<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-13916
UNION PACIFIC RESOURCES GROUP INC.
(Exact name of registrant as specified in its charter)
UTAH 13-2647483
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
801 CHERRY STREET, FORT WORTH, TEXAS
(Address of principal executive offices)
76102
(Zip Code)
(817) 877-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
As of April 30, 1998, there were 251,060,829 shares of the registrant's
common stock outstanding.
<PAGE> 2
UNION PACIFIC RESOURCES GROUP INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - For the
Three Months Ended March 31,1998 and 1997............................................... 1
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION -
At March 31, 1998 and December 31, 1997................................................ 2 - 3
. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - For the
Three Months Ended March 31, 1998 and 1997.............................................. 4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS...................................... 5 - 8
INDEPENDENT PUBLIC ACCOUNTANTS' REPORT.................................................... 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................................... 10 - 17
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK................................. 17 - 19
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS......................................................................... 20
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.......................................................... 20 -21
SIGNATURE.......................................................................................... 22
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNION PACIFIC RESOURCES GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended March 31, 1998 and 1997
(Millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Operating revenues:
Oil and gas operations:
Producing properties ................................ $ 362.0 $ 370.0
Gathering, processing and marketing ................. 96.2 124.7
Other oil and gas revenues .......................... 0.7 4.6
-------- --------
Total oil and gas operations .................. 458.9 499.3
Minerals ............................................... 40.1 32.4
-------- --------
Total operating revenues ...................... 499.0 531.7
-------- --------
Operating expenses:
Production ............................................. 93.3 73.1
Exploration, including exploratory dry holes ........... 56.1 42.8
Gathering, processing and marketing .................... 59.9 76.6
Minerals ............................................... 0.7 1.3
Depreciation, depletion and amortization ............... 191.1 133.0
General and administrative ............................. 20.6 18.5
-------- --------
Total operating expenses ......................... 421.7 345.3
-------- --------
Operating income ........................................... 77.3 186.4
Other income (expense) - net ............................... 1.4 (3.0)
Interest expense ........................................... (39.2) (10.7)
-------- --------
Income before income taxes ................................. 39.5 172.7
Income taxes ............................................... (8.3) (55.5)
-------- --------
Net income ................................................. $ 31.2 $ 117.2
======== ========
Other comprehensive income, net of tax: (Note 2)
Foreign currency translation adjustments ............... 3.6 1.3
-------- --------
Comprehensive income ....................................... $ 34.8 $ 118.5
======== ========
Earnings per share - basic ................................. $ 0.13 $ 0.47
======== ========
Earnings per share - diluted ............................... $ 0.13 $ 0.47
======== ========
Weighted average shares outstanding - diluted .............. 248.2 251.0
Cash dividends per share ................................... $ 0.05 $ 0.05
</TABLE>
See the notes to the condensed consolidated financial statements (unaudited).
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<PAGE> 4
UNION PACIFIC RESOURCES GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
At March 31, 1998 and December 31, 1997
(Millions of dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary investments ................................... $ 45.8 $ 70.6
Accounts receivable - net ........................................ 506.3 385.4
Inventories ...................................................... 76.7 53.1
Other current assets ............................................. 159.9 67.7
--------- ---------
Total current assets ....................................... 788.7 576.8
--------- ---------
Properties (successful efforts method): (Note 3)
Cost ............................................................. 12,845.0 7,414.4
Accumulated depreciation, depletion and amortization ............. (3,963.8) (3,749.0)
--------- ---------
Total properties - net ..................................... 8,881.2 3,665.4
Intangible and other assets .......................................... 400.0 230.0
--------- ---------
Total assets ......................................................... $10,069.9 $ 4,472.2
========= =========
</TABLE>
See the notes to the condensed consolidated financial statements (unaudited).
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<PAGE> 5
UNION PACIFIC RESOURCES GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
At March 31, 1998 and December 31, 1997
(Millions of dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................... $ 484.7 $ 426.7
Accrued taxes payable ................................. 75.9 59.3
Short-term debt ....................................... 350.0 --
Other current liabilities ............................. 148.2 71.7
--------- ---------
Total current liabilities ........................ 1,058.8 557.7
--------- ---------
Long-term debt (Note 3) .................................... 4,708.7 1,230.6
Deferred income taxes ...................................... 2,063.4 552.9
Other long-term liabilities (Note 5) ....................... 474.0 370.3
Shareholders' equity:
Common stock, no par value;
Authorized shares--400,000,000
Issued shares--254,264,385 and 251,888,275 .......... -- --
Paid-in surplus ....................................... 991.3 991.2
Unearned employee stock ownership plan ................ (100.5) (102.0)
Retained earnings ..................................... 976.2 957.4
Unearned compensation ................................. (9.9) (11.8)
Accumulated other comprehensive income:
Deferred foreign exchange adjustment .............. (13.7) (17.3)
Minimum pension contra equity ..................... (1.0) (1.0)
Treasury stock, at cost: (Note 4)
Shares--3,220,148 and 2,379,625 ................... (77.4) (55.8)
--------- ---------
Total shareholders' equity ....................... 1,765.0 1,760.7
--------- ---------
Total liabilities and shareholders' equity ................. $10,069.9 $ 4,472.2
========= =========
</TABLE>
See the notes to the condensed consolidated financial statements (unaudited).
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<PAGE> 6
UNION PACIFIC RESOURCES GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1998 and 1997
(Millions of dollars)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Cash flows provided by operations:
Net income ................................................. $ 31.2 $ 117.2
Non-cash charges to income:
Depreciation, depletion and amortization ................ 191.1 133.0
Deferred income taxes ................................... (13.3) 28.1
Other non-cash charges - net ............................ 6.3 5.3
Changes in current assets and liabilities .................. 80.1 138.6
-------- --------
Cash provided by operations .......................... 295.4 422.2
-------- --------
Cash flows from investing activities:
Capital and exploratory expenditures ....................... (487.1) (284.0)
Acquisition of companies (Note 3) .......................... (2,623.2) --
Proceeds from sales of assets .............................. 6.0 1.3
Other investing activities - net ........................... 6.4 (0.9)
-------- --------
Cash used by investing activities .................... (3,097.9) (283.6)
-------- --------
Cash flows from financing activities:
Dividends paid ............................................. (12.4) (12.5)
Debt financing ............................................. 2,816.1 --
Debt repayments ........................................... -- (99.6)
Purchase of treasury stock ................................. (21.6) (0.8)
Other financings - net ..................................... (4.4) 55.6
-------- --------
Cash provided (used) by financing activities ......... 2,777.7 (57.3)
-------- --------
Net change in cash and temporary investments ................... (24.8) 81.3
Cash at beginning of period .................................... 70.6 118.9
-------- --------
Cash at end of period .......................................... $ 45.8 $ 200.2
======== ========
</TABLE>
See the notes to the condensed consolidated financial statements (unaudited).
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<PAGE> 7
UNION PACIFIC RESOURCES GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. RESPONSIBILITIES FOR FINANCIAL STATEMENTS
The condensed consolidated financial statements of Union Pacific Resources
Group Inc. and subsidiaries (the "Company") have been prepared by
management and are unaudited. Such unaudited interim financial statements
reflect all adjustments (including normal recurring adjustments) that are,
in the opinion of management, necessary for a fair presentation of the
financial position and operating results of the Company for the interim
periods; however, such condensed statements do not include all of the
information and footnotes required by generally accepted accounting
principles to be included in a full set of financial statements. The report
of Arthur Andersen LLP commenting on their review accompanies the condensed
consolidated financial statements and is included in Part I, Item 1 in this
report. The Condensed Consolidated Statement of Financial Position at
December 31, 1997 is derived from the audited financial statements as of
December 31,1997. The condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 and the pro forma combined financial statements
contained in the Company's Current Report on Form 8-K/A filed on May 6,
1998. The results of operations for the three months ended March 31, 1998
are not necessarily indicative of the results for the full year ending
December 31, 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain 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 each reporting period. Management believes its estimates
and assumptions are reasonable; however, such estimates and assumptions are
subject to a number of risks and uncertainties which may cause actual
results to differ materially from the Company's estimates and assumptions.
2. NEW ACCOUNTING STANDARDS
In March 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which is effective for
fiscal years beginning after December 15, 1997. This statement revises
employers' disclosures about pension and other postretirement benefit
plans. It standardizes the disclosure requirements to the extent
practicable and requires additional information on changes in the benefits
obligations and fair values of plan assets. The Company plans to adopt SFAS
No. 132 for the year ended December 31, 1998.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which establishes standards for reporting
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. It requires
classification of items of other comprehensive income by their nature in a
financial statement and display of the accumulated balance of other
comprehensive income separate from retained earnings
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<PAGE> 8
and paid-in-surplus in the equity section of the statement of
financial position. During the first quarter of 1998, the Company adopted
and implemented this statement.
3. ACQUISITION OF NORCEN
On January 25, 1998, the Company and Union Pacific Resources Inc., an
Alberta corporation and a wholly-owned subsidiary of the Company ("UPRI"),
entered into a pre-acquisition agreement ("Pre-acquisition Agreement") with
Norcen Energy Resources Limited ("Norcen"). Under the Pre-acquisition
Agreement, the Company and UPRI agreed to make an offer (the "tender
offer") of up to 100 percent of the common shares of Norcen, subject to
certain conditions. On March 3, 1998, the Company announced the closing of
the tender offer. In total, 95.5 percent of the outstanding common shares
of Norcen were tendered at a purchase price of US $13.65 per share.
On March 5, 1998, UPRI completed the compulsory acquisition of the
remaining common shares outstanding which were not tendered. (The closing
of the tender offer and completion of the compulsory acquisition is
referred to as the "Norcen Acquisition".) The aggregate purchase price for
the Norcen Acquisition, including non-recurring transaction costs of $28.1
million, was $2.623 billion.
Norcen is a major Canadian oil and gas exploration and development
company with primary operations in western Canada, the Gulf of Mexico,
Guatemala and Venezuela.
The Company funded the purchase price of the Norcen Acquisition through the
issuance of commercial paper, supported by the U.S. $2.7 billion 364 Day
Competitive Advance/Revolving Credit Agreement dated March 2, 1998. In
accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations," the acquisition was accounted for as a purchase. The
condensed consolidated financial statements for the period ended March 31,
1998 include one month of Norcen's results of operations.
The following table represents the preliminary allocation of the total
purchase price of Norcen to the acquired assets and liabilities assumed,
based upon their fair values on the date of Norcen Acquisition. Any future
adjustments to the allocation of the purchase price are not anticipated to
be material to the condensed consolidated financial statements.
<TABLE>
<CAPTION>
(Millions of dollars)
<S> <C>
Working capital ................................................. $ 114.2
Property, plant and equipment ................................... 4,992.2
Other assets .................................................... 181.3
Long-term debt .................................................. (1,011.9)
Other non-current liabilities, including deferred taxes ......... (1,652.6)
--------
Total purchase price ............................................ $2,623.2
========
</TABLE>
- 6 -
<PAGE> 9
The following table presents unaudited pro forma condensed consolidated
statement of operations of the Company for the quarters ended March 31,
1998 and 1997, as though the Norcen acquisition had occurred on January 1,
1997. Certain adjustments were made to the financial information to conform
to the accounting policies and financial statement presentation of the
Company.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
(Millions of dollars, except per share amounts)
Revenues .............................................. $ 599.2 $ 694.7
Costs and expenses .................................... 552.8 522.1
-------- --------
Operating income ...................................... 46.4 172.6
Interest expense ...................................... (73.7) (58.7)
Other income (expense) - net .......................... 1.5 (3.0)
-------- --------
Income (loss) before income taxes ..................... (25.8) 110.9
Income tax benefit (expense) .......................... 15.8 (36.0)
-------- --------
Net income (loss) ................................... $ (10.0) $ 74.9
======== ========
Earnings (loss) per share - basic ..................... $ (0.04) $ 0.30
Earnings (loss) per share - diluted ................... (0.04) 0.30
</TABLE>
The unaudited pro forma condensed consolidated information presented above
is not necessarily indicative of the results of operations or the financial
position which would have occurred had the Norcen Acquisition been
consummated on January 1, 1997, nor is it necessarily indicative of future
results of operations of the Company.
4. PURCHASE OF COMMON STOCK
In November 1997, the Company's Board of Directors authorized the purchase
of up to $50 million in shares of Common Stock ("Common Stock") of the
Company during 1998. During the first quarter of 1998, the Company
purchased approximately $21.6 million of Common Stock
5. COMMITMENTS AND CONTINGENCIES
The Company is subject to federal, state, provincial and local
environmental laws and regulations and currently is participating in the
investigation and remediation of a number of sites. Where the remediation
costs can reasonably be determined, and where such remediation is probable,
the Company has recorded a liability. Management does not expect future
environmental obligations to have a material impact on the results of
operations, financial condition or cash flows of the Company.
In the last ten years, the Company has disposed of significant pipeline,
refining and producing property assets. In disposition agreements in
connection therewith, the Company has made certain representations and
warranties relating to the assets sold and provided certain indemnities
with respect to liabilities associated with such assets. The Company has
been advised of possible claims which may be asserted by the purchasers of
certain of the disposed assets for alleged breaches of such representations
and warranties and under certain indemnities. Certain claims related to
compliance with environmental laws remain pending. In addition, some of the
representations, warranties and indemnities related to some of
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<PAGE> 10
the disposed assets continue to survive under such disposition agreements.
Further claims may be made against the Company under such disposition
agreements or otherwise. While no assurance can be given as to the ultimate
outcome of these claims, the Company does not expect these matters to have
a materially adverse effect on its results of operations, financial
condition or cash flows.
The Company is a defendant in a number of lawsuits and is involved in
governmental proceedings arising in the ordinary course of business in
addition to those described above. The Company also has entered into
commitments and provided guarantees for specific financial and contractual
obligations of its subsidiaries and affiliates. The Company does not expect
that these lawsuits, commitments or guarantees to have a materially adverse
effect on its results of operations, cash flows or financial condition.
6. NORCEN SUMMARIZED FINANCIAL INFORMATION
The following table presents summarized financial information for Norcen as
of and for the month ended March 31, 1998. This summarized financial
information is being provided pursuant to Section G of Topic 1 of Staff
Accounting Bulletin No. 53 -- "Financial Statement Requirements in Filings
Involving the Guarantee of Securities of a Parent" ("SAB 53") The Norcen
debt securities, 7 3/8% Debentures due May 15, 2006 in the aggregate
principal amount of $250 million, 7.8% Debentures due July 2, 2008 in the
aggregate principal amount of $150 million and 6.8% Debentures due July 2,
2002 in the aggregate principal amount of $250 million (collectively, "Debt
Securities") have been fully and unconditionally guaranteed by the Company.
The Company will continue to provide such summarized financial information
for Norcen for as long as the Debt Securities remain outstanding and
guaranteed by the Company.
<TABLE>
<CAPTION>
Two Months Ended One Month Ended
February 28, 1998(1) March 31, 1998(2)
Summarized Income Statement Information: (Dollars in millions) (Dollars in millions)
<S> <C> <C>
Operating revenues ............................. $ 104.0 $ 50.5
Operating income ............................... 4.0 (16.0)
Net (loss) ..................................... $ (30.0)(3) $ (12.8)
Summarized Balance Sheet Information:
Current assets ................................. $ 275.6 337.8
Non-current assets ............................. 2,456.2 5,208.8
Current liabilities ............................ 182.6 266.8
Non-current liabilities ........................ 2,549.2 5,279.8
</TABLE>
- ----------------------
(1) Actual results for Norcen as of and for the month ended February 28, 1998.
Results have not been restated in accordance with U.S. generally accepted
accounting principles ("GAAP") and reflect the full cost method for
accounting for oil and gas operations.
(2) Results for Norcen as of and for the month ended March 31, 1998 include
adjustments to reflect U.S. GAAP and the successful efforts method of
accounting. Adjustments to reflect the application of purchase method of
accounting for the Norcen Acquisition are included effective March 3, 1998.
(3) Net loss includes $40 million in costs incurred by Norcen in connection
with the Norcen Acquisition which were not reimbursed by the Company.
7. PLANNED DIVESTITURES
In April 1998, the Company announced a plan to divest of certain oil and
gas producing properties which the Company considers to be non-core after
the Norcen Acquisition. The planned divestitures are part of an overall
deleveraging program designed to reduce the Company's debt to total
capitalization ratio. The Company plans to sell at approximately $600
million of producing properties, in two phases. Phase one is expected to
include producing properties in the Gulf of Mexico, southern Louisiana,
southern Texas and eastern Texas. The second phase is expected to include
properties located in the Rocky Mountains area, Argentina, Egypt and
Australia. The sale of certain Canadian properties will also be offered in
several property packages. The Company intends to dispose of the producing
properties before the end of 1998. These properties represent less than ten
percent of the Company's reserves, cash flows and production volumes. The
Company also has announced its plan to explore opportunities to monetize
its gathering, processing and marketing business.
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<PAGE> 11
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Union Pacific Resources Group Inc.
Fort Worth, Texas
We have reviewed the accompanying condensed consolidated statement of financial
position of Union Pacific Resources Group Inc. (a Utah corporation) and
subsidiaries as of March 31, 1998, and the related condensed consolidated
statements of income and cash flows for the three-month period then ended. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Worth, Texas
April 28, 1998
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<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
UNION PACIFIC RESOURCES GROUP INC.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1998 COMPARED TO MARCH 31, 1997
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
(Millions of dollars)
<S> <C> <C>
Total operating revenues .................. $ 499.0 $ 531.7
Total operating expenses .................. 421.7 345.3
Operating income .......................... 77.3 186.4
Net income ............................ 31.2 117.2
</TABLE>
Operating income for the first quarter of 1998 of $77.3 million decreased by
$109.1 million (59%) from the first quarter 1997, primarily as a result of lower
producing property operating income. Producing property operating income
decreased $101.2 million as a result of lower product price realizations and
higher production costs, depreciation, depletion and amortization expense. The
lower prices were partially offset by increased volumes. Gathering, processing
and marketing operating income for the first quarter of 1998 was lower as
compared to the same period in 1997. The decrease in the two segments was
partially offset by higher minerals operating income.
Net income for the first quarter 1998 was $31.2 million or $0.13 per diluted
share. Net income was less by $86.0 million (73%) compared to the same period in
1997 as a result of lower operating income ($109.1 million) and increased
interest costs ($28.5 million). Tax expense was lower due to the lower taxable
income.
SUMMARY OF SEGMENT FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
(Millions of dollars)
<S> <C> <C>
Segment operating income:
Producing property operations ................... $ 41.2 $ 142.4
Gathering, processing and marketing ............. 18.5 32.8
Minerals ........................................ 39.4 30.6
Corporate/general and administrative ............ (21.8) (19.4)
------- -------
Total ........................................ $ 77.3 $ 186.4
======= =======
</TABLE>
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<PAGE> 13
PRODUCING PROPERTY OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
(Millions of dollars)
<S> <C> <C>
Operating revenues ................................... $ 362.7 $ 374.6
Operating expenses:
Production ........................................ 93.3 73.1
Exploration ....................................... 56.1 42.8
Depreciation, depletion and amortization .......... 172.1 116.3
------- -------
Total operating expenses .......................... 321.5 232.2
------- -------
Operating income ..................................... $ 41.2 $ 142.4
======= =======
</TABLE>
Producing property revenues for the first quarter of 1998 decreased by $11.9
million compared to the first quarter of 1997. Production volume increased by
439.7 MMcfed (27%) adding $100.9 million to revenues, while lower product prices
of $0.59 per Mcfe (23%) reduced revenues by $108.9 million for the first quarter
of 1998 compared to the first quarter of 1997.
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997 1998 1997
-------- -------- -------- --------
(without hedging) (with hedging)
<S> <C> <C> <C> <C>
Average price realizations - producing properties:
Natural gas (per Mcf) ............................. $ 1.86 $ 2.54 $ 1.97 $ 2.41
Natural gas liquids (per Bbl) ..................... 9.30 13.23 9.30 13.20
Crude oil (per Bbl) ............................... 11.93 20.83 12.32 19.51
Average (per Mcfe) ................................ 1.87 2.68 1.96 2.55
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Production volumes - producing properties:
Natural gas (MMcfd)............................................... 1,271.2 1,118.2
Natural gas liquids (MBbld)....................................... 31.4 30.8
Crude oil (MBbld)................................................. 98.6 51.4
Total (MMcfed).................................................... 2,051.6 1,611.9
</TABLE>
Natural gas volumes increased by 153 MMcfd (14%) in the first quarter of 1998 to
1,271.2 MMcfd, primarily as a result of the inclusion of one month of Norcen
production volumes (153.4 MMcfd). During the first quarter of 1998, natural gas
volumes in the Austin Chalk business unit declined 82.1 MMcfd compared to the
first quarter of 1997 primarily in the Giddings field area. The declines in the
Austin Chalk business unit were partially offset by increases in natural gas
volumes during the first quarter of 1998 in the East Texas (33.2 MMcfd), South
Texas/Plains/Canada (24.0 MMcfd) and Gulf Onshore/Offshore (23.2 MMcfd) business
units.
Crude oil volumes increased by 47.2 MBbld (92%) over the first quarter of 1997
to 98.6 MBbld in the first quarter of 1998. The increase in crude oil volumes
was primarily the result of the inclusion of one month
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<PAGE> 14
of Norcen production volumes (35.9 MBbld) and an increase of 11.4 MBbld in the
Austin Chalk business unit. The Austin Chalk business unit increase is the
result of discoveries in the Austin Chalk area in Louisiana. The additional
production volumes attributable to the Norcen Acquisition include production
from the Canada (16.0 MBbld), Guatemala (10.5 MBbld) and Venezuela (6.3 MBbld)
areas for the month of March 1998.
Production expenses increased by $20.2 million (28%) during the first quarter of
1998 compared to the first quarter of 1997. The increase in production expenses
was attributable to Norcen's lease operating costs, which contributed $13.2
million to the increase for the month of March. Higher salt water disposal
costs, salaries and benefits and maintenance in other business units made up the
remainder of the increase. Production expenses on a per unit basis were $0.51
per Mcfe during the first quarter of 1998 compared to $0.50 per Mcfe during the
first quarter of 1997.
Exploration expenses increased by $13.3 million (31%) during the first quarter
of 1998. The increase in exploration expenses was primarily attributable to
increased surrendered lease expense and geological and geophysical expense. The
surrendered lease expense, which was higher by $6.6 million, reflects increased
leasing activity in the East Texas and Gulf Onshore/Offshore business units.
Geological and geophysical expenses were higher by $3.6 million, primarily due
to the exploration efforts on properties acquired in connection with the Norcen
Acquisition ($2.9 million).
Depreciation, depletion and amortization ("DD&A") increased by $55.8 million
(48%) during the first quarter of 1998 to $172.1 million primarily due to the
Norcen Acquisition ($44.4 million) and higher producing property volumes in
other business units.
GATHERING, PROCESSING AND MARKETING OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
(Millions of dollars)
<S> <C> <C>
Operating revenues ................................... $ 96.2 $ 124.7
Gas purchases ........................................ 27.3 50.2
------- -------
Operating margin .................................. 68.9 74.5
Operating expenses:
Operating costs ................................... 32.6 26.4
Depreciation, depletion and amortization .......... 17.8 15.3
------- -------
Total operating expenses ........................ 50.4 41.7
------- -------
Operating income ..................................... $ 18.5 $ 32.8
======= =======
</TABLE>
Gathering, processing and marketing operating margins for the first of quarter
1998 decreased by $5.6 million (8%) to $68.9 million. Processing margins
decreased by $6.8 million, primarily due to lower plant product prices of $0.71
per Mcfe (30%) combined with a smaller relative decline in gas purchase prices.
The decrease was partially offset by additional margins attributable to the
acquisition of Highlands Gas Corporation ("Highlands") ($2.1 million) and the
start-up of the Masters Creek plant ($2.4 million). Gathering margins decreased
by $2.6 million from the first quarter of 1997, primarily due to lower volume
throughput at the Ferguson/Burleson pipeline.
- 12 -
<PAGE> 15
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
Sales volumes - plants:
Natural gas (MMcfd) ................................ 25.3 21.4
Natural gas liquids (MBbld) ........................ 43.7 41.6
Total (MMcfed) ..................................... 287.4 270.9
Average product price realizations - plants:
Natural gas (per Mcf) .............................. $ 2.08 $ 2.81
Natural gas liquids (per Bbl) ...................... 9.83 14.12
Average (per Mcfe) ................................. 1.68 2.39
</TABLE>
Natural gas volumes for the first quarter of 1998 increased by 3.9 MMcfd (18%)
over the first quarter of 1997. Increases in natural gas volumes were due to the
start-up of the Masters Creek plant and were partially offset by lower inlet
volumes at an East Texas business unit plant.
Natural gas liquids volumes increased by 2.1 MBbld (5%) during the first quarter
of 1998. The additional volumes were attributable to the Highlands plants in the
western Texas area (6.2 MBbld). These additional volumes were partially offset
by lower inlet volumes at the Austin Chalk area plants (2.4 MBbld) and declines
at East Texas area plants (1.8 MBbld).
Operating expenses increased by $8.7 million to $50.4 million in the first
quarter of 1998. The increase in operating expenses was primarily associated
with the acquisition of Highlands plants in the third quarter of 1997 and the
start-up of the Masters Creek plant in the second quarter of 1997.
MINERALS OPERATIONS
Minerals operating income increased by $8.8 million during the first quarter of
1998, primarily due to higher income from the Company's 50% non-operating
interest in Black Butte Coal Company. The higher income resulted from increased
coal shipments under a coal supply contract.
INTEREST EXPENSE
Interest expense increased by $28.5 million to $39.2 million during the first
quarter of 1998 from $10.7 million in the first quarter of 1997. The higher
interest expense is primarily due to the increased debt balances incurred to
fund the Norcen Acquisition, Highlands, and other property acquisitions and
capital spending programs.
INCOME TAXES
Income taxes decreased by $47.2 million during the first quarter of 1998 to $8.3
million. The decrease in income taxes resulted from lower income before taxes
and a lower effective tax rate. The effective tax rate for 1998 was 21.0%
(including Section 29 tax credits of $4.1 million) compared with 32.1% in 1997
(including $4.8 million of Section 29 tax credits).
- 13 -
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of cash during the first quarter of 1998 was debt
financing and cash provided by operations. Cash outflows during the first
quarter of 1998 were primarily related to the Norcen Acquisition, capital and
exploratory expenditures, including producing property purchases and the
repurchase of Common Stock by the Company.
During the first quarter of 1998, the Company issued commercial paper supported
by the $2.7 billion 364 Day Competitive Advance/Revolving Credit Agreement
("Norcen Acquisition Facility") entered into in connection with the Norcen
Acquisition. As a result of the Norcen Acquisition, the Company also assumed the
net debt of Norcen, including commercial paper and debentures, aggregating
approximately $1.0 billion. The Norcen Acquisition Facility includes a mandatory
prepayment provision and a series of "prepayment events." The mandatory
prepayment provision requires that $1.35 billion be repaid prior to March 1999.
In addition, 75% of the net proceeds resulting from any prepayment events must
be applied to reduce the indebtedness under the credit agreement. Prepayment
events include sales of assets in excess of $10 million and debt and equity
issuances. In addition, as a result of the Norcen Acquisition, the covenants in
the Company's other credit agreements, including the Company's $600 million and
$300 million revolving credit agreements and Norcen's credit facilities were
modified. The Company's $600 million and $300 million revolving credit
agreements were amended to provide that debt should not exceed 75% of the total
of the Company's debt and shareholders' equity (65% after September 30, 1999).
Additionally, the EBITDAX (the sum of operating income, depreciation, depletion
and amortization, and exploration expenses) of the Company's principal
subsidiaries (as defined in the agreements) are required to be at least 80% of
the Company's consolidated EBITDAX. The modifications also placed other
restrictions on the Company regarding the creation of liens, incurrence of
additional indebtedness, transactions with affiliates, sales of stock of Union
Pacific Resources Company (a wholly owned subsidiary of the Company) and certain
mergers, consolidations, and asset sales. The Norcen credit agreements were also
modified to provide additional events of default to the Norcen Acquisition
Facility. One of the additional events of default was an event of default under
the Norcen Acquisition Facility. The Company also issued approximately $116
million of additional commercial paper supported by other credit facilities
during the first quarter of 1998. These proceeds were used for general corporate
purposes.
Excluding commercial paper, the Company has no debt maturing in the next four
years. All debt of the Company except for $350 million of outstanding commercial
paper has been classified as long-term debt reflecting the Company's intent to
maintain these short-term borrowings on a long-term basis either through the
issuance of additional commercial paper or debt securities. The Company intends
to sell long-term debt securities, including notes and debentures aggregating
approximately $1.0 billion in the second quarter of 1998. The aggregate net
proceeds from the sale of these debt securities will be used to reduce
outstanding commercial paper.
- 14 -
<PAGE> 17
As of March 31, 1998 and 1997, the total capitalization of the Company was as
follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Short-term debt:
Commercial paper, net ................................ $ 350.0 $ --
Long-term debt:
Commercial paper, net ................................ 3,479.7 663.1
6.8% debentures due 2002 ............................. 250.0 --
7% notes due 2006 .................................... 200.0 200.0
7.375% debentures due 2006 ........................... 250.0 --
7.8% debentures due 2008 ............................. 150.0 --
7.5% debentures due 2026 ............................. 200.0 200.0
7.5% debentures due 2096 ............................. 150.0 150.0
Tax exempt revenue bonds ............................. 20.1 20.1
(Discount) premium on notes and debentures - net ..... 8.9 (2.6)
-------- --------
Total long-term debt .............................. 4,708.7 1,230.6
Shareholders' equity ....................................... 1,765.0 1,760.7
-------- --------
Total capitalization ................................. $6,823.7 $2,991.3
======== ========
Debt to total capitalization ......................... 74.1% 41.1%
======== ========
</TABLE>
Inasmuch as the Company's debt to total capitalization ratio at March 31, 1998
was 74.1%, the Company has minimal capacity to incur additional debt. On April
20, 1998, the Company announced its intention to proceed with a deleveraging
program. In connection with this program, the Company intends to sell
approximately $600 million of non-core exploration and production properties by
the end of 1998, explore opportunities to monetize its gathering, processing,
and marketing business, and reduce its 1998 capital and exploratory spending by
approximately $300 million. The aggregate net proceeds from the sale of the
properties will be used to reduce the Company's outstanding commercial paper or
other indebtedness. The Company plans to reduce its debt to total capitalization
ratio to approximately 50% within the next 12 to 18 months.
Cash provided by operations during the first quarter of 1998 decreased by $126.8
million (30%) from the same period in 1997, primarily due to lower hydrocarbon
product sales prices and higher interest expense associated with the increased
debt level.
Capital and exploratory expenditures for the first quarter of 1998, excluding
the Norcen Acquisition, were $487.1 million, a $203.1 million increase (72%)
compared to the first quarter of 1997. Capital and exploratory expenditures are
summarized as follows:
- 15 -
<PAGE> 18
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
(Millions of dollars)
<S> <C> <C>
Capital and exploratory expenditures:
Exploration and production ............................. $ 439.7 $ 247.8
Gathering, processing and marketing .................... 41.0 31.1
Minerals and other ..................................... 6.4 5.1
-------- --------
Total ............................................. 487.1 284.0
Norcen acquisition ..................................... 2,623.2 --
-------- --------
Total capital and exploratory expenditures ........ $3,110.3 $ 284.0
======== ========
</TABLE>
Exploration and production capital spending increased by $191.1 million (77%)
during the first quarter of 1998 as compared to the first quarter of 1997.
Increased spending for property acquisitions ($88.8 million) and development
drilling primarily in the Canada and Austin Chalk business units accounted for a
majority of the increase. These increases were partially offset by lower lease
acquisition spending in the Austin Chalk and East Texas business units ($48.9
million).
The Company expects its total capital and exploratory spending during 1998,
excluding the Norcen Acquisition, to be approximately $1.3 billion. However, the
extent and timing of this expected spending may be affected by changes in
business and operating conditions as well as by the timing and availability of
suitable investment opportunities. Such spending will be funded primarily
through cash provided by operations. Such spending is expected to be focused on
drilling, lease acquisitions, and property acquisitions. Drilling is expected to
be concentrated in the Gulf of Mexico, Austin Chalk, western Canada, and
Guatemala. The Company expects to increase its total annual sales volumes in
1998 by approximately 60% over 1997 while increasing its hydrocarbon reserves.
The sales volume growth is expected to be achieved primarily through the Norcen
Acquisition. The Company may selectively pursue opportunities to expand its
gathering, processing, and marketing business. The Company also may pursue
additional international investment opportunities where its technological and
operating expertise can be utilized.
The Company purchased $21.6 million of its Common Stock during the first quarter
of 1998. The Company paid a $0.05 per share quarterly cash dividend ($12.4
million) on its outstanding Common Stock in January 1998. On February 19, 1998
and April 17, 1998, the Board of Directors declared a cash dividend of $0.05 per
share payable in the second and third quarter of 1998, respectively.
FORWARD LOOKING INFORMATION
Certain information included in this quarterly report and other materials filed
by the Company with the Securities and Exchange Commission contain projections
and other forward looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, and Section 27A of the Securities
Act of 1933, as amended. Such forward looking statements may be or may concern,
among other things, capital expenditures, drilling activity, acquisitions and
dispositions, development activities, cost savings efforts, production
activities and volumes, hydrocarbon reserves, hydrocarbon prices, hedging
activities and the results thereof, liquidity, regulatory matters, competition
and the Company's ability to realize significant improvements with the change to
a more adaptive corporate culture. Such forward looking
- 16 -
<PAGE> 19
statements generally are accompanied by words such as "estimate," "expect,"
"predict," "anticipate," "goal," "should," "assume," "believe" or other words
that convey the uncertainty of future events or outcomes.
Such forward looking information is based upon management's current plans,
expectations, estimates and assumptions and is subject to a number of risks and
uncertainties that could significantly affect current plans, anticipated
actions, the timing of such actions and the Company's financial condition and
results of operations. As a consequence, actual results may differ materially
from expectations, estimates or assumptions expressed in or implied by any
forward looking statements made by or on behalf of the Company. The risks and
uncertainties include generally the volatility of hydrocarbon prices and
hydrocarbon-based financial derivative prices; basis risk and counterparty
credit risk in executing hydrocarbon price risk management activities; economic,
political, judicial and regulatory developments; competition in the oil and gas
industry as well as competition from other sources of energy; the economics of
producing certain reserves; demand and supply of oil and gas; the ability to
find or acquire and develop reserves of natural gas and crude oil; and the
actions of customers and competitors. Additionally, unpredictable or unknown
factors not discussed herein could have material adverse effects on actual
results related to matters which are the subject of forward looking information.
The Company does not intend to update these cautionary statements.
With respect to expected capital expenditures and drilling activity, additional
factors such as the extent of the Company's success in acquiring oil and gas
properties and in identifying prospects for drilling, the availability of
acquisition opportunities which meet the Company's objectives as well as
competition for such opportunities, exploration and operating risks, the success
of management's cost reduction efforts and deleveraging program and the
availability of technology may affect the amount and timing of such capital
expenditures and drilling activity. With respect to expected growth in
production and sales volumes and estimated reserve quantities, factors such as
the extent of the Company's success in finding, developing and producing
reserves, the timing of capital spending and acquisition programs, uncertainties
inherent in estimating reserve quantities and the availability of technology may
affect such production volumes and reserve estimates.
With respect to liquidity, factors such as the state of domestic capital
markets, credit availability from banks or other lenders and the Company's
results of operations may affect management's plans or ability to incur
additional indebtedness. With respect to cash flow, factors such as changes in
oil and gas prices, the Company's success in acquiring producing properties,
environmental matters and other contingencies, hedging activities, the Company's
credit rating and debt levels, and the state of domestic capital markets may
affect the Company's ability to generate expected cash flows. With respect to
contingencies, factors such as changes in environmental and other governmental
regulation, and uncertainties with respect to legal matters may affect the
Company's expectations regarding the potential impact of contingencies on the
operating results or financial condition of the Company. Certain factors, such
as changes in oil and gas prices and underlying demand and the extent of the
Company's success in exploiting its current reserves and acquiring or finding
additional reserves may have pervasive effects on many aspects of the Company's
business in addition to those outlined above.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has established policies and procedures for managing risk within its
organization. These policies and procedures incorporate internal controls and
are governed by a risk management committee. The level of risk assumed by the
Company is based on its objectives and earnings, and its capacity to manage
- 17 -
<PAGE> 20
risk. Limits are established for each major category of risk, with exposures
monitored and managed by Company management and reviewed by the risk management
committee.
COMMODITY PRICE RISK - NON-TRADING ACTIVITIES
The Company uses derivative financial instruments for non-trading purposes in
the normal course of business to manage and reduce risks associated with
contractual commitments, price volatility, and other market variables. These
instruments are generally put in place to limit risk of adverse price movements,
however, when this is done, these same instruments usually limit future gains
from favorable price movements. Such risk management activities are generally
accomplished pursuant to exchange-traded futures and over-the-counter options.
Recognition of realized gains/losses and option premium payments/receipts in the
Condensed Consolidated Statements of Income are deferred until the underlying
physical product is purchased or sold. Unrealized gains/losses on derivative
financial instruments are not recorded. Margin deposits, deferred gains/losses
on derivative financial instruments and net premiums are included in other
current assets or liabilities in the Condensed Consolidated Statements of
Financial Position. The cash flow impact of derivative and other financial
instruments is reflected as cash flows from operations in the Condensed
Consolidated Statements of Cash Flows. At March 31, 1998, the Company had
margin deposits of $4.0 million.
In connection with purchase accounting adjustments relating to the Norcen
Acquisition, an asset was recorded on the balance sheet for $26.8 million
representing the fair value of acquired futures contracts. The value
of the asset will be amortized over the contracts' term. Excluding the $26.8
million unamortized value associated with the acquired contracts, the Company's
unrecognized loss at March 31, 1998 was $22.7 million.
In connection with purchase accounting adjustments relating to the Norcen
Acquisition, an asset was recorded on the balance sheet for $26.8 million
representing the fair value of acquired futures contracts. The
The following table summarizes the Company's open positions as of March 31,
1998, which hedge the Company's future oil & gas production from oil and gas
activities.
<TABLE>
<CAPTION>
WEIGHTED FAIR UNRECOGNIZED
CONTRACT AVG. PRICES VALUE GAIN(LOSS)
PRODUCT TYPE TIME PERIOD VOLUME PER MCF (MILLIONS) (MILLIONS)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gas Futures/swaps May - Oct 1998 226 MMcfd $2.08 $ (17.8) $ (17.8)
Gas Futures/swaps May - Oct 1998 71 MMcfd $1.30 (2.0) (2.0)
Gas Futures/swaps May - Oct 1998 20 MMcfd $2.19 (1.4) (1.4)
Gas Futures/swaps May - Dec 1998 15 MMcfd $2.36 (0.4) (0.4)
Gas Futures/swaps Nov - Dec 1998 22 MMcfd $2.17 (0.8) (0.8)
Gas Futures/swaps Jan - Dec 1999 5 MMcfd $2.28 (0.4) (0.4)
Gas Net calls sold May - Oct 1998 100 MMcfd $2.58 2.8 (1.2)
Gas Option collars May - Oct 1998 10 MMcfd $2.00/2.10 (0.8) (0.8)
Gas Puts May - Oct 1998 153 MMcfd $2.04 0.7 (3.4)
purchased
Gas Fixed price May 1998 - Jun 2008 62.2 Bcf $2.98 15.9 15.9
Gas Fixed price May 1998 - Dec 2000 76.4 Bcf $1.70 (11.4) (11.4)
Oil Futures/swaps May - Jul 1998 3.6 Mbd $18.94 0.8 0.8
Oil Futures/swaps May - Dec 1998 26 Mbd $18.88 14.0 14.0
Oil Futures/swaps Jan - Dec 1999 11 Mbd $20.00 10.7 10.7
Oil Futures/swaps Jan 1999 - Dec 2000 2 Mbd $12.06 0.7 0.7
Oil Calls sold Jul - Dec 1998 1 Mbd $21.00 0.2 0.1
Oil Fixed price May - Dec 1998 3.4 Mmb $10.15 1.5 1.5
------- -------
$ 12.3 $ 4.1
======= =======
</TABLE>
- 18 -
<PAGE> 21
Union Pacific Fuels, Inc. ("UP Fuels") periodically enters into financial
contracts in conjunction with transportation, storage, and customer service
programs. The following table summarizes UP Fuels' open positions as of March
31, 1998.
<TABLE>
<CAPTION>
WEIGHTED FAIR UNRECOGNIZED
CONTRACT AVG. PRICES VALUE GAIN(LOSS)
PRODUCT TYPE TIME PERIOD VOLUME PER MCF (MILLIONS) (MILLIONS)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gas Futures/swaps
purchased May 1998 - Dec 2001 45.0 Bcf $2.08 $ 13.8 $ 13.8
Gas Futures/swaps
sold May 1998 - Dec 2001 39.6 Bcf $2.25 (10.4) (10.4)
------- -------
$ 3.4 $ 3.4
======= =======
</TABLE>
Additionally, the Company had previously sold near-term futures contacts and
swaps for May through December 1998 with respect to notional natural gas volumes
of 47 MMcfd. Subsequently these positions were offset by purchasing
corresponding volumes through futures contracts and swaps for the same delivery
periods. The unrecognized gain at March 31, 1998 relating to these transactions
was $0.5 million.
Unrecognized mark-to-market gains and losses were determined based on current
market prices, as quoted by recognized dealers, assuming round lot transactions
and using a mid-market convention without regard to market liquidity.
INTEREST RATE SWAPS
The Company periodically enters into rate swaps and contracts to hedge certain
interest rate transactions. As of March 31, 1998, the Company had entered into
$250 million of Treasury rate lock contracts to hedge the interest rates related
to the future issuance of bonds. The unrecognized gain associated with these
contracts was approximately $1.0 million. Additionally, the Company acquired
interest rate swap contracts with maturity dates varying between March 1999 and
July 2008 in connection with the Norcen Acquisition. These such contracts have
aggregate notional amounts of approximately $450 million, with interest rates
between 7.1% and 7.79%. As a result of purchase accounting for the Norcen
Acquisition, the Company recorded a $38.4 million deferred asset on the balance
sheet representing the fair value such contracts. The asset will be amortized
over the life of such contracts. The unrecognized gain on such contracts at
March 31, 1998, excluding the purchase accounting treatment, was approximately
$39.6 million. Subsequent to March 31, 1998, the Company has closed all such
contracts.
FOREIGN CURRENCY CONTRACTS
The Company periodically enters into foreign currency contracts to hedge
specific currency exposures from commercial transactions. As a result of the
Norcen Acquisition, the Company acquired foreign currency forward exchange
contracts with a $348 million notional amount and maturities between March 1998
and December 1999. As a result of purchase accounting for the Norcen
Acquisition, the Company recorded a $15 million deferred liability on the
balance sheet representing the fair value of such contracts. The deferred
liability will be amortized over the life of such contracts. The unrecognized
loss on such contracts at March 31, 1998, excluding the purchase accounting
treatment, was $16.4 million.
CREDIT RISK
Credit risk is the risk of loss as a result of nonperformance by counterparties
pursuant to the terms of their contractual obligations. Because the loss can
occur at some point in the future, a potential exposure is added to the current
replacement value to arrive at a total expected credit exposure. The Company has
established methodologies to establish limits, monitor and report
creditworthiness and concentrations of credit to reduce such credit risk. At
March 31, 1998, the Company's largest credit risk associated with any single
counterparty, represented by the net fair value of open contracts with such
counterparty, was less than $5.2 million.
- 19 -
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
GENERAL
The Company is a defendant in a number of lawsuits and is involved in
governmental proceedings arising in the ordinary course of business, including
but not limited to royalty claims, contract claims, personal injury claims and
environmental claims. While management of the Company cannot predict the outcome
of such litigation and other proceedings, management does not expect these
matters to have a materially adverse effect on the consolidated financial
condition, cash flows or results of operations of the Company. Refer to the
Company's Annual Report on Form 10-K for additional information regarding such
proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Guarantee and subordination agreement dated as of March 31, 1998, among
Union Pacific Resources Group Inc., Union Pacific Resources Inc., and
Canadian Imperial Bank of Commerce, related to the Extendable Revolving
Term Credit Facility Agreement dated May 30, 1997.
10.2 Guarantee and subordination agreement dated as of March 31, 1998, among
Union Pacific Resources Group Inc., Union Pacific Resources Inc., and
The Toronto-Dominion Bank related to the Amended and Restated Extendable
Revolving Term Credit Facility Agreement dated May 29, 1997.
10.3 Guarantee and subordination agreement dated as of March 31, 1998, among
Union Pacific Resources Group Inc., Union Pacific Resources Inc., and
ABN AMRO Bank Canada related to the Amended and Restated Extendable
Revolving Term Credit Facility Agreement dated June 10, 1997.
10.4 Guarantee and subordination agreement dated as of March 31, 1998, among
Union Pacific Resources Group Inc., Union Pacific Resources Inc., and
Union Bank of Switzerland (Canada) related to the Amended and Restated
Extendable Revolving Term Credit Facility Agreement dated May 29, 1997.
10.5 Guarantee and subordination agreement dated as of March 31, 1998, among
Union Pacific Resources Group Inc., Union Pacific Resources Inc., and
Royal Bank of Canada related to the Amended and Restated Extendable
Revolving Term Credit Facility Agreement dated May 30, 1997.
11 Computation of earnings per share
12 Computation of ratio of earnings to fixed charges
15 Awareness letter of Arthur Andersen LLP dated May 12, 1998
27 Financial data schedule
- 20 -
<PAGE> 23
(b) REPORTS ON FORM 8-K
On January 26, 1998, the Company filed a Current Report on Form 8-K containing a
copy of two press releases issued by the Company on January 26, 1998. The first
press release announced that the Company's Board of Directors and the Board of
Directors of Norcen, had unanimously approved the Norcen Acquisition by UPRI.
The second press release announced the Company's 1997 annual operating revenues,
net income and certain other financial information.
On March 17, 1998, the Company filed a Current Report on Form 8-K containing a
copy of two press releases issued by the Company. The first press release issued
on March 3, 1998, announced the closing of its tender offer for up to 100% of
the common shares of Norcen. In the second press release, issued on March 6,
1998, UPRI announced that on March 5, 1998, UPRI completed the compulsory
acquisition procedures pursuant to Section 206 of the Canada Business
Corporations Act to acquire the remaining issued and outstanding common shares
of Norcen.
On March 27, 1998, the Company filed a Current Report on Form 8-K concerning
changes in the Company's certifying auditors. Deloitte & Touche LLP was
dismissed effective with the completion of its annual audit of the Company's
financial statements and the filing on March 26, 1998 of the Annual Report on
Form 10-K for the fiscal year ended December 31, 1997.
On May 6, 1998, the Company filed a Current Report on Form 8-K/A. This Current
Report included financial statements and supplemental information for Norcen for
the period ending December 31, 1997. Additionally it included an unaudited pro
forma balance sheet as of December 31, 1997 to give effect to the Norcen
Acquisition as if the Norcen Acquisition had occurred on December 31, 1997. The
Current Report also included an unaudited proforma condensed consolidated
statement of operations for the year ended December 31, 1997 to give effect to
the Norcen Acquisition, as if the acquisition and certain events had occurred on
January 1, 1997.
On May 6, 1998, the Company filed a Current Report on Form 8-K containing a copy
of three press releases issued by the Company on April 20, 1998 and April 27,
1998. Two of the press releases relate to the Company's deleveraging program.
The third press release announced the Company's first quarter 1998 results of
operations.
- 21 -
<PAGE> 24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 12, 1998
UNION PACIFIC RESOURCES GROUP INC.
(Registrant)
/s/ Morris B. Smith
---------------------------------
Morris B. Smith,
Vice President and Chief Financial Officer
(Chief Financial Officer and
Duly Authorized Officer)
<PAGE> 25
UNION PACIFIC RESOURCES GROUP INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.1 Guarantee and subordination agreement dated as of March 31,
1998, among Union Pacific Resources Group Inc., Union Pacific
Resources Inc., and Canadian Imperial Bank of Commerce, related
to the Extendable Revolving Term Credit Facility Agreement
dated May 30, 1997.
10.2 Guarantee and subordination agreement dated as of March 31,
1998, among Union Pacific Resources Group Inc., Union Pacific
Resources Inc., and The Toronto-Dominion Bank related to the
Amended and Restated Extendable Revolving Term Credit Facility
Agreement dated May 29, 1997.
10.3 Guarantee and subordination agreement dated as of March 31,
1998, among Union Pacific Resources Group Inc., Union Pacific
Resources Inc., and ABN AMRO Bank Canada related to the Amended
and Restated Extendable Revolving Term Credit Facility
Agreement dated June 10, 1997.
10.4 Guarantee and subordination agreement dated as of March 31,
1998, among Union Pacific Resources Group Inc., Union Pacific
Resources Inc., and Union Bank of Switzerland (Canada) related
to the Amended and Restated Extendable Revolving Term Credit
Facility Agreement dated May 29, 1997.
10.5 Guarantee and subordination agreement dated as of March 31,
1998, among Union Pacific Resources Group Inc., Union Pacific
Resources Inc., and Royal Bank of Canada related to the Amended
and Restated Extendable Revolving Term Credit Facility
Agreement dated May 30, 1997.
11 Computation of earnings per share
12 Computation of ratio of earnings to fixed charges
15 Awareness letter of Arthur Andersen LLP dated May 12, 1998
27 Financial data schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
EXECUTION COPY
GUARANTEE AND SUBORDINATION AGREEMENT (this
"Agreement") dated as of March 31, 1998, among UNION
PACIFIC RESOURCES GROUP INC., a Utah corporation (the
"Guarantor"), UNION PACIFIC RESOURCES INC., a
Canadian corporation (the "UPR Subsidiary"), and
CANADIAN IMPERIAL BANK OF COMMERCE (the "Lender").
Reference is made to the Extendable Revolving Term Credit
Facility (the "Facility") provided pursuant to the agreement dated May 30, 1997
(as amended from time to time, the "Facility Agreement") between the Lender and
Norcen Energy Resources Limited (the "Borrower"). The Guarantor has acquired
ownership of the Borrower and, for good and valuable consideration the receipt
and sufficiency of which is hereby acknowledged, and in order to induce the
Lender to continue to make the Facility available to the Borrower, the
Guarantor and the UPR Subsidiary have agreed to enter into this Agreement.
Accordingly, the parties hereto agree as follows:
Article I
GUARANTEE
SECTION 1.1. The Guarantor unconditionally and irrevocably
guarantees, as a primary obligor and not merely as a surety, (a) the due and
punctual payment by the Borrower of (i) the principal of and interest on all
loans made by the Lender to the Borrower pursuant to the Facility, when and as
due, whether at maturity, by acceleration, upon one or more dates set for
prepayment or otherwise and (ii) all other monetary obligations of the Borrower
to the Lender under the Facility Agreement, when and as due, and (b) the due
and punctual performance, when and as due, of all other present and future
obligations of the Borrower under the Facility Agreement (all the foregoing
indebtedness and obligations being collectively called the "Obligations"). The
Guarantor further agrees that the Obligations may be amended, extended,
increased or renewed, in whole or in part, without notice to or further assent
from it, and that it will remain bound upon its guarantee notwithstanding any
amendment, extension, increase or renewal of any Obligation.
<PAGE> 2
2
SECTION 1.2. The Guarantor waives presentment to, demand of
payment from and protest to the Borrower of any of the Obligations, and also
waives notice of acceptance of this guarantee and notice of protest for
nonpayment. The obligations of the Guarantor hereunder shall not be affected
by (a) the failure of the Lender to assert any claim or demand or to enforce
any right or remedy against the Borrower under the Facility Agreement or
otherwise; (b) any rescission, waiver, amendment or modification of, or any
release from any of the terms or provisions of, the Facility Agreement or any
other agreement; (c) the release of any security held by the Lender for the
Obligations or any of them; or (d) the failure of the Lender to exercise any
right or remedy against any other guarantor of the Obligations.
SECTION 1.3. The Guarantor further agrees that its guarantee
hereunder constitutes a guarantee of payment when due and not of collection,
and waives any right to require that resort be had by the Lender to any
security held for payment of the Obligations or to any balance of any deposit
account or credit on the books of the Lender in favor of the Borrower or any
other person.
SECTION 1.4. The obligations of the Guarantor hereunder shall
not be subject to any reduction, limitation, impairment or termination for any
reason, including, without limitation, any claim of waiver, release, surrender,
alteration or compromise, and shall not be subject to any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of any of the Obligations or otherwise. Without
limiting the generality of the foregoing, the obligations of the Guarantor
hereunder shall not be discharged or impaired or otherwise affected by the
failure of the Lender to assert any claim or demand or to enforce any remedy
under the Facility Agreement or any other agreement, by any waiver or
modification of the Facility Agreement or any other agreement, by any default,
failure or delay, willful or otherwise, in the performance of any of the
Obligations, or by any other act or omission which may or might in any manner
or to any extent vary the risk of the Guarantor or otherwise operate as a
discharge of the Guarantor as a matter of law or equity (other than the
indefeasible payment and performance in full of all the Obligations).
<PAGE> 3
3
SECTION 1.5. The Guarantor further agrees that its guarantee
shall continue to be effective or be reinstated, as the case may be, if at any
time payment, or any part thereof, of any Obligation is rescinded or must
otherwise be restored by the Lender upon the bankruptcy or reorganization of
the Borrower or otherwise.
SECTION 1.6. In furtherance of the foregoing and not in
limitation of any other right which the Lender has at law or in equity against
the Guarantor by virtue hereof, the Guarantor hereby promises to and will, upon
receipt of a written demand by the Lender, forthwith pay, or cause to be paid,
to the Lender in cash the amount of any unpaid Obligation. The Lender may
demand payment or performance by the Guarantor hereunder with or without first
demanding payment or performance of the Obligations by the Borrower, and the
Guarantor agrees to and will honor such demand regardless of whether any demand
has been or is being made upon the Borrower and regardless of whether at the
time the Borrower may be capable or incapable of payment or performance or is
bankrupt or insolvent. In the event of any payment of the Obligations by the
Guarantor hereunder, the Guarantor shall be subrogated to the rights of the
Lender against the Borrower in respect of which such payment is made; provided
that such right of subrogation shall be subordinated to any remaining
Obligations owed to the Lender, and the Guarantor shall not seek or be entitled
to seek any contribution or reimbursement from the Borrower in respect of
payments made by the Guarantor hereunder unless all amounts at the time due and
payable to the Lender by the Borrower on account of the Obligations have been
indefeasibly paid in full.
SECTION 1.7. The guarantee made hereunder shall survive and
be in full force and effect so long as any Obligation is outstanding and has
not been indefeasibly paid, and shall be reinstated to the extent provided in
Section 1.5.
SECTION 1.8. All payments by the Guarantor hereunder shall be
made free and clear of and without deduction for any present or future income,
excise, stamp, or franchise taxes and other taxes, fees, duties, withholdings
or other charges of any nature whatsoever imposed by any taxing authority, but
excluding franchise taxes and taxes imposed on or measured by the Lender's net
income or receipts (such non-excluded items being called
<PAGE> 4
4
"Taxes"). In the event that any withholding or deduction from any payment to
be made hereunder is required in respect of any Taxes pursuant to any
applicable law, rule or regulation, then, subject to the provisions of Section
1.9, the Guarantor shall:
(a) pay directly to the relevant authority the full amount
required to be so withheld or deducted;
(b) promptly forward to the Lender an official receipt or
other documentation satisfactory to the Lender evidencing such payment to such
authority; and
(c) pay to the Lender such additional amount(s) as is
necessary to ensure that the net amount actually received by the Lender will
equal the full amount the Lender would have received had no such withholding or
deduction been required and the Guarantor hereby acknowledges that it is not
entitled to and will not seek recovery or restitution of any amount due to the
Lender and paid by it pursuant to this paragraph (c) or pursuant to the next
sentence.
If any Taxes are directly asserted against the Lender with
respect to any payment received by the Lender hereunder, the Lender may pay
such Taxes and, if paid in good faith after inquiry to the Borrower or the
Guarantor, the Guarantor shall promptly pay such additional amounts to the
Lender (including any penalties, interest or expenses) as are necessary in
order that the net amount received by the Lender after the payment of such
Taxes (including any taxes on such additional amount) shall equal the amount
the Lender would have received had no such Taxes been asserted, subject to the
provisions of Section 1.9.
If the Guarantor fails to pay any Taxes when due to the
appropriate taxing authority, or fails to remit to the Lender the required
receipts or other required documentary evidence, the Guarantor shall indemnify
the Lender for any Taxes, interest or penalties that may become payable by the
Lender as a result of any such failure, subject to the provisions of Section
1.9.
SECTION 1.9. The Lender's claims for reimbursements,
payments, indemnities or otherwise under Section 1.8 and the Guarantor's
obligations with respect thereto, shall be limited and qualified by and subject
to the following:
<PAGE> 5
5
(a) the Guarantor's obligation to pay, satisfy or recognize
such claim shall be limited to costs or losses incurred within one (1) year
immediately prior to any demand or request therefor upon the Guarantor;
(b) the Lender's demand for reimbursement, payment or
indemnity must be limited to that which is being generally applied at the time
by the Lender for comparable guarantors and guaranties subject to similar
provisions;
(c) the Lender shall provide evidence regarding the basis of
such claim and the calculation and application thereof in reasonable detail
and, in determining such amount, the Lender may use reasonable methods of
attribution and averaging; and
(d) the Lender shall, if so requested by the Guarantor, use
reasonable efforts (subject to the overall policy considerations of the Lender)
to designate a different lending office hereunder if to do so will avoid the
need for, or reduce the amount of, any such payment, indemnity or
reimbursement; provided that, the Lender would, in its sole but reasonable
determination, suffer no material economic, legal or regulatory disadvantage or
burden.
Article II
SUBORDINATION
SECTION 2.1. For purposes of this Article II, the following
terms shall have the following meanings: (a) "Senior Creditor" means the
Lender, (b) "Senior Obligations" means the Obligations, (c) "Subordinated
Creditors" means the Guarantor and the UPR Subsidiary and (d) "Subordinated
Obligations" means all indebtedness of the Borrower or any subsidiary thereof
owed to the Guarantor and the UPR Subsidiary.
SECTION 2.2. Each Subordinated Creditor hereby agrees that
all the Subordinated Obligations are hereby expressly and unconditionally
subordinated, to the greatest extent permitted by law and in the manner set
forth in this Article II, to the indefeasible prior payment in full in cash of
all Senior Obligations in accordance with the terms thereof.
<PAGE> 6
6
SECTION 2.3. Upon the occurrence and continuation of an Event
of Default (as defined in the Facility Agreement), or upon any distribution of
the assets of the Borrower, or upon any dissolution, winding up, liquidation or
reorganization of the Borrower, whether in bankruptcy, insolvency,
reorganization, arrangement or receivership proceedings or otherwise, or upon
the assignment for the benefit of creditors or any other marshalling of the
assets of the Borrower, or otherwise:
(a) the Senior Creditor shall first be entitled to receive
payment in full in cash of the Senior Obligations in accordance with the terms
of such Senior Obligations before any Subordinated Creditor shall be entitled
to receive any payment on account of the Subordinated Obligations, whether as
principal, interest or otherwise;
(b) any payment by, or distribution of the assets of, the
Borrower of any kind or character, whether in cash, property or securities, to
which any Subordinated Creditor would be entitled except for the provisions of
this Agreement shall be paid or delivered by the person making such payment or
distribution (whether a trustee in bankruptcy, a receiver, custodian or
liquidating trustee or otherwise) directly to the Senior Creditor to the extent
necessary to make payment in full in cash of all Senior Obligations remaining
unpaid, after giving effect to any concurrent payment or distribution to the
Senior Creditor in respect of the Senior Obligations; and
(c) any payment or distribution of the assets of the Borrower
received by any of the Subordinated Creditors which by virtue of this Agreement
should have been made to the Senior Creditor shall be held by the said
Subordinated Creditor, as bare trustee only, in trust for, and shall be
forthwith paid or distributed to, the Senior Creditor to be applied against the
Senior Obligations.
SECTION 2.4. Subrogation. Subject to the prior indefeasible
payment in full in cash of the Senior Obligations, the Subordinated Creditors
shall be subrogated to the rights of the Senior Creditor to receive payments or
distributions in cash, property or securities applicable to such Senior
Obligations until all amounts owing on the Subordinated Obligations shall be
paid in full, and as between and among the Borrower, its creditors (other than
the Senior Creditor) and the Subordinated Creditors, no such
<PAGE> 7
7
payment or distribution made to the Senior Creditor of by virtue of this
Agreement that otherwise would have been made to the Subordinated Creditors
shall be deemed to be a payment by the Borrower on account of its Subordinated
Obligations, it being understood that the provisions of this Agreement are
intended solely for the purpose of defining the relative rights of the
Subordinated Creditors, on the one hand, and the Senior Creditor, on the other
hand.
Article III
MISCELLANEOUS
SECTION 3.1. The Guarantor shall forthwith pay to the Lender
on demand all out-of-pocket costs incurred by the Lender, including but not
limited to all reasonable legal costs, in enforcing any of its rights and
remedies arising under this Agreement.
SECTION 3.2. The Guarantor shall forthwith notify the Lender
upon any of its subsidiaries, other than a subsidiary which at the time is a
party to this Agreement or an agreement similar in substance to this Agreement,
acquiring or being the beneficiary of any Subordinated Obligations and
thereupon the Guarantor shall cause such subsidiary to forthwith provide a
subordination in favor of the Lender upon similar terms as herein provided,
together with such legal opinions in respect thereof similar in substance to
those legal opinions already provided to the Lender in respect of prior similar
subordinations the UPR Subsidiary and other subsidiaries of the Guarantor.
SECTION 3.3. The Guarantor shall provide to the Lender as
soon as reasonably practicable, but no later than 90 days following each fiscal
quarter, its consolidated, unaudited, quarterly financial statements and, no
later than 120 days following each fiscal year-end, its consolidated, audited,
annual financial statements.
SECTION 3.4. This Agreement and the terms, covenants and
conditions hereof shall be binding upon the Guarantor and the UPR Subsidiary
and their respective successors and shall inure to the benefit of the Lender
and its successors and permitted assigns. The Guarantor and the UPR Subsidiary
shall not be permitted to assign or transfer any of their rights or obligations
under this Agreement.
<PAGE> 8
8
SECTION 3.5. No failure on the part of the Lender to
exercise, and no delay in exercising, any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy by the Lender preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. All
remedies hereunder and under the Facility Agreement are cumulative and are not
exclusive of any other remedies provided by law. The Lender shall not be
deemed to have waived any rights hereunder unless such waiver shall be in
writing and signed by the Lender.
SECTION 3.6. This Guarantee shall be deemed a contract and
instrument made under the laws of the State of New York and shall be construed
and enforced in accordance with and governed by the laws of the State of New
York and the laws of the United States of America applicable therein, without
regard to principles of conflicts of law. This Agreement constitutes the
entire understanding among the parties hereto with respect to the subject
matter hereof and supersedes any prior agreements, written or oral, with
respect thereto.
SECTION 3.7. All communications and notices hereunder shall
be in writing and sent to the applicable party at its address set forth beneath
its signature hereto.
SECTION 3.8. In case any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired.
SECTION 3.9. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
UNION PACIFIC RESOURCES GROUP
INC.
by
---------------------------
Name:
Title:
Address:
<PAGE> 9
9
UNION PACIFIC RESOURCES INC.
by
---------------------------
Name:
Title:
Address:
CANADIAN IMPERIAL BANK OF
COMMERCE
by
---------------------------
Name:
Title:
Address:
<PAGE> 1
EXHIBIT 10.2
EXECUTION COPY
GUARANTEE AND SUBORDINATION AGREEMENT (this
"Agreement") dated as of March 31, 1998, among UNION
PACIFIC RESOURCES GROUP INC., a Utah corporation (the
"Guarantor"), UNION PACIFIC RESOURCES INC., a
Canadian corporation (the "UPR Subsidiary"), and THE
TORONTO-DOMINION BANK (the "Lender").
Reference is made to (a) the Amended and Restated Extendable
Revolving Term Credit Facility (the "Facility") provided pursuant to the
agreement dated May 29, 1997 (as amended from time to time, the "Facility
Agreement") between the Lender and Norcen Energy Resources Limited (the
"Borrower") and (b) the Standby Letter of Credit #G691429 in favor of Corpoven
S.A. for U.S. $11,500,000 issued by the Lender in connection with certain
obligations owed to Norcen Energia Venezuela S.A. and Mosbacher Energy Company
pursuant to that certain Operating Services Agreement for the West Guarico Unit
dated January 15, 1995 (as amended, extended, restated, renewed or replaced,
the "Letter of Credit"). The Guarantor has acquired ownership of the Borrower
and, for good and valuable consideration the receipt and sufficiency of which
is hereby acknowledged, and in order to induce the Lender to continue to make
the Facility available to the Borrower, the Guarantor and the UPR Subsidiary
have agreed to enter into this Agreement. Accordingly, the parties hereto
agree as follows:
Article I
GUARANTEE
SECTION 1.1. The Guarantor unconditionally and irrevocably
guarantees, as a primary obligor and not merely as a surety, (a) the due and
punctual payment by the Borrower of (i) the principal of and interest on all
loans made by the Lender to the Borrower pursuant to the Facility, when and as
due, whether at maturity, by acceleration, upon one or more dates set for
prepayment or otherwise and (ii) all other monetary obligations of the Borrower
to the Lender under the Facility Agreement, when and as due, (b) the due and
punctual performance, when and as due, of all other present and future
obligations of the Borrower under the Facility Agreement and (c) all
obligations to the Lender arising under the Letter of Credit (all the foregoing
<PAGE> 2
2
indebtedness and obligations being collectively called the "Obligations"). The
Guarantor further agrees that the Obligations may be amended, extended,
increased or renewed, in whole or in part, without notice to or further assent
from it, and that it will remain bound upon its guarantee notwithstanding any
amendment, extension, increase or renewal of any Obligation.
SECTION 1.2. The Guarantor waives presentment to, demand of
payment from and protest to the Borrower of any of the Obligations, and also
waives notice of acceptance of this guarantee and notice of protest for
nonpayment. The obligations of the Guarantor hereunder shall not be affected
by (a) the failure of the Lender to assert any claim or demand or to enforce
any right or remedy against the Borrower under the Facility Agreement or
otherwise; (b) any rescission, waiver, amendment or modification of, or any
release from any of the terms or provisions of, the Facility Agreement or any
other agreement; (c) the release of any security held by the Lender for the
Obligations or any of them; or (d) the failure of the Lender to exercise any
right or remedy against any other guarantor of the Obligations.
SECTION 1.3. The Guarantor further agrees that its guarantee
hereunder constitutes a guarantee of payment when due and not of collection,
and waives any right to require that resort be had by the Lender to any
security held for payment of the Obligations or to any balance of any deposit
account or credit on the books of the Lender in favor of the Borrower or any
other person.
SECTION 1.4. The obligations of the Guarantor hereunder shall
not be subject to any reduction, limitation, impairment or termination for any
reason, including, without limitation, any claim of waiver, release, surrender,
alteration or compromise, and shall not be subject to any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of any of the Obligations or otherwise. Without
limiting the generality of the foregoing, the obligations of the Guarantor
hereunder shall not be discharged or impaired or otherwise affected by the
failure of the Lender to assert any claim or demand or to enforce any remedy
under the Facility Agreement or any other agreement, by any waiver or
modification of the Facility Agreement or any other agreement, by any default,
failure or delay, willful or otherwise, in the performance of any of
<PAGE> 3
3
the Obligations, or by any other act or omission which may or might in any
manner or to any extent vary the risk of the Guarantor or otherwise operate as
a discharge of the Guarantor as a matter of law or equity (other than the
indefeasible payment and performance in full of all the Obligations).
SECTION 1.5. The Guarantor further agrees that its guarantee
shall continue to be effective or be reinstated, as the case may be, if at any
time payment, or any part thereof, of any Obligation is rescinded or must
otherwise be restored by the Lender upon the bankruptcy or reorganization of
the Borrower or otherwise.
SECTION 1.6. In furtherance of the foregoing and not in
limitation of any other right which the Lender has at law or in equity against
the Guarantor by virtue hereof, the Guarantor hereby promises to and will, upon
receipt of a written demand by the Lender, forthwith pay, or cause to be paid,
to the Lender in cash the amount of any unpaid Obligation. The Lender may
demand payment or performance by the Guarantor hereunder with or without first
demanding payment or performance of the Obligations by the Borrower, and the
Guarantor agrees to and will honor such demand regardless of whether any demand
has been or is being made upon the Borrower and regardless of whether at the
time the Borrower may be capable or incapable of payment or performance or is
bankrupt or insolvent. In the event of any payment of the Obligations by the
Guarantor hereunder, the Guarantor shall be subrogated to the rights of the
Lender against the Borrower in respect of which such payment is made; provided
that such right of subrogation shall be subordinated to any remaining
Obligations owed to the Lender, and the Guarantor shall not seek or be entitled
to seek any contribution or reimbursement from the Borrower in respect of
payments made by the Guarantor hereunder unless all amounts at the time due and
payable to the Lender by the Borrower on account of the Obligations have been
indefeasibly paid in full.
SECTION 1.7. The guarantee made hereunder shall survive and
be in full force and effect so long as any Obligation is outstanding and has
not been indefeasibly paid, and shall be reinstated to the extent provided in
Section 1.5.
<PAGE> 4
4
SECTION 1.8. All payments by the Guarantor hereunder shall be
made free and clear of and without deduction for any present or future income,
excise, stamp, or franchise taxes and other taxes, fees, duties, withholdings
or other charges of any nature whatsoever imposed by any taxing authority, but
excluding franchise taxes and taxes imposed on or measured by the Lender's net
income or receipts (such non-excluded items being called "Taxes"). In the
event that any withholding or deduction from any payment to be made hereunder
is required in respect of any Taxes pursuant to any applicable law, rule or
regulation, then, subject to the provisions of Section 1.9, the Guarantor
shall:
(a) pay directly to the relevant authority the full amount
required to be so withheld or deducted;
(b) promptly forward to the Lender an official receipt or
other documentation satisfactory to the Lender evidencing such payment to such
authority; and
(c) pay to the Lender such additional amount(s) as is
necessary to ensure that the net amount actually received by the Lender will
equal the full amount the Lender would have received had no such withholding or
deduction been required and the Guarantor hereby acknowledges that it is not
entitled to and will not seek recovery or restitution of any amount due to the
Lender and paid by it pursuant to this paragraph (c) or pursuant to the next
sentence.
If any Taxes are directly asserted against the Lender with
respect to any payment received by the Lender hereunder, the Lender may pay
such Taxes and, if paid in good faith after inquiry to the Borrower or the
Guarantor, the Guarantor shall promptly pay such additional amounts to the
Lender (including any penalties, interest or expenses) as are necessary in
order that the net amount received by the Lender after the payment of such
Taxes (including any taxes on such additional amount) shall equal the amount
the Lender would have received had no such Taxes been asserted, subject to the
provisions of Section 1.9.
If the Guarantor fails to pay any Taxes when due to the
appropriate taxing authority, or fails to remit to the Lender the required
receipts or other required documentary evidence, the Guarantor shall indemnify
the Lender for any Taxes, interest or penalties that may become
<PAGE> 5
5
payable by the Lender as a result of any such failure, subject to the
provisions of Section 1.9.
SECTION 1.9. The Lender's claims for reimbursements,
payments, indemnities or otherwise under Section 1.8 and the Guarantor's
obligations with respect thereto, shall be limited and qualified by and subject
to the following:
(a) the Guarantor's obligation to pay, satisfy or recognize
such claim shall be limited to costs or losses incurred within one (1) year
immediately prior to any demand or request therefor upon the Guarantor;
(b) the Lender's demand for reimbursement, payment or
indemnity must be limited to that which is being generally applied at the time
by the Lender for comparable guarantors and guaranties subject to similar
provisions;
(c) the Lender shall provide evidence regarding the basis of
such claim and the calculation and application thereof in reasonable detail
and, in determining such amount, the Lender may use reasonable methods of
attribution and averaging; and
(d) the Lender shall, if so requested by the Guarantor, use
reasonable efforts (subject to the overall policy considerations of the Lender)
to designate a different lending office hereunder if to do so will avoid the
need for, or reduce the amount of, any such payment, indemnity or
reimbursement; provided that, the Lender would, in its sole but reasonable
determination, suffer no material economic, legal or regulatory disadvantage or
burden.
Article II
SUBORDINATION
SECTION 2.1. For purposes of this Article II, the following
terms shall have the following meanings: (a) "Senior Creditor" means the
Lender, (b) "Senior Obligations" means the Obligations, (c) "Subordinated
Creditors" means the Guarantor and the UPR Subsidiary and (d) "Subordinated
Obligations" means all indebtedness of the Borrower or any subsidiary thereof
owed to the Guarantor and the UPR Subsidiary.
<PAGE> 6
6
SECTION 2.2. Each Subordinated Creditor hereby agrees that
all the Subordinated Obligations are hereby expressly and unconditionally
subordinated, to the greatest extent permitted by law and in the manner set
forth in this Article II, to the indefeasible prior payment in full in cash of
all Senior Obligations in accordance with the terms thereof.
SECTION 2.3. Upon the occurrence and continuation of an Event
of Default (as defined in the Facility Agreement), or upon any distribution of
the assets of the Borrower, or upon any dissolution, winding up, liquidation or
reorganization of the Borrower, whether in bankruptcy, insolvency,
reorganization, arrangement or receivership proceedings or otherwise, or upon
the assignment for the benefit of creditors or any other marshalling of the
assets of the Borrower, or otherwise:
(a) the Senior Creditor shall first be entitled to receive
payment in full in cash of the Senior Obligations in accordance with the terms
of such Senior Obligations before any Subordinated Creditor shall be entitled
to receive any payment on account of the Subordinated Obligations, whether as
principal, interest or otherwise;
(b) any payment by, or distribution of the assets of, the
Borrower of any kind or character, whether in cash, property or securities, to
which any Subordinated Creditor would be entitled except for the provisions of
this Agreement shall be paid or delivered by the person making such payment or
distribution (whether a trustee in bankruptcy, a receiver, custodian or
liquidating trustee or otherwise) directly to the Senior Creditor to the extent
necessary to make payment in full in cash of all Senior Obligations remaining
unpaid, after giving effect to any concurrent payment or distribution to the
Senior Creditor in respect of the Senior Obligations; and
(c) any payment or distribution of the assets of the Borrower
received by any of the Subordinated Creditors which by virtue of this Agreement
should have been made to the Senior Creditor shall be held by the said
Subordinated Creditor, as bare trustee only, in trust for, and shall be
forthwith paid or distributed to, the Senior Creditor to be applied against the
Senior Obligations.
<PAGE> 7
7
SECTION 2.4. Subrogation. Subject to the prior indefeasible
payment in full in cash of the Senior Obligations, the Subordinated Creditors
shall be subrogated to the rights of the Senior Creditor to receive payments or
distributions in cash, property or securities applicable to such Senior
Obligations until all amounts owing on the Subordinated Obligations shall be
paid in full, and as between and among the Borrower, its creditors (other than
the Senior Creditor) and the Subordinated Creditors, no such payment or
distribution made to the Senior Creditor of by virtue of this Agreement that
otherwise would have been made to the Subordinated Creditors shall be deemed to
be a payment by the Borrower on account of its Subordinated Obligations, it
being understood that the provisions of this Agreement are intended solely for
the purpose of defining the relative rights of the Subordinated Creditors, on
the one hand, and the Senior Creditor, on the other hand.
<PAGE> 8
8
Article III
MISCELLANEOUS
SECTION 3.1. The Guarantor shall forthwith pay to the Lender
on demand all out-of-pocket costs incurred by the Lender, including but not
limited to all reasonable legal costs, in enforcing any of its rights and
remedies arising under this Agreement.
SECTION 3.2. The Guarantor shall forthwith notify the Lender
upon any of its subsidiaries, other than a subsidiary which at the time is a
party to this Agreement or an agreement similar in substance to this Agreement,
acquiring or being the beneficiary of any Subordinated Obligations and
thereupon the Guarantor shall cause such subsidiary to forthwith provide a
subordination in favor of the Lender upon similar terms as herein provided,
together with such legal opinions in respect thereof similar in substance to
those legal opinions already provided to the Lender in respect of prior similar
subordinations the UPR Subsidiary and other subsidiaries of the Guarantor.
SECTION 3.3. The Guarantor shall provide to the Lender as
soon as reasonably practicable, but no later than 90 days following each fiscal
quarter, its consolidated, unaudited, quarterly financial statements and, no
later than 120 days following each fiscal year-end, its consolidated, audited,
annual financial statements.
SECTION 3.4. This Agreement and the terms, covenants and
conditions hereof shall be binding upon the Guarantor and the UPR Subsidiary
and their respective successors and shall inure to the benefit of the Lender
and its successors and permitted assigns. The Guarantor and the UPR Subsidiary
shall not be permitted to assign or transfer any of their rights or obligations
under this Agreement.
SECTION 3.5. No failure on the part of the Lender to
exercise, and no delay in exercising, any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy by the Lender preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. All
remedies hereunder and under the Facility
<PAGE> 9
9
Agreement are cumulative and are not exclusive of any other remedies provided
by law. The Lender shall not be deemed to have waived any rights hereunder
unless such waiver shall be in writing and signed by the Lender.
SECTION 3.6. This Guarantee shall be deemed a contract and
instrument made under the laws of the State of New York and shall be construed
and enforced in accordance with and governed by the laws of the State of New
York and the laws of the United States of America applicable therein, without
regard to principles of conflicts of law. This Agreement constitutes the
entire understanding among the parties hereto with respect to the subject
matter hereof and supersedes any prior agreements, written or oral, with
respect thereto.
SECTION 3.7. All communications and notices hereunder shall
be in writing and sent to the applicable party at its address set forth beneath
its signature hereto.
SECTION 3.8. In case any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired.
SECTION 3.9. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
UNION PACIFIC RESOURCES GROUP
INC.
by
--------------------------
Name:
Title:
Address:
<PAGE> 10
10
UNION PACIFIC RESOURCES INC.
by
--------------------------
Name:
Title:
Address:
THE TORONTO-DOMINION BANK
by
--------------------------
Name:
Title:
by
--------------------------
Name:
Title:
Address:
<PAGE> 1
EXHIBIT 10.3
EXECUTION COPY
GUARANTEE AND SUBORDINATION AGREEMENT (this
"Agreement") dated as of March 31, 1998, among UNION
PACIFIC RESOURCES GROUP INC., a Utah corporation (the
"Guarantor"), UNION PACIFIC RESOURCES INC., a
Canadian corporation (the "UPR Subsidiary"), and ABN
AMRO BANK CANADA (the "Lender").
Reference is made to (a) the Amended and Restated Extendable
Revolving Term Credit Facility (the "Facility") provided pursuant to the
agreement dated June 10, 1997 (as amended from time to time, the "Facility
Agreement") between the Lender and Norcen Energy Resources Limited (the
"Borrower") and (b) the Standby Letter of Credit #G965028 in favor of
Corporacion Venezolana del Petroleo S.A. for U.S. $21,000,000 issued by the
Lender under the Master Indemnity/Reimbursement Agreement dated July 3, 1996
(as amended, extended, restated, renewed or replaced, the "Letter of Credit").
The Guarantor has acquired ownership of the Borrower and, for good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged, and
in order to induce the Lender to continue to make the Facility available to the
Borrower, the Guarantor and the UPR Subsidiary have agreed to enter into this
Agreement. Accordingly, the parties hereto agree as follows:
Article I
GUARANTEE
SECTION 1.1. The Guarantor unconditionally and irrevocably
guarantees, as a primary obligor and not merely as a surety, (a) the due and
punctual payment by the Borrower of (i) the principal of and interest on all
loans made by the Lender to the Borrower pursuant to the Facility, when and as
due, whether at maturity, by acceleration, upon one or more dates set for
prepayment or otherwise and (ii) all other monetary obligations of the Borrower
to the Lender under the Facility Agreement, when and as due, (b) the due and
punctual performance, when and as due, of all other present and future
obligations of the Borrower under the Facility Agreement and (c) all
obligations to the Lender arising under the Letter of Credit (all the foregoing
indebtedness and obligations being collectively called the "Obligations"). The
Guarantor further agrees that the
<PAGE> 2
2
Obligations may be amended, extended, increased or renewed, in whole or in
part, without notice to or further assent from it, and that it will remain
bound upon its guarantee notwithstanding any amendment, extension, increase or
renewal of any Obligation.
SECTION 1.2. The Guarantor waives presentment to, demand of
payment from and protest to the Borrower of any of the Obligations, and also
waives notice of acceptance of this guarantee and notice of protest for
nonpayment. The obligations of the Guarantor hereunder shall not be affected
by (a) the failure of the Lender to assert any claim or demand or to enforce
any right or remedy against the Borrower under the Facility Agreement or
otherwise; (b) any rescission, waiver, amendment or modification of, or any
release from any of the terms or provisions of, the Facility Agreement or any
other agreement; (c) the release of any security held by the Lender for the
Obligations or any of them; or (d) the failure of the Lender to exercise any
right or remedy against any other guarantor of the Obligations.
SECTION 1.3. The Guarantor further agrees that its guarantee
hereunder constitutes a guarantee of payment when due and not of collection,
and waives any right to require that resort be had by the Lender to any
security held for payment of the Obligations or to any balance of any deposit
account or credit on the books of the Lender in favor of the Borrower or any
other person.
SECTION 1.4. The obligations of the Guarantor hereunder shall
not be subject to any reduction, limitation, impairment or termination for any
reason, including, without limitation, any claim of waiver, release, surrender,
alteration or compromise, and shall not be subject to any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of any of the Obligations or otherwise. Without
limiting the generality of the foregoing, the obligations of the Guarantor
hereunder shall not be discharged or impaired or otherwise affected by the
failure of the Lender to assert any claim or demand or to enforce any remedy
under the Facility Agreement or any other agreement, by any waiver or
modification of the Facility Agreement or any other agreement, by any default,
failure or delay, willful or otherwise, in the performance of any of the
Obligations, or by any other act or omission which may or might in any manner
or to any extent vary the risk of the
<PAGE> 3
3
Guarantor or otherwise operate as a discharge of the Guarantor as a matter of
law or equity (other than the indefeasible payment and performance in full of
all the Obligations).
SECTION 1.5. The Guarantor further agrees that its guarantee
shall continue to be effective or be reinstated, as the case may be, if at any
time payment, or any part thereof, of any Obligation is rescinded or must
otherwise be restored by the Lender upon the bankruptcy or reorganization of
the Borrower or otherwise.
SECTION 1.6. In furtherance of the foregoing and not in
limitation of any other right which the Lender has at law or in equity against
the Guarantor by virtue hereof, the Guarantor hereby promises to and will, upon
receipt of a written demand by the Lender, forthwith pay, or cause to be paid,
to the Lender in cash the amount of any unpaid Obligation. The Lender may
demand payment or performance by the Guarantor hereunder with or without first
demanding payment or performance of the Obligations by the Borrower, and the
Guarantor agrees to and will honor such demand regardless of whether any demand
has been or is being made upon the Borrower and regardless of whether at the
time the Borrower may be capable or incapable of payment or performance or is
bankrupt or insolvent. In the event of any payment of the Obligations by the
Guarantor hereunder, the Guarantor shall be subrogated to the rights of the
Lender against the Borrower in respect of which such payment is made; provided
that such right of subrogation shall be subordinated to any remaining
Obligations owed to the Lender, and the Guarantor shall not seek or be entitled
to seek any contribution or reimbursement from the Borrower in respect of
payments made by the Guarantor hereunder unless all amounts at the time due and
payable to the Lender by the Borrower on account of the Obligations have been
indefeasibly paid in full.
SECTION 1.7. The guarantee made hereunder shall survive and
be in full force and effect so long as any Obligation is outstanding and has
not been indefeasibly paid, and shall be reinstated to the extent provided in
Section 1.5.
SECTION 1.8. All payments by the Guarantor hereunder shall be
made free and clear of and without deduction for any present or future income,
excise, stamp,
<PAGE> 4
4
or franchise taxes and other taxes, fees, duties, withholdings or other charges
of any nature whatsoever imposed by any taxing authority, but excluding
franchise taxes and taxes imposed on or measured by the Lender's net income or
receipts (such non-excluded items being called "Taxes"). In the event that any
withholding or deduction from any payment to be made hereunder is required in
respect of any Taxes pursuant to any applicable law, rule or regulation, then,
subject to the provisions of Section 1.9, the Guarantor shall:
(a) pay directly to the relevant authority the full amount
required to be so withheld or deducted;
(b) promptly forward to the Lender an official receipt or
other documentation satisfactory to the Lender evidencing such payment to such
authority; and
(c) pay to the Lender such additional amount(s) as is
necessary to ensure that the net amount actually received by the Lender will
equal the full amount the Lender would have received had no such withholding or
deduction been required and the Guarantor hereby acknowledges that it is not
entitled to and will not seek recovery or restitution of any amount due to the
Lender and paid by it pursuant to this paragraph (c) or pursuant to the next
sentence.
If any Taxes are directly asserted against the Lender with
respect to any payment received by the Lender hereunder, the Lender may pay
such Taxes and, if paid in good faith after inquiry to the Borrower or the
Guarantor, the Guarantor shall promptly pay such additional amounts to the
Lender (including any penalties, interest or expenses) as are necessary in
order that the net amount received by the Lender after the payment of such
Taxes (including any taxes on such additional amount) shall equal the amount
the Lender would have received had no such Taxes been asserted, subject to the
provisions of Section 1.9.
If the Guarantor fails to pay any Taxes when due to the
appropriate taxing authority, or fails to remit to the Lender the required
receipts or other required documentary evidence, the Guarantor shall indemnify
the Lender for any Taxes, interest or penalties that may become payable by the
Lender as a result of any such failure, subject to the provisions of Section
1.9.
<PAGE> 5
5
SECTION 1.9. The Lender's claims for reimbursements,
payments, indemnities or otherwise under Section 1.8 and the Guarantor's
obligations with respect thereto, shall be limited and qualified by and subject
to the following:
(a) the Guarantor's obligation to pay, satisfy or recognize
such claim shall be limited to costs or losses incurred within one (1) year
immediately prior to any demand or request therefor upon the Guarantor;
(b) the Lender's demand for reimbursement, payment or
indemnity must be limited to that which is being generally applied at the time
by the Lender for comparable guarantors and guaranties subject to similar
provisions;
(c) the Lender shall provide evidence regarding the basis of
such claim and the calculation and application thereof in reasonable detail
and, in determining such amount, the Lender may use reasonable methods of
attribution and averaging; and
(d) the Lender shall, if so requested by the Guarantor, use
reasonable efforts (subject to the overall policy considerations of the Lender)
to designate a different lending office hereunder if to do so will avoid the
need for, or reduce the amount of, any such payment, indemnity or
reimbursement; provided that, the Lender would, in its sole but reasonable
determination, suffer no material economic, legal or regulatory disadvantage or
burden.
Article II
SUBORDINATION
SECTION 2.1. For purposes of this Article II, the following
terms shall have the following meanings: (a) "Senior Creditor" means the
Lender, (b) "Senior Obligations" means the Obligations, (c) "Subordinated
Creditors" means the Guarantor and the UPR Subsidiary and (d) "Subordinated
Obligations" means all indebtedness of the Borrower or any subsidiary thereof
owed to the Guarantor and the UPR Subsidiary.
SECTION 2.2. Each Subordinated Creditor hereby agrees that
all the Subordinated Obligations are hereby expressly and unconditionally
subordinated, to the greatest
<PAGE> 6
6
extent permitted by law and in the manner set forth in this Article II, to the
indefeasible prior payment in full in cash of all Senior Obligations in
accordance with the terms thereof.
SECTION 2.3. Upon the occurrence and continuation of an Event
of Default (as defined in the Facility Agreement), or upon any distribution of
the assets of the Borrower, or upon any dissolution, winding up, liquidation or
reorganization of the Borrower, whether in bankruptcy, insolvency,
reorganization, arrangement or receivership proceedings or otherwise, or upon
the assignment for the benefit of creditors or any other marshalling of the
assets of the Borrower, or otherwise:
(a) the Senior Creditor shall first be entitled to receive
payment in full in cash of the Senior Obligations in accordance with the terms
of such Senior Obligations before any Subordinated Creditor shall be entitled
to receive any payment on account of the Subordinated Obligations, whether as
principal, interest or otherwise;
(b) any payment by, or distribution of the assets of, the
Borrower of any kind or character, whether in cash, property or securities, to
which any Subordinated Creditor would be entitled except for the provisions of
this Agreement shall be paid or delivered by the person making such payment or
distribution (whether a trustee in bankruptcy, a receiver, custodian or
liquidating trustee or otherwise) directly to the Senior Creditor to the extent
necessary to make payment in full in cash of all Senior Obligations remaining
unpaid, after giving effect to any concurrent payment or distribution to the
Senior Creditor in respect of the Senior Obligations; and
(c) any payment or distribution of the assets of the Borrower
received by any of the Subordinated Creditors which by virtue of this Agreement
should have been made to the Senior Creditor shall be held by the said
Subordinated Creditor, as bare trustee only, in trust for, and shall be
forthwith paid or distributed to, the Senior Creditor to be applied against the
Senior Obligations.
SECTION 2.4. Subrogation. Subject to the prior indefeasible
payment in full in cash of the Senior Obligations, the Subordinated Creditors
shall be subrogated to the rights of the Senior Creditor to receive payments or
<PAGE> 7
7
distributions in cash, property or securities applicable to such Senior
Obligations until all amounts owing on the Subordinated Obligations shall be
paid in full, and as between and among the Borrower, its creditors (other than
the Senior Creditor) and the Subordinated Creditors, no such payment or
distribution made to the Senior Creditor of by virtue of this Agreement that
otherwise would have been made to the Subordinated Creditors shall be deemed to
be a payment by the Borrower on account of its Subordinated Obligations, it
being understood that the provisions of this Agreement are intended solely for
the purpose of defining the relative rights of the Subordinated Creditors, on
the one hand, and the Senior Creditor, on the other hand.
<PAGE> 8
8
Article III
MISCELLANEOUS
SECTION 3.1. The Guarantor shall forthwith pay to the Lender
on demand all out-of-pocket costs incurred by the Lender, including but not
limited to all reasonable legal costs, in enforcing any of its rights and
remedies arising under this Agreement.
SECTION 3.2. The Guarantor shall forthwith notify the Lender
upon any of its subsidiaries, other than a subsidiary which at the time is a
party to this Agreement or an agreement similar in substance to this Agreement,
acquiring or being the beneficiary of any Subordinated Obligations and
thereupon the Guarantor shall cause such subsidiary to forthwith provide a
subordination in favor of the Lender upon similar terms as herein provided,
together with such legal opinions in respect thereof similar in substance to
those legal opinions already provided to the Lender in respect of prior similar
subordinations the UPR Subsidiary and other subsidiaries of the Guarantor.
SECTION 3.3. The Guarantor shall provide to the Lender as
soon as reasonably practicable, but no later than 90 days following each fiscal
quarter, its consolidated, unaudited, quarterly financial statements and, no
later than 120 days following each fiscal year-end, its consolidated, audited,
annual financial statements.
SECTION 3.4. This Agreement and the terms, covenants and
conditions hereof shall be binding upon the Guarantor and the UPR Subsidiary
and their respective successors and shall inure to the benefit of the Lender
and its successors and permitted assigns. The Guarantor and the UPR Subsidiary
shall not be permitted to assign or transfer any of their rights or obligations
under this Agreement.
SECTION 3.5. No failure on the part of the Lender to
exercise, and no delay in exercising, any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy by the Lender preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. All
remedies hereunder and under the Facility
<PAGE> 9
9
Agreement are cumulative and are not exclusive of any other remedies provided
by law. The Lender shall not be deemed to have waived any rights hereunder
unless such waiver shall be in writing and signed by the Lender.
SECTION 3.6. This Guarantee shall be deemed a contract and
instrument made under the laws of the State of New York and shall be construed
and enforced in accordance with and governed by the laws of the State of New
York and the laws of the United States of America applicable therein, without
regard to principles of conflicts of law. This Agreement constitutes the
entire understanding among the parties hereto with respect to the subject
matter hereof and supersedes any prior agreements, written or oral, with
respect thereto.
SECTION 3.7. All communications and notices hereunder shall
be in writing and sent to the applicable party at its address set forth beneath
its signature hereto.
SECTION 3.8. In case any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired.
SECTION 3.9. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
UNION PACIFIC RESOURCES GROUP
INC.
by
--------------------------
Name:
Title:
Address:
<PAGE> 10
10
UNION PACIFIC RESOURCES
INC.
by
--------------------------
Name:
Title:
Address:
ABN AMRO BANK CANADA
by
--------------------------
Name:
Title:
by
--------------------------
Name:
Title:
Address:
<PAGE> 1
EXHIBIT 10.4
EXECUTION COPY
GUARANTEE AND SUBORDINATION AGREEMENT (this
"Agreement") dated as of March 31, 1998, among UNION
PACIFIC RESOURCES GROUP INC., a Utah corporation (the
"Guarantor"), UNION PACIFIC RESOURCES INC., a
Canadian corporation (the "UPR Subsidiary"), and
UNION BANK OF SWITZERLAND (CANADA) (the "Lender").
Reference is made to the Amended and Restated Extendable
Revolving Term Credit Facility (the "Facility") provided pursuant to the
agreement dated May 29, 1997 (as amended from time to time, the "Facility
Agreement") between the Lender and Norcen Energy Resources Limited (the
"Borrower"). The Guarantor has acquired ownership of the Borrower and, for
good and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, and in order to induce the Lender to continue to make the
Facility available to the Borrower, the Guarantor and the UPR Subsidiary have
agreed to enter into this Agreement. Accordingly, the parties hereto agree as
follows:
Article I
GUARANTEE
SECTION 1.1. The Guarantor unconditionally and irrevocably
guarantees, as a primary obligor and not merely as a surety, (a) the due and
punctual payment by the Borrower of (i) the principal of and interest on all
loans made by the Lender to the Borrower pursuant to the Facility, when and as
due, whether at maturity, by acceleration, upon one or more dates set for
prepayment or otherwise and (ii) all other monetary obligations of the Borrower
to the Lender under the Facility Agreement, when and as due, and (b) the due
and punctual performance, when and as due, of all other present and future
obligations of the Borrower under the Facility Agreement (all the foregoing
indebtedness and obligations being collectively called the "Obligations"). The
Guarantor further agrees that the Obligations may be amended, extended,
increased or renewed, in whole or in part, without notice to or further assent
from it, and that it will remain bound upon its guarantee notwithstanding any
amendment, extension, increase or renewal of any Obligation.
<PAGE> 2
2
SECTION 1.2. The Guarantor waives presentment to, demand of
payment from and protest to the Borrower of any of the Obligations, and also
waives notice of acceptance of this guarantee and notice of protest for
nonpayment. The obligations of the Guarantor hereunder shall not be affected
by (a) the failure of the Lender to assert any claim or demand or to enforce
any right or remedy against the Borrower under the Facility Agreement or
otherwise; (b) any rescission, waiver, amendment or modification of, or any
release from any of the terms or provisions of, the Facility Agreement or any
other agreement; (c) the release of any security held by the Lender for the
Obligations or any of them; or (d) the failure of the Lender to exercise any
right or remedy against any other guarantor of the Obligations.
SECTION 1.3. The Guarantor further agrees that its guarantee
hereunder constitutes a guarantee of payment when due and not of collection,
and waives any right to require that resort be had by the Lender to any
security held for payment of the Obligations or to any balance of any deposit
account or credit on the books of the Lender in favor of the Borrower or any
other person.
SECTION 1.4. The obligations of the Guarantor hereunder shall
not be subject to any reduction, limitation, impairment or termination for any
reason, including, without limitation, any claim of waiver, release, surrender,
alteration or compromise, and shall not be subject to any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of any of the Obligations or otherwise. Without
limiting the generality of the foregoing, the obligations of the Guarantor
hereunder shall not be discharged or impaired or otherwise affected by the
failure of the Lender to assert any claim or demand or to enforce any remedy
under the Facility Agreement or any other agreement, by any waiver or
modification of the Facility Agreement or any other agreement, by any default,
failure or delay, willful or otherwise, in the performance of any of the
Obligations, or by any other act or omission which may or might in any manner
or to any extent vary the risk of the Guarantor or otherwise operate as a
discharge of the Guarantor as a matter of law or equity (other than the
indefeasible payment and performance in full of all the Obligations).
<PAGE> 3
3
SECTION 1.5. The Guarantor further agrees that its guarantee
shall continue to be effective or be reinstated, as the case may be, if at any
time payment, or any part thereof, of any Obligation is rescinded or must
otherwise be restored by the Lender upon the bankruptcy or reorganization of
the Borrower or otherwise.
SECTION 1.6. In furtherance of the foregoing and not in
limitation of any other right which the Lender has at law or in equity against
the Guarantor by virtue hereof, the Guarantor hereby promises to and will, upon
receipt of a written demand by the Lender, forthwith pay, or cause to be paid,
to the Lender in cash the amount of any unpaid Obligation. The Lender may
demand payment or performance by the Guarantor hereunder with or without first
demanding payment or performance of the Obligations by the Borrower, and the
Guarantor agrees to and will honor such demand regardless of whether any demand
has been or is being made upon the Borrower and regardless of whether at the
time the Borrower may be capable or incapable of payment or performance or is
bankrupt or insolvent. In the event of any payment of the Obligations by the
Guarantor hereunder, the Guarantor shall be subrogated to the rights of the
Lender against the Borrower in respect of which such payment is made; provided
that such right of subrogation shall be subordinated to any remaining
Obligations owed to the Lender, and the Guarantor shall not seek or be entitled
to seek any contribution or reimbursement from the Borrower in respect of
payments made by the Guarantor hereunder unless all amounts at the time due and
payable to the Lender by the Borrower on account of the Obligations have been
indefeasibly paid in full.
SECTION 1.7. The guarantee made hereunder shall survive and
be in full force and effect so long as any Obligation is outstanding and has
not been indefeasibly paid, and shall be reinstated to the extent provided in
Section 1.5.
SECTION 1.8. All payments by the Guarantor hereunder shall be
made free and clear of and without deduction for any present or future income,
excise, stamp, or franchise taxes and other taxes, fees, duties, withholdings
or other charges of any nature whatsoever imposed by any taxing authority, but
excluding franchise taxes and taxes imposed on or measured by the Lender's net
income or receipts (such non-excluded items being called
<PAGE> 4
4
"Taxes"). In the event that any withholding or deduction from any payment to
be made hereunder is required in respect of any Taxes pursuant to any
applicable law, rule or regulation, then, subject to the provisions of Section
1.9, the Guarantor shall:
(a) pay directly to the relevant authority the full amount
required to be so withheld or deducted;
(b) promptly forward to the Lender an official receipt or
other documentation satisfactory to the Lender evidencing such payment to such
authority; and
(c) pay to the Lender such additional amount(s) as is
necessary to ensure that the net amount actually received by the Lender will
equal the full amount the Lender would have received had no such withholding or
deduction been required and the Guarantor hereby acknowledges that it is not
entitled to and will not seek recovery or restitution of any amount due to the
Lender and paid by it pursuant to this paragraph (c) or pursuant to the next
sentence.
If any Taxes are directly asserted against the Lender with
respect to any payment received by the Lender hereunder, the Lender may pay
such Taxes and, if paid in good faith after inquiry to the Borrower or the
Guarantor, the Guarantor shall promptly pay such additional amounts to the
Lender (including any penalties, interest or expenses) as are necessary in
order that the net amount received by the Lender after the payment of such
Taxes (including any taxes on such additional amount) shall equal the amount
the Lender would have received had no such Taxes been asserted, subject to the
provisions of Section 1.9.
If the Guarantor fails to pay any Taxes when due to the
appropriate taxing authority, or fails to remit to the Lender the required
receipts or other required documentary evidence, the Guarantor shall indemnify
the Lender for any Taxes, interest or penalties that may become payable by the
Lender as a result of any such failure, subject to the provisions of Section
1.9.
SECTION 1.9. The Lender's claims for reimbursements,
payments, indemnities or otherwise under Section 1.8 and the Guarantor's
obligations with respect thereto, shall be limited and qualified by and subject
to the following:
<PAGE> 5
5
(a) the Guarantor's obligation to pay, satisfy or recognize
such claim shall be limited to costs or losses incurred within one (1) year
immediately prior to any demand or request therefor upon the Guarantor;
(b) the Lender's demand for reimbursement, payment or
indemnity must be limited to that which is being generally applied at the time
by the Lender for comparable guarantors and guaranties subject to similar
provisions;
(c) the Lender shall provide evidence regarding the basis of
such claim and the calculation and application thereof in reasonable detail
and, in determining such amount, the Lender may use reasonable methods of
attribution and averaging; and
(d) the Lender shall, if so requested by the Guarantor, use
reasonable efforts (subject to the overall policy considerations of the Lender)
to designate a different lending office hereunder if to do so will avoid the
need for, or reduce the amount of, any such payment, indemnity or
reimbursement; provided that, the Lender would, in its sole but reasonable
determination, suffer no material economic, legal or regulatory disadvantage or
burden.
Article II
SUBORDINATION
SECTION 2.1. For purposes of this Article II, the following
terms shall have the following meanings: (a) "Senior Creditor" means the
Lender, (b) "Senior Obligations" means the Obligations, (c) "Subordinated
Creditors" means the Guarantor and the UPR Subsidiary and (d) "Subordinated
Obligations" means all indebtedness of the Borrower or any subsidiary thereof
owed to the Guarantor and the UPR Subsidiary.
SECTION 2.2. Each Subordinated Creditor hereby agrees that
all the Subordinated Obligations are hereby expressly and unconditionally
subordinated, to the greatest extent permitted by law and in the manner set
forth in this Article II, to the indefeasible prior payment in full in cash of
all Senior Obligations in accordance with the terms thereof.
<PAGE> 6
6
SECTION 2.3. Upon the occurrence and continuation of an Event
of Default (as defined in the Facility Agreement), or upon any distribution of
the assets of the Borrower, or upon any dissolution, winding up, liquidation or
reorganization of the Borrower, whether in bankruptcy, insolvency,
reorganization, arrangement or receivership proceedings or otherwise, or upon
the assignment for the benefit of creditors or any other marshalling of the
assets of the Borrower, or otherwise:
(a) the Senior Creditor shall first be entitled to receive
payment in full in cash of the Senior Obligations in accordance with the terms
of such Senior Obligations before any Subordinated Creditor shall be entitled
to receive any payment on account of the Subordinated Obligations, whether as
principal, interest or otherwise;
(b) any payment by, or distribution of the assets of, the
Borrower of any kind or character, whether in cash, property or securities, to
which any Subordinated Creditor would be entitled except for the provisions of
this Agreement shall be paid or delivered by the person making such payment or
distribution (whether a trustee in bankruptcy, a receiver, custodian or
liquidating trustee or otherwise) directly to the Senior Creditor to the extent
necessary to make payment in full in cash of all Senior Obligations remaining
unpaid, after giving effect to any concurrent payment or distribution to the
Senior Creditor in respect of the Senior Obligations; and
(c) any payment or distribution of the assets of the Borrower
received by any of the Subordinated Creditors which by virtue of this Agreement
should have been made to the Senior Creditor shall be held by the said
Subordinated Creditor, as bare trustee only, in trust for, and shall be
forthwith paid or distributed to, the Senior Creditor to be applied against the
Senior Obligations.
SECTION 2.4. Subrogation. Subject to the prior indefeasible
payment in full in cash of the Senior Obligations, the Subordinated Creditors
shall be subrogated to the rights of the Senior Creditor to receive payments or
distributions in cash, property or securities applicable to such Senior
Obligations until all amounts owing on the Subordinated Obligations shall be
paid in full, and as between and among the Borrower, its creditors (other than
the Senior Creditor) and the Subordinated Creditors, no such
<PAGE> 7
7
payment or distribution made to the Senior Creditor of by virtue of this
Agreement that otherwise would have been made to the Subordinated Creditors
shall be deemed to be a payment by the Borrower on account of its Subordinated
Obligations, it being understood that the provisions of this Agreement are
intended solely for the purpose of defining the relative rights of the
Subordinated Creditors, on the one hand, and the Senior Creditor, on the other
hand.
Article III
MISCELLANEOUS
SECTION 3.1. The Guarantor shall forthwith pay to the Lender
on demand all out-of-pocket costs incurred by the Lender, including but not
limited to all reasonable legal costs, in enforcing any of its rights and
remedies arising under this Agreement.
SECTION 3.2. The Guarantor shall forthwith notify the Lender
upon any of its subsidiaries, other than a subsidiary which at the time is a
party to this Agreement or an agreement similar in substance to this Agreement,
acquiring or being the beneficiary of any Subordinated Obligations and
thereupon the Guarantor shall cause such subsidiary to forthwith provide a
subordination in favor of the Lender upon similar terms as herein provided,
together with such legal opinions in respect thereof similar in substance to
those legal opinions already provided to the Lender in respect of prior similar
subordinations the UPR Subsidiary and other subsidiaries of the Guarantor.
SECTION 3.3. The Guarantor shall provide to the Lender as
soon as reasonably practicable, but no later than 90 days following each fiscal
quarter, its consolidated, unaudited, quarterly financial statements and, no
later than 120 days following each fiscal year-end, its consolidated, audited,
annual financial statements.
SECTION 3.4. This Agreement and the terms, covenants and
conditions hereof shall be binding upon the Guarantor and the UPR Subsidiary
and their respective successors and shall inure to the benefit of the Lender
and its successors and permitted assigns. The Guarantor and the UPR Subsidiary
shall not be permitted to assign or transfer any of their rights or obligations
under this Agreement.
<PAGE> 8
8
SECTION 3.5. No failure on the part of the Lender to
exercise, and no delay in exercising, any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy by the Lender preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. All
remedies hereunder and under the Facility Agreement are cumulative and are not
exclusive of any other remedies provided by law. The Lender shall not be
deemed to have waived any rights hereunder unless such waiver shall be in
writing and signed by the Lender.
SECTION 3.6. This Guarantee shall be deemed a contract and
instrument made under the laws of the State of New York and shall be construed
and enforced in accordance with and governed by the laws of the State of New
York and the laws of the United States of America applicable therein, without
regard to principles of conflicts of law. This Agreement constitutes the
entire understanding among the parties hereto with respect to the subject
matter hereof and supersedes any prior agreements, written or oral, with
respect thereto.
SECTION 3.7. All communications and notices hereunder shall
be in writing and sent to the applicable party at its address set forth beneath
its signature hereto.
SECTION 3.8. In case any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired.
SECTION 3.9. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
UNION PACIFIC RESOURCES GROUP
INC.
by
--------------------------
Name:
Title:
Address:
<PAGE> 9
9
UNION PACIFIC RESOURCES INC.
by
--------------------------
Name:
Title:
Address:
<PAGE> 10
10
UNION BANK OF SWITZERLAND
(CANADA)
by
--------------------------
Name:
Title:
by
--------------------------
Name:
Title:
Address:
<PAGE> 1
EXHIBIT 10.5
EXECUTION COPY
GUARANTEE AND SUBORDINATION AGREEMENT (this
"Agreement") dated as of March 31, 1998, among UNION
PACIFIC RESOURCES GROUP INC., a Utah corporation (the
"Guarantor"), UNION PACIFIC RESOURCES INC., a
Canadian corporation (the "UPR Subsidiary"), and
ROYAL BANK OF CANADA (the "Lender").
Reference is made to the Amended and Restated Extendable
Revolving Term Credit Facility (the "Facility") provided pursuant to the
agreement dated May 30, 1997 (as amended from time to time, the "Facility
Agreement") between the Lender and Norcen Energy Resources Limited (the
"Borrower"). The Guarantor has acquired ownership of the Borrower and, for
good and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, and in order to induce the Lender to continue to make the
Facility available to the Borrower, the Guarantor and the UPR Subsidiary have
agreed to enter into this Agreement. Accordingly, the parties hereto agree as
follows:
Article I
GUARANTEE
SECTION 1.1. The Guarantor unconditionally and irrevocably
guarantees, as a primary obligor and not merely as a surety, (a) the due and
punctual payment by the Borrower of (i) the principal of and interest on all
loans made by the Lender to the Borrower pursuant to the Facility, when and as
due, whether at maturity, by acceleration, upon one or more dates set for
prepayment or otherwise and (ii) all other monetary obligations of the Borrower
to the Lender under the Facility Agreement, when and as due, and (b) the due
and punctual performance, when and as due, of all other present and future
obligations of the Borrower under the Facility Agreement (all the foregoing
indebtedness and obligations being collectively called the "Obligations"). The
Guarantor further agrees that the Obligations may be amended, extended,
increased or renewed, in whole or in part, without notice to or further assent
from it, and that it will remain bound upon its guarantee notwithstanding any
amendment, extension, increase or renewal of any Obligation.
<PAGE> 2
2
SECTION 1.2. The Guarantor waives presentment to, demand of
payment from and protest to the Borrower of any of the Obligations, and also
waives notice of acceptance of this guarantee and notice of protest for
nonpayment. The obligations of the Guarantor hereunder shall not be affected
by (a) the failure of the Lender to assert any claim or demand or to enforce
any right or remedy against the Borrower under the Facility Agreement or
otherwise; (b) any rescission, waiver, amendment or modification of, or any
release from any of the terms or provisions of, the Facility Agreement or any
other agreement; (c) the release of any security held by the Lender for the
Obligations or any of them; or (d) the failure of the Lender to exercise any
right or remedy against any other guarantor of the Obligations.
SECTION 1.3. The Guarantor further agrees that its guarantee
hereunder constitutes a guarantee of payment when due and not of collection,
and waives any right to require that resort be had by the Lender to any
security held for payment of the Obligations or to any balance of any deposit
account or credit on the books of the Lender in favor of the Borrower or any
other person.
SECTION 1.4. The obligations of the Guarantor hereunder shall
not be subject to any reduction, limitation, impairment or termination for any
reason, including, without limitation, any claim of waiver, release, surrender,
alteration or compromise, and shall not be subject to any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of any of the Obligations or otherwise. Without
limiting the generality of the foregoing, the obligations of the Guarantor
hereunder shall not be discharged or impaired or otherwise affected by the
failure of the Lender to assert any claim or demand or to enforce any remedy
under the Facility Agreement or any other agreement, by any waiver or
modification of the Facility Agreement or any other agreement, by any default,
failure or delay, willful or otherwise, in the performance of any of the
Obligations, or by any other act or omission which may or might in any manner
or to any extent vary the risk of the Guarantor or otherwise operate as a
discharge of the Guarantor as a matter of law or equity (other than the
indefeasible payment and performance in full of all the Obligations).
<PAGE> 3
3
SECTION 1.5. The Guarantor further agrees that its guarantee
shall continue to be effective or be reinstated, as the case may be, if at any
time payment, or any part thereof, of any Obligation is rescinded or must
otherwise be restored by the Lender upon the bankruptcy or reorganization of
the Borrower or otherwise.
SECTION 1.6. In furtherance of the foregoing and not in
limitation of any other right which the Lender has at law or in equity against
the Guarantor by virtue hereof, the Guarantor hereby promises to and will, upon
receipt of a written demand by the Lender, forthwith pay, or cause to be paid,
to the Lender in cash the amount of any unpaid Obligation. The Lender may
demand payment or performance by the Guarantor hereunder with or without first
demanding payment or performance of the Obligations by the Borrower, and the
Guarantor agrees to and will honor such demand regardless of whether any demand
has been or is being made upon the Borrower and regardless of whether at the
time the Borrower may be capable or incapable of payment or performance or is
bankrupt or insolvent. In the event of any payment of the Obligations by the
Guarantor hereunder, the Guarantor shall be subrogated to the rights of the
Lender against the Borrower in respect of which such payment is made; provided
that such right of subrogation shall be subordinated to any remaining
Obligations owed to the Lender, and the Guarantor shall not seek or be entitled
to seek any contribution or reimbursement from the Borrower in respect of
payments made by the Guarantor hereunder unless all amounts at the time due and
payable to the Lender by the Borrower on account of the Obligations have been
indefeasibly paid in full.
SECTION 1.7. The guarantee made hereunder shall survive and
be in full force and effect so long as any Obligation is outstanding and has
not been indefeasibly paid, and shall be reinstated to the extent provided in
Section 1.5.
SECTION 1.8. All payments by the Guarantor hereunder shall be
made free and clear of and without deduction for any present or future income,
excise, stamp, or franchise taxes and other taxes, fees, duties, withholdings
or other charges of any nature whatsoever imposed by any taxing authority, but
excluding franchise taxes and taxes imposed on or measured by the Lender's net
income or receipts (such non-excluded items being called
<PAGE> 4
4
"Taxes"). In the event that any withholding or deduction from any payment to
be made hereunder is required in respect of any Taxes pursuant to any
applicable law, rule or regulation, then, subject to the provisions of Section
1.9, the Guarantor shall:
(a) pay directly to the relevant authority the full amount
required to be so withheld or deducted;
(b) promptly forward to the Lender an official receipt or
other documentation satisfactory to the Lender evidencing such payment to such
authority; and
(c) pay to the Lender such additional amount(s) as is
necessary to ensure that the net amount actually received by the Lender will
equal the full amount the Lender would have received had no such withholding or
deduction been required and the Guarantor hereby acknowledges that it is not
entitled to and will not seek recovery or restitution of any amount due to the
Lender and paid by it pursuant to this paragraph (c) or pursuant to the next
sentence.
If any Taxes are directly asserted against the Lender with
respect to any payment received by the Lender hereunder, the Lender may pay
such Taxes and, if paid in good faith after inquiry to the Borrower or the
Guarantor, the Guarantor shall promptly pay such additional amounts to the
Lender (including any penalties, interest or expenses) as are necessary in
order that the net amount received by the Lender after the payment of such
Taxes (including any taxes on such additional amount) shall equal the amount
the Lender would have received had no such Taxes been asserted, subject to the
provisions of Section 1.9.
If the Guarantor fails to pay any Taxes when due to the
appropriate taxing authority, or fails to remit to the Lender the required
receipts or other required documentary evidence, the Guarantor shall indemnify
the Lender for any Taxes, interest or penalties that may become payable by the
Lender as a result of any such failure, subject to the provisions of Section
1.9.
SECTION 1.9. The Lender's claims for reimbursements,
payments, indemnities or otherwise under Section 1.8 and the Guarantor's
obligations with respect thereto, shall be limited and qualified by and subject
to the following:
<PAGE> 5
5
(a) the Guarantor's obligation to pay, satisfy or recognize
such claim shall be limited to costs or losses incurred within one (1) year
immediately prior to any demand or request therefor upon the Guarantor;
(b) the Lender's demand for reimbursement, payment or
indemnity must be limited to that which is being generally applied at the time
by the Lender for comparable guarantors and guaranties subject to similar
provisions;
(c) the Lender shall provide evidence regarding the basis of
such claim and the calculation and application thereof in reasonable detail
and, in determining such amount, the Lender may use reasonable methods of
attribution and averaging; and
(d) the Lender shall, if so requested by the Guarantor, use
reasonable efforts (subject to the overall policy considerations of the Lender)
to designate a different lending office hereunder if to do so will avoid the
need for, or reduce the amount of, any such payment, indemnity or
reimbursement; provided that, the Lender would, in its sole but reasonable
determination, suffer no material economic, legal or regulatory disadvantage or
burden.
Article II
SUBORDINATION
SECTION 2.1. For purposes of this Article II, the following
terms shall have the following meanings: (a) "Senior Creditor" means the
Lender, (b) "Senior Obligations" means the Obligations, (c) "Subordinated
Creditors" means the Guarantor and the UPR Subsidiary and (d) "Subordinated
Obligations" means all indebtedness of the Borrower or any subsidiary thereof
owed to the Guarantor and the UPR Subsidiary.
SECTION 2.2. Each Subordinated Creditor hereby agrees that
all the Subordinated Obligations are hereby expressly and unconditionally
subordinated, to the greatest extent permitted by law and in the manner set
forth in this Article II, to the indefeasible prior payment in full in cash of
all Senior Obligations in accordance with the terms thereof.
<PAGE> 6
6
SECTION 2.3. Upon the occurrence and continuation of an Event
of Default (as defined in the Facility Agreement), or upon any distribution of
the assets of the Borrower, or upon any dissolution, winding up, liquidation or
reorganization of the Borrower, whether in bankruptcy, insolvency,
reorganization, arrangement or receivership proceedings or otherwise, or upon
the assignment for the benefit of creditors or any other marshalling of the
assets of the Borrower, or otherwise:
(a) the Senior Creditor shall first be entitled to receive
payment in full in cash of the Senior Obligations in accordance with the terms
of such Senior Obligations before any Subordinated Creditor shall be entitled
to receive any payment on account of the Subordinated Obligations, whether as
principal, interest or otherwise;
(b) any payment by, or distribution of the assets of, the
Borrower of any kind or character, whether in cash, property or securities, to
which any Subordinated Creditor would be entitled except for the provisions of
this Agreement shall be paid or delivered by the person making such payment or
distribution (whether a trustee in bankruptcy, a receiver, custodian or
liquidating trustee or otherwise) directly to the Senior Creditor to the extent
necessary to make payment in full in cash of all Senior Obligations remaining
unpaid, after giving effect to any concurrent payment or distribution to the
Senior Creditor in respect of the Senior Obligations; and
(c) any payment or distribution of the assets of the Borrower
received by any of the Subordinated Creditors which by virtue of this Agreement
should have been made to the Senior Creditor shall be held by the said
Subordinated Creditor, as bare trustee only, in trust for, and shall be
forthwith paid or distributed to, the Senior Creditor to be applied against the
Senior Obligations.
SECTION 2.4. Subrogation. Subject to the prior indefeasible
payment in full in cash of the Senior Obligations, the Subordinated Creditors
shall be subrogated to the rights of the Senior Creditor to receive payments or
distributions in cash, property or securities applicable to such Senior
Obligations until all amounts owing on the Subordinated Obligations shall be
paid in full, and as between and among the Borrower, its creditors (other than
the Senior Creditor) and the Subordinated Creditors, no such
<PAGE> 7
7
payment or distribution made to the Senior Creditor of by virtue of this
Agreement that otherwise would have been made to the Subordinated Creditors
shall be deemed to be a payment by the Borrower on account of its Subordinated
Obligations, it being understood that the provisions of this Agreement are
intended solely for the purpose of defining the relative rights of the
Subordinated Creditors, on the one hand, and the Senior Creditor, on the other
hand.
Article III
MISCELLANEOUS
SECTION 3.1. The Guarantor shall forthwith pay to the Lender
on demand all out-of-pocket costs incurred by the Lender, including but not
limited to all reasonable legal costs, in enforcing any of its rights and
remedies arising under this Agreement.
SECTION 3.2. The Guarantor shall forthwith notify the Lender
upon any of its subsidiaries, other than a subsidiary which at the time is a
party to this Agreement or an agreement similar in substance to this Agreement,
acquiring or being the beneficiary of any Subordinated Obligations and
thereupon the Guarantor shall cause such subsidiary to forthwith provide a
subordination in favor of the Lender upon similar terms as herein provided,
together with such legal opinions in respect thereof similar in substance to
those legal opinions already provided to the Lender in respect of prior similar
subordinations the UPR Subsidiary and other subsidiaries of the Guarantor.
SECTION 3.3. The Guarantor shall provide to the Lender as
soon as reasonably practicable, but no later than 90 days following each fiscal
quarter, its consolidated, unaudited, quarterly financial statements and, no
later than 120 days following each fiscal year-end, its consolidated, audited,
annual financial statements.
SECTION 3.4. This Agreement and the terms, covenants and
conditions hereof shall be binding upon the Guarantor and the UPR Subsidiary
and their respective successors and shall inure to the benefit of the Lender
and its successors and permitted assigns. The Guarantor and the UPR Subsidiary
shall not be permitted to assign or transfer any of their rights or obligations
under this Agreement.
<PAGE> 8
8
SECTION 3.5. No failure on the part of the Lender to
exercise, and no delay in exercising, any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy by the Lender preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. All
remedies hereunder and under the Facility Agreement are cumulative and are not
exclusive of any other remedies provided by law. The Lender shall not be
deemed to have waived any rights hereunder unless such waiver shall be in
writing and signed by the Lender.
SECTION 3.6. This Guarantee shall be deemed a contract and
instrument made under the laws of the State of New York and shall be construed
and enforced in accordance with and governed by the laws of the State of New
York and the laws of the United States of America applicable therein, without
regard to principles of conflicts of law. This Agreement constitutes the
entire understanding among the parties hereto with respect to the subject
matter hereof and supersedes any prior agreements, written or oral, with
respect thereto.
SECTION 3.7. All communications and notices hereunder shall
be in writing and sent to the applicable party at its address set forth beneath
its signature hereto.
SECTION 3.8. In case any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired.
SECTION 3.9. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
UNION PACIFIC RESOURCES GROUP INC.
by
--------------------------
Name:
Title:
Address:
<PAGE> 9
9
UNION PACIFIC RESOURCES INC.
by
--------------------------
Name:
Title:
Address:
<PAGE> 10
10
ROYAL BANK OF CANADA
by
--------------------------
Name:
Title:
by
--------------------------
Name:
Title:
Address:
<PAGE> 1
EXHIBIT 11
UNION PACIFIC RESOURCES GROUP INC.
COMPUTATION OF EARNINGS PER SHARE
(Shares in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------
1998 1997
---- ----
<S> <C> <C>
Basic weighted average number of shares outstanding.......................... 247,625 250,096
Dilutive weighted average shares issuable on exercise of stock
options less shares repurchasable from proceeds......................... 556 890
---------- ----------
Diluted weighted average number of common and common
equivalent shares....................................................... 248,181 250,986
========== ==========
Net income (millions)........................................................ $ 31.2 $ 117.2
========== ==========
Earnings per share - basic................................................... $ 0.13 $ 0.47
========== ==========
Earnings per share - diluted................................................. $ 0.13 $ 0.47
========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 12
UNION PACIFIC RESOURCES GROUP INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Amounts in Thousands, Except Ratios)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------
1998 1997
---- ----
<S> <C> <C>
Income before income taxes................................................... $ 39,428 $172,677
Add (deduct) distributions greater (less) than
income of unconsolidated affiliates..................................... (2,190) (1,055)
Fixed charges from below..................................................... 43,355 12,505
Capitalized interest included in fixed charges............................... (1,763) (114)
---------- -----------
Earnings available for fixed charges................................ $ 78,830 $184,013
========== ===========
Fixed charges:
Interest expense, including amortization of debt expense/discount....... $ 39,183 $ 10,676
Portion of rentals representing an interest factor...................... 2,409 1,715
Interest capitalized.................................................... 1,763 114
---------- ----------
Total fixed charges................................................. $ 43,355 $ 12,505
========== ===========
Ratio of earnings to fixed charges........................................... 1.8 14.7
==== =====
</TABLE>
<PAGE> 1
......... EXHIBIT 15
AWARENESS LETTER OF INDEPENDENT PUBLIC ACCOUNTANTS
May 11, 1998
Union Pacific Resources Group Inc.
801 Cherry Street
Fort Worth, Texas 76102
We are aware that Union Pacific Resources Group Inc. has incorporated by
reference in its Registration Statements No. 333-22655 on Form S-3 and No.
333-22613 and No. 333-35641 on Form S-8 its Form 10-Q for the quarter ended
March 31, 1998, which includes our report dated April 28, 1998 covering the
unaudited interim financial information contained therein. Pursuant to
Regulation C of the Securities Act of 1933, that report is not considered a part
of the registration statement prepared or certified by our firm or a report
prepared or certified by our firm within the meaning of Sections 7 and 11 of the
Act.
Very truly yours,
ARTHUR ANDERSEN LLP
Fort Worth, Texas
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNION
PACIFIC RESOURCES GROUP INC. CONDENSED STATEMENT OF CONSOLIDATED FINANCIAL
POSITION AT MARCH 31, 1998 AND THE RELATED CONDENSED STATEMENT OF CONSOLIDATED
INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 46
<SECURITIES> 0
<RECEIVABLES> 518
<ALLOWANCES> 12
<INVENTORY> 77
<CURRENT-ASSETS> 789
<PP&E> 12,845
<DEPRECIATION> 3,964
<TOTAL-ASSETS> 10,070
<CURRENT-LIABILITIES> 1,059
<BONDS> 4,709
0
0
<COMMON> 0
<OTHER-SE> 1,765
<TOTAL-LIABILITY-AND-EQUITY> 10,070
<SALES> 499
<TOTAL-REVENUES> 499
<CGS> 0
<TOTAL-COSTS> 422
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39
<INCOME-PRETAX> 39
<INCOME-TAX> 8
<INCOME-CONTINUING> 31
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
