OF NORTH CAROLINA SHALL GOVERN AND CONTROL THE
LAWFULNESS OF THE AMOUNT OR RATE OF INTEREST CONTRACTED FOR, CHARGED OR RECEIVED
UNDER THE LOAN DOCUMENTS.
I - i
<PAGE>
MAKER:
SOUTHERN MINERAL CORPORATION
By: ___________________________
James H. Price
Vice President-Finance
SMC ECUADOR, INC.
SMC PRODUCTION CO.
BEC ENERGY, INC.
AMERAC ENERGY CORPORATION
By: __________________________
James H. Price
Vice President-Finance
I - ii
<PAGE>
EXHIBIT I
[FORM OF NOTE]
PROMISSORY NOTE
$70,000,000 Houston, Texas June 19, 1998
FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned ("MAKER")
promises to pay to the order of FIRST UNION NATIONAL BANK ("PAYEE"), at its
banking quarters in Charlotte, Mecklenburg County, North Carolina, the sum of
SEVENTY MILLION DOLLARS ($70,000,000), or so much thereof as may be advanced
against this Note pursuant to the Credit Agreement dated of even date herewith
by and between Maker and Payee and Compass Bank (as amended, restated, or
supplemented from time to time, the "CREDIT AGREEMENT"), together with interest
at the rates and calculated as provided in the Credit Agreement.
Reference is hereby made to the Credit Agreement for matters
governed thereby, including, without limitation, certain events which will
entitle the holder hereof to accelerate the maturity of all amounts due
hereunder. Capitalized terms used but not defined in this Note shall have the
meanings assigned to such terms in the Credit Agreement.
This Note is issued pursuant to, is the "Note" under, and is
payable as provided in the Credit Agreement. Subject to compliance with
applicable provisions of the Credit Agreement, Maker may at any time pay the
full amount or any part of this Note without the payment of any premium or fee,
but such payment shall not, until this Note is fully paid and satisfied, excuse
the payment as it becomes due of any payment on this Note provided for in the
Credit Agreement.
Without being limited thereto or thereby, this Note is secured by
the Security Instruments.
This Note is given in partial renewal, extension, modification, but
not in discharge or novation of Note dated January 28, 1998 from Maker to
Compass Bank and is secured by the Security Documents.
THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE LAWS
OF THE STATE OF NORTH CAROLINA WITHOUT GIVING EFFECT TO PRINCIPLES
THEREOF RELATING TO CONFLICTS OF LAW.
I - i
<PAGE>
MAKER:
SOUTHERN MINERAL CORPORATION
By: ____________________________
James H. Price
Vice President-Finance
SMC ECUADOR, INC.
SMC PRODUCTION CO.
BEC ENERGY, INC.
AMERAC ENERGY CORPORATION
By: ___________________________
James H. Price
Vice President-Finance
I - ii
<PAGE>
EXHIBIT II
[FORM OF BORROWING REQUEST]
Compass Bank
24 Greenway Plaza, 14th Floor
Houston, Texas 77046
Attention: Energy Lending Group
Re: Amended and Restated Credit Agreement dated as of June 19, 1998, by
and between Compass Bank, First Union National Bank and Southern
Mineral Corporation, SMC Ecuador, Inc., SMC Production Company, BEC
Energy, Inc. and Amerac Energy Corporation (as amended, restated, or
supplemented from time to time, the "CREDIT AGREEMENT")
Ladies and Gentlemen:
Pursuant to the Credit Agreement, the Borrower and Co-Borrowers
hereby make the requests indicated below:
1. Loans
(a) Amount of new Loan: $_____________
(b) Requested funding date: ______________, 19___
(c) $________________ of such Loan is to be a Floating Rate Loan;
$________________ of such Loan is to be a LIBO Rate Loan.
(d) Requested Interest Period for LIBO Rate Loan: ____ months.
2. Continuation or conversion of LIBO Rate Loan maturing on ______:
(a) Amount to be continued as a LIBO Rate Loan is $ ___________________,
with an Interest Period of _______ months;
(b) Amount to be converted to a Floating Rate Loan is $ _______________;
and
3. Conversion of Floating Rate Loan:
II - i
<PAGE>
(a) Requested conversion date: _________________, 19___.
(b) Amount to be converted to a LIBO Rate Loan is $______________, with
an Interest Period of _____ months.
The undersigned certifies that [s]he is the [ ] of the Borrower, has
obtained all consents necessary, and as such [s]he is authorized to execute this
request on behalf of the Borrower. The undersigned further certifies,
represents, and warrants on behalf of the Borrower that the Borrower is entitled
to receive the requested borrowing, continuation, or conversion under the terms
and conditions of the Credit Agreement.
Each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement.
Very truly yours,
SOUTHERN MINERAL CORPORATION
By: ___________________________
James H. Price
Vice President-Finance
SMC ECUADOR, INC.
SMC PRODUCTION CO.
BEC ENERGY, INC.
AMERAC ENERGY CORPORATION
By: __________________________
James H. Price
Vice President-Finance
II - ii
<PAGE>
EXHIBIT III
[FORM OF OPINION OF COUNSEL]
[Closing Date]
Compass Bank
24 Greenway Plaza, 14th Floor
Houston, Texas 77046
Attention: Energy Lending Group
Re: Amended and Restated Credit Agreement dated as of June 19, 1998, by
and between Compass Bank, First Union National Bank and Southern
Mineral Corporation, SMC Ecuador, Inc., SMC Production Company, BEC
Energy, Inc. and Amerac Energy Corporation (as amended, restated, or
supplemented from time to time, the "CREDIT AGREEMENT")
Ladies and Gentlemen:
We have acted as counsel to Southern Mineral Corporation (the
"BORROWER"), SMC Ecuador, Inc., SMC Production Company, BEC Energy, Inc. and
Amerac Energy Corporation ("Co-Borrowers") in connection with the transactions
contemplated in the Credit Agreement. This Opinion is delivered pursuant to
Section 3.1(m) of the Credit Agreement, and the Agent and each Lender is hereby
authorized to rely upon this Opinion in connection with the transactions
contemplated in the Credit Agreement. Each capitalized term used but not defined
herein shall have the meaning assigned to such term in the Credit Agreement.
In our representation of the Borrower and Co-Borrowers, we have
examined an executed counterpart of each of the following (the "LOAN
DOCUMENTS"):
(a) the Credit Agreement;
(b) the Notes;
(c) Assignment of Notes and Liens from Compass to Agent for the
benefit of the Lenders assigning the Existing Liens in favor of Compass
securing the existing Obligations to Agent for the benefit of Lenders
securing the new Obligations under the Credit Agreement (the
"ASSIGNMENT");
(d) Ratification and Amendment to Mortgage, Deed of Trust,
Indenture, Security Agreement, Assignment of Production, and Financing
Statement dated of
III - i
<PAGE>
even date herewith from the Borrower and Co-Borrowers in favor of the
Agent for the benefit of the Lenders (the "MORTGAGE"); and
(e) Financing Statements from the Borrower and Co-Borrowers, as
debtors, constituent to the Mortgage (the "FINANCING STATEMENT").
(f) Security Agreement (Stock Pledge) by Borrower of Stock of SMC
Production Co., , SMC Ecuador, Inc., BEC Energy, Inc. and Amerac Energy
Corporation;
(g) Security Agreement from Borrower and Co-Borrowers pledging all
personal property.
We have also examined the originals, or copies certified to our
satisfaction, of such other records of the Borrower and Co-Borrowers
certificates of public officials and officers of the Borrower and Co-Borrowers
agreements, instruments, and documents as we have deemed necessary as a basis
for the opinions hereinafter expressed.
In making such examinations, we have, with your permission, assumed:
(a) the genuineness of all signatures to the Loan Documents other
than those of the Borrower and Co-Borrowers;
(b) the authenticity of all documents submitted to us as originals
and the conformity with the originals of all documents submitted to us as
copies;
(c) the Lenders are authorized and have the power to enter into and
perform their obligations under the Credit Agreement;
(d) the due authorization, execution, and delivery of all Loan
Documents by each party thereto other than the Borrower and Co-Borrowers;
and
(e) the Borrower and Co-Borrowers have title to all Property covered
or affected by the Mortgage.
Based upon the foregoing and subject to the qualifications set forth
herein, we are of the opinion that:
1. The Borrower and Co-Borrowers are corporations duly organized,
legally existing, and in good standing under the laws of their respective
states of incorporation and are duly qualified as foreign corporations and
are in good standing all jurisdictions wherein the ownership of their
respective Property or the operation of their respective businesses
necessitates same.
III - ii
<PAGE>
2. The execution and delivery by the Borrower and Co-Borrowers of
the Credit Agreement and the borrowings thereunder, the execution and
delivery by the Borrower and Co-Borrowers of the other Loan Documents to
which the Borrower and Co-Borrowers are a party, and the payment and
performance of all Obligations of the Borrower and Co-Borrowers thereunder
are within the power of the Borrower and Co-Borrowers, have been duly
authorized by all necessary corporate action, and do not (a) require the
consent of any Governmental Authority, (b) contravene or conflict with any
Requirement of Law, (c) to our knowledge after due inquiry, contravene or
conflict with any indenture, instrument, or other agreement to which the
Borrower and Co-Borrowers are a party or by which any Property of the
Borrower and Co-Borrowers may be presently bound or encumbered, or (d)
result in or require the creation or imposition of any Lien upon any
Property of the Borrower and Co-Borrowers other than as contemplated by
the Loan Documents.
3. The Loan Documents to which the Borrower and Co-Borrowers are a
party constitute legal, valid, and binding obligations of the Borrower and
Co- Borrowers, enforceable against the Borrower in accordance with their
respective terms.
4. The forms of the Assignment, Mortgage, and the Security Agreement
(Stock Pledge) and the financing statements and the description of the
Mortgaged Property (as such term is defined in the Mortgage and so used
herein) situated in the State of Texas (the "STATE") satisfy all
applicable Requirements of Law of the State and are legally sufficient
under the laws of the State to enable the Agent and the Lenders to realize
the practical benefits purported to be afforded by the Mortgage.
5. The Mortgage creates a valid lien upon and security interest in
all Mortgaged Property situated in the State to secure the Indebtedness
(as such term is defined in the Mortgage and so used herein).
6. The Assignment validly assigns the notes and liens described
there from Compass Bank to Agent for the benefit of the Lenders. The
Mortgage and Assignment and the financing statements are in satisfactory
form for filing and recording in the offices described below.
7. The filing and/or recording, as the case may be, of (a) the
Mortgage and Assignment in the office of the county clerk of each county
in the State in which any portion of the Mortgaged Property is located,
and as a financing statement and utility security instrument in the office
of the Secretary of State of the State, and (b) the Financing Statement in
the Uniform Commercial Code records in each county in the State in which
any portion of the Mortgaged Property
III - iii
<PAGE>
is located are the only recordings or filings in the State necessary to
perfect the liens and security interests in the Mortgaged Property created
by the Mortgage or to permit the Agent to enforce in the State its rights
under the Mortgage. No subsequent filing, re-filing, recording, or
re-recording will be required in the State in order to continue the
perfection of the liens and security interests created by the Mortgage
except that (a) a continuation statement must be filed with respect to the
Mortgage filed as a financing statement in the office of the Secretary of
State of the State and with respect to the Financing Statement in the
Uniform Commercial Code records in each county in the State in which any
portion of the Mortgaged Property is located, each within six months prior
to the expiration of five years from the date of the relevant initial
financing statement filing, (b) a subsequent continuation statement must
be filed within six months prior to the expiration of each subsequent
five-year period from the date of each initial financing statement filing,
and (c) amendments or supplements to the Mortgage filed as a financing
statement and the Financing Statement and/or additional financing
statements may be required to be filed in the event of a change in the
name, identity, or structure of the Borrower and/or the Co-Borrowers or in
the event the financing statement filing otherwise becomes inaccurate or
incomplete.
8. To our knowledge after due inquiry, except as disclosed in
Exhibit VI to the Credit Agreement, no litigation or other action of any
nature affecting the Borrower and Co-Borrowers is pending before any
Governmental Authority or threatened against the Borrower and
Co-Borrowers. To our knowledge after due inquiry, no unusual or unduly
burdensome restriction, restraint, or hazard exists by contract,
Requirement of Law, or otherwise relative to the business or operations of
the Borrower and Co-Borrowers or ownership and operation of any Properties
of the Borrower and Co-Borrowers other than such as relate generally to
Persons engaged in business activities similar to those conducted by the
Borrower and Co-Borrowers.
9. No authorization, consent, approval, exemption, franchise, permit
or license of, or filing (other than filing of Security Instruments in
appropriate filing offices) with, any Governmental Authority or any other
Person is required to authorize or is otherwise required in connection
with the valid execution and delivery by the Borrower and Co-Borrowers of
the Loan Documents or any instrument contemplated thereby, or the payment
performance by the Borrower and Co-Borrowers of the Obligations.
10. No transaction contemplated by the Loan Documents is in
violation of any regulations promulgated by the Board of Governors of the
Federal Reserve System, including, without limitation, Regulations G, T,
U, or X.
III - iv
<PAGE>
11. The Borrower and Co-Borrowers are not, nor are the Borrower and
Co-Borrowers directly or indirectly controlled by or acting on behalf of
any Person which is, an "investment company" or an "affiliated person" of
an "investment company" within the meaning of the Investment Company Act
of 1940, as amended.
12. The Borrower and Co-Borrowers are not a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a
"holding company," within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
The opinions expressed herein are subject to the following
qualifications and limitations:
A. We are licensed to practice law only in the State and other
jurisdictions whose laws are not applicable to the opinions expressed
herein; accordingly, the foregoing opinions are limited solely to the laws
of the State, applicable United States federal law, and the corporation
laws of the State of Delaware.
B. The validity, binding effect, and enforceability of the Loan
Documents may be limited or affected by bankruptcy, insolvency,
moratorium, reorganization, or other similar laws affecting rights of
creditors generally, including, without limitation, statutes or rules of
law which limit the effect of waivers of rights by a debtor or grantor;
provided, however, that the limitations and other effects of such statutes
or rules of law upon the validity and binding effect of the Loan Documents
should not differ materially from the limitations and other effects of
such statutes or rules of law upon the validity and binding effect of
credit agreements, promissory notes and security instruments generally.
C. The enforceability of the respective obligations of the Borrower
and Co-Borrowers under the Loan Documents is subject to general principles
of equity (whether such enforceability is considered in a suit in equity
or at law).
This Opinion is furnished by us solely for the benefit of the Agent
and the Lenders in connection with the transactions contemplated by the Loan
Documents and is not to be quoted in whole or in part or otherwise referred to
or disclosed in any other transaction.
Very truly yours,
III - v
<PAGE>
EXHIBIT IV
[FORM OF COMPLIANCE CERTIFICATE]
_____________ , 19____
Compass Bank
24 Greenway Plaza, 14th Floor
Houston, Texas 77046
Attention: Energy Lending Group
Re: Amended and Restated Credit Agreement dated as of June 19, 1998, by
and between Compass Bank, First Union National Bank and Southern
Mineral Corporation, SMC Ecuador, Inc., SMC Production Company, BEC
Energy, Inc. and Amerac Energy Corporation (as amended, restated, or
supplemented from time to time, the "CREDIT AGREEMENT")
Ladies and Gentlemen:
Pursuant to applicable requirements of the Credit Agreement, the
undersigned, as a Responsible Officer of the Borrower and Co-Borrowers, hereby
certifies to you the following information as true and correct as of the date
hereof or for the period indicated, as the case may be:
[1. To the best of the knowledge of the undersigned, no Default or Event
of Default exists as of the date hereof or has occurred since the date of
our previous certification to you, if any.]
[1. To the best of the knowledge of the undersigned, the following
Defaults or Events of Default exist as of the date hereof or have occurred
since the date of our previous certification to you, if any, and the
actions set forth below are being taken to remedy such circumstances:]
2. The compliance of the Borrower and Co-Borrowers with the financial
covenants of the Credit Agreement, as of the close of business on , is
evidenced by the following:
(a) Section 6.14: TANGIBLE NET WORTH. Permit Tangible Net Worth as of the
close of any fiscal quarter to be less than $14,500,000, plus 50% of
positive Net Income and 75% of other increases in equity for all fiscal
quarters ending subsequent to December 31, 1997.
IV - i
<PAGE>
REQUIRED ACTUAL
Required as of the last quarter,
plus 75% of equity raised,
plus 50% of Net Income equals
current Required Tangible
Net Worth
(b) Section 6:15: CASH FLOW COVERAGE. Permit as of the close of any fiscal
quarter, the ratio of Cash Flow to Debt Service to be less than 1.25 to
1.00.
ACTUAL
3. No Material Adverse Effect has occurred since the date of the Financial
Statements dated as of ________________.
Each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement.
Very truly yours,
SOUTHERN MINERAL CORPORATION
By: _______________________
James H. Price
Vice President-Finance
SMC ECUADOR, INC.
SMC PRODUCTION CO.
BEC ENERGY, INC.
AMERAC ENERGY CORPORATION
By: _______________________
James H. Price
Vice President-Finance
IV - ii
<PAGE>
EXHIBIT V
[FORM OF BORROWING BASE UTILIZATION]
Compass Bank
24 Greenway Plaza, 14th Floor
Houston, Texas 77046
Attention: Energy Lending
Re: Amended and Restated Credit Agreement dated as of June 19, 1998, by
and between Compass Bank, First Union National Bank and Southern
Mineral Corporation, SMC Ecuador, Inc., SMC Production Company, BEC
Energy, Inc. and Amerac Energy Corporation (as amended, restated, or
supplemented from time to time, the "CREDIT AGREEMENT")
Ladies and Gentlemen:
Pursuant to applicable requirements of the Credit Agreement, the
undersigned, as Responsible Officers of the Borrower and the Co-Borrowers hereby
certify to you the following information as true and correct as of the date
hereof or for the period indicated, as the case may be:
To the best knowledge of the undersigned, the Borrowing Base Utilization
as described in the definition of Applicable Margin for the quarter ending
__________, 19__, was as follows, and the LIBO Rate Loan Applicable Margin for
the following quarter is as follows:
BORROWING BASE LIBO RATE LOAN
UTILIZATION APPLICABLE MARGIN
--------------- ---------------------
[1) greater than 66-2/3% two percent (2%)
of Borrowing Base
2) less than or equal to 66-2/3% one and three-fourths
and greater than 33-1/3% percent (1-3/4%)
of Borrowing Base
3) less than or equal to one and one-half
33-1/3% of Borrowing Base percent (1-1/2%)
To the best knowledge of the undersigned, the Borrowing Base Utilization
for the quarter ending __________, 19__, was as follows and the Commitment Fee
as described in Section 2.10
V - i
<PAGE>
for the following quarter is as follows:
BORROWING BASE
UTILIZATION COMMITMENT FEE
----------------- -----------------------
[1) greater than 50% one-half percent (1/2%)
of Borrowing Base
2) less than or equal to 50% three-eighths percent (3/8%)
of Borrowing Base]
Each capitalized term used but not defined herein shall have the meaning
assigned to such term in the Credit Agreement.
Very truly yours,
SOUTHERN MINERAL CORPORATION
By: _________________________
James H. Price
Vice President-Finance
SMC ECUADOR, INC.
SMC PRODUCTION CO.
BEC ENERGY, INC.
AMERAC ENERGY CORPORATION
By: _________________________
James H. Price
Vice President-Finance
V - ii
<PAGE>
EXHIBIT VI
DISCLOSURES
Section 4.8 LIABILITIES
LITIGATION
Section 4.11 ENVIRONMENTAL MATTERS
Section 4.17 REFUNDS
Section 4.18 GAS CONTRACTS
Section 4.20 CASUALTIES
Section 4.22 SUBSIDIARIES
779776 Alberta, Ltd.
Neutrino Resources, Inc.
VI - i
<PAGE>
EXHIBIT VII
[FORM OF LENDER ASSIGNMENT AGREEMENT]
______________, 19__
To: Southern Mineral Corporation
SMC Ecuador, Inc.
SMC Production Co.
BEC Energy, Inc.
Amerac Energy Corporation
To: Compass Bank,
as the Agent
Gentlemen and Ladies:
We refer to clause (iv) of Section 9.1 of the Amended and Restated Credit
Agreement, dated as of June 19, 1998, (together with all amendments and other
modifications, if any, from time to time thereafter made thereto, the "CREDIT
AGREEMENT"), among Southern Mineral Corporation, SMC Ecuador, Inc., SMC
Production Company, BEC Energy, Inc. and Amerac Energy Corporation ("BORROWER"),
the various financial institutions (the "LENDERS") as are, or shall from time to
time become, parties thereto, and Compass Bank, as agent (the "AGENT") for the
Lenders. Unless otherwise defined herein or the context otherwise requires,
terms used herein have the meanings provided in the Credit Agreement.
This Agreement is delivered to you pursuant to clause (iv) of Section 9.1
of the Credit Agreement and also constitutes notice to each of you, pursuant to
clause (iv) of Section 9.1 of the Credit Agreement, of the assignment and
delegation to _____________ (the "ASSIGNEE") of ___% of the Loans and
Commitments of _____________ (the "ASSIGNOR") outstanding under the Credit
Agreement on the date hereof. After giving effect to the foregoing assignment
and delegation, the Assignor's and the Assignee's Percentage Shares for the
purposes of the Credit Agreement are set forth opposite such Person's name on
the signature pages hereof.
[Add paragraph dealing with accrued interest and fees with respect to
Loans assigned.]
The Assignee hereby acknowledges and confirms that it has received a copy
of the Credit Agreement and the exhibits related thereto, together with copies
of the documents which were required to be delivered under the Credit Agreement
as a condition to the making of the Loans thereunder. The Assignee further
confirms and agrees that in becoming a Lender and in making
VII - i
<PAGE>
its Commitments and Loans under the Credit Agreement, such actions have and will
be made without recourse to, or representation or warranty by the Agent.
Except as otherwise provided in the Credit Agreement, effective as of the
date of acceptance hereof by the Agent
(a) the Assignee
(i) shall be deemed automatically to have become a party to the
Credit Agreement, have all the rights and obligations of a "Lender" under
the Credit Agreement and the other Loan Documents as if it were an
original signatory thereto to the extent specified in the second paragraph
hereof; and
(ii) agrees to be bound by the terms and conditions set forth in the
Credit Agreement and the other Loan Documents as if it were an original
signatory thereto; and
(b) the Assignor shall be released from its obligations under the Credit
Agreement and the other Loan Documents to the extent specified in the second
paragraph hereof.
The Assignor and the Assignee hereby agree that the (Assignor) (Assignee)
will pay to the Agent the processing fee referred to in Section 9.1 of the
Credit Agreement upon the delivery hereof.
The Assignee hereby advises each of you of the following administrative
details with respect to the assigned Loans and Commitments and requests the
Agent to acknowledge receipt of this document:
(A) Address for Notices:
Institution Name:
Attention:
Address:
Telephone:
Facsimile:
(B) Payment Instructions:
VII - ii
<PAGE>
This Agreement may be executed by the Assignor and Assignee in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute one and the same
agreement.
ASSIGNOR ADJUSTED PERCENTAGE ASSIGNOR:
Revolving Loan Commitment
and
Revolving Loans ____% By: _____________________
Printed Name: ___________
Title: __________________
ASSIGNEE PERCENTAGE ASSIGNEE:
Revolving Loan Commitment
and
Revolving Loans ____% By: _____________________
Printed Name: ___________
Title: __________________
Accepted and Acknowledged this _____ day of _________, 1998.
COMPASS BANK
By: _____________________________
Title: __________________________
VII - iii
Writer's Direct Line
(403) 294-4994
June 25,1998
Neutrino Resources Inc.
#1400, 300 - 5th Avenue SW
Calgary, Alberta
T2P 3C4
ATTENTION: MR. DAVID BECKWERMERT
VICE PRESIDENT OPERATIONS AND CFO
Dear Sir:
RE: CREDIT FACILITIES - NATIONAL BANK OF CANADA/ NEUTRINO RESOURCES INC.
We are pleased to advise that National Bank of Canada has approved the following
revised Credit Facilities for Neutrino Resources Inc., subject to the terms and
conditions set out herein. This Offering Letter contains all of the terms and
conditions pertaining to the availability of Credit Facilities from National
Bank of Canada and as a result it amends, incorporates, and restates the terms
and conditions of all existing and new commitments.
BORROWER: NEUTRINO RESOURCES INC. (the "Borrower").
LENDER: NATIONAL BANK OF CANADA (the "Bank").
CREDIT FACILITY A : REVOLVING OPERATING DEMAND LOAN (the "Credit Facility
A").
MAXIMUM AMOUNT: $40,000,000. Sublimit of $5,000,000 for Letters of
Credit and/or Letters of Guarantee ("L/C/Gs").
PURPOSE: General corporate purposes including capital
expenditures and acquisition of Spruce Hills Production
Company (ASpruce Hills@).
AVAILABILITY: Canadian dollars. Revolving in multiples of $100,000.
Banker=s Acceptances (ABAs@) in Canadian dollars.
L/C/Gs (maximum term one year).
REPAYMENT: Interest only but always subject to Availability and the
Bank=s right of demand.
<PAGE>
Neutrino Resources Inc.
RE: Offering Letter
June 25, 1998 Page 2
INTEREST RATE: At the option of the Borrower:
(1) CANADIAN DOLLAR ADVANCES
The Borrower shall pay interest calculated daily and
payable monthly, not in advance, on the principal amount
of the Credit Facility A and on overdue interest, if
any, outstanding from time to time, at a rate per annum
equal to the Prime Rate as designated from time to time
by the Bank (Prime % p.a.). Interest at the aforesaid
rate shall be due and payable on the 26th day of each
and every month until all amounts owing to the Bank are
paid in full. Interest shall be paid via automatic debit
to the Borrower's account at the Calgary Branch of the
Bank.
As of this date, the Bank's Prime Rate is 62% per
annum.
(2) CANADIAN DOLLAR BAS
Subject to market availability, in multiples of $100,000
and minimum draw of $500,000, BAs at a stamping fee of
one percent per annum (1% p.a.). BAs shall have a
minimum term of 30 days and maximum term of 180 days,
and shall not include any days of grace. The BAs shall
remain in effect until the maturity of the term
selected. If the Bank does not receive instructions from
the Borrower concerning renewal of the BAs, then
Canadian Dollar Advances shall be automatically utilized
until written instructions are received from the
Borrower.
DRAWDOWN,
NOTIFICATION,
AND CONVERSION: CANADIAN DOLLAR ADVANCES
As required.
CANADIAN DOLLAR BAS
The Borrower shall provide two business days written notice
to the Bank for BAs advances, notice to be received no
later than 9:00 a.m. Mountain Time. The Borrower shall also
provide two business days written notice for conversion of
BAs advances at maturity to Canadian Dollar Advances.
STANDBY FEE: One-eighth percent per annum (c% p.a.) on the undrawn
portion of the Credit Facility A, payable monthly.
L/C/GS FEE: One and one-half percent per annum (12% p.a.) of the
issue amount, payable at issue. The fee is to be based on
the number of days the L/C/G is to be outstanding with any
portion of 31 days to be considered a complete month.
EVIDENCE OF DEBT: Revolving Demand Credit Agreement and/or the records of
the Bank.
CREDIT FACILITY B: NON-REVOLVING ACQUISITION DEMAND LOAN (the "Credit
Facility B").
MAXIMUM AMOUNT: $5,000,000.
PURPOSE: To assist in financing acquisitions of producing
petroleum properties.
AVAILABILITY: Canadian dollars. Amount subject to prior engineering
review by the Bank utilizing the Bank's normal lending
parameters accorded to the proved producing petroleum
reserves being acquired.
<PAGE>
Neutrino Resources Inc.
RE: Offering Letter
June 25, 1998 Page 3
REPAYMENT: Subject to the Bank's right of demand, monthly principal
repayments over the half-life of the proved producing
reserves, as determined by the Bank. Repayment to commence
the month following drawdown.
INTEREST RATE: The Borrower shall pay interest calculated daily and
payable monthly, not in advance, on the principal amount of
the Credit Facility B and on overdue interest, if any,
outstanding from time to time, at a rate per annum equal to
the Prime Rate as designated from time to time by the Bank
plus one-quarter percent (Prime + 3% p.a.). Interest at the
aforesaid rate shall be due and payable on the 26th day of
each and every month until all amounts owing to the Bank
are paid in full. Interest shall be paid via automatic
debit to the Borrower's account at the Calgary Branch of
the Bank.
As of this date, the Bank's Prime Rate is 62% per annum.
DRAWDOWN FEE: One-quarter percent (3%) on the amount drawn, payable at
drawdown.
STANDBY FEE: One-eighth percent per annum (c% p.a.) on the undrawn
portion of the Credit Facility B, payable monthly.
EVIDENCE OF DEBT: Variable Rate Demand Promissory Note and/or the records
of the Bank.
CREDIT FACILITY C: TREASURY RISK LINE (the "Credit Facility C").
MAXIMUM AMOUNT: $2,500,000 (Notional Risk Content).
PURPOSE: For interest rate, foreign exchange, and commodity price
risk management.
AVAILABILITY: Variable risk management products, including swaps and
forwards. Maximum term 48 months, subject to Bank
availability.
REPAYMENT: Settlement as per contract maturities, payable from
corporate cashflow.
EVIDENCE OF DEBT: Executed Treasury contracts and/or ISDA Master Agreement
with appropriate annexes and/or the records of the Bank.
FOR ALL CREDIT FACILITIES
RENEWAL AND
COMMITMENT FEE: $15,000. $2,500 already collected and $12,500 payable
upon provision of this Offering Letter. This fee includes
the Bank's engineering expenses incurred for this
financing.
CONDITIONS: 1. The Bank and Borrower agree that the giving of CCIL
Indebtedness Default Notice or notice of default to the
Borrower under the CCIL Indebtedness as referred to in
the Subordination Agreement dated August 20, 1996
between the Bank, the Borrower, and Citicorp Capital
Investors Ltd. (ACCIL@) shall be deemed an event of
default under the Offering Letter and the security
granted by the Borrower to the Bank.
<PAGE>
Neutrino Resources Inc.
RE: Offering Letter
June 25, 1998 Page 4
2. The Borrower shall give prior written notice to the Bank
of any change to the expiry date of the Warrants that
have been issued by the Borrower to CCIL.
CONDITIONS
PRECEDENT: Prior to additional advances under the Credit Facilities,
the Borrower shall have provided to the Bank:
1. A Revolving Demand Credit Agreement in the face amount
of $40,000,000 duly executed and delivered to the Bank
by the Borrower.
2. All Security, denoted in the Security To Be Obtained
section, shall be duly completed, authorized, executed,
and delivered by the Borrower to the satisfaction of the
Bank and its counsel and registered where applicable.
3. Evidence of closing of the petroleum property
acquisition from Spruce Hills, including a copy of the
executed purchase and sale agreement and any related
conveyance.
4. For advances under the Credit Facility B, conditions
precedent to funding will be as follows:
i) Copy of the executed purchase and sale agreement
and any related conveyance, as applicable; and
ii) Variable Rate Demand Promissory Note.
SECURITY: The following security shall be completed, duly executed,
delivered and registered, where necessary, to the entire
satisfaction of the Bank and its counsel. All present and
future security (the ASecurity@) and the terms thereof
shall be held by the Bank as Security for the repayment of
all loans and advances made hereunder and for other loans
and advances that may be made from time to time in the
future whether hereunder or otherwise.
HELD:
1. Accepted Offering Letter dated April 16, 1998.
2. General Assignment of Book Debts registered in the
provinces of Alberta, Saskatchewan, and Manitoba.
3. Registered First Fixed and Floating Charge Debenture, in
a face amount of $2,500,000, over all assets of the
Borrower with a fixed charge on the main producing oil
and gas properties of the Borrower.
4. Registered Supplemental Debenture, in a face amount of
$5,000,000. Providing additional fixed charges over
major producing properties.
5. Registered Supplemental Debenture, in a minimum face
amount of $15,000,000, providing additional fixed
charges over major producing oil and gas properties
acquired from Cody Energy Canada.
<PAGE>
Neutrino Resources Inc.
RE: Offering Letter
June 25, 1998 Page 5
6. Registered Supplemental Debenture, in a face amount of
$50,000,000 over all assets of the Borrower, with a
Negative Pledge to provide fixed charges over additional
major producing petroleum properties of the Borrower at
the request of the Bank.
7. Subordination Agreement dated August 20, 1996 between
the Bank, the Borrower, and CCIL.
8. Evidence of Insurance, with the Bank shown as loss
payee.
9. Assignment of material contracts, as applicable.
10. Title Opinion and/or Officer=s Certificate as to Title
on major petroleum properties.
11. Legal opinion of the Bank=s counsel.
TO BE OBTAINED
1. Accepted Offering Letter dated June 25, 1998.
2. Appropriate title representation on petroleum properties
of Spruce Hills.
REPRESENTATIONS
AND WARRANTIES: The Borrower represents and warrants to the Bank that:
1. It has been duly incorporated and is in good standing
under the legislation governing it, and it has the
powers, permits, and licenses required to operate its
business or enterprise and to own, manage, and
administer its property;
2. This Offering Letter constitutes, and the Security and
related agreements will constitute, legal, valid, and
binding obligations of the Borrower, enforceable in
accordance with their terms, subject to applicable
bankruptcy, insolvency, or similar laws affecting
creditors' rights generally and to the availability of
equitable remedies;
3. The Borrower has the right to pledge, charge, mortgage,
or lien its assets in accordance with the Security
contemplated by this Agreement;
4. The Borrower is presently in good standing under, and
shall duly perform and observe, all material terms of
all documents, agreements, and instruments affecting or
relating to the petroleum assets of the Borrower;
5. There has been no adverse material change in the
financial position of the Borrower since the date of its
most recent financial statements dated March 31, 1998,
which were furnished to the Bank. Such financial
statements fairly present the financial position of the
Borrower at the date that they were drawn up. The
Borrower does not foresee incurring any major liability
which it has not already disclosed to the Bank;
<PAGE>
Neutrino Resources Inc.
RE: Offering Letter
June 25, 1998 Page 6
6. It is not involved in any dispute or legal proceedings
likely to materially affect its financial position or
its capacity to operate its business;
7. It is not in default under the contracts to which it is
a party or under the applicable legislation and
regulations governing the operation of its business or
its property, including, without limitation, all
Environmental Requirements subsequently stated in
Environmental Obligations.
REPORTING
REQUIREMENTS: The Borrower shall submit to the Bank:
1. Quarterly production and operating revenue reports
within 60 calendar days of each quarter end;
2. Quarterly unaudited financial statements within 60
calendar days of each fiscal quarter end;
3. Annual audited consolidated financial statements within
120 calendar days of each fiscal year end;
4. Annual independent engineering report on the petroleum
properties of the Borrower within 120 calendar days of
each fiscal year end, prepared by a firm acceptable to
the Bank; and
5. Any other information the Bank may reasonably require.
AFFIRMATIVE
COVENANTS: The Borrower shall:
1. Carry on business and operate its petroleum properties
in accordance with good practices consistent with
accepted industry standards and pursuant to applicable
agreements, regulations, and laws;
2. Maintain corporate existence and comply with all
applicable laws;
3. Comply with all regulatory bodies and provisions
regarding environmental procedures and controls;
4. Upon reasonable notice, allow the Bank access to visit
and inspect the Borrower's assets;
5. Maintain adequate and appropriate insurance on the
Borrower's assets including protection against public
liability, blow-outs, and "all-risk" perils; and
6. Inform the Bank of any event or action which would have
a material adverse impact on the Borrower's operational
or financial affairs, including but not limited to the
sale of assets, guarantees, funded debt from other
lenders, or alteration of type of business.
NEGATIVE
COVENANTS: The Borrower shall not without the prior approval of the
Bank, not to be unreasonably
<PAGE>
Neutrino Resources Inc.
RE: Offering Letter
June 25, 1998 Page 7
withheld:
1. Merge, amalgamate, or consolidate;
2. Reduce or distribute capital or pay dividends or redeem
or repurchase common or preferred shares or pay
management fees or other remuneration to Southern
Mineral Corporation ("SMC") or SMC's other subsidiaries;
3. Incur further secured indebtedness, pledge or encumber
assets, or guarantee the obligations of others;
4. Pledge or encumber assets that would rank ahead of or
pari passu with the Bank's Security; or
5. Sell or dispose of any assets subject to the Bank's
security except as may be allowed by the terms of the
Bank's security.
ENVIRONMENTAL
OBLIGATIONS: 1. The Borrower shall comply with the requirements of
all legislative and regulatory environmental provisions
(the "Environmental Requirements") and shall at all
times maintain the authorizations, permits, and
certificates required under these provisions.
2. The Borrower shall immediately notify the Bank in the
event a contaminant spill or emission occurs or is
discovered with respect to its property, operations or
those of any neighbouring property. In addition, it
shall report to the Bank forthwith any notice, order,
decree, or fine that it may receive or be ordered to pay
with respect to the Environmental Requirements relating
to its business or property.
3. At the request of and in accordance with the conditions
set forth by the Bank, the Borrower shall, at its own
cost, provide any information or document which the Bank
may require with respect to its environmental situation,
including any study or report prepared by a firm
acceptable to the Bank. In the event that such studies
or reports reveal that any Environmental Requirements
are not being respected, the Borrower shall effect the
necessary work to ensure that its business and property
comply with the Environmental Requirements within a
period acceptable to the Bank.
4. The Borrower undertakes to indemnify the Bank for any
damage which the Bank may suffer or any liability which
it may incur as a result of any non-compliance with
Environmental Requirements.
5. The provisions, undertakings, and indemnification set
out in this section shall survive the satisfaction and
release of the Security and payment and satisfaction of
the indebtedness and liability of the Borrower to the
Bank pursuant to the terms hereof.
EVENTS OF DEFAULT: Notwithstanding that the Credit Facilities are on a
demand basis, and without prejudice to the Bank's rights
thereby the following shall be considered Events of
Default, upon
<PAGE>
Neutrino Resources Inc.
RE: Offering Letter
June 25, 1998 Page 8
the occurrence of which the Bank may choose, in its sole
discretion, to cancel all credit availability and to demand
repayment of the Credit Facilities in full, together with
outstanding accrued interest and, without prejudice to the
Bank's other rights and remedies, the Bank's Security shall
become enforceable.
1. Default in payment of principal or interest when due.
2. Any material Representation or Warranty which proves to
be untrue.
3. Failure to observe or comply with any Affirmative or
Negative Covenant, condition, or term as outlined
herein, or in any Security document or underlying
agreements delivered pursuant hereto and following
notice from the Bank of such failure, this default
remains unrectified for a period of 30 days.
4. In the opinion of the Bank, acting reasonably, a
material adverse change in the financial condition of
the Borrower to the operation of the Borrower's assets
has occurred.
5. If a petition is filed, an order is made or a resolution
passed, or any other proceeding is taken for the winding
up, dissolution, or liquidation of the Borrower.
6. If proceedings are taken to enforce any encumbrance on
the assets of the Borrower having a value in the
aggregate greater than $250,000, excepting as long as
such proceedings are being contested in good faith by
the Borrower and security satisfactory to the Bank has
been provided to the Bank.
7. If the Borrower ceases or threatens to cease to carry on
its business, or if proceedings are commenced for the
suspension of the business of the company, or if any
proceedings are commenced under the Companies Creditors
Arrangements Act or under the Bankruptcy and Insolvency
Act (including filing a proposal or notice of
intention), or if the Borrower commits or threatens to
commit an act of bankruptcy, or if the Borrower becomes
insolvent or bankrupt or makes an authorized assignment
pursuant to the Bankruptcy and Insolvency Act, or a
bankruptcy petition is filed by or presented against the
Borrower.
8. If proceedings are commenced to appoint a receiver,
receiver/manager, or trustee in respect of the assets of
the Borrower by a court or pursuant to any other
agreement.
COSTS: All reasonable third party expenses incurred by the Bank in
connection with the Credit Facilities are for the account
of the Borrower including, but not limited to, legal fees
(on a solicitor and own client basis) and future
engineering fees.
CHANGE OF LAWS: The Bank reserves the right to revise the
conditions contained herein upon 30 days prior notice, if
and when any charges, levies, assessments ,or other
impositions whatsoever are imposed by a competent
governmental authority with respect to the services offered
herein.
CURRENT ACCOUNTS: The Borrower shall open and maintain its current
accounts at the Calgary Branch of the Bank through which it
shall conduct all of its banking activities.
GENERAL: Time is of the essence. The Borrower shall do all things
and execute all documents
<PAGE>
Neutrino Resources Inc.
RE: Offering Letter
June 25, 1998 Page 9
deemed necessary or appropriate by the Bank for the
purposes of giving full force and effect to the terms,
conditions, undertakings, and security granted or to be
granted hereunder.
<PAGE>
Neutrino Resources Inc.
RE: Offering Letter
June 25, 1998 Page 10
PERSONAL PROPERTY
SECURITY ACT ("PPSA")
REQUIREMENTS: The Borrower hereby waives the requirement for the Bank
to provide copies of PPSA registrations, verification
statements, or financing statements undertaken by the Bank.
The Borrower hereby agrees to provide to the Bank written
notice of a change in name or address immediately.
GOVERNING LAW: This Offering Letter shall be construed and governed in
accordance with the laws of the Province of Alberta.
INTERIM REVIEW: To be undertaken by September 30, 1998.
REVIEW DATE: The Credit Facilities may be reviewed periodically by
the Bank, the next review being scheduled on or before
April 30, 1999.
EXPIRY DATE: This Offering Letter is open for acceptance until June
26, 1998, at which time it will expire unless extended by
mutual consent.
If the foregoing terms and conditions are acceptable, please sign both copies of
this Offering Letter and return one copy to the Bank by the expiry date.
National Bank of Canada appreciates the opportunity of providing this increased
commitment to Neutrino Resources Inc. We look forward to a continuing and
mutually beneficial relationship.
Yours truly,
NATIONAL BANK OF CANADA
Timothy D. Bacon Henry A. Dethmers
Manager Senior Manager
Corporate and Energy Group Corporate and Energy Group
AGREED AND ACCEPTED this ____ day of June, 1998.
NEUTRINO RESOURCES INC.
PER:_____________________________
(CORPORATE SEAL)
PER:_____________________________
<PAGE>
Neutrino Resources Inc.
RE: Offering Letter
June 25, 1998 Page 11
<PAGE>
Neutrino Resources Inc.
RE: Offering Letter
June 25, 1998 Page 12
APPENDIX A
ADMINISTRATION: Corporate and Energy Group Manager: Timothy D. Bacon
National Bank of Canada Telephone: (403) 294-4994
#600, 407 - 8th Avenue SW Facsimile: (403) 294-4993
Calgary, Alberta
T2P 1E5
Ms. Leslie Stewart BA Bookings;
Administration Officer Syndicate Administration;
(403) 294-4978 Loan/Account Balances; General.
Mrs. Donna Calafatis Current Account Documents;
Senior Clerk L/C/Gs;
(403) 294-4992 MasterCard BusinessCard;
Loan/Account Balances.
BRANCH: Calgary Branch Manager: Mr. Darrell Stelmack
National Bank of Canada Telephone: (403)
401 - 8th Avenue SW 294-4931
Calgary, Alberta Facsimile: (403) 294-4965
T2P 1E4
Ms. Debbie Beules Current Account Documents;
Manager, Administration Safety Deposit Boxes; General.
(403) 294-4972
Mr. Fraser Brooks/
Ms. Elizabeth Weber Foreign Exchange; Bank
(403) 294-4915/ Confirmations
(403) 294-4907 Money Orders/Bank Drafts;
General.
Ms. Celine Anderson Term Deposits; RRSPs; GICs;
Manager, Investments Investment BAs.
(403) 294-4909
OTHER: Treasury & Financial Sales Representative
Markets Ms. Dolsie Doodha
National Bank of Canada Telephone: 1-888-495-3146
150 York Street- 4th Floor Facsimile: (416)864-7808
Toronto, Ontario
M5M 3A9
International - Commercial Manager: Mr. Vaughn Wright
Operations Telephone: 1-800-755-6935
National Bank of Canada Facsimile: (604) 661-5523
Suite 200 - 555 Burrard
Vancouver, British Columbia
V7X 1M7
PAYROLL SERVICES: Western Canada Region Sales Representative
National Bank of Canada Mr. Michael Kushner
#600, 407 - 8th Avenue SW Telephone: (403) 294-4963
Calgary, Alberta Facsimile: (403) 294-4993
T2P 1E5
<PAGE>
Neutrino Resources Inc.
RE: Offering Letter
June 25, 1998 Page 13
GAS PURCHASE CONTRACT
BETWEEN
NEUTRINO RESOURCES INC.
AND
PROGAS LIMITED
DATE: NOVEMBER 1, 1997
AREA: PINE CREEK/WINDFALL
<PAGE>
GAS PURCHASE CONTRACT
Index
PAGE
ARTICLE I DEFINITIONS 1
ARTICLE II COMMENCEMENT AND PRELIMINARY MATTERS
2.01 Commencement 5
2.02 Preliminary Obligations of Seller 5
2.03 Preliminary Obligations of Buyer 5
ARTICLE III RESERVATIONS OF SELLER
3.01 Operations 6
3.02 Rates of Flow 7
3.03 Pooling 7
3.04 Conservation 7
ARTICLE IV QUANTITY OF GAS
4.01 Daily Contract Quantity 7
4.02 Annual Purchase Obligation 8
4.03 Operating Allowance 8
4.04 Decrease in Deliverability 9
4.05 Increase in Deliverability 10
4.06 Assignment of NOVA Capacity 11
4.07 Common Operations Agreement 11
4.08 Regulatory Restriction 11
ARTICLE V QUALITY AND MEASUREMENT
5.01 Quality 11
5.02 Measurement 12
ARTICLE VI DELIVERY PRESSURE 12
ARTICLE VII RECEIPT POINT 12
ARTICLE VIII POSSESSION OF AND TITLE TO GAS 12
ARTICLE IX TERM 12
ARTICLE X PRICE
10.01 Netback Price 13
10.02 Definitions 13
10.03 Renegotiation Rights 18
10.04 Annual Audit 20
10.05 Producer Vote Mechanism for
Netback Price Clause 21
10.06 Arbitration 22
10.07 Settlement Payments 23
10.08 Use of Estimates for Calculating
Netback Price 23
10.09 Basis of Payment 24
<PAGE>
-ii-
PAGE
10.10 Resale Price Arbitration 24
10.11 Endorsement of Previous Producer
Approvals 25
ARTICLE XI BILLINGS AND PAYMENTS
11.01 Billings and Payments 25
11.02 Failure to Pay 26
11.03 Errors and Adjustments 26
11.04 Inspection of Records 27
ARTICLE XII LAWS AND REGULATORY BODIES
12.01 Regulation 27
12.02 Law of Contract 27
ARTICLE XIII FORCE MAJEURE
13.01 Force Majeure Defined 27
13.02 Where Force Majeure Unavailable 28
13.03 Notice of Remedy 28
13.04 Discretion Re: Labour Disputes 28
13.05 Adjustment of Purchase Obligation 29
ARTICLE XIV WARRANTY OF TITLE
14.01 Warranty of Title 29
14.02 Indemnity 29
ARTICLE XV GAS RESERVES OF SELLER
15.01 Dedication of Reserves 30
15.02 Furnishing of Information 30
ARTICLE XVI ARBITRATION 30
ARTICLE XVII NOTICES 32
ARTICLE XVIII OTHER
18.01 Non-Waiver of Future Default 32
18.02 Assignment 32
18.03 Headings 33
18.04 Units of Measurement 33
18.05 Numerical References 33
18.06 Time of Essence 33
18.07 Usage or Custom 33
18.08 Severance 33
18.09 Entire Agreement 34
18.10 Execution in Counterpart 34
SCHEDULE "X"
EXHIBIT "A"
EXHIBIT "B"
<PAGE>
THIS GAS PURCHASE CONTRACT made as of the 1st day of November, 1997 between:
NEUTRINO RESOURCES INC.,
a corporation having an office in
Calgary, Alberta
(the "Seller")
- and -
PROGAS LIMITED,
a corporation having an office in
Calgary, Alberta
(the "Buyer")
BACKGROUND:
Seller has interests in the Areas set forth in Exhibit "A", and Seller
has, or will have, a supply of gas available from these areas which Seller has
agreed to sell to Buyer; Buyer has agreed to purchase this gas, to supplement
its existing supply, for resale to its various markets;
IN CONSIDERATION of the mutually beneficial terms and conditions in this
Contract, the parties agree as follows:
ARTICLE I - DEFINITIONS
1.01 Unless another definition is expressly stated, the following terms, where
used in this Contract, and all exhibits, recitals and appendices, will have the
following meaning:
(a) "Aggregate DCQ" means the sum of the DCQ's in effect for each
Receipt Point as set forth in Exhibit "B";
<PAGE>
- 2 -
(b) "contract year" means a period of twelve (12) consecutive months
beginning with the month of November, provided that the first (1st)
contract year will be the period commencing on the Date of First
Delivery of gas and ending the first day of the next month of
November;
(c) "cubic metre" means the volume of gas which occupies one (1) cubic
metre when this gas is at a standard temperature of fifteen (15)
degrees Celsius and at a standard pressure of one hundred and one
and three hundred and twenty-five one-thousandths (101.325)
kilopascals absolute;
(d) "Daily Contract Quantity" ("DCQ") for each Receipt Point has the
meaning set forth in Article IV;
(e) "Date of First Delivery" for each Receipt Point means the date on
which Seller first delivers gas in response to Buyer's request under
this Contract;
(f) "day" means a period of twenty-four (24) consecutive hours,
beginning at 8:00 o'clock a.m. Mountain Standard Time;
(g) "Deliverability" for each Receipt Point means Seller's share of the
maximum daily quantity of gas production which can be delivered at a
stabilized flow rate from wells on Seller's Lands, to that Receipt
Point, as this deliverability is determined or redetermined under
Article IV;
(h) "energy content" means the product obtained, expressed in gigajoules
(GJ), by multiplying the standard volume of the gas, expressed in
thousands of cubic metres (103m3), by the gross heating value of the
gas;
(i) "Facilities Completion Date" for each Receipt Point means the date by
which:
(i) Buyer is in possession of completed firm transportation
capacity sufficient to transport a quantity of gas equal to
the Initial Deliverability downstream of that Receipt Point as
described in Section 2.03; and
<PAGE>
- 3 -
(ii) Seller is in possession of those facilities required to
deliver a quantity of gas equal to the Initial Deliverability
upstream of and to that Receipt Point on a firm basis, as
described in Section 2.02;
(j) "gas" means natural gas or residue gas, but excludes solution gas;
(k) "gross heating value" means the total joules, expressed in
megajoules per cubic metre (MJ/m3), produced by the complete
combustion at constant pressure of one (1) cubic metre of gas with
air, with the gas free of water vapour, the temperature of the gas,
air and products of combustion at standard temperature and all water
formed by combustion condensed to a liquid state;
(l) "Initial Deliverability" means the initial Deliverability for each
Receipt Point agreed to by Buyer and Seller and set forth in Exhibit
"B";
(m) "joule" ("J") means the work done when the point of application of a
force of one (1) newton is displaced a distance of one (1) metre in
the direction of the force; and
(i) "megajoule" ("MJ") means one million (1,000,000) joules;
(ii) "gigajoule" ("GJ") means one billion (1,000,000,000) joules;
(n) "leases" means all documents and titles under which Seller is
entitled to drill for, produce or sell gas from Seller's Lands;
(o) "month" means a period beginning at 8:00 o'clock a.m. Mountain
Standard Time on the first (1st) day of a calendar month and ending
at 8:00 o'clock a.m. Mountain Standard Time on the first (1st) day
of the next calendar month;
(p) "NOVA" means NOVA Gas Transmission Ltd. or any successor;
<PAGE>
- 4 -
(q) "NOVA Tariff" means the NOVA General Terms and Conditions, as
amended or changed by NOVA during the term of this Contract;
(r) "Purchase Obligation" has the meaning set forth in Article IV for
each Receipt Point;
(s) "Receipt Point" has the meaning set forth in Article VII;
(t) "Seller's Lands" means Seller's interest in the lands, geological
zones and horizons described in Exhibit "A";
(u) "Seller's Reserves" means all of the gas which can, or may at some
future date, be economically recovered from Seller's Lands and which
Seller, has or will have, a right to drill for, produce or sell;
(v) "solution gas" means gas that is dissolved in crude oil under
reservoir conditions and produced as a result of pressure and
temperature changes associated with the production of oil;
(w) "Target Date of First Delivery" for each Receipt Point means the
dates set out in Exhibit "B" or such other date that may be agreed
to in writing by Buyer and Seller.
(x) "103m3" means one thousand (1,000) cubic metres;
(y) "week" means a period of seven (7) consecutive days.
<PAGE>
- 5 -
ARTICLE II - COMMENCEMENT AND PRELIMINARY MATTERS
2.01 COMMENCEMENT
The obligations of Seller to deliver gas and Buyer to purchase gas for
each Area shall commence on the later of the Target Date of First Delivery or
the Facilities Completion Date. Each party will keep the other advised as to the
status of the items under Sections 2.02 and 2.03.
2.02 PRELIMINARY OBLIGATIONS OF SELLER
Seller will diligently take those steps that are necessary to commence the
production and delivery of gas from Seller's Reserves to Buyer at the Receipt
Point(s), in an amount equal to the Initial Deliverability for each Receipt
Point, including:
(a) applying for and diligently seeking to secure and maintain any
regulatory authorizations which may be necessary for the term of
this Contract;
(b) arranging the production and firm gathering and processing required;
and
(c) unless otherwise mutually agreed, Seller will be responsible for
arranging firm NOVA receipt capacity for each Receipt Point for the
level of the Initial Deliverability to that Receipt Point, and will
assign this capacity to Buyer for the date that the Seller is able
to commence deliveries. Buyer's acceptance of this assignment will
be subject to Section 4.04(b).
2.03 PRELIMINARY OBLIGATIONS OF BUYER
Buyer will diligently take those steps that are necessary to enable Buyer
to take delivery of gas from each Receipt Point up to the level of the Initial
Deliverability at that Receipt Point on the Target Date of First Delivery for
the term of this Contract, including:
(a) applying for and diligently seeking to secure and maintain any
regulatory authorizations required to accept delivery and remove the
gas for sale to Buyer's markets;
<PAGE>
- 6 -
(b) arranging and maintaining all required transportation capacity
downstream of the Receipt Point; and
(c) accepting an assignment of the NOVA receipt capacity from Seller as
set forth in Section 2.02(c).
ARTICLE III - RESERVATIONS OF SELLER
3.01 OPERATIONS
Seller expressly reserves the right to operate Seller's Lands free from
any controls by Buyer and in a manner that Seller, in its sole discretion, may
deem advisable including the right:
(a) to determine when an additional well will be drilled, when an
existing well will be reworked or recompleted, when a well cannot,
or has ceased to, produce gas in paying quantities having regard to
Seller's cost of producing, processing and delivering such gas, and
when a well is to be abandoned;
(b) to deliver gas in kind to any interest holders which Seller is
obligated to deliver to, provided that the gas is not committed to
Buyer under this Contract;
(c) to use quantities of gas which may be required for the operation of
separator equipment, extraction plants, compressor stations and
other facilities through which the gas to be delivered may be
processed or handled. However, if other gas or gas constituents are
processed through any of these facilities, an equitable amount of
other gas or gas constituents shall be used as fuel in these
facilities; and
(d) during a period of Buyer's Force Majeure under Article XIII, to sell
and deliver gas to third parties to the extent necessary to prevent
the termination of any of Seller's leases for reason of
non-production.
<PAGE>
- 7 -
3.02 RATES OF FLOW
Seller is not required to produce wells in excess of the allowable rates
of flow, as determined by law or regulatory bodies; in excess of the maximum
efficient rates of flow, as determined by Seller; or in excess of the current
rate of production permitted under the terms of operating agreements in place
where wells are jointly operated with other parties. Seller shall advise Buyer
about any restrictions on production as soon as Seller becomes aware of them if
these restrictions would affect Deliverability.
3.03 POOLING
Seller may pool or unitize any of Seller's Lands with the interests of
third parties in other lands in the same field provided that this Contract binds
Seller in respect of Seller's interest in the pooled or unitized area and the
gas attributable to that interest. If the pooling or unitization is entered into
voluntarily by Seller, Seller shall protect Buyer's rights under this Contract
and prevent any appreciable reduction or postponement in the Deliverability.
3.04 CONSERVATION
Seller may adopt or participate in any oil or gas proration, conservation,
rateable take or similar program, provided, if this program may decrease
Deliverability, the program shall not be entered into voluntarily by Seller
without Buyer's prior consent.
ARTICLE IV - QUANTITY OF GAS
4.01 DAILY CONTRACT QUANTITY
(a) "Daily Contract Quantity" ("DCQ") for each Receipt Point means: (i)
at the Date of First Delivery, a daily quantity of gas equal to the
Initial Deliverability for that Receipt Point; and (ii) thereafter,
the Deliverability for that Receipt Point as adjusted over the term
hereof pursuant to Sections 4.04 and 4.05. In no event shall the DCQ
exceed the maximum firm NOVA receipt capacity available to Buyer
from the Receipt Points, unless otherwise agreed to by Buyer.
<PAGE>
- 8 -
(b) After commencement under Section 2.01, Buyer shall have the right to
request, purchase and receive from Seller and Seller shall have the
obligation to sell and deliver to Buyer the gas from Seller's Lands
at the daily rates that Buyer may request up to the Daily Contract
Quantity at each Receipt Point.
4.02 ANNUAL PURCHASE OBLIGATION
Subject to the terms of this Contract, in each contract year, Buyer agrees
to purchase from Seller, from each Receipt Point, an annual quantity of gas
equal to the Purchase Obligation. The Purchase Obligation for each Receipt Point
is a quantity of gas equal to the product obtained by multiplying the Total
Annual Gas Purchases by Seller's Pro Rata Share where:
(a) "Total Annual Gas Purchases" means the total quantity of gas
purchased by Buyer for Buyer's markets in the contract year.
(b) "Seller's Pro Rata Share" means the percentage obtained by dividing,
(i) the Daily Contract Quantity for that Receipt Point under this
Contract existing on each day during the contract year less
the quantity of gas which Seller failed to deliver to Buyer in
response to Buyer's requests at that Receipt Point in the
contract year, ("Adjusted Minimum Annual Quantity") by,
(ii) the aggregate of the Adjusted Minimum Annual Quantity, or
equivalent, under all of the gas purchase contracts under
which Buyer purchased gas in the contract year.
4.03 OPERATING ALLOWANCE
Buyer will use reasonable efforts to request gas at uniform daily rates of
flow. As the Purchase Obligation is calculated at the end of a contract year and
the nature of gas buying operations necessitate accuracy tolerances, Buyer shall
be deemed to have fulfilled the Purchase Obligation if the quantity of gas
requested by Buyer in the contract year is within three percent (3%) of the
Purchase Obligation. In the event that the quantity of gas requested by Buyer
differs from the Purchase Obligation by more than three percent
<PAGE>
- 9 -
(3%), the entire difference between the quantity of gas requested and the
Purchase Obligation shall be subtracted from (or added to as the case may be)
Buyer's Purchase Obligation for the next contract year. Notwithstanding the
foregoing if, in any contract year for any reason, Seller fails to deliver the
quantity of gas requested by Buyer and Buyer has requested a quantity of gas
equal to, or greater than the Purchase Obligation then Buyer shall be deemed to
have satisfied its Purchase Obligation for such contract year and the provisions
of this Section which could otherwise obligate Buyer to add to its Purchase
Obligation for the next contract year shall not apply. Buyer is not obligated to
accept deliveries of gas in excess of Buyer's request.
4.04 DECREASE IN DELIVERABILITY
(a) If Seller fails in any month to deliver to Buyer at least ninety
percent (90%) of the quantity requested by Buyer from a Receipt
Point and this failure is not excused by an event of Force
Majeure, then Buyer may reduce the Daily Contract Quantity at that
Receipt Point to the level of the average Deliverability for that
month by providing Seller with a written notice of the reduction
("Reduction Notice"). The reduction will be effective on the first
(1st) day of the month following the date of the Reduction Notice
unless, prior to this date, Seller demonstrates to Buyer's
satisfaction that the Deliverability to that Receipt Point has
been restored in whole. Any restoration after this date will be in
accordance with Section 4.05.
(b) If Buyer reduces the Daily Contract Quantity at a Receipt Point by
issuing a Reduction Notice based on Deliverability during the
first twelve (12) months following the Date of First Delivery or
following an increase in the Daily Contract Quantity pursuant to
Section 4.05, Buyer will have the option to assign to Seller a
quantity of NOVA receipt capacity equal to the amount of the
reduction. Seller agrees to accept assignment of the excess NOVA
capacity and to reimburse Buyer for any NOVA charges billed to
Buyer for this excess capacity from the effective date of the
Reduction Notice.
(c) If Buyer reduces the Daily Contract Quantity at a Receipt Point by
issuing a Reduction Notice based on Deliverability after the first
twelve (12) months
<PAGE>
- 10 -
following the Date of First Delivery or following an increase in the
Daily Contract Quantity pursuant to Section 4.05, Buyer will have
the right to dispose of NOVA receipt capacity equal to the amount of
the reduction. If Buyer disposes of this excess NOVA capacity, any
subsequent increase in the Daily Contract Quantity at that Receipt
Point will be subject to Section 4.05 and, in particular, the
ability of Seller to acquire the necessary firm NOVA receipt
capacity. Seller may request Buyer to retain this excess NOVA
capacity on their behalf provided Seller agrees to reimburse Buyer
for any costs incurred by Buyer for that excess capacity from the
effective date of the Reduction Notice until such time as the
capacity is again utilized under this Contract or until Buyer is
able, with Seller's consent, to dispose of the excess capacity.
Seller agrees that Buyer has the right to offset these NOVA costs
against amounts payable to Seller pursuant to Section 11.01.
4.05 INCREASE IN DELIVERABILITY
(a) Seller shall advise Buyer in writing as soon as reasonably
practicable, of any increase or anticipated increase in the
Deliverability to a Receipt Point ("Increase Notice"). Unless an
earlier date is agreed to by Buyer, the Daily Contract Quantity at
that Receipt Point will increase to reflect the increase in
Deliverability, effective the later of:
(i) the date that Seller is able to produce and deliver the
increased Daily Contract Quantity to that Receipt Point;
(ii) the first (1st) day of the month following sixty (60) days
from Buyer's receipt of the Increase Notice; and
(iii) the date that Buyer is in possession of firm NOVA
receipt capacity at the Receipt Point sufficient to
transport the increase in the Daily Contract Quantity.
(b) Unless otherwise agreed, Seller shall be responsible for obtaining
any incremental firm NOVA receipt capacity required to transport the
increase in
<PAGE>
- 11 -
the Daily Contract Quantity and shall assign this capacity to Buyer.
If Seller is unable to maintain the increase in the Daily Contract
Quantity for twelve (12) months, Buyer will have the right to assign
to Seller any excess NOVA capacity in accordance with Section
4.04(b).
4.06 ASSIGNMENT OF NOVA CAPACITY
In the event that Seller exercises its right under Section 11.02 of this
Contract to suspend deliveries of gas, or terminate this Contract, Seller agrees
to accept a temporary assignment of the NOVA receipt capacity from Buyer for the
period of any suspension of deliveries or, a permanent assignment in the case of
termination of this Contract.
4.07 COMMON OPERATIONS AGREEMENT
In the event that Buyer is purchasing gas from two (2) or more joint
interest producers at a common Receipt Point, Seller agrees to enter into
Buyer's then standard form common operations agreement with these other joint
interest producers.
4.08 REGULATORY RESTRICTION
If the daily quantity of gas which Seller is entitled to produce from
Seller's Lands is subject to reduction by any order, regulation or action of any
court or regulatory body for any period, this reduced quantity shall be the
Daily Contract Quantity for this period. Buyer shall be entitled to reduce the
NOVA receipt capacity in accordance with Section 4.04(c) if, in the Buyer's sole
discretion, this reduction is likely to be in effect for any sustained period.
ARTICLE V - QUALITY AND MEASUREMENT
5.01 QUALITY
The quality of the gas to be purchased shall be in accordance with the
quality standards in the NOVA Tariff. If the gas offered for delivery by Seller
at a Receipt Point fails at any time, to conform with the quality standards of
NOVA, then Buyer, at its sole discretion, may refuse to accept delivery or
purchase of this gas until correction by Seller. If, on any day during a
contract year, Buyer so refuses the gas ("Off Quality Day"), the Purchase
Obligation for that Receipt Point shall be adjusted by subtracting the number of
<PAGE>
- 12 -
Off Quality Days from the number of days in the contract year when calculating
the Adjusted Minimum Annual Quantity in Section 4.02.
5.02 MEASUREMENT
Buyer and Seller agree to accept the measurements of the total volume and
gross heating value of the gas purchased at the Receipt Point as conducted by
NOVA in accordance with the NOVA Tariff.
ARTICLE VI - DELIVERY PRESSURE
6.01 The pressure of the gas to be delivered shall be at the pressure required
under the NOVA Tariff to ensure the gas will enter the pipeline facilities of
NOVA at the Receipt Point.
ARTICLE VII - RECEIPT POINT
7.01 The Receipt Point(s) for all gas delivered under this Contract shall be
that point where the gas first enters the facilities of NOVA, as set forth in
Exhibit "B", and which may be changed by mutual agreement of the parties from
time to time during the term of this Contract.
ARTICLE VIII - POSSESSION OF AND TITLE TO GAS
8.01 Title of all gas delivered shall pass from Seller to Buyer, for the account
of Buyer, at the Receipt Point(s). Until such delivery, Seller shall be deemed
to be in control or possession of, have title to and be responsible for this
gas. After delivery, Buyer shall be deemed to be in control or possession of,
have title to, and be responsible for the gas.
ARTICLE IX - TERM
9.01 The term of this Contract shall be from the date first above written until
gas can no longer be recovered or produced from Seller's Reserves.
<PAGE>
- 13 -
ARTICLE X - PRICE
10.01 NETBACK PRICE
Subject to the other provisions in Article X, the price to be paid by
Buyer to Seller for gas delivered under this Contract shall be:
(a) during the period or periods in which an agreement between the
Governments of Alberta, British Columbia and/or Saskatchewan and the
Government of Canada exists for the purpose of establishing the
price or prices to be paid for gas purchased by Buyer (a
"Federal-Provincial Agreement"), or the price to be paid for such
gas is otherwise determined by law, the prices in effect under this
Contract for such volumes shall be the price or prices in existence
from time to time, as determined by and resulting from the
Federal-Provincial Agreement or the applicable law; and
(b) in the event that a Federal-Provincial Agreement is not in effect,
or the price to be paid for gas delivered is not otherwise
determined by law, or is in effect but does not cover all volumes
purchased by Buyer for any period of time during the term of this
Contract, Buyer shall pay Seller monthly for each unit of gas
delivered by Seller during such period a unit price (the "Netback
Price") calculated as follows:
Netback Price = GSR - TC - FFS
--------------
TGS
10.02 DEFINITIONS
For the purposes of Article X, the following definitions shall apply:
(a) "GSR" or "Gas Sales Revenue" means the sum of all revenue, including
any adjustments for prior months, received by Buyer in such month
from the resale of gas purchased from Buyer's Producer Pool to Pool
Approved Sales Contracts, less:
<PAGE>
- 14 -
(i) that portion of all demand charges or charges of a similar
type under Pool Approved Sales Contracts which relate
specifically to Buyer's costs, and
(ii) any taxes, levies or charges prescribed by law, or any
governmental body, in respect of the subject sales, and
(iii) Buyer's interest and financing costs incurred to pay the
Goods and Services Tax imposed under the Excise Tax Act
(Canada), as amended, or any successor or similar federal or
provincial legislation exigible on the purchase of gas
delivered and for which Buyer is entitled to a credit or
refund which has not yet been received; and
(iv) costs incurred by Buyer to acquire replacement gas supply
where Buyer is required to deliver gas under a Pool Approved
Sales Contract and is unable for whatever reason to obtain
supply from Buyer's Producer Pool.
(b) "TC" or "Transportation Costs" means the monthly transportation
charges of TransCanada PipeLines Limited, Foothills Pipe Lines Ltd.,
NOVA and any other transporters applicable to Pool Approved Sales
Contracts, in addition to any cost of pipeline fuel, measurement
variances and losses, taxes on the use of fuel, the carrying cost of
and changes to the value of inventory and line pack, letters of
credit and the cost of financial assurances provided to these
transporters, associated operational storage costs and other
transportation related charges as they apply to the purchase and
sale of Pool gas.
(c) "FFS" or Buyer's "Fee For Service" for any month means the sum of
Buyer's Operating Costs ("Operating Costs"), Buyer's Incentive Based
Return ("IBR") and Producer Approved Costs ("PAC") in such month.
<PAGE>
- 15 -
(d) "Buyer's Producer Pool" or "Pool" means the pool of producers who
have dedicated gas to Buyer pursuant to contracts with price clauses
substantially similar to this Article X.
(e) "Pool Approved Sales Contracts" means contracts or markets which
have been approved by Buyer's Alberta Producers as required by
Alberta law.
(f) "Buyer's Operating Costs" or "Operating Costs" include the general
and administrative costs and fixed asset expenditures incurred in
developing and administering Buyer's Producer Pool, Pool Approved
Sales Contracts and associated transportation, net of all costs
referred to in subsection 10.02 (f)
(iv) hereof, and shall be determined as follows:
(i) for the contract year commencing November 1, 1997, a monthly
amount equal to six hundred and sixty thousand dollars
($660,000),
(ii) for the contract years commencing November 1, 1998 and
thereafter, the monthly amount shall be increased by a factor
equal to the increase in the Canadian Consumer Price Index in
the 12 month period immediately preceding such contract year,
plus one and one half percent (1.5%).
(iii) for the contract years commencing November 1, 1997 and
thereafter, Buyer's Operating Costs shall also be decreased or
increased by the following:
A. Buyer's over-recovery or under-recovery of its cost of
service for the contract year ending October 31, 1997,
as determined by the APMC in its final annual audit, and
B. any surcharges paid or refunds received by Buyer as a
result of a revision to income taxes or any other
eligible Cost of Service components over-recovered or
under-recovered in the period prior to November 1, 1997.
<PAGE>
- 16 -
All adjustments to Operating Costs pursuant to subsections
10.02 (f) (iii) (A) and (B) above shall be made over the
remainder of the year in which the adjustments were identified
or period outlined above, unless Buyer's Producer Pool
approves a longer period, and shall have no effect on the
level of the Operating Costs in subsequent years.
(iv) In each month commencing November, 1997, the amount calculated
above shall be reduced by that portion of all demand charges
or similar charges recovered from Pool Approved Sales
Contracts in such month which relate to Buyer's costs.
(g) Buyer's "Incentive Based Return" or "IBR" shall consist of a charge
based on Buyer's load factor and price performance and shall be
calculated in the following manner:
(i) If, in a contract year, Buyer pays to the Pool a sum of money
equal to the amount that would be paid if Buyer purchased gas
from the Pool at a load factor of eighty percent (80%) and at
a Netback Price equal to the Alberta Reference Price (ARP)
(the "Base Revenue"), and if Buyer pays a Netback Price equal
to or greater than the ARP, Buyer shall earn a return of
eighty-five thousand dollars ($85,000) per month (the "Base
Return"). For the purpose of determining whether Buyer has
earned the Base Return, the Netback Price shall be calculated
prior to the deduction of the Base Return.
(ii) In addition to the Base Return, for each dollar of revenue
above the Base Revenue plus the Base Return which is paid to
the Pool (the "Incremental Revenue"), Buyer shall retain that
percentage set forth in the table contained in Schedule "X" to
this Contract (the "Incremental Return"), subject to the
limits shown on the Schedule. For the purpose of determining
the Incremental Return, the Incremental Revenue shall be
calculated prior to the deduction of the Incremental Return.
<PAGE>
- 17 -
(iii) If Buyer's sales fall below a load factor of eighty percent
(80%) in any year because of a failure to obtain producer
support for sales, in all calculations to determine the IBR,
the Base Revenue shall be calculated using Buyer's actual
purchase load factor in such year. The Incremental Revenue
shall be determined by multiplying the difference between the
actual netback price paid by Buyer in such year and the ARP,
by the number of units sold. The Incremental Return shall be
calculated by multiplying the Incremental Revenue by the
applicable percentage outlined in Schedule "X" for the amount
by which the actual netback price paid exceeded the ARP.
(iv) For the purpose of determining the IBR, any replacement gas
supply costs which have been deducted from GSR pursuant to
Section 10.02 (a) (iv) shall be included as revenue for the
period in question.
(v) Buyer shall estimate the level of the IBR each month of the
contract year and adjust it based on the performance of Buyer
to the end of such month and projections for the remainder of
the year. If Buyer has over or under-collected the IBR during
such year, as indicated by an audit conducted pursuant to
Section 10.04, the amount over-collected or under-collected
shall be credited to, or recovered from, the Pool in the month
following the date of the auditor's report.
(h) "PAC" or "Producer Approved Costs" means any costs which Buyer's
Producer Pool has approved for inclusion in the calculation of the
monthly Netback Price through a producer vote conducted pursuant to
Section 10.05. These costs are intended to cover extraordinary items
which are not included in Buyer's FFS and may include the following:
(i) costs of arbitration under a Pool Approved Sales Contract or
under a gas purchase contract(s),
(ii) expenses associated with litigating a regulatory decision or
process or a Pool Approved Sales Contract issue,
<PAGE>
- 18 -
(iii) any transportation costs or other transportation related
expenses which are not included within Transportation Costs,
and
(iv) any other extraordinary costs which Buyer may submit to the
Pool for inclusion in this category.
(i) "TGS" or "Total Gas Sold" means the total quantity of gas sold,
including fuel, by Buyer pursuant to all Pool Approved Sales
Contracts in the month in question.
10.03 RENEGOTIATION RIGHTS
(a) Buyer shall have the right to propose changes to the FFS component
of the Netback Price Clause for Seller's approval and the approval
of all other Sellers in Buyer's Producer Pool by way of a producer
vote to be effective for the contract year commencing November 1,
2000 and every second contract year thereafter. If Buyer wishes to
exercise this right, Buyer shall deliver a notice containing Buyer's
new proposal to all Sellers in Buyer's Producer Pool by the June 1st
preceding the November 1st on which the new proposal is to be
effective. If Buyer's proposal is not accepted by the Pool, Buyer
shall make a second proposal to the Pool. If the second proposal is
not accepted by the Pool, Buyer may submit the matter to arbitration
pursuant to Section 10.06 or, alternatively, may elect to have an
independent third party determine Buyer's Cost of Service in the
same manner as the APMC did in the period prior to November 1, 1997,
with the additional mandate to determine and implement an
appropriate mechanism for establishing Buyer's return. Buyer shall
seek the approval of the Pool for the independent third party. If
the Pool approves the independent third party, the Netback Price
Clause shall be deemed to be amended to incorporate the independent
third party's determination of Buyer's Fee For Service in place of
the Fee For Service defined in Section 10.02 (c).
(b) Seller may request a change to the FFS component of the Netback
Price Clause to be effective for the contract year commencing
November 1, 2000
<PAGE>
- 19 -
and every second contract year thereafter. Seller must deliver its
notice requesting such change no later than the June 1st preceding
the November 1st in question. If Buyer receives notice from Sellers
representing more than 30% of the volumes in Buyer's Producer Pool,
Buyer shall conduct a producer vote to determine if there is
sufficient support for a change in the agreement. If the Pool votes
in favour of an amendment, Buyer shall submit a new Netback Pricing
proposal to the Pool within 30 days. If this proposal is not
accepted, the procedure outlined in subsection (a) above shall be
followed.
(c) If Pool sales volumes increase by at least ten percent (10%) in any
contract year, or increase in aggregate by at least fifteen percent
(15%) over any two successive contract years, Buyer shall have the
right to seek a renegotiation of the FFS component of the Netback
Price Clause effective on the November 1 immediately following the
year or years in which the increase occurred by serving notice
during the month of June prior to the end of such year(s). Buyer's
notice may be sent based on the actual sales to June 1st in such
year along with estimates for the sales for the remainder of such
year. If Buyer exercises such right, the procedure outlined in
subsection (a) above shall be followed.
(d) If NOVA changes its rate design from the current postage stamp
methodology, Buyer shall have the right to seek a renegotiation of
the Netback Price Clause. If Buyer exercises such right, the
procedure outlined in subsection (a) above shall be followed.
(e) If the ARP is no longer published, Buyer shall have the right to
substitute a replacement index which conveys the same information
regarding natural gas prices in Alberta. If there is no such
replacement index, Buyer shall propose an alternative index to
Seller using the procedure outlined in subsection (a) above.
(f) Except for a replacement of the ARP pursuant to Section 10.03 (e)
which shall be effective retroactively to the date the ARP or its
replacement was no
<PAGE>
- 20 -
longer published, any redetermined Netback Price Clause shall be
effective on the later of the November 1st following the date the
renegotiation process was commenced or the first day of the month
following the approval of Buyer's Producer Pool, the decision of the
arbitrator(s) or the determination by the independent third party.
Until such time, the previously existing Netback Price Clause shall
remain in effect.
10.04 ANNUAL AUDIT
(a) By the April 30th following each contract year hereunder, Buyer
shall provide to Seller an auditors' report which shall, for the
just completed contract year:
(i) verify that Buyer's Operating Costs in the preceding contract
year were calculated in accordance with this Agreement and
properly deducted from Gas Sales Total Pool Revenue in
calculating the Netback Price,
(ii) verify the calculation of the return due to Buyer under the
IBR along with a reconciliation of the amount due with the
amount deducted by Buyer from the Netback Price during the
year,
(iii) if Buyer claims that it was unable to sell gas at a load
factor of eighty percent (80%) as a result of a failure
to obtain producer support for sales, verify Buyer's
claim and verify that the Base Return and Incremental
Return were calculated in accordance with subsection
10.02 (g) (iii),
(iv) verify the amount of any PAC deductions from the netback
calculation and that the deductions were consistent with the
producer approval granted,
(v) verify the volume and price of any replacement gas purchased
to meet sales obligations when pool supply was not available,
<PAGE>
- 21 -
(vi) verify that any adjustments made to Operating Costs pursuant
to subsections 10.02 (f) (iii) (A) and (B) have been
calculated in accordance with the provisions of this Article
X, and
(vii) report on the number of Sellers, if any, who requested a
change to the Netback Price Clause in those years where
Sellers have such rights under the Contract.
(b) If the auditor's report indicates the Buyer either under-collected
or over-collected any of the elements of the Fee For Service during
the period audited, Buyer shall make adjustments to the Netback
Price to compensate for the over or under collection.
(c) The auditor appointed by Buyer to prepare the report referred to
above shall be approved by the Pool in a vote to be conducted
pursuant to Section 10.05 hereof. Buyer shall submit a list of names
of national accounting firms, who have indicated an interest in
performing the audit, for the Pool to select from and the firm which
receives the highest number of votes shall be retained.
10.05 PRODUCER VOTE MECHANISM FOR NETBACK PRICE CLAUSE
(a) If a producer vote is to be conducted under this Article X on a
revision to the Netback Price Clause, Buyer shall conduct the vote
in accordance with the NATURAL GAS MARKETING ACT of Alberta, as
amended or successor legislation ("NGMA"), provided however, that
all pool producers shall participate in the vote as if they were
Alberta producers. If the NGMA no longer provides for a producer
vote process, Buyer must receive attain the support of at least
fifty percent (50%) of those actually voting both by number and
volume in order to pass a vote.
(b) The results of the vote shall be verified by the APMC or, if it is
not available to perform this function, by the third party auditors.
<PAGE>
- 22 -
(c) Buyer and Seller shall be bound by a finding of producer support
whether verified by the APMC or the third party auditor.
10.06 ARBITRATION
(a) If Buyer submits a new Netback Price proposal to arbitration
pursuant to Section 10.03 (a), an arbitration using a single
arbitrator shall be conducted between Buyer and all Sellers in
Buyer's Producer Pool. The arbitration shall be governed by the
following principles:
(i) Buyer shall submit a list of at least three (3) potential
arbitrators to the Pool for its approval. All arbitrators
submitted shall be knowledgeable with respect to the marketing
of Canadian natural gas and issues relating to the recovery of
costs by other buyers of gas in Western Canada performing
services substantially similar to the services performed by
Buyer hereunder. The arbitrator receiving more than fifty
percent (50%), by volume, of the votes cast shall be selected.
If no arbitrator receives the minimum amount of support, Buyer
may apply to the Court of Queen's Bench of Alberta to have a
single arbitrator appointed.
(ii) The arbitrator shall make all rules respecting the conduct of
the arbitration deemed necessary to ensure that all Sellers in
Buyer's Producer Pool have an opportunity to present their
views to the Arbitrator. The arbitrator may designate a
Seller, or group of Sellers, to act on behalf of the Pool.
(iii) The arbitrator shall proceed expeditiously to hear and
determine the issues raised by the arbitration. The standard
for the arbitrator will be to decide on a cost recovery
mechanism which is comparable to the cost recovery of other
buyers of gas in Western Canada performing services
substantially similar to the services performed by Buyer
hereunder and shall provide a fair opportunity for Buyer to
earn a reasonable return.
<PAGE>
- 23 -
(iv) The costs of any arbitration shall be passed through to the
Pool as an addition to Buyer's Operating Costs in the year in
which the arbitration occurs but shall not affect the level of
the Operating Costs in the following years.
(v) The decision of the arbitrator shall be delivered in writing
within ninety (90) days of the arbitrator's appointment. The
decision shall be final and binding upon the parties and shall
remain in effect until changed pursuant to Section 10.03
hereof.
10.07 SETTLEMENT PAYMENTS
If Buyer receives a settlement payment from a purchaser under a Pool
Approved Sales Contract for the resale by Buyer of Pool gas, Buyer shall
distribute that payment to the Pool in an equitable manner having regard to all
the circumstances existing at the time. A settlement payment means any payment
by a repurchaser to Buyer in exchange for a release from future gas purchase
obligations under a Pool Approved Sales Contract, or other payments of a similar
nature. Settlement payments shall be distributed separately from payments for
gas and shall not form part of the Netback Price determined hereunder.
10.08 USE OF ESTIMATES FOR CALCULATING NETBACK PRICE
(a) Buyer shall have the right to use reasonable estimates of those
costs, volumes and revenues for which actuals are not available, in
order to calculate the Netback Price on a timely basis. Any
adjustments or revisions for actuals shall be included in the
netback calculation following the receipt of the actuals.
(b) In determining the cost of financing the Goods and Services Tax
carrying costs, the costs of linepack and other financing charges,
Buyer shall use the prime rate of interest as published by the Bank
of Montreal for such month, plus one percent (1%).
<PAGE>
- 24 -
10.09 BASIS OF PAYMENT
(a) The Netback Price payable for the gas purchased shall be expressed
in Canadian dollars per gigajoule. The number of gigajoules shall be
determined by multiplying the gross heating value by the volume
delivered in thousands of cubic metres, both as determined in
accordance with the measurement provisions of this Contract.
(b) Notwithstanding contrary provisions in this Contract, if a
transporting pipeline changes the basis or method of measurement,
or, if in order to comply with or by reason of any present or future
law, rule, regulation or order, of the Energy Utilities Board of the
Province of Alberta or any other governmental authority having
jurisdiction, now or during the term of this Contract, the basis or
method of measurement of gas delivered is changed, then the price
for gas purchased shall be adjusted to compensate for the change in
the basis or method of measurement. Therefore, the total amount of
money payable for quantities of gas purchased, according to the
measurement provisions of this Contract, shall remain unaffected by
this change in the basis or method of measurement.
(c) For greater certainty, the parties acknowledge that the price of gas
sold to the Buyer calculated pursuant to the Contract is exclusive
of Goods and Services Tax and the Buyer shall pay to the Seller, in
addition to the payments calculated pursuant to this Contract, any
Goods and Services Tax exigible on the sale of gas to the Buyer
under this Contract and which taxes are required to be paid by Buyer
and collected by the Seller and remitted to the Government of
Canada. Seller shall provide Buyer with all of the information
required by the Buyer to enable it to claim a refund of any Goods
and Services Tax paid to the Seller.
10.10 RESALE PRICE ARBITRATION
(a) The gas sold under this Contract is acknowledged as being netback
gas for the purposes of the NGMA and where the selling price or
method for
<PAGE>
- 25 -
determining the selling price for gas in a resale contract between
Buyer and one (1) of Buyer's sales customers has been determined by
arbitration in accordance with the terms of the resale contract,
Seller agrees to accept the resale price, or method for determining
the price, determined by arbitration for the purposes of calculating
the Netback Price under this Contract.
(b) In the event that the selling price or the method for determining
the selling price for gas in a resale contract between Buyer and one
(1) of Buyer's sales customers is to be determined by arbitration,
Buyer, when seeking Sellers' approval for the inclusion of the costs
of such arbitration as Producer Approved Costs, shall advise Seller
of the arbitrator Buyer has selected to represent Buyer on the
arbitration panel.
10.11 ENDORSEMENT OF PREVIOUS PRODUCER APPROVALS
(a) Seller accepts and endorses the terms and conditions of Pool
Approved Sales Contracts which were approved prior to the effective
date of this Contract.
(b) Sellers delivering gas to Buyer from lands situated outside the
Province of Alberta accept and endorse the terms and conditions of
Pool Approved Sales Contracts which are approved in the future by
Alberta producers.
ARTICLE XI - BILLINGS AND PAYMENTS
11.01 BILLINGS AND PAYMENTS
Seller, or Seller's nominee, shall provide Buyer by the fifteenth (15th)
day of each month ("Billing Month") or such later day as Buyer specifies in a
Split Allocation Form delivered to Seller, and confirm in writing, the quantity
and the energy content of gas delivered by Seller during the preceding month
("Sale Month").
On or before the twentieth (20th) day of each Billing Month, Buyer will
provide Seller a written statement for the Sale Month showing the quantity and
the energy content of gas delivered by Seller, and the total amount payable by
Buyer. Buyer shall pay Seller
<PAGE>
- 26 -
the amount payable for each Sale Month, on the twenty-fifth (25th) day of each
Billing Month, provided however, that if the twenty-fifth (25th) is not a
Business Day, payment shall be made on the next Business Day following the
twenty-fifth (25th). Each payment shall be made in Canadian funds to Seller in
Calgary, or at any other place in Canada, as Seller may designate by written
notice served by Seller on Buyer.
11.02 FAILURE TO PAY
If Buyer fails to make payment to Seller when due, interest shall accrue
at an annual rate of interest which is equal to one percent (1%) above the
annual prime lending rate of the Canadian chartered bank used by Buyer, in
effect as of the date when such payment is due. Interest shall accrue until
payment is made. Payment shall not be due until the following month if Seller
fails to provide Buyer with the information required under Section 11.01 by the
date specified therein. If the failure to pay continues for fifteen (15) days,
Seller, in addition to all other remedies, may suspend deliveries of gas under
this Contract. If this failure continues for an additional fifteen (15) days,
Seller may, in addition to any other rights Seller may have, terminate this
Contract. However, in order for Seller to have the right to suspend deliveries
or terminate this Contract, Seller must first have notified Buyer in writing,
delivered by hand or courier, of its intent to do so five (5) days prior to
exercising either or both of such rights and must permit Buyer to pay the amount
due to Seller within this five (5) day period.
11.03 ERRORS AND ADJUSTMENTS
Any errors discovered in any statement issued by Buyer shall be reported
and corrected promptly. If there is a discrepancy between the confirmation
provided to Buyer by Seller of the quantity and energy content of gas delivered
to Buyer in any month and the same information provided to Buyer by the
measuring pipeline at the Point of Delivery, payment shall be based on the
information provided by such pipeline. Buyer shall not be required to make
adjustments relating to the quantity of gas delivered after the earlier of
thirteen (13) months from the date of the statement or such earlier period which
may be adopted by the measuring pipeline at the Point of Delivery for the
processing of adjustments.
<PAGE>
- 27 -
11.04 INSPECTION OF RECORDS
Buyer and Seller shall have the right to inspect and examine at all
reasonable times the records and charts of the other party pertaining to the
purchase and sale of gas and, unless the parties otherwise agree, each party
shall preserve all charts and records for at least twenty four (24) months.
ARTICLE XII - LAWS AND REGULATORY BODIES
12.01 REGULATION
The rights and obligations of Buyer and Seller under this Contract are
subject to all applicable present and future laws, rules, regulations and orders
of any legislative body or duly constituted authority.
12.02 LAW OF CONTRACT
This Contract shall be construed and interpreted exclusively in accordance
with the laws of Alberta. The courts of Alberta shall have exclusive
jurisdiction in all matters contained here.
ARTICLE XIII - FORCE MAJEURE
13.01 FORCE MAJEURE DEFINED
Subject to Section 13.02, Seller and Buyer will be relieved of those
obligations under this Contract which they are prevented from carrying out due
to, and to the extent of, a Force Majeure condition. Force Majeure conditions
are those events or conditions not caused by, and beyond the reasonable control
of, the affected party which prevent such party from carrying out all or a
portion of its obligations under this Contract. Force Majeure conditions do not
include financial impracticability or financial inability but includes, without
limitation: acts of God, war, insurrection or other unlawful acts against public
order or authority; explosions, fire, freezing or other accidents or acts of
sabotage causing breakage of or damage to machinery, lines of pipe or field and
delivery facilities, or temporary failure of gas supply; any acts or omissions
(including failure to take gas) of a purchaser of gas from Buyer which are
excused by an event or condition of Force Majeure; the interruption,
prorationing or curtailment of transportation service to Buyer or Buyer's market
for any reason, even if the transporter does not declare Force Majeure; the
inability to obtain or
<PAGE>
- 28 -
maintain licenses or other necessary regulatory authorizations or where
continued performance would be in violation of an order, legislation, regulation
or similar direction of a government, board, agency or court having
jurisdiction, which has been resisted in good faith.
13.02 WHERE FORCE MAJEURE UNAVAILABLE
Neither party shall be entitled to the benefit of Section 13.01 to the
extent that any of the following circumstances occur:
(a) the failure to perform obligations under the Contract was caused by
the contributory negligence of the party claiming suspension;
(b) the failure was caused by the party claiming suspension having
failed to remedy the Force Majeure condition and resume the
performance of its obligations with reasonable dispatch;
(c) the failure was caused by lack of funds or with respect to the
payment of any amount or amounts then due; and
(d) the non-performing party does not give notice and full particulars
of the Force Majeure condition to the other as soon as possible
after the occurrence of this condition.
13.03 NOTICE OF REMEDY
The party claiming suspension of their obligations under this Contract
shall also give notice, as soon as possible after the Force Majeure condition is
remedied, that the condition has been remedied and that the party has resumed,
or is ready to resume, the performance of its obligations.
13.04 DISCRETION RE: LABOUR DISPUTES
Notwithstanding anything to the contrary in this Article XIII, express or
implied, the parties agree that the settlement of strikes, lockouts and other
industrial disturbances shall be entirely within the discretion of the
particular party involved and that this party may make settlement at that time
and on those terms and conditions as it may deem to be
<PAGE>
- 29 -
advisable and no delay in making this settlement shall deprive the party of the
benefit of Section 13.01.
13.05 ADJUSTMENT OF PURCHASE OBLIGATION
If, during a contract year Buyer is unable to purchase gas from Seller due
to a Force Majeure condition ("Force Majeure Day"), the Purchase Obligation
shall be adjusted by subtracting the number of Force Majeure Days from the
number of days in the contract year when calculating the Adjusted Minimum Annual
Quantity in Section 4.02.
ARTICLE XIV - WARRANTY OF TITLE
14.01 WARRANTY OF TITLE
Seller represents and warrants that it has full right and authority to
enter into this Contract, that all of the leases are in full force and effect
and are capable of being maintained and, subject to Section 3.01(a), will be
maintained by Seller in full force and effect pending commencement of and during
actual delivery of gas; that all gas committed and delivered is owned or
controlled by Seller free and clear of all liens, encumbrances and claims; that
Seller has the right to sell all of Seller's Reserves dedicated pursuant to
Section 15.01 for the duration of this Contract; that title to gas will pass to
Buyer free from all liens and adverse claims; and, that Seller is entitled to
drill for, produce or sell gas from Seller's Lands.
14.02 INDEMNITY
Seller shall at all times have the obligation to make settlements for all
royalties and overriding royalties and payments to mineral and royalty owners
due now or subsequently under the leases, in accordance with those terms, and to
make settlements with all other persons having any ownership or interest in the
gas sold. Seller agrees to indemnify Buyer and to prevent Buyer from being
affected by any suits, actions, debts, accounts, damages, costs, losses and
expenses arising from adverse claims of any person to the gas or to royalties,
taxes, licence fees or charges which are applicable to the gas before the title
passes to Buyer or which may be levied and assessed upon the sale of the gas to
Buyer. In the event of any adverse claim of any character whatsoever being
asserted in respect to any of the gas, Buyer may retain, as security for the
performance of Seller's obligations
<PAGE>
- 30 -
under this Section, the purchase price up to the amount of a claim until the
claim has been finally determined or until Seller has furnished a bond to Buyer
in the amount of the claim.
ARTICLE XV - GAS RESERVES OF SELLER
15.01 DEDICATION OF RESERVES
Seller dedicates Seller's Lands and Seller's Reserves exclusively to the
performance of this Contract. In addition, subject to mutual agreement, Seller
may substitute lands and reserves to maintain the then existing DCQ provided the
reserves are of the same quality. Except as specifically provided otherwise,
Seller agrees to sell and deliver to Buyer all of Seller's interest in the gas
produced from Seller's Reserves. Seller shall notify Buyer of any change in
interest or ownership of Seller's Lands and Seller's Reserves. Seller shall not
dispose, cause, or allow a disposition, of any interest in Seller's Lands unless
the interest is made subject to this Contract and the assignee agrees to be
bound by the terms of this Contract.
15.02 FURNISHING OF INFORMATION
Seller shall, from time to time, at Buyer's request, furnish to Buyer all
geological, geophysical, engineering and production data available to Seller
that may be required by Buyer to conduct a study of Seller's Reserves and
Deliverability under this Contract. This data shall include, but not be limited
to, drill stem tests, core analysis, sample logs, well logs, drilling and
completion reports, pressure data, production data and flow potential data on
all wells now or hereafter drilled on Seller's Lands. Buyer agrees to keep this
such data confidential if requested to do so by Seller.
ARTICLE XVI - ARBITRATION
16.01 Any controversy arising out of this Contract where arbitration is
expressly required under this Contract, and in any other case if the parties
both agree, shall be submitted to arbitration and the following principles shall
apply to this arbitration:
(a) Upon written demand by either party, the parties shall meet and
attempt to appoint a single arbitrator. If the parties are unable to
agree on a single arbitrator, then, upon written demand by either
party and within ten (10)
<PAGE>
- 31-
days of this demand, each party shall name an arbitrator and the two
(2) arbitrators shall promptly choose a third (3rd) arbitrator. If
either party fails to name an arbitrator within ten (10) days of
this demand, then the second (2nd) arbitrator shall be appointed by
any Justice of the Court of Queen's Bench of Alberta. If the two (2)
arbitrators shall fail within ten (10) days from their appointment
to agree upon and appoint the third (3rd) arbitrator, then upon
written application by either party, the third (3rd) arbitrator
shall be appointed by any Justice of the Court of Queen's Bench of
Alberta.
(b) The arbitrator or arbitrators shall proceed immediately to hear and
determine the question or questions in dispute. The decision of the
single arbitrator shall be made within forty-five (45) days after
that arbitrator's appointment, subject to any reasonable delay due
to unforeseen circumstances. The decision of the arbitrators, or a
majority of them, shall be made within forty-five (45) days after
the appointment of the third (3rd) arbitrator, subject to any
reasonable delay due to unforeseen circumstances. However, in the
event the single arbitrator fails to make a decision within sixty
(60) days after their appointment or if the arbitrators, (or a
majority of them), fail to make a decision within sixty (60) days
after the appointment of the third (3rd) arbitrator, then either
party may elect to choose a new arbitrator or arbitrators as if none
had previously been selected.
(c) The decision of the arbitrator or arbitrators (or a majority of
them), shall be drawn up in writing and signed by the single
arbitrator or by the arbitrators (or a majority of them) and shall
be final and binding upon the parties on any question or questions
submitted to arbitration. The parties agree to perform the terms and
conditions of this decision.
(d) The compensation and expenses of a single arbitrator or a third
(3rd) arbitrator shall be paid in equal portions by Buyer and
Seller, and Buyer and Seller shall each pay the compensation and
expenses of its named arbitrator when three (3) arbitrators are
selected.
<PAGE>
- 32-
ARTICLE XVII - NOTICES
17.01 Every notice, statement or bill provided for in this Contract shall be in
writing and delivered personally, by courier, first class mail, or facsimile to
such party's address as follows:
Seller: Neutrino Resources Inc.
1400, 300 - 5th Avenue S.W.
Calgary, Alberta
T2P 3C4
Buyer: ProGas Limited
3300, 400 Third Avenue S.W.
Calgary, Alberta
T2P 4H2
Either party may change its address from time to time by giving written
notice of the change to the other party. Any notice, statement or bill or other
document delivered by mail shall be deemed to have been effectively delivered to
the addressee at the end of the fifth (5th) business day after the date of
mailing. Any notice, statement, bill or other document delivered by hand or
courier shall be deemed delivered when delivered to the addressee and confirmed
by record of the party making the delivery. In the case of a transmission by
telecopy or other similar means, delivery shall be when receipt has been
verified. Whenever possible, all notices shall first be delivered by telex,
telecopier or courier.
ARTICLE XVIII - OTHER
18.01 NON-WAIVER OF FUTURE DEFAULT
No waiver by Buyer or Seller of any default by the other under this
Contract shall operate as a waiver of a future default, whether of a similar or
different character.
<PAGE>
- 33 -
18.02 ASSIGNMENT
This Contract shall bind and enure to the respective successors and
assigns of the parties, but no assignment shall release either party from its
obligations without the written consent of the other party which consent shall
not be unreasonably withheld. Nothing in this Contract shall prevent either
party from pledging or mortgaging its rights as security for its indebtedness.
18.03 HEADINGS
The headings used in this Contract are inserted for reference purposes
only and are not to be considered or taken into account in construing the terms
or provisions of any Article and are not to be deemed in any way to modify,
explain or qualify the effect of any terms or provisions.
18.04 UNITS OF MEASUREMENT
All units of measurement in this Contract are and shall be expressed in
the International System of Units (SI units). In some cases, Imperial units have
been indicated in parenthesis for reference purposes only. In the case of a
discrepancy between the indicated values, the SI units shall be taken as
correct.
18.05 NUMERICAL REFERENCES
Unless the context otherwise requires, words importing the singular
include the plural and vice versa.
18.06 TIME OF ESSENCE
Time shall be of the essence.
18.07 USAGE OR CUSTOM
Words, phrases or expressions which are not defined and which have an
accepted meaning in the usage or custom of the business of exploration,
development, production, transportation, distribution or sale of gas shall have
that meaning.
<PAGE>
- 34 -
18.08 SEVERANCE
If any provision of this Contract shall be held invalid, illegal or
unenforceable to any extent and for any reason by a court of competent
jurisdiction, the remainder of this Contract shall not be affected and shall be
enforceable to the full extent permitted by law.
18.09 ENTIRE AGREEMENT
The Contract shall be the entire agreement and there is no representation,
warranty, collateral agreement or condition affecting this Contract except as
expressed in it. Any amendment or modification shall be in writing executed by
the parties.
18.10 EXECUTION IN COUNTERPART
This Contract may be executed in counterpart, no one copy of which need be
executed by all parties. When a counterpart has been executed by each of the
parties, all copies together shall constitute one agreement and shall be a valid
and binding agreement among the parties as of the day and year first written
above.
THEREFORE, the parties have executed this Gas Purchase Contract, effective as of
the date first written above.
NEUTRINO RESOURCES INC.
Per: /s/ DAVID BECKWERMERT
Title: Executive Vice President
Per:________________________________
Title: _____________________________
Date Executed:______________________
PROGAS LIMITED
Per:________________________________
Title: _____________________________
Per:________________________________
Title: _____________________________
Execution Date:_____________________
<PAGE>
- 35 -
This page is the execution page to a Gas Purchase Contract dated November 1,
1997 between Neutrino Resources Inc. and ProGas Limited in the Pine
Creek/Windfall Area.
<PAGE>
- 36 -
SCHEDULE "X"
Annualized ProGas Netback compared to Alberta Reference Price
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
L Load Factor Average +Avg.-2% +2%-4% +4%-6% +6%-8% +8%-10% +10%-12% +12%-14% +14%-16% +16%-18% 18% &
-% =ARP Above
O 97.6-100 3 3.1 3.2 3.3 3.5 3.75 4 4.25 4.5 4.75 5
A 95.1-97.5 3 3.1 3.2 3.3 3.5 3.75 4 4.25 4.5 4.75 5
D 92.6-95 3 3.1 3.2 3.3 3.5 3.75 4 4.25 4.5 4.75 5
90.1-92.5 3 3.1 3.2 3.3 3.5 3.75 4 4.25 4.5 4.75 5
F 87.6-90.0 3 3.1 3.2 3.3 3.5 3.75 4 4.25 4.5 4.75 5
A 85.1-87.5 3 3.1 3.2 3.3 3.5 3.75 4 4.25 4.5 4.75 5
C 82.6-85.0 3 3.1 3.2 3.3 3.5 3.75 4 4.25 4.5 4.75 5
T 80.0-82.5 BASE 3.1 3.2 3.3 3.5 3.75 4 4.25 4.5 4.75 5
REVENUE
O 77.6-79.9 3.2 3.3 3.5 3.75 4 4.25 4.5 4.75 5
R Below 77.6 3.5 3.75 4 4.25 4.5 4.75 5
PRICE
</TABLE>
<PAGE>
1
EXHIBIT "A"
To a Gas Purchase Contract made as of the ____ day of ___________________,
19______, between , as "Seller", and ProGas Limited, as "Buyer" in the Area.
- --------------------------------------------------------------------------------
Seller owns or controls in the stated percentage interest(s) in the following
described lands and zones in the Area in the Province of Alberta:
- --------------------------------------------------------------------------------
LEGAL DESCRIPTION ZONE(S) SELLER'S INTERESTS
- ----------------- ------- ------------------
Township 057, Range 18, W5M
All Zones to Base 90.5794%
of Bluesky-Bullhead
All of Section 15
Township 057, Range 18, W5M
All Zones to Base 37.6343%
of Bluesky-Bullhead
All of Section 16
<PAGE>
EXHIBIT "B"
To a Gas Purchase Contract made as of the 1st day of November, 1997, between
Neutrino Resources Inc., as "Seller", and ProGas Limited, as "Buyer" in the Pine
Creek/Windfall area.
FIELD Receipt Point Target Date of First Initial DCQ
Delivery Deliverability 103M3/D
103m3/d
Pine Creek/
Windfall Edson #1064 November 1, 1997 115.0 115.0
================ ============== =================== ================ =========
Aggregate DCQ as at November 1, 1997 =115.0 103m3/d
Exhibit "B" as at November 1, 1997
EMPLOYMENT AGREEMENT
BETWEEN
DAVID W. BECKWERMERT
AND
NEUTRINO RESOURCES INC.
MADE AS OF
JULY 1, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
EMPLOYMENT.......................................................1
1.1 Employment.................................................1
1.2 Term of Employment.........................................2
1.3 Place of Employment........................................2
ARTICLE 2
REMUNERATION.....................................................2
2.1 Salary.....................................................2
2.2 Benefits...................................................2
2.3 Vacation...................................................2
2.4 Expenses...................................................2
2.5 Stock Option Grant.........................................3
ARTICLE 3
EMPLOYEE BENEFIT PLAN............................................3
3.1 Contribution...............................................3
3.2 Custodian..................................................3
3.3 Entitlement................................................3
3.4 Termination................................................3
3.5 Change of Control..........................................4
ARTICLE 4
EMPLOYEE'S COVENANTS.............................................4
4.1 Service....................................................4
4.2 Duties and Responsibilities................................4
4.3 Rules and Regulations......................................4
4.4 Non-Disclosure.............................................4
4.5 Inventions and Patents.....................................4
ARTICLE 5
TERMINATION OF EMPLOYMENT........................................5
5.1 Termination by Employer for Cause..........................5
5.2 Termination by Employee on Notice..........................5
5.3 Termination by Employer on Notice..........................5
5.4 Fair and Reasonable........................................5
5.5 Return of Property.........................................5
5.6 Non-Solicitation of Employees..............................6
5.7 Provisions Which Operate Following Termination.............6
5.8 Definition in "Change in Control"..........................6
ARTICLE 6
RENEWAL OF AGREEMENT.............................................7
6.1 Automatic Renewal..........................................7
6.2 Non-Renewal................................................7
ARTICLE 7
GENERAL..........................................................7
7.1 Sections and Headings......................................7
7.2 Number.....................................................7
7.3 Schedules..................................................7
7.4 Benefit of Agreement.......................................7
<PAGE>
ii
7.5 Entire Agreement...........................................8
7.6 Amendments and Waivers.....................................8
7.7 Severability...............................................8
7.8 Notices....................................................8
7.9 Governing Law..............................................9
7.10 Attornment.................................................9
7.11 Copy of Agreement..........................................9
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of July 1, 1998
BETWEEN:
DAVID W. BECKWERMERT, of the City of Calgary in the
Province of Alberta (hereinafter referred to as the "Employee"),
OF THE FIRST PART
- and -
NEUTRINO RESOURCES INC., a corporation incorporated under
the laws of Alberta (hereinafter referred to as the "Employer"),
OF THE SECOND PART
WHEREAS the Employee has held the position of Executive Vice
President with the Employer under the terms of a prior employment agreement with
the Employee made as of December 1, 1997 (the "Prior Agreement");
AND WHEREAS the Employer has been subject to a Change of Control, as
defined in the Prior Agreement, as a result of a successful offer for the
Employer's shares by Southern Mineral Corporation ("SMC"), or a wholly-owned
subsidiary of SMC;
AND WHEREAS the said Change of Control has triggered certain rights
and obligations for the Employer and the Employee, if the Employee elects to
terminate his employment under the Prior Agreement;
AND WHEREAS the Employer and the Employee wish to continue to the
employment relationship on the terms and conditions set out in this agreement
(the "Agreement").
NOW THEREFORE in consideration of the covenants and agreements
herein contained, the parties agree as follows:
ARTICLE 1
EMPLOYMENT
1.1 EMPLOYMENT
The Employee agrees to continue employment with the Employer and the
Employee specifically waives any rights that have accrued or may accrue to the
Employee under the Prior Agreement, and subject to the terms and conditions
herein contained, the Employee shall be employed by the Employer as President
and Chief Operating Officer, reporting to the Board of
<PAGE>
Directors, and shall perform such duties and exercise such powers related
thereto as may from time to time be assigned to him by the Employer. The
Employee shall sit as a member of the Board of Directors of the Employer, and of
SMC, until the next Annual General Meeting of each respective organization.
1.2 TERM OF EMPLOYMENT
The employment of the Employee hereunder shall commence on July 1,
1998 and shall be for a period of 1 year to terminate on June 30, 1999, subject
to any renewal of this Agreement pursuant to Section 6.1 and subject to earlier
termination of this Agreement pursuant to Article 5.
1.3 PLACE OF EMPLOYMENT
The Employee shall perform his work and services for the Employer or
for such other person as may be authorized by the Employer from time to time in
Calgary, Alberta and the Employee shall reside within a reasonable daily
commuting distance of such place of employment provided that the Employee shall
also perform his work and services in such other places within Canada as the
Employer may require from time to time.
ARTICLE 2
REMUNERATION
2.1 SALARY
The Employer shall pay the Employee during the term of this
Agreement a gross annual salary of $160,000.00 (Cdn.) payable monthly in arrears
(the "Base Salary"). Such Base Salary shall be reviewed by the parties prior to
any renewal of this Agreement and any changes in such Base Salary shall be as
agreed upon in writing between the parties.
2.2 BENEFITS
The Employee will be entitled to participate in all of the
Employer's insurance and perquisite plans generally available to its employees
from time to time in accordance with the terms thereof. The Employee will also
be entitled to participate in the Employee Benefit Plan described in Article 3
hereof.
2.3 VACATION
During the term of this Agreement the Employee shall be entitled to
four weeks vacation per annum. Such vacation shall be taken at a time or times
acceptable to the Employer having regard to its operations.
2.4 EXPENSES
The Employee shall be reimbursed for all authorized travelling and
other out-of-pocket expenses actually and properly incurred by him in connection
with his duties hereunder. For all such expenses the Employee shall furnish to
the Employer statements and vouchers as and when required by the Employer.
<PAGE>
2.5 STOCK OPTION GRANT
The Employee shall be entitled to a grant, on or shortly following
the signing of this Agreement, to 200,000 options to purchase common shares in
the capital stock of Southern Mineral Corporation (the "Options") at a strike
price of $3.75 (U.S.) per Option, which Options shall be awarded for a five-year
term, from the date of the grant, vesting as to one-third (1/3) of the grant on
the first anniversary date of this Agreement, and as to a further one-third
(1/3) on each of the next two subsequent anniversary dates, and which Options
shall be subject to the terms and conditions of the applicable SMC Stock Option
Agreement.
Notwithstanding the vesting provisions provided herein, in the event
of a change of control as defined in Section 5.8 hereof, all options granted
under this Section 2.5 shall immediately vest, to the extent that they have not
earlier vested, as of the effective date of the change of control.
ARTICLE 3
EMPLOYEE BENEFIT PLAN
3.1 CONTRIBUTION
The Employer agrees to contribute on or before July 10, 1998, 86,333
common shares of SMC to a custodian for the benefit of the Employee, in an
arrangement intended to be an Employee Benefit Plan within the meaning of
Section 248 of the INCOME TAX ACT (Canada).
3.2 CUSTODIAN
The parties hereto agree that the law firm of Burnet, Duckworth &
Palmer, or such other mutually-acceptable party, shall act as custodian of the
shares of SMC that have been contributed and transferred pursuant to Section 3.1
subject to the terms of a satisfactory Escrow Agreement.
3.3 ENTITLEMENT
The Employee shall be entitled to receive from the custodian, as a
bonus for entering into this Agreement and rendering services to the Employer in
accordance with this Agreement, the shares so contributed as follows:
a. If the Employee is employed by the Employer in accordance with the terms
of this Agreement throughout the period commencing July 1, 1998, and
ending June 30, 1999, 50% of the shares of SMC contributed by the Employer
to the custodian hereunder, which shall be delivered on July 2, 1999; and
b. If the Employee continues to be employed by the Employer in accordance
with the terms of this agreement throughout the period commencing July 1,
1999, and ending June 30,
<PAGE>
2000, the remaining shares of SMC contributed by the Employer to the
custodian hereunder which shall be delivered on July 2, 2000.
3.4 TERMINATION
In the event the Employee terminates his employment with the
Employer or in the event the Employee is terminated for cause, the Employee's
right to receive shares from the Employee Benefit Plan described in this Article
3 shall not terminate, but the employee shall not receive delivery of the SMC
shares contributed by the Employer to the custodian, to the extent they may not
have been delivered as of the Termination date, until July 2, 2000.
3.5 CHANGE OF CONTROL
In the event that SMC undergoes a change of control as defined in
Section 5.8 hereof, the Employee shall be entitled to the immediate receipt from
the custodian of all shares of SMC held by the custodian on his behalf.
ARTICLE 4
EMPLOYEE'S COVENANTS
4.1 SERVICE
Except as set forth in Schedule "A" hereto and as may otherwise may
be agreed to by the Employer, the Employee shall devote the whole of his time,
attention and ability to the business of the Employer or to the business of any
other person as authorized by the employer and shall well and faithfully serve
the Employer and shall use his best efforts to promote the interests of the
Employer.
4.2 DUTIES AND RESPONSIBILITIES
The Employee shall duly and diligently perform all the duties
assigned to him while in the employ of the Employer, and shall truly and
faithfully account for and deliver to the Employer all money, securities and
things of value belonging to the Employer which the Employee may from time to
time receive for, from or on account of the Employer.
4.3 RULES AND REGULATIONS
The Employee shall be bound by and shall faithfully observe and
abide by all the rules and regulations of the Employer from time to time in
force which are brought to his notice or of which he should reasonably be aware.
4.4 NON-DISCLOSURE
The Employee shall not (either during the continuance of the
employment or at any time thereafter) disclose any information relating to the
private or confidential affairs of the Employer or relating to any secrets of
the Employer to any person other than for
<PAGE>
the Employer s purposes and, without limiting the generality of the foregoing,
the Employee shall not (either during the continuance of the employment or one
year thereafter) disclose to any person other than for the Employer's purposes
and shall not (either during the continuance of the employment or one year
thereafter) use for his own purposes or for any purposes other than those of the
Employer any such information or secrets he may acquire in relation to the
business of oil and gas exploration and production.
4.5 INVENTIONS AND PATENTS
In the event the Employee contributes to any patentable invention
arising out of or in the course of his employment hereunder, any such patentable
invention shall be the exclusive property of the Employer and the Employer shall
have the exclusive right to file patent applications in the name of the Employer
in connection therewith and the Employee shall co-operate with the Employer and
provide all necessary assistance in the filing and prosecution of such patent
applications.
ARTICLE 5
TERMINATION OF EMPLOYMENT
5.1 TERMINATION BY EMPLOYER FOR CAUSE
The Employer may terminate this Agreement at any time for cause
without payment of any compensation either by way of anticipated earnings or
damages of any kind.
5.2 TERMINATION BY EMPLOYEE ON NOTICE
The Employee may terminate this Agreement upon the giving of 30 days
written notice to the Employer without payment by the Employer of any
compensation either by way of anticipated earnings or damages of any kind.
5.3 TERMINATION BY EMPLOYER ON NOTICE
The Employer may terminate this Agreement by non-renewal as set out
in Article 6.2 or upon the giving of sixty (60) days written notice to the
Employee. Upon such termination or non-renewal of this Agreement by the
Employer:
a. Employer shall pay to the Employee the greater of: (i) the Employee's Base
Salary for the sixty (60) day notice period; and (ii) the amount of
remaining Base Salary not yet paid but which would have been paid to the
end of the then current term of this Agreement;
b. notwithstanding Article 3 hereof, the Employee shall continue to be
eligible for receipt of SMC shares, under the Employment Benefit Plan
described in Article 3 hereof, subject to the following:
i. should the termination or non-renewal occur during the first year
following the Effective Date of this Agreement, all of the shares
contributed thereunder shall be delivered to the Employee on the
first anniversary date of this Agreement; or
<PAGE>
ii. should the termination or non-renewal occur on or following the
first anniversary date of this Agreement, all of the shares
contributed thereunder shall be immediately delivered to the
Employee;
c. all other benefits of employment shall cease at the earlier of the
effective date of written notice, non-renewal or the date that the
Employee is last actively at work, and the Employer retains the right, at
its sole discretion, to waive the requirement to have the Employee
attend at work or perform any further duties for the Employer for the
remaining period of the written notice or the term of this Agreement, as
the case may be.
5.4 FAIR AND REASONABLE
The parties confirm that the notice, pay in lieu of notice and
settlement provisions contained in this Article are fair and reasonable and the
parties agree that upon any termination of this Agreement by the Employer in
compliance with Sections 5.1 or 5.3 or upon any termination of this Agreement by
the Employee, the Employee shall have no action, cause of action, claim or
demand against the Employer or any other person as a consequence of such
termination.
5.5 RETURN OF PROPERTY
Upon any termination of this Agreement the Employee shall at once
deliver or cause to be delivered to the Employer all books, documents, effects,
moneys securities or other property belonging to the Employer or for which the
Employer is liable to others, which are in the possession, charge, control or
custody of the Employee.
5.6 NON-SOLICITATION OF EMPLOYEES
The Employee acknowledges and agrees that, as a senior executive of
the Employer, the Employee has fiduciary obligations to the Employer which
include the protection of the Employer's best interests both during and after
the term of employment and this Agreement. Without limiting the generality of
this duty, the Employee specifically agrees to refrain during the term of this
Agreement or the term of any employment with the Employer, and in the event of
termination of employment or this Agreement for any reason for period of one (1)
year thereafter, from:
a. hiring or contracting (directly or indirectly), or
b. inducing or attempting to influence the termination of
any employee, contractor or consultant of the Employer (or its subsidiaries
and/or other affiliated entities and/or its parent organization).
5.7 PROVISIONS WHICH OPERATE FOLLOWING TERMINATION
Notwithstanding any termination of this Agreement for any reason
whatsoever and with or without cause, the provisions of Sections 4.4, 4.5, 5.4
and 5.6 of this Agreement and any other provisions of this Agreement necessary
to give efficacy thereto shall continue in full force and effect following such
termination.
<PAGE>
5.8 DEFINITION IN "CHANGE IN CONTROL"
For purposes of this Agreement the expression "change in control" of
SMC shall mean the events specified in subparagraphs (a) and (b) shall have
occurred and the change in control will be deemed to take effect on the later of
the two events:
a. the direct or indirect acquisition by any person or group of associated
persons acting in concert, of any aggregate of more than 40% of the
outstanding voting shares including securities which on conversion to
voting shares would be more than 40% of the outstanding voting shares; and
b. within a 12 month period following the event described in sub-paragraph
(a) any single change or series of changes in the composition of the Board
of Directors of SMC resulting in a majority of the directors of SMC as of
the date four months prior to the change in control under sub-paragraph
(a) of this paragraph, ceasing to constitute a majority of the directors
of SMC.
ARTICLE 6
RENEWAL OF AGREEMENT
6.1 AUTOMATIC RENEWAL
This Agreement shall continue for successive periods of one year's
duration on the same terms and conditions of employment or on such terms and
conditions of employment as are agreed upon in writing between the parties
unless the Employer has given at least 60 days written notice to the Employee
that this Agreement is to terminate at the end of the initial period of one year
or at the end of any successive period of one year.
6.2 NON-RENEWAL
In the event that the Employer gives written notice that this
Agreement is to terminate at the end of the initial period of one year or any
successive period of one year as set forth in Section 6.1 hereof, this Agreement
shall expire and the employment hereunder shall terminate at the end of the
initial period of one year or that successive period of one year for which it
was last renewed pursuant to Section 6.1 hereof, as the case may be, and the
Employee shall be entitled to those amounts payable to the Employee as if he
were terminated by the Employer pursuant to Section 5.3 hereof.
ARTICLE 7
GENERAL
7.1 SECTIONS AND HEADINGS
The division of this Agreement into Articles and Sections and the
insertion of headings are for the convenience of reference only and shall not
affect the construction or interpretation of this Agreement. The terms "this
Agreement", "hereof , "hereunder" and similar expressions refer to this
Agreement and not to any particular Article, Section or other portion hereof and
include any agreement or instrument supplemental or ancillary hereto. Unless
something in
<PAGE>
the subject matter or context is inconsistent therewith, references herein to
Articles and Sections are to Articles and Sections of this Agreement.
7.2 NUMBER
In this Agreement words importing the singular number only shall
include the plural and VICE VERSA and words importing the masculine gender shall
include the feminine and neuter genders and VICE VERSA and words importing
persons shall include individuals, partnerships, associations, trusts,
unincorporated organizations and corporations and VICE VERSA.
7.3 SCHEDULES
The following Schedule is annexed hereto and incorporated by
reference and deemed to be part hereof:
Schedule A - Outside Interests
7.4 BENEFIT OF AGREEMENT
This Agreement shall enure to the benefit of and be binding upon the
heirs, executors, administrators and legal personal representatives of the
Employee and the successors and permitted assigns of the Employer respectively.
7.5 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and cancels and supersedes any prior
understandings and agreements between the parties hereto with respect thereto
and in particular, this Agreement cancels and supersedes the Prior Agreement.
There are no representations, warranties, forms, conditions, undertakings or
collateral agreements, express, implied or statutory between the parties other
than as expressly set forth in this Agreement.
7.6 AMENDMENTS AND WAIVERS
No amendment to this Agreement shall be valid or binding unless set
forth in writing and duly executed by both of the parties hereto. No waiver of
any breach of any provision of this Agreement shall be effective or binding
unless made in writing and signed by the party purporting to give the same and,
unless otherwise provided in the written waiver, shall be limited to the
specific breach waived.
7.7 SEVERABILITY
If any provision of this Agreement is determined to be invalid or
unenforceable in whole or in part, such invalidity or unenforceability shall
attach only to such provision or part thereof and the remaining part of such
provision and all other provisions hereof shall continue in full force and
effect.
<PAGE>
7.8 NOTICES
Any demand, notice or other communication (hereinafter in this
Section 7.8 referred to as a "Communication") to be given in connection with
this Agreement shall be given in writing and may be given by personal delivery
or by registered mail addressed to the recipient as follows:
To the Employee:
David W. Beckwermert
96 Sunmount Road S.E.
Calgary, Alberta
T2X 2M6
To the Employer:
Neutrino Resources Inc.
c/o Southern Mineral Corporation
1201 Louisiana Street, Suite 3350
Houston, Texas 77002-5609
U.S.A.
Attention: Steve Mikel
or such other address or individual as may be designated by notice by either
party to the other. Any Communication given by personal delivery shall be
conclusively deemed to have been given on the day of actual delivery thereof
and, if made or given by registered mail, on the 3rd day, other than a Saturday,
Sunday or statutory holiday in Alberta, following the deposit thereof in the
mail. If the party giving any communication knows or ought reasonably to know of
any difficulties with the postal system which might affect the delivery of mail,
any such Communication shall not be mailed but shall be given by personal
delivery.
7.9 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Alberta and the laws of Canada applicable therein.
7.10 ATTORNMENT
For the purpose of all legal proceedings this Agreement shall be
deemed to have been performed in the Province of Alberta and the courts of the
Province of Alberta shall have jurisdiction to entertain any action arising
under this Agreement. The Employer and the Employee each hereby attorns to the
jurisdiction of the courts of the Province of Alberta provided that nothing
herein contained shall prevent the Employer from proceeding at its election
against the Employee in the courts of any other province or country.
<PAGE>
7.11 COPY OF AGREEMENT
The Employee hereby acknowledges receipt of a copy of this Agreement
duly signed by the Employer.
IN WITNESS WHEREOF the parties have executed this Agreement.
SIGNED, SEALED AND DELIVERED in )
the presence of: )
)
)
- ------------------------------- ) -----------------------------
Witness ) DAVID W. BECKWERMERT
NEUTRINO RESOURCES INC.
Per:__________________________
Per:__________________________
<PAGE>
SCHEDULE "A"
OUTSIDE INTERESTS
Director of Standworks Inc., a company that specializes in self-help and
personal development.
Ownership of minor oil and gas producing properties.
EMPLOYMENT AGREEMENT
BETWEEN
JEFFREY W.C. ARSENYCH
AND
NEUTRINO RESOURCES INC.
MADE AS OF
JULY 1, 1998
<PAGE>
i
TABLE OF CONTENTS
ARTICLE 1
EMPLOYMENT.......................................................1
1.1 Employment.................................................1
1.2 Term of Employment.........................................2
1.3 Place of Employment........................................2
ARTICLE 2
REMUNERATION.....................................................2
2.1 Salary.....................................................2
2.2 Benefits...................................................2
2.3 Vacation...................................................2
2.4 Expenses...................................................2
2.5 Stock Option Grant.........................................3
ARTICLE 3
EMPLOYEE BENEFIT PLAN............................................3
3.1 Contribution...............................................3
3.2 Custodian..................................................3
3.3 Entitlement................................................3
3.4 Termination................................................3
3.5 Change of Control..........................................4
ARTICLE 4
EMPLOYEE'S COVENANTS.............................................4
4.1 Service....................................................4
4.2 Duties and Responsibilities................................4
4.3 Rules and Regulations......................................4
4.4 Non-Disclosure.............................................4
4.5 Inventions and Patents.....................................4
ARTICLE 5
TERMINATION OF EMPLOYMENT........................................5
5.1 Termination by Employer for Cause..........................5
5.2 Termination by Employee on Notice..........................5
5.3 Termination by Employer on Notice..........................5
5.4 Fair and Reasonable........................................5
5.5 Return of Property.........................................5
5.6 Non-Solicitation of Employees..............................6
5.7 Provisions Which Operate Following Termination.............6
5.8 Definition in "Change in Control"..........................6
ARTICLE 6
RENEWAL OF AGREEMENT.............................................7
6.1 Automatic Renewal..........................................7
6.2 Non-Renewal................................................7
ARTICLE 7
GENERAL..........................................................7
7.1 Sections and Headings......................................7
7.2 Number.....................................................7
7.3 Schedules..................................................7
7.4 Benefit of Agreement.......................................7
<PAGE>
ii
7.5 Entire Agreement...........................................8
7.6 Amendments and Waivers.....................................8
7.7 Severability...............................................8
7.8 Notices....................................................8
7.9 Governing Law..............................................9
7.10 Attornment.................................................9
7.11 Copy of Agreement..........................................9
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of July 1, 1998
BETWEEN:
JEFFREY W.C. ARSENYCH, of the City of Calgary in the
Province of Alberta (hereinafter referred to as the "Employee"),
OF THE FIRST PART
- and -
NEUTRINO RESOURCES INC., a corporation incorporated under
the laws of Alberta (hereinafter referred to as the "Employer"),
OF THE SECOND PART
WHEREAS the Employee has held the position of President & Chief
Executive Officer with the Employer under the terms of a prior employment
agreement with the Employee made as of December 1, 1997 (the "Prior Agreement");
AND WHEREAS the Employer has been subject to a Change of Control, as
defined in the Prior Agreement, as a result of a successful offer for the
Employer's shares by Southern Mineral Corporation ("SMC"), or a wholly-owned
subsidiary of SMC;
AND WHEREAS the said Change of Control has triggered certain rights
and obligations for the Employer and the Employee, if the Employee elects to
terminate his employment under the Prior Agreement;
AND WHEREAS the Employer and the Employee wish to continue to the
employment relationship on the terms and conditions set out in this agreement
(the "Agreement").
NOW THEREFORE in consideration of the covenants and agreements
herein contained, the parties agree as follows:
ARTICLE 1
EMPLOYMENT
1.1 EMPLOYMENT
The Employee agrees to continue employment with the Employer and the
Employee specifically waives any rights that have accrued or may accrue to the
Employee under the Prior Agreement, and subject to the terms and conditions
herein contained, the Employee shall be employed by the Employer as Chairman and
Chief Executive Officer, reporting to the Board of
<PAGE>
2
Directors, and shall perform such duties and exercise such powers related
thereto as may from time to time be assigned to him by the Employer. The
Employee shall sit as a member of the Board of Directors of the Employer, and of
SMC, until the next Annual General Meeting of each respective organization.
1.2 TERM OF EMPLOYMENT
The employment of the Employee hereunder shall commence on July 1,
1998 and shall be for a period of 1 year to terminate on June 30, 1999, subject
to any renewal of this Agreement pursuant to Section 6.1 and subject to earlier
termination of this Agreement pursuant to Article 5.
1.3 PLACE OF EMPLOYMENT
The Employee shall perform his work and services for the Employer or
for such other person as may be authorized by the Employer from time to time in
Calgary, Alberta and the Employee shall reside within a reasonable daily
commuting distance of such place of employment provided that the Employee shall
also perform his work and services in such other places within Canada as the
Employer may require from time to time.
ARTICLE 2
REMUNERATION
2.1 SALARY
The Employer shall pay the Employee during the term of this
Agreement a gross annual salary of $170,000.00 (Cdn.) payable monthly in arrears
(the "Base Salary"). Such Base Salary shall be reviewed by the parties prior to
any renewal of this Agreement and any changes in such Base Salary shall be as
agreed upon in writing between the parties.
2.2 BENEFITS
The Employee will be entitled to participate in all of the
Employer's insurance and perquisite plans generally available to its employees
from time to time in accordance with the terms thereof. The Employee will also
be entitled to participate in the Employee Benefit Plan described in Article 3
hereof.
2.3 VACATION
During the term of this Agreement the Employee shall be entitled to
four weeks vacation per annum. Such vacation shall be taken at a time or times
acceptable to the Employer having regard to its operations.
2.4 EXPENSES
The Employee shall be reimbursed for all authorized travelling and
other out-of-pocket expenses actually and properly incurred by him in connection
with his duties
<PAGE>
3
hereunder. For all such expenses the Employee shall furnish to the Employer
statements and vouchers as and when required by the Employer.
2.5 STOCK OPTION GRANT
The Employee shall be entitled to a grant, on or shortly following
the signing of this Agreement, to 200,000 options to purchase common shares in
the capital stock of Southern Mineral Corporation (the "Options") at a strike
price of $3.75 (U.S.) per Option, which Options shall be awarded for a five-year
term, from the date of the grant, vesting as to one-third (1/3) of the grant on
the first anniversary date of this Agreement, and as to a further one-third
(1/3) on each of the next two subsequent anniversary dates, and which Options
shall be subject to the terms and conditions of the applicable SMC Stock Option
Agreement.
Notwithstanding the vesting provisions provided herein, in the event
of a change of control as defined in Section 5.8 hereof, all options granted
under this Section 2.5 shall immediately vest, to the extent that they have not
earlier vested, as of the effective date of the change of control.
ARTICLE 3
EMPLOYEE BENEFIT PLAN
3.1 CONTRIBUTION
The Employer agrees to contribute on or before July 10, 1998,
144,406 common shares of SMC to a custodian for the benefit of the Employee, in
an arrangement intended to be an Employee Benefit Plan within the meaning of
Section 248 of the INCOME TAX ACT (Canada).
3.2 CUSTODIAN
The parties hereto agree that the law firm of Burnet, Duckworth &
Palmer, or such mutually-acceptable party, shall act as custodian of the shares
of SMC that have been contributed and transferred pursuant to Section 3.1
subject to the terms of a satisfactory Escrow Agreement.
3.3 ENTITLEMENT
The Employee shall be entitled to receive from the custodian, as a
bonus for entering into this Agreement and rendering services to the Employer in
accordance with this Agreement, the shares so contributed as follows:
a. If the Employee is employed by the Employer in accordance with the terms
of this Agreement throughout the period commencing July 1, 1998, and
ending June 30, 1999, 50% of the shares of SMC contributed by the Employer
to the custodian hereunder, which shall be delivered on July 2, 1999; and
b. If the Employee continues to be employed by the Employer in accordance
with the terms of this agreement throughout the period commencing July
1,1999, and ending June 30, 2000, the remaining shares of SMC contributed
by the Employer to the custodian hereunder which shall be delivered on
July 2, 2000.
<PAGE>
4
3.4 TERMINATION
In the event the Employee terminates his employment with the
Employer or in the event the Employee is terminated for cause, the Employee's
right to receive shares from the Employee Benefit Plan described in this Article
3 shall not terminate, but the employee shall not receive delivery of the SMC
shares contributed by the Employer to the custodian, to the extent they may not
have been delivered as of the Termination date, until July 2, 2000.
3.5 CHANGE OF CONTROL
In the event that SMC undergoes a change of control as defined in
Section 5.8 hereof, the Employee shall be entitled to the immediate receipt from
the custodian of all shares of SMC held by the custodian on his behalf.
ARTICLE 4
EMPLOYEE'S COVENANTS
4.1 SERVICE
Except as set forth in Schedule "A" hereto and as may otherwise may
be agreed to by the Employer, the Employee shall devote the whole of his time,
attention and ability to the business of the Employer or to the business of any
other person as authorized by the employer and shall well and faithfully serve
the Employer and shall use his best efforts to promote the interests of the
Employer.
4.2 DUTIES AND RESPONSIBILITIES
The Employee shall duly and diligently perform all the duties
assigned to him while in the employ of the Employer, and shall truly and
faithfully account for and deliver to the Employer all money, securities and
things of value belonging to the Employer which the Employee may from time to
time receive for, from or on account of the Employer.
4.3 RULES AND REGULATIONS
The Employee shall be bound by and shall faithfully observe and
abide by all the rules and regulations of the Employer from time to time in
force which are brought to his notice or of which he should reasonably be aware.
4.4 NON-DISCLOSURE
The Employee shall not (either during the continuance of the
employment or at any time thereafter) disclose any information relating to the
private or confidential affairs of the Employer or relating to any secrets of
the Employer to any person other than for the Employer s purposes and, without
limiting the generality of the foregoing, the Employee shall not (either during
the continuance of the employment or one year thereafter) disclose to any person
other than for the Employer's purposes and shall not (either during the
continuance of the employment or one year thereafter) use for his own purposes
or for any purposes other than those of the Employer any
<PAGE>
5
such information or secrets he may acquire in relation to the business of oil
and gas exploration and production.
4.5 INVENTIONS AND PATENTS
In the event the Employee contributes to any patentable invention
arising out of or in the course of his employment hereunder, any such patentable
invention shall be the exclusive property of the Employer and the Employer shall
have the exclusive right to file patent applications in the name of the Employer
in connection therewith and the Employee shall co-operate with the Employer and
provide all necessary assistance in the filing and prosecution of such patent
applications.
ARTICLE 5
TERMINATION OF EMPLOYMENT
5.1 TERMINATION BY EMPLOYER FOR CAUSE
The Employer may terminate this Agreement at any time for cause
without payment of any compensation either by way of anticipated earnings or
damages of any kind.
5.2 TERMINATION BY EMPLOYEE ON NOTICE
The Employee may terminate this Agreement upon the giving of 30 days
written notice to the Employer without payment by the Employer of any
compensation either by way of anticipated earnings or damages of any kind.
5.3 TERMINATION BY EMPLOYER ON NOTICE
The Employer may terminate this Agreement by non-renewal as set out
in Article 6.2 or upon the giving of sixty (60) days written notice to the
Employee. Upon such termination or non-renewal of this Agreement by the
Employer:
a. Employer shall pay to the Employee the greater of: (i) the Employee's Base
Salary for the sixty (60) day notice period; and (ii) the amount of
remaining Base Salary not yet paid but which would have been paid to the
end of the then current term of this Agreement;
b. notwithstanding Article 3 hereof, the Employee shall continue to be
eligible for receipt of SMC shares, under the Employment Benefit Plan
described in Article 3 hereof, subject to the following:
i. should the termination or non-renewal occur during the first year
following the Effective Date of this Agreement, all of the shares
contributed thereunder shall be delivered to the Employee on the
first anniversary date of this Agreement; or
ii. should the termination or non-renewal occur on or following the
first anniversary date of this Agreement, all of the shares
contributed thereunder shall be immediately delivered to the
Employee;
<PAGE>
6
c. all other benefits of employment shall cease at the earlier of the
effective date of written notice, non-renewal or the date that the
Employee is last actively at work, and the Employer retains the right, at
its sole discretion, to waive the requirement to have the Employee attend
at work or perform any further duties for the Employer for the remaining
period of the written notice or the term of this Agreement, as the case
may be.
5.4 FAIR AND REASONABLE
The parties confirm that the notice, pay in lieu of notice and
settlement provisions contained in this Article are fair and reasonable and the
parties agree that upon any termination of this Agreement by the Employer in
compliance with Sections 5.1 or 5.3 or upon any termination of this Agreement by
the Employee, the Employee shall have no action, cause of action, claim or
demand against the Employer or any other person as a consequence of such
termination.
5.5 RETURN OF PROPERTY
Upon any termination of this Agreement the Employee shall at once
deliver or cause to be delivered to the Employer all books, documents, effects,
moneys securities or other property belonging to the Employer or for which the
Employer is liable to others, which are in the possession, charge, control or
custody of the Employee.
5.6 NON-SOLICITATION OF EMPLOYEES
The Employee acknowledges and agrees that, as a senior executive of
the Employer, the Employee has fiduciary obligations to the Employer which
include the protection of the Employer's best interests both during and after
the term of employment and this Agreement. Without limiting the generality of
this duty, the Employee specifically agrees to refrain during the term of this
Agreement or the term of any employment with the Employer, and in the event of
termination of employment or this Agreement for any reason for period of one (1)
year thereafter, from:
a. hiring or contracting (directly or indirectly), or
b. inducing or attempting to influence the termination of
any employee, contractor or consultant of the Employer (or its subsidiaries
and/or other affiliated entities and/or its parent organization).
5.7 PROVISIONS WHICH OPERATE FOLLOWING TERMINATION
Notwithstanding any termination of this Agreement for any reason
whatsoever and with or without cause, the provisions of Sections 4.4, 4.5, 5.4
and 5.6 of this Agreement and any other provisions of this Agreement necessary
to give efficacy thereto shall continue in full force and effect following such
termination.
<PAGE>
7
5.8 DEFINITION IN "CHANGE IN CONTROL"
For purposes of this Agreement the expression "change in control" of
SMC shall mean the events specified in subparagraphs (a) and (b) shall have
occurred and the change in control will be deemed to take effect on the later of
the two events:
a. the direct or indirect acquisition by any person or group of associated
persons acting in concert, of any aggregate of more than 40% of the
outstanding voting shares including securities which on conversion to
voting shares would be more than 40% of the outstanding voting shares; and
b. within a 12 month period following the event described in sub-paragraph
(a) any single change or series of changes in the composition of the Board
of Directors of SMC resulting in a majority of the directors of SMC as of
the date four months prior to the change in control under sub-paragraph
(a) of this paragraph, ceasing to constitute a majority of the directors
of SMC.
ARTICLE 6
RENEWAL OF AGREEMENT
6.1 AUTOMATIC RENEWAL
This Agreement shall continue for successive periods of one year's
duration on the same terms and conditions of employment or on such terms and
conditions of employment as are agreed upon in writing between the parties
unless the Employer has given at least 60 days written notice to the Employee
that this Agreement is to terminate at the end of the initial period of one year
or at the end of any successive period of one year.
6.2 NON-RENEWAL
In the event that the Employer gives written notice that this
Agreement is to terminate at the end of the initial period of one year or any
successive period of one year as set forth in Section 6.1 hereof, this Agreement
shall expire and the employment hereunder shall terminate at the end of the
initial period of one year or that successive period of one year for which it
was last renewed pursuant to Section 6.1 hereof, as the case may be, and the
Employee shall be entitled to those amounts payable to the Employee as if he
were terminated by the Employer pursuant to Section 5.3 hereof.
ARTICLE 7
GENERAL
7.1 SECTIONS AND HEADINGS
The division of this Agreement into Articles and Sections and the
insertion of headings are for the convenience of reference only and shall not
affect the construction or interpretation of this Agreement. The terms "this
Agreement", "hereof , "hereunder" and similar expressions refer to this
Agreement and not to any particular Article, Section or other portion hereof and
include any agreement or instrument supplemental or ancillary hereto. Unless
something in
<PAGE>
8
the subject matter or context is inconsistent therewith, references herein to
Articles and Sections are to Articles and Sections of this Agreement.
7.2 NUMBER
In this Agreement words importing the singular number only shall
include the plural and VICE VERSA and words importing the masculine gender shall
include the feminine and neuter genders and VICE VERSA and words importing
persons shall include individuals, partnerships, associations, trusts,
unincorporated organizations and corporations and VICE VERSA.
7.3 SCHEDULES
The following Schedule is annexed hereto and incorporated by
reference and deemed to be part hereof:
Schedule A - Outside Interests
7.4 BENEFIT OF AGREEMENT
This Agreement shall enure to the benefit of and be binding upon the
heirs, executors, administrators and legal personal representatives of the
Employee and the successors and permitted assigns of the Employer respectively.
7.5 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and cancels and supersedes any prior
understandings and agreements between the parties hereto with respect thereto
and in particular, this Agreement cancels and supersedes the Prior Agreement.
There are no representations, warranties, forms, conditions, undertakings or
collateral agreements, express, implied or statutory between the parties other
than as expressly set forth in this Agreement.
7.6 AMENDMENTS AND WAIVERS
No amendment to this Agreement shall be valid or binding unless set
forth in writing and duly executed by both of the parties hereto. No waiver of
any breach of any provision of this Agreement shall be effective or binding
unless made in writing and signed by the party purporting to give the same and,
unless otherwise provided in the written waiver, shall be limited to the
specific breach waived.
7.7 SEVERABILITY
If any provision of this Agreement is determined to be invalid or
unenforceable in whole or in part, such invalidity or unenforceability shall
attach only to such provision or part thereof and the remaining part of such
provision and all other provisions hereof shall continue in full force and
effect.
<PAGE>
9
7.8 NOTICES
Any demand, notice or other communication (hereinafter in this
Section 7.8 referred to as a "Communication") to be given in connection with
this Agreement shall be given in writing and may be given by personal delivery
or by registered mail addressed to the recipient as follows:
To the Employee:
Jeffrey W.C. Arsenych
1805, 1200 - 6th Street S.E.
Calgary, Alberta
T2R 1H3
To the Employer:
Neutrino Resources Inc.
c/o Southern Mineral Corporation
1201 Louisiana Street, Suite 3350
Houston, Texas 77002-5609
U.S.A.
Attention: Steve Mikel
or such other address or individual as may be designated by notice by either
party to the other. Any Communication given by personal delivery shall be
conclusively deemed to have been given on the day of actual delivery thereof
and, if made or given by registered mail, on the 3rd day, other than a Saturday,
Sunday or statutory holiday in Alberta, following the deposit thereof in the
mail. If the party giving any communication knows or ought reasonably to know of
any difficulties with the postal system which might affect the delivery of mail,
any such Communication shall not be mailed but shall be given by personal
delivery.
7.9 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Alberta and the laws of Canada applicable therein.
7.10 ATTORNMENT
For the purpose of all legal proceedings this Agreement shall be
deemed to have been performed in the Province of Alberta and the courts of the
Province of Alberta shall have jurisdiction to entertain any action arising
under this Agreement. The Employer and the Employee each hereby attorns to the
jurisdiction of the courts of the Province of Alberta provided that nothing
herein contained shall prevent the Employer from proceeding at its election
against the Employee in the courts of any other province or country.
<PAGE>
10
7.11 COPY OF AGREEMENT
The Employee hereby acknowledges receipt of a copy of this Agreement
duly signed by the Employer.
IN WITNESS WHEREOF the parties have executed this Agreement.
SIGNED, SEALED AND DELIVERED in )
the presence of: )
)
)
- ------------------------------- ) ------------------------------
Witness ) JEFFREY W.C. ARSENYCH
NEUTRINO RESOURCES INC.
Per:___________________________
Per:___________________________
<PAGE>
SCHEDULE "A"
OUTSIDE INTERESTS
Sessional instructor at the University of Calgary.
Occasional oil and gas seminar instructor.
Director of Kattner/FVB District Energy Inc., a company which provided
consulting services in district heating, cooling and cogeneration.
Director of VENOIL 2020, S.A. (a company 19.9% owned by Neutrino Resources
Inc.,), a company established in conjunction with certain Venezuelan
parties to pursue oil and gas exploitation projects in Venezuela.
Director and Secretary-Treasurer of Yamal Canada Energy Corporation (potentially
50% owned by Jeff Arsenych), a company being established in conjunction
with Valens Developments Ltd. (a company controlled by Messrs. Ron and
Brent Bullen) to pursue opportunities in the Russian Federation.
EMPLOYMENT AGREEMENT
BETWEEN
GORDON L. THOMPSON
AND
NEUTRINO RESOURCES INC.
MADE AS OF
JULY 1, 1998
<PAGE>
i
TABLE OF CONTENTS
ARTICLE 1
EMPLOYMENT.......................................................1
1.1 Employment.................................................1
1.2 Term of Employment.........................................2
1.3 Place of Employment........................................2
ARTICLE 2
REMUNERATION.....................................................2
2.1 Salary.....................................................2
2.2 Benefits...................................................2
2.3 Vacation...................................................2
2.4 Expenses...................................................2
2.5 Stock Option Grant.........................................3
ARTICLE 3
EMPLOYEE BENEFIT PLAN............................................3
3.1 Contribution...............................................3
3.2 Custodian..................................................3
3.3 Entitlement................................................3
3.4 Termination................................................3
3.5 Change of Control..........................................4
ARTICLE 4
EMPLOYEE'S COVENANTS.............................................4
4.1 Service....................................................4
4.2 Duties and Responsibilities................................4
4.3 Rules and Regulations......................................4
4.4 Non-Disclosure.............................................4
4.5 Inventions and Patents.....................................4
ARTICLE 5
TERMINATION OF EMPLOYMENT........................................5
5.1 Termination by Employer for Cause..........................5
5.2 Termination by Employee on Notice..........................5
5.3 Termination by Employer on Notice..........................5
5.4 Fair and Reasonable........................................5
5.5 Return of Property.........................................6
5.6 Non-Solicitation of Employees..............................6
5.7 Provisions Which Operate Following Termination.............6
5.8 Definition in "Change in Control"..........................6
ARTICLE 6
RENEWAL OF AGREEMENT.............................................7
6.1 Automatic Renewal..........................................7
6.2 Non-Renewal................................................7
ARTICLE 7
GENERAL..........................................................7
7.1 Sections and Headings......................................7
7.2 Number.....................................................7
7.3 Benefit of Agreement.......................................7
7.4 Entire Agreement...........................................8
<PAGE>
ii
7.5 Amendments and Waivers.....................................8
7.6 Severability...............................................8
7.7 Notices....................................................8
7.8 Governing Law..............................................9
7.9 Attornment.................................................9
7.10 Copy of Agreement..........................................9
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of July 1, 1998
BETWEEN:
GORDON L. THOMPSON, of the City of Calgary in the Province
of Alberta (hereinafter referred to as the "Employee"),
OF THE FIRST PART
- and -
NEUTRINO RESOURCES INC., a corporation incorporated under
the laws of Alberta (hereinafter referred to as the "Employer"),
OF THE SECOND PART
WHEREAS the Employee has held the position of Vice President,
Operations and Engineering with the Employer under the terms of a prior
employment agreement with the Employee made as of December 1, 1997 (the "Prior
Agreement");
AND WHEREAS the Employer has been subject to a Change of Control, as
defined in the Prior Agreement, as a result of a successful offer for the
Employer's shares by Southern Mineral Corporation ("SMC"), or a wholly-owned
subsidiary of SMC;
AND WHEREAS the said Change of Control has triggered certain rights
and obligations for the Employer and the Employee, if the Employee elects to
terminate his employment under the Prior Agreement;
AND WHEREAS the Employer and the Employee wish to continue to the
employment relationship on the terms and conditions set out in this agreement
(the "Agreement").
NOW THEREFORE in consideration of the covenants and agreements
herein contained, the parties agree as follows:
ARTICLE 1
EMPLOYMENT
1.1 EMPLOYMENT
The Employee agrees to continue employment with the Employer and the
Employee specifically waives any rights that have accrued or may accrue to the
Employee under the Prior Agreement, and subject to the terms and conditions
herein contained, the Employee shall be employed by the Employer as Vice
President, Operations and Engineering, reporting to the Board
<PAGE>
2
of Directors, and shall perform such duties and exercise such powers related
thereto as may from time to time be assigned to him by the Employer.
1.2 TERM OF EMPLOYMENT
The employment of the Employee hereunder shall commence on July 1,
1998 and shall be for a period of 1 year to terminate on June 30, 1999, subject
to any renewal of this Agreement pursuant to Section 6.1 and subject to earlier
termination of this Agreement pursuant to Article 5.
1.3 PLACE OF EMPLOYMENT
The Employee shall perform his work and services for the Employer or
for such other person as may be authorized by the Employer from time to time in
Calgary, Alberta and the Employee shall reside within a reasonable daily
commuting distance of such place of employment provided that the Employee shall
also perform his work and services in such other places within Canada as the
Employer may require from time to time.
ARTICLE 2
REMUNERATION
2.1 SALARY
The Employer shall pay the Employee during the term of this
Agreement a gross annual salary of $125,000.00 (Cdn.) payable monthly in arrears
(the "Base Salary"). Such Base Salary shall be reviewed by the parties prior to
any renewal of this Agreement and any changes in such Base Salary shall be as
agreed upon in writing between the parties. In addition to the Base Salary, the
Employer shall pay to the Employee, at the time of signing this Agreement or
shortly thereafter, a one-time lump sum award of $24,370.00 (Cdn.) less
applicable deductions.
2.2 BENEFITS
The Employee will be entitled to participate in all of the
Employer's insurance and perquisite plans generally available to its employees
from time to time in accordance with the terms thereof. The Employee will also
be entitled to participate in the Employee Benefit Plan described in Article 3
hereof.
2.3 VACATION
During the term of this Agreement the Employee shall be entitled to
four weeks vacation per annum. Such vacation shall be taken at a time or times
acceptable to the Employer having regard to its operations.
2.4 EXPENSES
The Employee shall be reimbursed for all authorized travelling and
other out-of-pocket expenses actually and properly incurred by him in connection
with his duties
<PAGE>
3
hereunder. For all such expenses the Employee shall furnish to the Employer
statements and vouchers as and when required by the Employer.
2.5 STOCK OPTION GRANT
The Employee shall be entitled to a grant, on or shortly following
the signing of this Agreement, to 100,000 options to purchase common shares in
the capital stock of Southern Mineral Corporation (the "Options") at a strike
price of $3.75 (U.S.) per Option, which Options shall be awarded for a five-year
term, from the date of the grant, vesting as to one-third (1/3) of the grant on
the first anniversary date of this Agreement, and as to a further one-third
(1/3) on each of the next two subsequent anniversary dates, and which Options
shall be subject to the terms and conditions of the applicable SMC Stock Option
Agreement.
Notwithstanding the vesting provisions provided herein, in the event
of a change of control as defined in Section 5.8 hereof, all options granted
under this Section 2.5 shall immediately vest, to the extent that they have not
earlier vested, as of the effective date of the change of control.
ARTICLE 3
EMPLOYEE BENEFIT PLAN
3.1 CONTRIBUTION
The Employer agrees to contribute on or before July 10, 1998, 43,866
common shares of SMC to a custodian for the benefit of the Employee, in an
arrangement intended to be an Employee Benefit Plan within the meaning of
Section 248 of the INCOME TAX ACT (Canada).
3.2 CUSTODIAN
The parties hereto agree that the law firm of Burnet, Duckworth &
Palmer, or such other mutually-acceptable party, shall act as custodian of the
shares of SMC that have been contributed and transferred pursuant to Section 3.1
subject to the terms of a satisfactory Escrow Agreement.
3.3 ENTITLEMENT
The Employee shall be entitled to receive from the custodian, as a
bonus for entering into this Agreement and rendering services to the Employer in
accordance with this Agreement, the shares so contributed as follows:
a. If the Employee is employed by the Employer in accordance with the terms
of this Agreement throughout the period commencing July 1, 1998, and
ending June 30, 1999, 50% of the shares of SMC contributed by the Employer
to the custodian hereunder, which shall be delivered on July 2, 1999; and
b. If the Employee continues to be employed by the Employer in accordance
with the terms of this agreement throughout the period commencing July 1,
1999, and ending June 30,
<PAGE>
4
2000, the remaining shares of SMC contributed by the Employer to the
custodian hereunder which shall be delivered on July 2, 2000.
3.4 TERMINATION
In the event the Employee terminates his employment with the
Employer or in the event the Employee is terminated for cause, the Employee's
right to receive shares from the Employee Benefit Plan described in this Article
3 shall not terminate, but the employee shall not receive delivery of the SMC
shares contributed by the Employer to the custodian, to the extent they may not
have been delivered as of the Termination date, until July 2, 2000.
3.5 CHANGE OF CONTROL
In the event that SMC undergoes a change of control as defined in
Section 5.8 hereof, the Employee shall be entitled to the immediate receipt from
the custodian of all shares of SMC held by the custodian on his behalf.
ARTICLE 4
EMPLOYEE'S COVENANTS
4.1 SERVICE
Employee shall devote the whole of his time, attention and ability
to the business of the Employer or to the business of any other person as
authorized by the employer and shall well and faithfully serve the Employer and
shall use his best efforts to promote the interests of the Employer.
4.2 DUTIES AND RESPONSIBILITIES
The Employee shall duly and diligently perform all the duties
assigned to him while in the employ of the Employer, and shall truly and
faithfully account for and deliver to the Employer all money, securities and
things of value belonging to the Employer which the Employee may from time to
time receive for, from or on account of the Employer.
4.3 RULES AND REGULATIONS
The Employee shall be bound by and shall faithfully observe and
abide by all the rules and regulations of the Employer from time to time in
force which are brought to his notice or of which he should reasonably be aware.
4.4 NON-DISCLOSURE
The Employee shall not (either during the continuance of the
employment or at any time thereafter) disclose any information relating to the
private or confidential affairs of the Employer or relating to any secrets of
the Employer to any person other than for the Employer s purposes and, without
limiting the generality of the foregoing, the Employee shall not (either during
the continuance of the employment or one year thereafter) disclose to any person
other than for the Employer's purposes and shall not (either during the
continuance of the employment or one
<PAGE>
5
year thereafter) use for his own purposes or for any purposes other than those
of the Employer any such information or secrets he may acquire in relation to
the business of oil and gas exploration and production.
4.5 INVENTIONS AND PATENTS
In the event the Employee contributes to any patentable invention
arising out of or in the course of his employment hereunder, any such patentable
invention shall be the exclusive property of the Employer and the Employer shall
have the exclusive right to file patent applications in the name of the Employer
in connection therewith and the Employee shall co-operate with the Employer and
provide all necessary assistance in the filing and prosecution of such patent
applications.
ARTICLE 5
TERMINATION OF EMPLOYMENT
5.1 TERMINATION BY EMPLOYER FOR CAUSE
The Employer may terminate this Agreement at any time for cause
without payment of any compensation either by way of anticipated earnings or
damages of any kind.
5.2 TERMINATION BY EMPLOYEE ON NOTICE
The Employee may terminate this Agreement upon the giving of 30 days
written notice to the Employer without payment by the Employer of any
compensation either by way of anticipated earnings or damages of any kind.
5.3 TERMINATION BY EMPLOYER ON NOTICE
The Employer may terminate this Agreement by non-renewal as set out
in Article 6.2 or upon the giving of sixty (60) days written notice to the
Employee. Upon such termination or non-renewal of this Agreement by the
Employer:
a. Employer shall pay to the Employee the greater of: (i) the Employee's Base
Salary for the sixty (60) day notice period; and (ii) the amount of
remaining Base Salary not yet paid but which would have been paid to the
end of the then current term of this Agreement;
b. notwithstanding Article 3 hereof, the Employee shall continue to be
eligible for receipt of SMC shares, under the Employment Benefit Plan
described in Article 3 hereof, subject to the following:
i. should the termination or non-renewal occur during the first year
following the Effective Date of this Agreement, all of the shares
contributed thereunder shall be delivered to the Employee on the
first anniversary date of this Agreement; or
ii. should the termination or non-renewal occur on or following the
first anniversary date of this Agreement, all of the shares
contributed thereunder shall be immediately delivered to the
Employee;
<PAGE>
6
c. all other benefits of employment shall cease at the earlier of the
effective date of written notice, non-renewal or the date that the
Employee is last actively at work, and the Employer retains the right, at
its sole discretion, to waive the requirement to have the Employee
attend at work or perform any further duties for the Employer for the
remaining period of the written notice or the term of this Agreement, as
the case may be.
5.4 FAIR AND REASONABLE
The parties confirm that the notice, pay in lieu of notice and
settlement provisions contained in this Article are fair and reasonable and the
parties agree that upon any termination of this Agreement by the Employer in
compliance with Sections 5.1 or 5.3 or upon any termination of this Agreement by
the Employee, the Employee shall have no action, cause of action, claim or
demand against the Employer or any other person as a consequence of such
termination.
5.5 RETURN OF PROPERTY
Upon any termination of this Agreement the Employee shall at once
deliver or cause to be delivered to the Employer all books, documents, effects,
moneys securities or other property belonging to the Employer or for which the
Employer is liable to others, which are in the possession, charge, control or
custody of the Employee.
5.6 NON-SOLICITATION OF EMPLOYEES
The Employee acknowledges and agrees that, as a senior executive of
the Employer, the Employee has fiduciary obligations to the Employer which
include the protection of the Employer's best interests both during and after
the term of employment and this Agreement. Without limiting the generality of
this duty, the Employee specifically agrees to refrain during the term of this
Agreement or the term of any employment with the Employer, and in the event of
termination of employment or this Agreement for any reason for period of one (1)
year thereafter, from:
a. hiring or contracting (directly or indirectly), or
b. inducing or attempting to influence the termination of
any employee, contractor or consultant of the Employer (or its subsidiaries
and/or other affiliated entities and/or its parent organization).
5.7 PROVISIONS WHICH OPERATE FOLLOWING TERMINATION
Notwithstanding any termination of this Agreement for any reason
whatsoever and with or without cause, the provisions of Sections 4.4, 4.5, 5.4
and 5.6 of this Agreement and any other provisions of this Agreement necessary
to give efficacy thereto shall continue in full force and effect following such
termination.
<PAGE>
7
5.8 DEFINITION IN "CHANGE IN CONTROL"
For purposes of this Agreement the expression "change in control" of
SMC shall mean the events specified in subparagraphs (a) and (b) shall have
occurred and the change in control will be deemed to take effect on the later of
the two events:
a. the direct or indirect acquisition by any person or group of associated
persons acting in concert, of any aggregate of more than 40% of the
outstanding voting shares including securities which on conversion to
voting shares would be more than 40% of the outstanding voting shares; and
b. within a 12 month period following the event described in sub-paragraph
(a) any single change or series of changes in the composition of the Board
of Directors of SMC resulting in a majority of the directors of SMC as of
the date four months prior to the change in control under sub-paragraph
(a) of this paragraph, ceasing to constitute a majority of the directors
of SMC.
ARTICLE 6
RENEWAL OF AGREEMENT
6.1 AUTOMATIC RENEWAL
This Agreement shall continue for successive periods of one year's
duration on the same terms and conditions of employment or on such terms and
conditions of employment as are agreed upon in writing between the parties
unless the Employer has given at least 60 days written notice to the Employee
that this Agreement is to terminate at the end of the initial period of one year
or at the end of any successive period of one year.
6.2 NON-RENEWAL
In the event that the Employer gives written notice that this
Agreement is to terminate at the end of the initial period of one year or any
successive period of one year as set forth in Section 6.1 hereof, this Agreement
shall expire and the employment hereunder shall terminate at the end of the
initial period of one year or that successive period of one year for which it
was last renewed pursuant to Section 6.1 hereof, as the case may be, and the
Employee shall be entitled to those amounts payable to the Employee as if he
were terminated by the Employer pursuant to Section 5.3 hereof.
ARTICLE 7
GENERAL
7.1 SECTIONS AND HEADINGS
The division of this Agreement into Articles and Sections and the
insertion of headings are for the convenience of reference only and shall not
affect the construction or interpretation of this Agreement. The terms "this
Agreement", "hereof , "hereunder" and similar expressions refer to this
Agreement and not to any particular Article, Section or other portion hereof and
include any agreement or instrument supplemental or ancillary hereto. Unless
something in
<PAGE>
8
the subject matter or context is inconsistent therewith, references herein to
Articles and Sections are to Articles and Sections of this Agreement.
7.2 NUMBER
In this Agreement words importing the singular number only shall
include the plural and VICE VERSA and words importing the masculine gender shall
include the feminine and neuter genders and VICE VERSA and words importing
persons shall include individuals, partnerships, associations, trusts,
unincorporated organizations and corporations and VICE VERSA.
7.3 BENEFIT OF AGREEMENT
This Agreement shall enure to the benefit of and be binding upon the
heirs, executors, administrators and legal personal representatives of the
Employee and the successors and permitted assigns of the Employer respectively.
7.4 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and cancels and supersedes any prior
understandings and agreements between the parties hereto with respect thereto
and in particular, this Agreement cancels and supersedes the Prior Agreement.
There are no representations, warranties, forms, conditions, undertakings or
collateral agreements, express, implied or statutory between the parties other
than as expressly set forth in this Agreement.
7.5 AMENDMENTS AND WAIVERS
No amendment to this Agreement shall be valid or binding unless set
forth in writing and duly executed by both of the parties hereto. No waiver of
any breach of any provision of this Agreement shall be effective or binding
unless made in writing and signed by the party purporting to give the same and,
unless otherwise provided in the written waiver, shall be limited to the
specific breach waived.
7.6 SEVERABILITY
If any provision of this Agreement is determined to be invalid or
unenforceable in whole or in part, such invalidity or unenforceability shall
attach only to such provision or part thereof and the remaining part of such
provision and all other provisions hereof shall continue in full force and
effect.
7.7 NOTICES
Any demand, notice or other communication (hereinafter in this
Section 7.7 referred to as a "Communication") to be given in connection with
this Agreement shall be given in writing and may be given by personal delivery
or by registered mail addressed to the recipient as follows:
<PAGE>
9
To the Employee:
Gordon L. Thompson
4831 - 41st Avenue S.W.
Calgary, Alberta
T2X 2M6
To the Employer:
Neutrino Resources Inc.
c/o Southern Mineral Corporation
1201 Louisiana Street, Suite 3350
Houston, Texas 77002-5609
U.S.A.
Attention: Steve Mikel
or such other address or individual as may be designated by notice by either
party to the other. Any Communication given by personal delivery shall be
conclusively deemed to have been given on the day of actual delivery thereof
and, if made or given by registered mail, on the 3rd day, other than a Saturday,
Sunday or statutory holiday in Alberta, following the deposit thereof in the
mail. If the party giving any communication knows or ought reasonably to know of
any difficulties with the postal system which might affect the delivery of mail,
any such Communication shall not be mailed but shall be given by personal
delivery.
7.8 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Alberta and the laws of Canada applicable therein.
7.9 ATTORNMENT
For the purpose of all legal proceedings this Agreement shall be
deemed to have been performed in the Province of Alberta and the courts of the
Province of Alberta shall have jurisdiction to entertain any action arising
under this Agreement. The Employer and the Employee each hereby attorns to the
jurisdiction of the courts of the Province of Alberta provided that nothing
herein contained shall prevent the Employer from proceeding at its election
against the Employee in the courts of any other province or country.
<PAGE>
10
7.10 COPY OF AGREEMENT
The Employee hereby acknowledges receipt of a copy of this Agreement
duly signed by the Employer.
IN WITNESS WHEREOF the parties have executed this Agreement.
SIGNED, SEALED AND DELIVERED in )
the presence of: )
)
)
- ------------------------------- ) ------------------------------
Witness ) GORDON L. THOMPSON
NEUTRINO RESOURCES INC.
Per:___________________________
Per:___________________________
EMPLOYMENT AGREEMENT
BETWEEN
STEVEN M. TRAVIS
AND
NEUTRINO RESOURCES INC.
MADE AS OF
JULY 1, 1998
<PAGE>
i
TABLE OF CONTENTS
ARTICLE 1
EMPLOYMENT.......................................................1
1.1 Employment.................................................1
1.2 Term of Employment.........................................2
1.3 Place of Employment........................................2
ARTICLE 2
REMUNERATION.....................................................2
2.1 Salary.....................................................2
2.2 Benefits...................................................2
2.3 Vacation...................................................2
2.4 Expenses...................................................2
2.5 Stock Option Grant.........................................3
ARTICLE 3
EMPLOYEE BENEFIT PLAN............................................3
3.1 Contribution...............................................3
3.2 Custodian..................................................3
3.3 Entitlement................................................3
3.4 Termination................................................3
3.5 Change of Control..........................................4
ARTICLE 4
EMPLOYEE'S COVENANTS.............................................4
4.1 Service....................................................4
4.2 Duties and Responsibilities................................4
4.3 Rules and Regulations......................................4
4.4 Non-Disclosure.............................................4
4.5 Inventions and Patents.....................................4
ARTICLE 5
TERMINATION OF EMPLOYMENT........................................5
5.1 Termination by Employer for Cause..........................5
5.2 Termination by Employee on Notice..........................5
5.3 Termination by Employer on Notice..........................5
5.4 Fair and Reasonable........................................5
5.5 Return of Property.........................................6
5.6 Non-Solicitation of Employees..............................6
5.7 Provisions Which Operate Following Termination.............6
5.8 Definition in "Change in Control"..........................6
ARTICLE 6
RENEWAL OF AGREEMENT.............................................7
6.1 Automatic Renewal..........................................7
6.2 Non-Renewal................................................7
ARTICLE 7
GENERAL..........................................................7
7.1 Sections and Headings......................................7
7.2 Number.....................................................7
7.3 Benefit of Agreement.......................................7
7.4 Entire Agreement...........................................8
<PAGE>
ii
7.5 Amendments and Waivers.....................................8
7.6 Severability...............................................8
7.7 Notices....................................................8
7.8 Governing Law..............................................9
7.9 Attornment.................................................9
7.10 Copy of Agreement..........................................9
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT made as of July 1, 1998
BETWEEN:
STEVEN M. TRAVIS, of the City of Calgary in the Province of
Alberta (hereinafter referred to as the "Employee"),
OF THE FIRST PART
- and -
NEUTRINO RESOURCES INC., a corporation incorporated under
the laws of Alberta (hereinafter referred to as the "Employer"),
OF THE SECOND PART
WHEREAS the Employee has held the position of Vice President,
Exploration with the Employer under the terms of a prior employment agreement
with the Employee made as of December 1, 1997 (the "Prior Agreement");
AND WHEREAS the Employer has been subject to a Change of Control, as
defined in the Prior Agreement, as a result of a successful offer for the
Employer's shares by Southern Mineral Corporation ("SMC"), or a wholly-owned
subsidiary of SMC;
AND WHEREAS the said Change of Control has triggered certain rights
and obligations for the Employer and the Employee, if the Employee elects to
terminate his employment under the Prior Agreement;
AND WHEREAS the Employer and the Employee wish to continue to the
employment relationship on the terms and conditions set out in this agreement
(the "Agreement").
NOW THEREFORE in consideration of the covenants and agreements
herein contained, the parties agree as follows:
ARTICLE 1
EMPLOYMENT
1.1 EMPLOYMENT
The Employee agrees to continue employment with the Employer and the
Employee specifically waives any rights that have accrued or may accrue to the
Employee under the Prior Agreement, and subject to the terms and conditions
herein contained, the Employee shall be employed by the Employer as Vice
President, Exploration, reporting to the Board of Directors, and
<PAGE>
2
shall perform such duties and exercise such powers related thereto as may from
time to time be assigned to him by the Employer.
1.2 TERM OF EMPLOYMENT
The employment of the Employee hereunder shall commence on July 1,
1998 and shall be for a period of 1 year to terminate on June 30, 1999, subject
to any renewal of this Agreement pursuant to Section 6.1 and subject to earlier
termination of this Agreement pursuant to Article 5.
1.3 PLACE OF EMPLOYMENT
The Employee shall perform his work and services for the Employer or
for such other person as may be authorized by the Employer from time to time in
Calgary, Alberta and the Employee shall reside within a reasonable daily
commuting distance of such place of employment provided that the Employee shall
also perform his work and services in such other places within Canada as the
Employer may require from time to time.
ARTICLE 2
REMUNERATION
2.1 SALARY
The Employer shall pay the Employee during the term of this
Agreement a gross annual salary of $120,000.00 (Cdn.) payable monthly in arrears
(the "Base Salary"). Such Base Salary shall be reviewed by the parties prior to
any renewal of this Agreement and any changes in such Base Salary shall be as
agreed upon in writing between the parties.
2.2 BENEFITS
The Employee will be entitled to participate in all of the
Employer's insurance and perquisite plans generally available to its employees
from time to time in accordance with the terms thereof. The Employee will also
be entitled to participate in the Employee Benefit Plan described in Article 3
hereof.
2.3 VACATION
During the term of this Agreement the Employee shall be entitled to
four weeks vacation per annum. Such vacation shall be taken at a time or times
acceptable to the Employer having regard to its operations.
2.4 EXPENSES
The Employee shall be reimbursed for all authorized travelling and
other out-of-pocket expenses actually and properly incurred by him in connection
with his duties hereunder. For all such expenses the Employee shall furnish to
the Employer statements and vouchers as and when required by the Employer.
<PAGE>
3
2.5 STOCK OPTION GRANT
The Employee shall be entitled to a grant, on or shortly following
the signing of this Agreement, to 50,000 options to purchase common shares in
the capital stock of Southern Mineral Corporation (the "Options") at a strike
price of $3.75 (U.S.) per Option, which Options shall be awarded for a five-year
term, from the date of the grant, vesting as to one-third (1/3) of the grant on
the first anniversary date of this Agreement, and as to a further one-third
(1/3) on each of the next two subsequent anniversary dates, and which Options
shall be subject to the terms and conditions of the applicable SMC Stock Option
Agreement.
Notwithstanding the vesting provisions provided herein, in the event
of a change of control as defined in Section 5.8 hereof, all options granted
under this Section 2.5 shall immediately vest, to the extent that they have not
earlier vested, as of the effective date of the change of control.
ARTICLE 3
EMPLOYEE BENEFIT PLAN
3.1 CONTRIBUTION
The Employer agrees to contribute on or before July 10, 1998, 36,950
common shares of SMC to a custodian for the benefit of the Employee, in an
arrangement intended to be an Employee Benefit Plan within the meaning of
Section 248 of the INCOME TAX ACT (Canada).
3.2 CUSTODIAN
The parties hereto agree that the law firm of Burnet, Duckworth &
Palmer, or such other mutually-acceptable party, shall act as custodian of the
shares of SMC that have been contributed and transferred pursuant to Section 3.1
subject to the terms of a satisfactory Escrow Agreement.
3.3 ENTITLEMENT
The Employee shall be entitled to receive from the custodian, as a
bonus for entering into this Agreement and rendering services to the Employer in
accordance with this Agreement, the shares so contributed as follows:
a. If the Employee is employed by the Employer in accordance with the terms
of this Agreement throughout the period commencing July 1, 1998, and
ending June 30, 1999, 50% of the shares of SMC contributed by the Employer
to the custodian hereunder, which shall be delivered on July 2, 1999; and
b. If the Employee continues to be employed by the Employer in accordance
with the terms of this agreement throughout the period commencing July 1,
1999, and ending June 30, 2000, the remaining shares of SMC contributed by
the Employer to the custodian hereunder which shall be delivered on July
2, 2000.
<PAGE>
4
3.4 TERMINATION
In the event the Employee terminates his employment with the
Employer or in the event the Employee is terminated for cause, the Employee's
right to receive shares from the Employee Benefit Plan described in this Article
3 shall not terminate, but the employee shall not receive delivery of the SMC
shares contributed by the Employer to the custodian, to the extent they may not
have been delivered as of the Termination date, until July 2, 2000.
3.5 CHANGE OF CONTROL
In the event that SMC undergoes a change of control as defined in
Section 5.8 hereof, the Employee shall be entitled to the immediate receipt from
the custodian of all shares of SMC held by the custodian on his behalf.
ARTICLE 4
EMPLOYEE'S COVENANTS
4.1 SERVICE
Employee shall devote the whole of his time, attention and ability
to the business of the Employer or to the business of any other person as
authorized by the employer and shall well and faithfully serve the Employer and
shall use his best efforts to promote the interests of the Employer.
4.2 DUTIES AND RESPONSIBILITIES
The Employee shall duly and diligently perform all the duties
assigned to him while in the employ of the Employer, and shall truly and
faithfully account for and deliver to the Employer all money, securities and
things of value belonging to the Employer which the Employee may from time to
time receive for, from or on account of the Employer.
4.3 RULES AND REGULATIONS
The Employee shall be bound by and shall faithfully observe and
abide by all the rules and regulations of the Employer from time to time in
force which are brought to his notice or of which he should reasonably be aware.
4.4 NON-DISCLOSURE
The Employee shall not (either during the continuance of the
employment or at any time thereafter) disclose any information relating to the
private or confidential affairs of the Employer or relating to any secrets of
the Employer to any person other than for the Employer s purposes and, without
limiting the generality of the foregoing, the Employee shall not (either during
the continuance of the employment or one year thereafter) disclose to any person
other than for the Employer's purposes and shall not (either during the
continuance of the employment or one year thereafter) use for his own purposes
or for any purposes other than those of the Employer any such information or
secrets he may acquire in relation to the business of oil and gas exploration
and production.
<PAGE>
5
4.5 INVENTIONS AND PATENTS
In the event the Employee contributes to any patentable invention
arising out of or in the course of his employment hereunder, any such patentable
invention shall be the exclusive property of the Employer and the Employer shall
have the exclusive right to file patent applications in the name of the Employer
in connection therewith and the Employee shall co-operate with the Employer and
provide all necessary assistance in the filing and prosecution of such patent
applications.
ARTICLE 5
TERMINATION OF EMPLOYMENT
5.1 TERMINATION BY EMPLOYER FOR CAUSE
The Employer may terminate this Agreement at any time for cause
without payment of any compensation either by way of anticipated earnings or
damages of any kind.
5.2 TERMINATION BY EMPLOYEE ON NOTICE
The Employee may terminate this Agreement upon the giving of 30 days
written notice to the Employer without payment by the Employer of any
compensation either by way of anticipated earnings or damages of any kind.
5.3 TERMINATION BY EMPLOYER ON NOTICE
The Employer may terminate this Agreement by non-renewal as set out
in Article 6.2 or upon the giving of sixty (60) days written notice to the
Employee. Upon such termination or non-renewal of this Agreement by the
Employer:
a. Employer shall pay to the Employee the greater of: (i) the Employee's Base
Salary for the sixty (60) day notice period; and (ii) the amount of
remaining Base Salary not yet paid but which would have been paid to the
end of the then current term of this Agreement;
b. notwithstanding Article 3 hereof, the Employee shall continue to be
eligible for receipt of SMC shares, under the Employment Benefit Plan
described in Article 3 hereof, subject to the following:
i. should the termination or non-renewal occur during the first year
following the Effective Date of this Agreement, all of the shares
contributed thereunder shall be delivered to the Employee on the
first anniversary date of this Agreement; or
ii. should the termination or non-renewal occur on or following the
first anniversary date of this Agreement, all of the shares
contributed thereunder shall be immediately delivered to the
Employee;
c. all other benefits of employment shall cease at the earlier of the
effective date of written notice, non-renewal or the date that the
Employee is last actively at work, and the Employer retains the right, at
its sole discretion, to waive the requirement to have the Employee
<PAGE>
6
attend at work or perform any further duties for the Employer for the
remaining period of the written notice or the term of this Agreement, as
the case may be.
5.4 FAIR AND REASONABLE
The parties confirm that the notice, pay in lieu of notice and
settlement provisions contained in this Article are fair and reasonable and the
parties agree that upon any termination of this Agreement by the Employer in
compliance with Sections 5.1 or 5.3 or upon any termination of this Agreement by
the Employee, the Employee shall have no action, cause of action, claim or
demand against the Employer or any other person as a consequence of such
termination.
5.5 RETURN OF PROPERTY
Upon any termination of this Agreement the Employee shall at once
deliver or cause to be delivered to the Employer all books, documents, effects,
moneys securities or other property belonging to the Employer or for which the
Employer is liable to others, which are in the possession, charge, control or
custody of the Employee.
5.6 NON-SOLICITATION OF EMPLOYEES
The Employee acknowledges and agrees that, as a senior executive of
the Employer, the Employee has fiduciary obligations to the Employer which
include the protection of the Employer's best interests both during and after
the term of employment and this Agreement. Without limiting the generality of
this duty, the Employee specifically agrees to refrain during the term of this
Agreement or the term of any employment with the Employer, and in the event of
termination of employment or this Agreement for any reason for period of one (1)
year thereafter, from:
a. hiring or contracting (directly or indirectly), or
b. inducing or attempting to influence the termination of
any employee, contractor or consultant of the Employer (or its subsidiaries
and/or other affiliated entities and/or its parent organization).
5.7 PROVISIONS WHICH OPERATE FOLLOWING TERMINATION
Notwithstanding any termination of this Agreement for any reason
whatsoever and with or without cause, the provisions of Sections 4.4, 4.5, 5.4
and 5.6 of this Agreement and any other provisions of this Agreement necessary
to give efficacy thereto shall continue in full force and effect following such
termination.
5.8 DEFINITION IN "CHANGE IN CONTROL"
For purposes of this Agreement the expression "change in control" of
SMC shall mean the events specified in subparagraphs (a) and (b) shall have
occurred and the change in control will be deemed to take effect on the later of
the two events:
<PAGE>
7
a. the direct or indirect acquisition by any person or group of associated
persons acting in concert, of any aggregate of more than 40% of the
outstanding voting shares including securities which on conversion to
voting shares would be more than 40% of the outstanding voting shares; and
b. within a 12 month period following the event described in sub-paragraph
(a) any single change or series of changes in the composition of the Board
of Directors of SMC resulting in a majority of the directors of SMC as of
the date four months prior to the change in control under sub-paragraph
(a) of this paragraph, ceasing to constitute a majority of the directors
of SMC.
ARTICLE 6
RENEWAL OF AGREEMENT
6.1 AUTOMATIC RENEWAL
This Agreement shall continue for successive periods of one year's
duration on the same terms and conditions of employment or on such terms and
conditions of employment as are agreed upon in writing between the parties
unless the Employer has given at least 60 days written notice to the Employee
that this Agreement is to terminate at the end of the initial period of one year
or at the end of any successive period of one year.
6.2 NON-RENEWAL
In the event that the Employer gives written notice that this
Agreement is to terminate at the end of the initial period of one year or any
successive period of one year as set forth in Section 6.1 hereof, this Agreement
shall expire and the employment hereunder shall terminate at the end of the
initial period of one year or that successive period of one year for which it
was last renewed pursuant to Section 6.1 hereof, as the case may be, and the
Employee shall be entitled to those amounts payable to the Employee as if he
were terminated by the Employer pursuant to Section 5.3 hereof.
ARTICLE 7
GENERAL
7.1 SECTIONS AND HEADINGS
The division of this Agreement into Articles and Sections and the
insertion of headings are for the convenience of reference only and shall not
affect the construction or interpretation of this Agreement. The terms "this
Agreement", "hereof , "hereunder" and similar expressions refer to this
Agreement and not to any particular Article, Section or other portion hereof and
include any agreement or instrument supplemental or ancillary hereto. Unless
something in the subject matter or context is inconsistent therewith, references
herein to Articles and Sections are to Articles and Sections of this Agreement.
<PAGE>
8
7.2 NUMBER
In this Agreement words importing the singular number only shall
include the plural and VICE VERSA and words importing the masculine gender shall
include the feminine and neuter genders and VICE VERSA and words importing
persons shall include individuals, partnerships, associations, trusts,
unincorporated organizations and corporations and VICE VERSA.
7.3 BENEFIT OF AGREEMENT
This Agreement shall enure to the benefit of and be binding upon the
heirs, executors, administrators and legal personal representatives of the
Employee and the successors and permitted assigns of the Employer respectively.
7.4 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and cancels and supersedes any prior
understandings and agreements between the parties hereto with respect thereto
and in particular, this Agreement cancels and supersedes the Prior Agreement.
There are no representations, warranties, forms, conditions, undertakings or
collateral agreements, express, implied or statutory between the parties other
than as expressly set forth in this Agreement.
7.5 AMENDMENTS AND WAIVERS
No amendment to this Agreement shall be valid or binding unless set
forth in writing and duly executed by both of the parties hereto. No waiver of
any breach of any provision of this Agreement shall be effective or binding
unless made in writing and signed by the party purporting to give the same and,
unless otherwise provided in the written waiver, shall be limited to the
specific breach waived.
7.6 SEVERABILITY
If any provision of this Agreement is determined to be invalid or
unenforceable in whole or in part, such invalidity or unenforceability shall
attach only to such provision or part thereof and the remaining part of such
provision and all other provisions hereof shall continue in full force and
effect.
7.7 NOTICES
Any demand, notice or other communication (hereinafter in this
Section 7.7 referred to as a "Communication") to be given in connection with
this Agreement shall be given in writing and may be given by personal delivery
or by registered mail addressed to the recipient as follows:
<PAGE>
To the Employee:
Steven M. Travis
136 Stratton Crescent S.W.
Calgary, Alberta
T3H 1V7
To the Employer:
Neutrino Resources Inc.
c/o Southern Mineral Corporation
1201 Louisiana Street, Suite 3350
Houston, Texas 77002-5609
U.S.A.
Attention: Steve Mikel
or such other address or individual as may be designated by notice by either
party to the other. Any Communication given by personal delivery shall be
conclusively deemed to have been given on the day of actual delivery thereof
and, if made or given by registered mail, on the 3rd day, other than a Saturday,
Sunday or statutory holiday in Alberta, following the deposit thereof in the
mail. If the party giving any communication knows or ought reasonably to know of
any difficulties with the postal system which might affect the delivery of mail,
any such Communication shall not be mailed but shall be given by personal
delivery.
7.8 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the Province of Alberta and the laws of Canada applicable therein.
7.9 ATTORNMENT
For the purpose of all legal proceedings this Agreement shall be
deemed to have been performed in the Province of Alberta and the courts of the
Province of Alberta shall have jurisdiction to entertain any action arising
under this Agreement. The Employer and the Employee each hereby attorns to the
jurisdiction of the courts of the Province of Alberta provided that nothing
herein contained shall prevent the Employer from proceeding at its election
against the Employee in the courts of any other province or country.
<PAGE>
10
7.10 COPY OF AGREEMENT
The Employee hereby acknowledges receipt of a copy of this Agreement
duly signed by the Employer.
IN WITNESS WHEREOF the parties have executed this Agreement.
SIGNED, SEALED AND DELIVERED in )
the presence of: )
)
)
- ------------------------------- ) ------------------------------
Witness ) STEVEN M. TRAVIS
NEUTRINO RESOURCES INC.
Per:___________________________
Per:___________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM (A) QUARTERLY REPORT ON FORM 10QSB FOR THE QUARTERLY PERIOD ENDED JUNE 30,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 562
<SECURITIES> 0
<RECEIVABLES> 7,377
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,939
<PP&E> 147,515
<DEPRECIATION> (16,141)
<TOTAL-ASSETS> 146,324
<CURRENT-LIABILITIES> 8,657
<BONDS> 0
128
0
<COMMON> 0
<OTHER-SE> 29,642
<TOTAL-LIABILITY-AND-EQUITY> 146,324
<SALES> 8,777
<TOTAL-REVENUES> 8,774
<CGS> 0
<TOTAL-COSTS> 3,186
<OTHER-EXPENSES> 6,797
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,786
<INCOME-PRETAX> (2,855)
<INCOME-TAX> (23)
<INCOME-CONTINUING> (2,832)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,832)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
</TABLE>
