-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, COD7khrO0zyBxKjCAS4zEH2rMkcFdZMThvKz3Ka4IHhn5aDco4WxoInlpD+5dCXH 0nN3PIPpEYDASGJSJAliSQ== 0000950129-01-001648.txt : 20010327 0000950129-01-001648.hdr.sgml : 20010327 ACCESSION NUMBER: 0000950129-01-001648 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20010314 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20010326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POGO PRODUCING CO CENTRAL INDEX KEY: 0000230463 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 741659398 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-07792 FILM NUMBER: 1579176 BUSINESS ADDRESS: STREET 1: 5 GREENWAY PLAZA STE 2700 STREET 2: P O BOX 2504 CITY: HOUSTON STATE: TX ZIP: 77252-0504 BUSINESS PHONE: 7132975000 MAIL ADDRESS: STREET 1: 5 GREENWAY PLAZA SUITE 2700 STREET 2: P O BOX 2504 CITY: HOUSTON STATE: TX ZIP: 77252 FORMER COMPANY: FORMER CONFORMED NAME: PENNZOIL OFFSHORE GAS OPERATORS INC /TX/ DATE OF NAME CHANGE: 19600201 8-K 1 h84916e8-k.txt POGO PRODUCING COMPANY - DATED 3/14/01 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (date of earliest event reported): March 14, 2001 Pogo Producing Company (Exact name of registrant as specified in its charter) Delaware 1-7792 74-165 9398 (State or other jurisdiction of (Commission (I.R.S. Employer incorporation or organization) File Number) Identification No.) 5 Greenway Plaza, Suite 2700 Houston, Texas 77046-0504 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (713) 297-5000 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On March 14, 2001, the previously announced merger of Pogo Producing Company ("Pogo") and NORIC Corporation ("NORIC") was consummated. As a result of the merger, Pogo acquired all of the outstanding capital stock of North Central Oil Corporation ("North Central"), which was the principal asset of NORIC Corporation. North Central is an independent domestic oil and gas exploration and production company whose operations will be integrated with Pogo's existing domestic operations. Pursuant to the merger agreement among Pogo, NORIC and certain NORIC shareholders dated as of November 19, 2000, former shareholders of NORIC received 12,615,816 shares of Pogo common stock and approximately $344,710,000 in cash. In addition, at the closing Pogo repaid all $78,600,000 principal amount of North Central's existing bank debt. The sources of funds used in connection with the merger included cash on hand at Pogo and North Central and borrowings under the Company's new Credit Agreement dated as of March 8, 2001, among Pogo, as the Borrower, certain Commercial Lending Institutions, as the Lenders, Bank of Montreal, as Administrative Agent, Toronto Dominion (Texas), Inc., as Syndication Agent, BNP Paribas, as Documentation Agent and Bank of America, N.A. and Fleet National Bank, as Managing Agents. As a result of the merger, former NORIC shareholders will own approximately 23.6% of the Company's outstanding common stock and may be deemed to be a "group" for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended. Pogo and the former NORIC shareholders are parties to a Registration Rights Agreement dated March 14, 2001 with the Company which governs the former NORIC shareholders' ability to dispose of their shares and a Standstill and Voting Agreement dated March 14, 2001 (the "Voting Agreement"), which governs their ability to vote their shares. The Voting Agreement requires the group to vote their shares either (i) in accordance with the recommendation of Pogo's board of directors or (ii) in equal proportion to the votes cast by shareholders that are not former NORIC shareholders. Each former NORIC shareholder disclaims beneficial ownership of the shares not owned by either (i) such member, (ii) a trust of which such member is a trustee or (iii) a controlled affiliate of such member. Pursuant to the merger agreement relating to the acquisition of NORIC by Pogo, the board of directors of Pogo has taken action so that the former NORIC shareholders collectively as a group are not considered an "Acquiring Person" under Pogo's shareholders' rights plan solely by virtue the foregoing relationships. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS List below the financial statements, pro forma financial information and exhibits, if any, filed as part of this report. (a) Financial statements of businesses acquired Consolidated balance sheets for North Central Oil Corporation and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of 3 operations, cash flows and stockholders' equity for each of the three years in the period ended December 31, 2000. See Exhibit 99.1 incorporated by reference herein. (b) Pro forma financial information Unaudited Pro Forma Condensed Consolidated Financial Statements giving effect to the merger of NORIC with and into Pogo as if merger had occurred on January 1, 2000 (for purposes of the pro forma unaudited condensed consolidated statement of income) and December 31, 2000 (for purposes of the pro forma unaudited condensed consolidated balance sheet). See Exhibit 99.2 incorporated by reference herein. (c) Exhibits Exhibit 4.1 Agreement and Plan of Merger Among Pogo and NORIC and the shareholders signatory thereto dated as of November 19, 2000. Exhibit 4.2 Registration Rights Agreement dated as of March 14, 2001 among Pogo and the shareholders party thereto. Exhibit 4.3 Standstill and Voting Agreement dated as of March 14, 2001 among Pogo and the shareholders party thereto. Exhibit 4.4 Credit Agreement dated as of March 8, 2001, among Pogo, as the Borrower, certain Commercial Lending Institutions, as the Lenders, Bank of Montreal, as Administrative Agent, Toronto Dominion (Texas), Inc., as Syndication Agent, BNP Paribas, as Documentation Agent and Bank of America, N.A. and Fleet National Bank, as Managing Agents. Exhibit 23.1 Consent of Arthur Andersen LLP. Exhibit 99.1 Consolidated balance sheets for North Central Oil Corporation and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, cash flows and stockholders' equity for each of the three years in the period ended December 31, 2000. Exhibit 99.2 Unaudited Pro Forma Condensed Consolidated Financial Statements giving effect to the merger of NORIC with and into Pogo as if merger had occurred on January 1, 2000 (for purposes of the pro forma unaudited condensed consolidated statement of income) and December 31, 2000 (for purposes of the pro forma unaudited condensed consolidated balance sheet). 4 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Pogo Producing Company Date: March 26, 2001 By: /s/ Gerald A. Morton -------------------- Gerald A. Morton Vice President - Law and Corporate Secretary 5 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- Exhibit 4.1 Agreement and Plan of Merger Among Pogo and NORIC and the shareholders signatory thereto dated as of November 19, 2000. Exhibit 4.2 Registration Rights Agreement dated as of March 14, 2001 among Pogo and the shareholders party thereto. Exhibit 4.3 Standstill and Voting Agreement dated as of March 14, 2001 among Pogo and the shareholders party thereto. Exhibit 4.4 Credit Agreement dated as of March 8, 2001, among Pogo, as the Borrower, certain Commercial Lending Institutions, as the Lenders, Bank of Montreal, as Administrative Agent, Toronto Dominion (Texas), Inc., as Syndication Agent, BNP Paribas, as Documentation Agent and Bank of America, N.A. and Fleet National Bank, as Managing Agents. Exhibit 23.1 Consent of Arthur Andersen LLP. Exhibit 99.1 Consolidated balance sheets for North Central Oil Corporation and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, cash flows and stockholders' equity for each of the three years in the period ended December 31, 2000. Exhibit 99.2 Unaudited Pro Forma Condensed Consolidated Financial Statements giving effect to the merger of NORIC with and into Pogo as if merger had occurred on January 1, 2000 (for purposes of the pro forma unaudited condensed consolidated statement of income) and December 31, 2000 (for purposes of the pro forma unaudited condensed consolidated balance sheet).
EX-4.1 2 h84916ex4-1.txt AGREEMENT AND PLAN OF MERGER 1 EXHIBIT 4.1 EXECUTION COPY AGREEMENT AND PLAN OF MERGER AMONG POGO PRODUCING COMPANY AND NORIC CORPORATION AND THE SHAREHOLDERS SIGNATORY HERETO Dated as of November 19, 2000 2 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms....................................... 1 ARTICLE II THE MERGER SECTION 2.01. The Merger.................................................. 13 SECTION 2.02. Effective Time; Closing..................................... 13 SECTION 2.03. Effect of the Merger........................................ 13 SECTION 2.04. Certificate of Incorporation; Bylaws........................ 14 SECTION 2.05. Directors and Officers...................................... 14 SECTION 2.06. Purchaser's Stock Unchanged................................. 14 ARTICLE III TREATMENT OF COMMON STOCK SECTION 3.01. Treatment of Common Stock................................... 14 SECTION 3.02. Cancellation of Treasury Shares............................. 18 SECTION 3.03. Exchange Agent; Exchange Procedures......................... 18 SECTION 3.04. Transfer Books.............................................. 19 SECTION 3.05. No Fractional Share Certificates............................ 19 SECTION 3.06. Lost, Stolen or Destroyed Certificates...................... 20 SECTION 3.07. Termination of Exchange Fund................................ 20 SECTION 3.08. Certain Adjustments......................................... 20 SECTION 3.09. Restricted Securities....................................... 20 SECTION 3.10. Taking of Necessary Action; Further Action.................. 21 SECTION 3.11. Dissenters' Rights.......................................... 21 SECTION 3.12. Purchaser Price Adjustment.................................. 21 SECTION 3.13. Escrow...................................................... 22 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY SECTION 4.01. Organization, Authority and Qualification of the Company.... 23 SECTION 4.02. Capital Stock of the Company; Ownership of the Shares....... 23 SECTION 4.03. Company Subsidiaries........................................ 24 SECTION 4.04. Corporate Books and Records................................. 25 SECTION 4.05. No Conflict................................................. 25 SECTION 4.06. Governmental Consents and Approvals......................... 25 SECTION 4.07. Financial Information, Books and Records.................... 26 SECTION 4.08. No Undisclosed Liabilities.................................. 26
(ii) 3
Page ---- SECTION 4.09. Absence of Certain Changes, Events and Conditions........... 26 SECTION 4.10. Litigation.................................................. 27 SECTION 4.11. Compliance with Laws........................................ 27 SECTION 4.12. Material Contracts.......................................... 27 SECTION 4.13. Title to Property........................................... 29 SECTION 4.14. Intellectual Property....................................... 30 SECTION 4.15. Employee Benefit Matters.................................... 31 SECTION 4.16. Environmental Matters....................................... 32 SECTION 4.17. Reserve Reports............................................. 33 SECTION 4.18. Hedging..................................................... 33 SECTION 4.19. Taxes....................................................... 33 SECTION 4.20. Insurance................................................... 34 SECTION 4.21. Brokers..................................................... 34 SECTION 4.22. Tax Treatment............................................... 34 SECTION 4.23. Production and Pipeline Imbalances.......................... 34 SECTION 4.24. Equipment................................................... 35 SECTION 4.25. Operation of the Properties................................. 35 SECTION 4.26. Plugging and Abandonment.................................... 35 SECTION 4.27. No Parachute Payments....................................... 35 SECTION 4.28. Vote Required............................................... 35 SECTION 4.29. Voting Power of Significant Stockholders; Dissenting Shares...................................................... 36 SECTION 4.30. Non-Energy Company Activity................................. 36 SECTION 4.31. Seismic Data................................................ 36 SECTION 4.32. Suspense Funds.............................................. 36 SECTION 4.33. Future Sales Contracts...................................... 36 SECTION 4.34. Holding Company; Investment Company......................... 36 SECTION 4.35. Federal Regulations......................................... 37 SECTION 4.36. Securities Act.............................................. 37 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER SECTION 5.01. Organization and Authority of the Purchaser................. 37 SECTION 5.02. Certificate of Incorporation and Bylaws..................... 38 SECTION 5.03. Capitalization.............................................. 38 SECTION 5.04. Financing................................................... 38 SECTION 5.05. No Conflict................................................. 38 SECTION 5.06. Governmental Consents and Approvals......................... 39 SECTION 5.07. Litigation.................................................. 39 SECTION 5.08. Tax Treatment............................................... 39 SECTION 5.09. SEC Filings; Financial Statements........................... 39 SECTION 5.10. Compliance With Laws........................................ 40 SECTION 5.11. Taxes....................................................... 40 SECTION 5.12. Authorization and Issuance of Purchaser Common Stock........ 40 SECTION 5.13. Absence of Purchaser Material Adverse Effect................ 41 SECTION 5.14. Brokers..................................................... 41
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Page ---- SECTION 5.15. Vote Required............................................... 41 ARTICLE VI ADDITIONAL AGREEMENTS SECTION 6.01. Conduct of Business Prior to the Closing.................... 41 SECTION 6.02. Access to Information....................................... 46 SECTION 6.03. Confidentiality............................................. 46 SECTION 6.04. Company Stockholders' Meeting and Voting.................... 46 SECTION 6.05. Purchaser Stockholders' Meeting............................. 47 SECTION 6.06. Regulatory and Other Authorizations; Notices and Consents... 47 SECTION 6.07. Notice of Certain Matters................................... 48 SECTION 6.08. Non-Accredited Investor Advisor............................. 48 SECTION 6.09. No Solicitation of Transactions............................. 48 SECTION 6.10. Registration................................................ 49 SECTION 6.11. Directors' and Officers' Indemnification and Insurance...... 50 SECTION 6.12. Plan of Reorganization...................................... 50 SECTION 6.13. Other Shareholders.......................................... 51 SECTION 6.14. Phantom Stock Plan and Severance Payments................... 51 SECTION 6.15. No Trading.................................................. 51 SECTION 6.16. Standstill and Voting Agreement............................. 52 ARTICLE VII EMPLOYEE MATTERS SECTION 7.01. Compensation and Benefits; Service Recognition.............. 52 ARTICLE VIII TAX MATTERS SECTION 8.01. Indemnity................................................... 53 SECTION 8.02. Tax Returns and Payments.................................... 54 SECTION 8.03. Refunds/Tax Benefits........................................ 54 SECTION 8.04. Contests.................................................... 56 SECTION 8.05. Cooperation and Exchange of Information..................... 56 SECTION 8.06. Conveyance Taxes............................................ 57 SECTION 8.07. Miscellaneous............................................... 57 ARTICLE IX CONDITIONS TO CLOSING SECTION 9.01. Conditions to the Obligations of Each Party................. 58 SECTION 9.02. Conditions to the Obligations of the Company................ 58 SECTION 9.03. Conditions to the Obligations of the Purchaser.............. 59
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Page ---- ARTICLE X INDEMNIFICATION SECTION 10.01. Indemnification of the Purchaser............................ 61 SECTION 10.02. Indemnification of the Shareholders......................... 61 SECTION 10.03. Notice and Defense of Third Party Claims.................... 61 SECTION 10.04. Limitations................................................. 62 SECTION 10.05. Tax Matters................................................. 63 SECTION 10.06. Tax Benefits; Insurance Proceeds............................ 63 SECTION 10.07. Escrow Funds and Shares..................................... 63 SECTION 10.08. Security; Limited Recourse.................................. 63 SECTION 10.09. Exclusive Remedies.......................................... 64 ARTICLE XI TERMINATION AND WAIVER SECTION 11.01. Termination................................................. 65 SECTION 11.02. Effect of Termination....................................... 66 SECTION 11.03. Waiver...................................................... 66 ARTICLE XII SHAREHOLDER REPRESENTATIVE SECTION 12.01. Designation................................................. 66 SECTION 12.02. Authority................................................... 66 SECTION 12.03. Reliance by Third Parties on the Shareholder Representative's Authority.................................. 67 SECTION 12.04. Exculpation and Indemnification............................. 67 ARTICLE XIII GENERAL PROVISIONS SECTION 13.01. Survival of Representations and Warranties.................. 68 SECTION 13.02. Expenses.................................................... 68 SECTION 13.03. Notices..................................................... 68 SECTION 13.04. Public Announcements........................................ 69 SECTION 13.05. Headings.................................................... 69 SECTION 13.06. Severability................................................ 69 SECTION 13.07. Entire Agreement............................................ 70 SECTION 13.08. Assignment.................................................. 70 SECTION 13.09. Amendment................................................... 70 SECTION 13.10. Governing Law; Forum........................................ 70 SECTION 13.11. Counterparts................................................ 70 SECTION 13.12. Specific Performance........................................ 71
v 6 Page ---- Exhibits 6.13 -- Form of Joinder Agreement 9.02(d) -- Form of Registration Rights Agreement 9.02(e) -- Form of Standstill and Voting Agreement vi 7 AGREEMENT AND PLAN OF MERGER, dated as of November 19, 2000, among POGO PRODUCING COMPANY, a Delaware corporation (the "Purchaser"), NORIC --------- CORPORATION, a New York corporation (the "Company"), and the shareholders of the ------- Company signatory hereto, constituting holders of two-thirds of the issued and outstanding shares of the Company (the "Significant Shareholders") and any other ------------------------ shareholder of the Company that agrees to become a party to this Agreement pursuant to the provisions hereof (each shareholder of the Company that is or becomes a party to this Agreement, including the Significant Shareholders, is referred to herein as a "Shareholder", and collectively, the "Shareholders"). ----------- ------------ W I T N E S S E T H: WHEREAS, the Purchaser and the Company believe that the acquisition of the Company by the Purchaser and the merger of the Company with and into the Purchaser (the "Merger") in accordance with the New York Business Corporation ------ Law (the "BCL") and the Delaware General Corporation Law (the "DGCL") in the --- ---- manner provided by, and subject to the terms and conditions of, this Agreement, is desirable and in the best interests of their respective corporations and shareholders; WHEREAS, the Boards of Directors of the Purchaser and the Company have each approved the Merger, upon the terms and subject to the conditions set forth herein; and WHEREAS, the Significant Shareholders have determined to vote their shares in favor of the adoption of this Agreement and in favor of the transactions contemplated hereby at a special meeting of the Company's shareholders to be held pursuant to BCL Section 903; and WHEREAS, for federal income tax purposes, it is intended that the Merger shall qualify as a tax-free reorganization within the meaning of section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and the ---- parties intend, by executing this Agreement, to adopt a plan of reorganization within the meaning of section 368(a) of the Code; NOW, THEREFORE, in consideration of the premises and the mutual agreements and covenants hereinafter set forth, the parties hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the --------------------- following terms shall have the following meanings: "Action" means any claim, action, suit, arbitration, inquiry, ------ proceeding or investigation by or before any Governmental Authority. "Adjustment" has the meaning specified in Section 8.03(c). ---------- "Adjustment Amount" has the meaning specified in Section 3.12(c). ----------------- 8 "Affiliate" means, with respect to any specified Person, any other --------- Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person. "Agreement" or "this Agreement" means this Agreement, dated as of the --------- -------------- date hereof, among the Company, the Purchaser and the Significant Shareholders (including the Exhibits hereto and the Disclosure Schedule) and all amendments hereto made in accordance with the provisions of Section 13.09 and as supplemented by all Joinder Agreements executed pursuant to Section 6.13. "Associate" has the meaning specified in Rule 12b-2 promulgated under --------- the Exchange Act. "Average Parent Share Price" has the meaning specified in Section -------------------------- 3.01(a). "BCL" has the meaning specified in the recitals to this Agreement. --- "Business Day" means any day that is not a Saturday, a Sunday or other ------------ day on which banks are required or authorized by law to be closed in The City of New York. "Cash Election" has the meaning specified in Section 3.01(c). ------------- "Cash Election Number" has the meaning specified in Section 3.01(b). -------------------- "Cash Election Shares" has the meaning specified in Section 3.01(d). -------------------- "Cash Fraction" has the meaning specified in Section 3.01(d). ------------- "Certificate" or "Certificates" has the meaning specified in Section ----------- ------------ 3.02(b). "Closing" has the meaning specified in Section 2.02. ------- "Closing Date" has the meaning specified in Section 2.02. ------------ "Code" has the meaning specified in the recitals to this Agreement. ---- "Common Conversion Number" has the meaning specified in Section ------------------------ 3.01(a). "Company" has the meaning specified in the preamble to this Agreement. ------- "Company Certificates" has the meaning specified in Section 3.01(g). -------------------- "Company Common Stock" has the meaning specified in Section 3.01(a). -------------------- "Company Long-Term Debt" means long-term indebtedness for borrowed ---------------------- money and the current portion of long-term indebtedness for borrowed money of the Company and the Company Subsidiaries as of the Effective Time. "Company Stockholder Vote" has the meaning specified in Section 4.28. ------------------------ 2 9 "Company Stockholders' Meeting" has the meaning specified in Section ----------------------------- 6.04(a). "Company Subsidiary" means any and all corporations, partnerships, ------------------ joint ventures, associations, limited liability companies and other entities controlled by the Company, directly or indirectly through one or more intermediaries. "Company's Indemnified Persons" has the meaning specified in Section ----------------------------- 10.02. "Competing Transaction" has the meaning specified in Section 6.09(b). --------------------- "Contest" has the meaning specified in Section 8.04(b). ------- "Control" (including the terms "controlled by" and "under common ------- ------------- ------------ control with"), with respect to the relationship between or among two or ------------ more Persons, means the possession, directly or indirectly, or as trustee or executor, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee or executor, by contract or otherwise, including, without limitation, the ownership, directly or indirectly, of securities having the power to elect a majority of the board of directors or similar body governing the affairs of such Person. "Defensible Title" has the meanings specified in Section 4.13(b)-(e). ---------------- "Disclosure Schedule" means the Disclosure Schedule attached hereto, ------------------- dated as of the date hereof, and forming a part of this Agreement. "Dissenting Shares" has the meaning specified in Section 3.11(a). ----------------- "Easements" means all easements, rights-of-way, licenses, permits, --------- servitudes, surface leases, and similar assets, rights and interests in any way appertaining, belonging, affixed, incidental or applicable to, or used in connection with, the ownership of the Leases, the Wells, Fee Mineral Interests or Other Real Property or the Operations of the Company or any Company Subsidiary, including, without limitation, those described in Section 4.13(c) of the Disclosure Schedule. "Effective Time" has the meaning specified in Section 2.02. -------------- "Election Deadline" has the meaning specified in Section 3.01(k). ----------------- "Encumbrance" means any security interest, pledge, mortgage, lien ----------- (including, without limitation, environmental and tax liens), charge, encumbrance, adverse claim, preferential arrangement or restriction of any kind, including, without limitation, any restriction on the use, voting, transfer, receipt of income or other exercise of any attributes of ownership. "Environmental Laws" means the Comprehensive Environmental Response, ------------------ Compensation and Liability Act, 42 U.S.C. (S) 9601 et seq.; the Resource -- --- Conservation and Recovery Act, 42 U.S.C. (S) 6901 et seq.; the Federal Water Pollution Control Act, 3 10 33 U.S.C. (S) 1251 et seq.; the Clean Air Act, 42 U.S.C. (S) 7401 et seq.; -- --- -- --- the Hazardous Materials Transportation Act, 49 U.S.C. (S) 1471 et seq.; the -- --- Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601 through 2629; the Oil Pollution Act, 33 U.S.C. (S) 2701 et seq.; the Emergency Planning and -- --- Community Right-to-Know Act, 42 U.S.C. (S) 11001 et seq.; the Safe Drinking -- --- Water Act, 42 U.S.C. (S)(S) 300f through 300j; the Occupational Safety and Health Act of 1970; and any similar Law in effect on the date of this Agreement relating to pollution or protection of the environment, health, safety or natural resources, and arising from the use, handling, transportation, storage, disposal, release or discharge of Hazardous Materials. "Equipment" means all equipment, fixtures, physical facilities, tank --------- batteries, surface and subsurface machinery, inventory, spare parts, supplies, tools, and other tangible personal property owned or leased by the Company or any Company Subsidiary and other personal property of any kind on or associated with the Operations of the Company or any Company Subsidiary on the date hereof, including, without limitation, casing, tubing, tubular goods, rods, pumping units and engines, Christmas trees, derricks, platforms, separators, compressors, gun barrels, gathering lines and systems, pipelines, flow lines, tanks, wellheads, production units, platforms, related plants, gas and extraction plants, valves, meters, heaters, dehydrators, and communications systems and equipment, which are located on or connected with the Leases, the Easements or the Operations of the Company or any Company Subsidiary. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended. "Escrow Agent" has the meaning specified in Section 3.13. ------------ "Escrow Agreement" has the meaning specified in Section 3.13. ---------------- "Escrow Consideration" has the meaning specified in Section 3.13. -------------------- "Exchange Act" means the Securities Exchange Act of 1934, as amended, ------------ and the rules and regulations promulgated thereunder. "Exchange Agent" has the meaning specified in Section 3.03(a). -------------- "Exchange Fund" has the meaning specified in Section 3.03(a). ------------- "Fee Mineral Interests" means all of the record and beneficial right, --------------------- title and interest of the Company and any Company Subsidiary in and to the oil, gas and other minerals in and under the land described in Section 4.13(d) of the Disclosure Schedule. "FERC" has the meaning specified in Section 4.35. ---- "Financial Statements" has the meaning specified in Section 4.07(a). -------------------- "Form of Election" has the meaning specified in Section 3.01(c). ---------------- 4 11 "Governmental Authority" means any United States federal, state, local ---------------------- or any foreign government, governmental, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body. "Governmental Order" means any order, writ, judgment, injunction, ------------------ decree, stipulation, determination or award entered by or with any Governmental Authority. "Hazardous Materials" means (a) petroleum and petroleum products, by- ------------------- products or breakdown products, radioactive materials, including, without limitation, naturally occurring radioactive materials, asbestos-containing materials and polychlorinated biphenyls, and (b) other chemicals, materials or substances defined or regulated as toxic or hazardous or as pollutants, contaminants or waste under any applicable Environmental Law. "Hedges" has the meaning specified in Section 4.18(b). ------ "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of ------- 1976, as amended, and the rules and regulations promulgated thereunder. "Hydrocarbons" means crude oil, natural gas, casinghead gas, ------------ condensate, sulphur, natural gas liquids, plant products and other liquid or gaseous hydrocarbons produced in association therewith, including, without limitation, coalbed gas and carbon dioxide, and all other minerals of every kind and character which may be covered by or included in the Property. "Indebtedness" means, with respect to any Person, (a) all indebtedness ------------ of such Person, whether or not contingent, for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than trade payables), (c) all obligations of such Person evidenced by notes, bonds, debentures, repurchase and reverse repurchase agreements or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement, in the event of default, are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under leases that have been or should be, in accordance with U.S. GAAP, recorded as capital leases, (f) all obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, and (g) all Indebtedness of others referred to in clauses (a) through (f) above guaranteed by such Person. "Indemnified Person" has the meaning specified in Section 10.03. ------------------ "Indemnifying Person" has the meaning specified in Section 10.03. ------------------- "Intellectual Property" has the meaning specified in Section 4.14. --------------------- "Interim Financial Statements" has the meaning specified in Section ---------------------------- 4.07(a). "IRS" means the Internal Revenue Service of the United States. --- 5 12 "Joinder Agreement" has the meaning specified in Section 6.13(a). ----------------- "June 30 Balance Sheet" has the meaning specified in Section 4.07(a). --------------------- "Knowledge", with respect to the Company, means such facts, --------- information and matters that are actually known by any Senior Officer. "Law" means any federal, state, local or foreign law, statute, --- ordinance, regulation, rule, code, decree, other requirement or rule of law. "Leases" means fee mineral interests other than Fee Mineral Interests ------ as that term is defined herein, oil, gas and mineral leasehold interests and other leasehold interests, subleases, mineral servitudes, licenses, concessions, working interests, farmout or farmin rights, royalties, overriding royalties or other non-working or carried interests, operating rights or other rights and interests described or referred to in Section 4.13(b) of the Disclosure Schedule (other than Permitted Encumbrances), including, without limitation, all right, title, and interest of the Company and any Company Subsidiary in all pooled or unitized areas in which the Leases are included, to the extent that such rights and interests arise from and are associated with the Leases or Wells, and all right, title and interest owned by the Company and any Company Subsidiary in, under or derived from all or any presently existing unitization, pooling, operating, communitization or other agreements, whether voluntary or involuntary, or formed under orders, regulations, rules or declaration or other official acts of any Governmental Authority. "Liabilities" means any and all debts, liabilities and obligations, ----------- whether accrued or fixed, absolute or contingent, matured or unmatured, or determined or determinable, including, without limitation, those arising under any Law, Action or Governmental Order, and those arising under any contract or agreement. "Loss" means any and all Liabilities, losses, damages, claims, costs ---- and expenses, interest, awards, judgments and penalties (including, without limitation, reasonable attorneys' fees and expenses) actually suffered or incurred by a Person. "Loss Ceiling" has the meaning specified in Section 10.04(e). ------------ "Material Adverse Effect" means any change in or effect on the Company ----------------------- or any Company Subsidiary that, individually or in the aggregate with any other changes in or effects on the Company or any Company Subsidiary, is materially adverse to the financial condition, business or results of operations of the Company and the Company Subsidiaries, taken as a whole or is materially adverse to the financial condition, business or results of operations of North Central, taken as a whole; provided, however, that -------- ------- "Material Adverse Effect" shall not be deemed to include any changes or effects arising out of (a) changes in Law or interpretations thereof by Governmental Authorities, (b) changes in U.S. GAAP or in the generally applicable interpretation thereof, (c) events or conditions generally affecting the energy industry (including, without limitation, any reclassification or recalculation of reserves in the ordinary course of business, unsuccessful drilling efforts or changes in the price of 6 13 Hydrocarbons) or arising from changes in general business, economic or political conditions or (d) changes resulting from entering into this Agreement. "Material Contracts" has the meaning specified in Section 4.12(a). ------------------ "Maximum Amount" has the meaning specified in Section 10.04(b). -------------- "Merger" has the meaning specified in the recitals to this Agreement. ------ "Merger Consideration" has the meaning specified in Section 3.03(b). -------------------- "Merger S-4" has the meaning specified in Section 6.10. ---------- "Mixed Election" has the meaning specified in Section 3.01(c). -------------- "NCOC" means North Central Oil Corporation, a Delaware corporation. ---- "Net Revenue Interest" means an overall interest in Hydrocarbons -------------------- produced from or attributable to the Leases and Wells, after deducting all lessors' royalties, overriding royalties, production payments, net profit interests, reversionary interests, and other interests or burdens on or that are measured by or are payable out of the production of Hydrocarbons produced therefrom or the proceeds realized from the sale or other disposition thereof. "NGA" has the meaning specified in Section 4.35. --- "Non-Election" has the meaning specified in Section 3.01(c). ------------ "Non-Election Fraction" has the meaning specified in Section 3.01(g). --------------------- "Non-Election Shares" has the meaning specified in Section 3.01(d). ------------------- "Non-Energy Company Subsidiaries" means any Company Subsidiaries other ------------------------------- than North Central. "North Central" means NCOC and its subsidiary, NCO Services, Inc., a ------------- subsidiary of the Company. "NORIC Cash" means the cash and cash equivalents held by the Company ---------- and the Non-Energy Company Subsidiaries as of the Effective Time. "Operations" means all oil and gas exploration and all operations ---------- related thereto, including, without limitation, (a) the acquisition, purchase, sale, development, operation, maintenance and abandonment of oil, gas and mineral leases and related interests, (b) the drilling, reworking, production, purchase, sale, transportation, storage, processing, treating, manufacture and disposal of, or for, oil, gas, natural gas liquids, and other hydrocarbon gases and liquids, and associated by-products and wastes, and (c) the acquisition, construction, installation, maintenance and operation of related 7 14 plants, platforms, pipelines, gathering lines, compressors, facilities, storage facilities and equipment. "Other Real Property" means the real property described and identified ------------------- in Section 4.13(e) of the Disclosure Schedule. "Paying Agent" has the meaning specified in Section 3.01(i). ------------ "Per Share Cash Amount" has the meaning specified in Section 3.01(a). --------------------- "Permitted Encumbrances" means such of the following as to which no ---------------------- enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (a) liens for taxes, assessments and governmental charges or levies not yet due and payable; (b) Encumbrances imposed by Law, such as materialmen's, mechanics', carriers', workmen's and repairmen's liens and other similar liens arising in the ordinary course of business; (c) pledges or deposits to secure obligations under workers' compensation laws or similar legislation or to secure public or statutory obligations; (d) minor survey exceptions, reciprocal easement agreements and other customary encumbrances on title to real property that do not, individually or in the aggregate, materially adversely affect the value, operation or use of property subject thereto for its current and anticipated purposes; (e) lessor's royalties, overriding royalties, nonparticipating royalties, net profits interests, carried interests, production payments, reversionary interests, and other burdens, if the net cumulative effect of such burdens does not operate to reduce the Net Revenue Interest of the Company or the Company Subsidiary, as applicable, in any Property to an amount less than the Net Revenue Interest for such Property set forth on Section 4.13(b) of the Disclosure Schedule, and does not obligate the Company or the Company Subsidiary, as applicable, to bear costs and expenses relating to the maintenance, development, and operation of any Property in a proportion greater or less than the Working Interest of the Company or the Company Subsidiary, as applicable, for such Property as set forth on Section 4.13(b) of the Disclosure Schedule (unless the actual Net Revenue Interest for such Property is greater or less than the Net Revenue Interest set forth on Section 4.13(b) of the Disclosure Schedule in the same proportion as such costs and expenses required to be borne is greater or less than such Working Interest); (f) easements, rights-of-way, servitudes, permits, licenses, surface leases, and other rights in respect of surface operations, pipelines, grazing, logging, canals, ditches, reservoirs or the like; conditions, covenants or other restrictions, and easements for streets, alleys, highways, pipelines, telephone lines, power lines, railways, and other easements and rights-of-way on, over, or in respect of any Property which will not materially interfere with the operation or use of any of the affected Properties; (g) farmout and farmin agreements, participation agreements, joint operating agreements, division orders, pooling agreements, unitization orders or agreements, and Hydrocarbons sales agreements entered into in the ordinary course of business to the extent that such orders and agreements do not operate to reduce the Net Revenue Interest of the Company or the Company Subsidiary, as applicable, in any Property to an amount greater or less than the Net Revenue Interest for such Property set forth on Section 4.13(b) of the Disclosure Schedule, and do not obligate the Company or the Company Subsidiary to bear costs and expenses relating to 8 15 the maintenance, development, and operation of any Property in a proportion greater or less than the Working Interest of the Company or the Company Subsidiary, as applicable, for such Property as set forth on Section 4.13(b) of the Disclosure Schedule (unless the actual Net Revenue Interest for such Property is greater or less than the Net Revenue Interest set forth on Section 4.13(b) of the Disclosure Schedule in the same proportion as such costs and expenses required to be borne is greater or less than such Working Interest); (h) calls on production, in effect as of the date hereof, which entitle the Company or the Company Subsidiary, as the case may be, to receive a current market price for such production; (i) all liens, contracts, agreements, instruments, obligations, defects, and irregularities affecting the Properties that, individually, or in the aggregate, are not such as to materially and adversely interfere with the operation or use, if any, of Properties, do not prevent the Company or the Company Subsidiary, as applicable, from receiving the proceeds of production from any of the Properties, do not reduce the Net Revenue Interest of the Company or the Company Subsidiary, as applicable, for such Property below that set forth on Section 4.13(b) of the Disclosure Schedule, and do not obligate the Company or the Company Subsidiary to bear costs and expenses relating to the maintenance, development, and operation of any Properties in an amount greater than the Working Interest of the Company or the Company Subsidiary, as applicable, for such Property as set forth on Section 4.13(b) of the Disclosure Schedule (unless the actual Net Revenue Interest for such Property is greater than the Net Revenue Interest set forth on Section 4.13(b) of the Disclosure Schedule in the same proportion as any increase in such Working Interest); (j) any liens created by Law or reserved in oil, gas, and/or mineral leases for royalty, bonus, or rental, or securing compliance with the terms of such leases; (k) all agreements, instruments, documents, liens, Actions and other matters described or referred to in the Disclosure Schedule or which are waived by Purchaser; (l) traditional rights of reassignment requiring notice and/or the reassignment of a leasehold interest to the holders of such reassignment rights prior to surrendering or releasing such leasehold interest or operating right; (m) rights reserved to or vested in any Governmental Authority to control or regulate any Property in any manner, and (n) any defect, irregularity, deficiencies in title, or other matter that a reasonable and prudent operator, experienced and knowledgeable in the domestic oil and gas business, would not consider a material impairment of the Company's or the Company Subsidiary's title in such Property. "Person" means any individual, partnership, corporation, limited ------ liability company, trust, incorporated or unincorporated organization or other legal entity of any kind. "Phantom Share Plan" means the North Central Oil Corporation Phantom ------------------ Share Plan (amended and restated, effective as of May 1, 1997), as amended. "Plans" has the meaning specified in Section 4.15(a). ----- "Prior Period Tax Decrease" has the meaning specified in Section ------------------------- 8.03(c). "Prior Period Tax Increase" has the meaning specified in Section ------------------------- 8.03(c). 9 16 "Private Placement" has the meaning specified in Section 6.10. ----------------- "Pro Rata Share" has the meaning specified in Section 10.04(c). -------------- "Property" or "Properties" mean the Leases, Wells, Easements, -------- ---------- Equipment, Other Real Property and Fee Mineral Interests. "Proxy Statement" has the meaning specified in Section 6.05(a). --------------- "Purchaser" has the meaning specified in the preamble to this --------- Agreement. "Purchaser Certificates" has the meaning specified in Section 3.03(a). ---------------------- "Purchaser Common Stock" has the meaning specified in Section 3.01(a). ---------------------- "Purchaser Material Adverse Effect" means any change in or effect on --------------------------------- the Purchaser that, individually or in the aggregate with any other changes in or effects on the Purchaser, is materially adverse to the financial condition, business or results of operations of the Purchaser and its subsidiaries, taken as a whole; provided, however, that "Purchaser Material -------- ------- Adverse Effect" shall not be deemed to include any changes or effects arising out of (a) changes in Law or interpretations thereof by Governmental Authorities, (b) changes in U.S. GAAP or in the generally applicable interpretation thereof, (c) events or conditions generally affecting the energy industry (including, without limitation, any reclassification or recalculation of reserves in the ordinary course of business, unsuccessful drilling efforts or changes in the price of Hydrocarbons) or arising from changes in general business, economic or political conditions or (d) changes resulting from entering into this Agreement. "Purchaser Preferred Stock" has the meaning specified in Section 5.03. ------------------------- "Purchaser SEC Reports" has the meaning specified in Section 5.09(a). --------------------- "Purchaser Stock Issuance" has the meaning specified in Section ------------------------ 6.05(a). "Purchaser Stockholders' Meeting" has the meaning specified in Section ------------------------------- 6.05(a). "Purchaser Tax Periods" has the meaning specified in Section 8.01(a). --------------------- "Purchaser Tax Returns" has the meaning specified in Section 5.11. --------------------- "Purchaser's Indemnified Persons" has the meaning specified in Section ------------------------------- 10.01. "Registration Rights Agreement" has the meaning specified in Section ----------------------------- 9.02(d). "Representatives" has the meaning specified in Section 6.02. --------------- "Reserve Report" has the meaning specified in Section 4.17(a). -------------- 10 17 "Retention Bonus Plan" means the Retention Bonus Agreements entered -------------------- into by and between certain employees of North Central. "Rights Agreement" has the meaning specified in Section 3.01(m). ---------------- "SEC" means the United States Securities and Exchange Commission. --- "Securities Act" means the Securities Act of 1933, as amended, and the -------------- rules and regulations promulgated thereunder. "Security" has the meaning specified in Section 10.08(a). -------- "Seismic Data" has the meaning specified in Section 4.31. ------------ "Senior Officers" means Michael Becci, B.W. Beckham IV, William E. --------------- Deupree, Robert Kiley, Mark Rosenbaum, James A. Winne III, Randall K. Sadler, Michael Weissman, Doug Cohen, Tom Antoshak and Gary M. DeGrange. "Severance Agreements" means the individual Change in Control -------------------- Severance Payment Agreements dated June 1, 2000 and letter agreements dated November 10, 1998 entered into by and between North Central and certain of its officers. "Severance Plan" means the Severance Pay Plan for Employees of North -------------- Central, as amended. "Shareholder Representative" has the meaning specified in Section -------------------------- 12.01. "Shareholder Tax Periods" has the meaning specified in Section ----------------------- 8.01(a). "Shareholders" has the meaning specified in the preamble to this ------------ Agreement. "Shareholders' List" has the meaning specified in Section 4.02(b). ------------------ "Shares" has the meaning specified in Section 3.01(a). ------ "Significant Shareholders" means the persons specified in the ------------------------ Preamble. "Standstill and Voting Agreement" has the meaning specified in Section ------------------------------- 9.02(e). "Stock Election" has the meaning specified in Section 3.01(c). -------------- "Stock Election Number" has the meaning specified in Section 3.01(b). --------------------- "Stock Election Shares" has the meaning specified in Section 3.01(d). --------------------- "Stock Fraction" has the meaning specified in Section 3.01(e). -------------- "Stock Representative" has the meaning specified in Section 3.01(c). -------------------- 11 18 "Surviving Corporation" has the meaning specified in Section 2.01. --------------------- "Tax" or "Taxes" means any and all taxes, fees, levies, duties, --- ----- tariffs, imposts, and other charges of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any government or taxing authority, including, without limitation: taxes or other charges on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, social security, workers' compensation, unemployment compensation or net worth; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, value-added, or gains taxes; license, registration and documentation fees; and customs duties, tariffs, and similar charges. "Tax Asset" has the meaning specified in Section 8.03(b). --------- "Tax Authority" means the IRS and any other domestic or foreign ------------- Governmental Authority responsible for the administration of Taxes. "Tax Returns" has the meaning specified in Section 4.19. ----------- "Third Party Provisions" has the meaning specified in Section 13.08. ---------------------- "Transmittal Letter" means the letter of transmittal pursuant to which ------------------ holders of Company Common Stock shall (a) transfer their shares of Company Common Stock to the Exchange Agent after the Effective Time, (b) confirm that they have appointed a "Purchaser's Representative," as such term is used in Regulation D promulgated under the Securities Act, if applicable, or affirm that they are "Accredited Investors," as defined in Regulation D and (c) acknowledge their investment intent with respect to shares of Purchaser Common Stock and other matters arising under Regulation D. "Unpaid Company Transaction Fees" means the fees and expenses incurred ------------------------------- by the Company and the Company Subsidiaries for investment banking, legal, engineering and other professional services not accrued on the consolidated balance sheet of North Central dated September 30, 2000 or the consolidated balance sheet of the Company dated June 30, 2000 included in the Interim Financial Statements, in connection with the Merger and this Agreement, which have not been paid in full prior to the Effective Time. "Unpaid Severance, Retention and Phantom Share Costs" means an amount --------------------------------------------------- equal to the sum of all amounts payable or which may become payable, arising out of, related to or in connection with the Merger under the Phantom Share Plan, the Severance Plan, the Severance Agreements and the Retention Bonus Plan, which have not been paid in full prior to the Effective Time. "U.S. GAAP" means United States generally accepted accounting --------- principles and practices as in effect from time to time and applied consistently throughout the periods involved. 12 19 "Wells" means those oil, condensate or natural gas wells (whether ----- producing, not producing, abandoned or temporarily abandoned), water source wells, and water and other types of injection or disposal wells and systems located on the Leases, including, without limitation, the wells described and identified in Section 4.13(b) of the Disclosure Schedule. "Working Interests" means that share of all of the costs, expenses, ----------------- burdens and obligations of any type or nature attributable to the Company's or the Company Subsidiaries', as applicable, interest in any Lease or Well. ARTICLE II THE MERGER SECTION 2.01. The Merger. Upon the terms of this Agreement and ---------- subject to the conditions set forth in Article IX, and in accordance with the BCL and the DGCL, at the Effective Time, the Company shall be merged with and into the Purchaser. As a result of the Merger, the separate corporate existence of the Company shall cease and the Purchaser shall continue as the surviving corporation (sometimes referred to herein as the "Surviving Corporation"). --------------------- SECTION 2.02. Effective Time; Closing. As promptly as practicable and ----------------------- in no event later than the fifth Business Day or such other day as may be agreed in writing by each of the parties hereto (such date being the "Closing Date") ------------ following the satisfaction or, if permissible, waiver of the conditions set forth in Article IX, the parties hereto shall cause the Merger to be consummated (a) by filing a certificate of merger with the New York Secretary of State in such form as required by, and executed in accordance with, the relevant provisions of the BCL and (b) a certificate of merger with Delaware Secretary of State in such form as required by, and executed in accordance with, the relevant provisions of the DGCL. The "Effective Time" of the Merger, as that term is used -------------- in this Agreement, shall mean the date on which the certificates of merger are filed with the New York Secretary of State and the Delaware Secretary of State with respect to the Merger (or such later time as may be agreed in writing by each of the parties hereto and specified in the certificates of merger). Immediately prior to the filing of the certificates of merger, the closing (the "Closing") will be held at the offices of Shearman & Sterling, 599 Lexington ------- Avenue, New York, NY 10022 (or such other place as the parties may agree) to confirm the satisfaction or waiver of the conditions set forth in Article IX. SECTION 2.03. Effect of the Merger. At the Effective Time, the effect -------------------- of the Merger shall be as provided in the applicable provisions of the BCL and the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of the Company and the Purchaser shall vest in the Surviving Corporation, and all debts, liabilities, obligations, restrictions, disabilities and duties of each of the Company and the Purchaser shall become the debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Corporation. 13 20 SECTION 2.04. Certificate of Incorporation; Bylaws. At the Effective ------------------------------------ Time, the Restated Certificate of Incorporation of the Purchaser, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended as provided by Law and such Certificate of Incorporation. At the Effective Time, the Bylaws of the Purchaser, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation until thereafter amended as provided by Law, the Certificate of Incorporation of the Surviving Corporation and such Bylaws. SECTION 2.05. Directors and Officers. (a) The directors of the ---------------------- Purchaser immediately prior to the Effective Time shall continue as the directors of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and Bylaws of the Surviving Corporation until their respective successors are duly elected or appointed and qualified. (b) The officers of the Purchaser immediately prior to the Effective Time shall continue as the officers of the Surviving Corporation, each to hold office in accordance with the Certificate of Incorporation and Bylaws of the Surviving Corporation until their respective successors are duly elected or appointed and qualified. SECTION 2.06. Purchaser's Stock Unchanged. Each share of Purchaser --------------------------- Common Stock and each share of each other class of stock of Purchaser outstanding immediately prior to the Effective Time shall be unchanged by virtue of the Merger and remain outstanding. Each share of Purchaser Common Stock held in the Purchaser's treasury immediately prior to the Effective Time shall be unchanged by virtue of the Merger and shall remain a share held in the Purchaser's treasury. ARTICLE III TREATMENT OF COMMON STOCK SECTION 3.01. Treatment of Common Stock. At the Effective Time: ------------------------- (a) Subject to Section 3.12, each share of voting and non-voting common stock (the "Shares"), par value $0.01 per share of the Company ------ ("Company Common Stock"), issued and outstanding immediately prior to the -------------------- Effective Time, other than those shares of Company Common Stock to be cancelled pursuant to Section 3.02, shall forthwith cease to exist and shall be converted into the right to receive: (i) a number of validly issued, fully paid and nonassessable shares of common stock of the Purchaser, par value $1.00 per share ("Purchaser Common Stock"), equal to: ---------------------- (x) if the Average Parent Share Price is less than $22.25, 322.174; (y) if the Average Parent Share Price is at least $22.25, but less than $27.25, the result obtained by dividing $7,168.38 by the Average Parent Share Price and rounding the result to the nearest one-thousandth of a Parent Share; and (z) if the Average Parent Share Price is equal to or greater than $27.25, 263.059 Parent Shares (such number, the "Common Conversion ----------------- Number"), or (ii) $7,168.38 in cash, without interest (the "Per Share Cash ------ -------------- Amount"), or (iii) a combination of shares of Purchaser Common Stock and ------ cash, determined in accordance with Sections 3.01(d), 3.01(e), 3.01(f) and 3.01(g). The "Average Parent Share Price" -------------------------- 14 21 means the average, over the 20 consecutive trading days ending on the trading day which is five days prior to the Closing Date, of the mean between the high and low sales prices per share of Purchaser Common Stock on the New York Stock Exchange, regular way on each such date. Those certificates previously evidencing Shares shall be exchanged for (i) certificates evidencing whole shares of Purchaser Common Stock issued in consideration therefor, (ii) the Per Share Cash Amount multiplied by the number of shares previously evidenced by the canceled certificate or (iii) a combination of clauses (i) and (ii), in each case in accordance with the allocation procedures of this Section 3.01 and upon the surrender of the certificates in accordance with the provisions of Section 3.03, without interest. (b) The aggregate number of shares of Company Common Stock that will be converted into the right to receive Purchaser Common Stock in the Merger will be 43,943 (such amount being equal to 50% of the shares of Company Common Stock issued and outstanding immediately prior to the Effective Time) (the "Stock Election Number"). The aggregate number of shares of --------------------- Company Common Stock that will be converted into the right to receive cash in the Merger will be 43,943 (such amount being equal to 50% of the shares of Company Common Stock issued and outstanding immediately prior to the Effective Time) (the "Cash Election Number"). In the event that there are -------------------- Dissenting Shares and the holders of such Dissenting Shares do not, prior to the Effective Time, withdraw notice of election to dissent, vote in favor of the Merger or otherwise lose their rights to appraisal, the Cash Election Number shall be reduced by an amount equal to twice the number of Dissenting Shares and the Stock Election Number shall be increased by the same amount, provided, however that in no such event shall the Cash -------- ------- Election Number be reduced by more than 8,789. (c) Subject to the allocation and election procedures set forth in this Section 3.01, each record holder, immediately prior to the Effective Time, of Shares will be entitled (i) to elect to receive cash for all of the Shares (a "Cash Election"), (ii) to elect to receive shares of ------------- Purchaser Common Stock for all of the Shares (a "Stock Election"), (iii) to -------------- elect to receive shares of Purchaser Common Stock for part of the holder's Shares and cash for the remaining part of the holder's Shares (a "Mixed ----- Election"), or (iv) to indicate that the record holder has no preference as -------- to the receipt of cash or Purchaser Common Stock for the shares (a "Non- --- Election"). All elections shall be made on a form designed for that purpose -------- (a "Form of Election"). A holder of record of Shares who holds Shares as ---------------- trustee, nominee, or in another representative capacity (a "Stock ----- Representative"), may submit multiple Forms of Election, provided that the -------------- -------- Stock Representative certifies that each Form of Election covers all the Shares held by the Stock Representative for a particular beneficial owner. (d) If the aggregate number of Shares covered by Cash Elections (the "Cash ---- Election Shares") exceeds the Cash Election Number, all Shares covered by --------------- Stock Elections (the "Stock Election Shares") and all Shares covered by --------------------- Non-Elections (the "Non-Election Shares") shall be converted into the right ------------------- to receive shares of Purchaser Common Stock, and the Cash Election Shares shall be converted into the right to receive shares of Purchaser Common Stock and cash in the following manner: each Cash Election Share shall be converted into the right to receive (i) cash equal to the 15 22 product of (A) the Per Share Cash Amount and (B) a fraction (the "Cash ---- Fraction") the numerator of which shall be the Cash Election Number and the -------- denominator of which shall be the total number of Cash Election Shares, and (ii) a number of shares of Purchaser Common Stock equal to the product of (A) the Common Conversion Number and (B) a fraction equal to one minus the Cash Fraction. (e) If the aggregate number of Stock Election Shares exceeds the Stock Election Number, all Cash Election Shares and all Non-Election Shares shall be converted into the right to receive cash, and the Stock Election Shares shall be converted into the right to receive shares of Purchaser Common Stock and cash in the following manner: each Stock Election Share shall be converted into the right to receive (i) a number of shares of Purchaser Common Stock equal to the product of (A) the Common Conversion Number and (B) a fraction (the "Stock Fraction") the numerator of which -------------- shall be the Stock Election Number and the denominator of which shall be the total number of Stock Election Shares and (ii) cash equal to the product of (A) the Per Share Cash Amount and (B) a fraction equal to one minus the Stock Fraction. (f) With respect to each holder of Company Common Stock who makes a Mixed Election, the Shares the holder elects to be converted into the right to receive cash shall be treated as Cash Election Shares for purposes of this Section 3.01 and the shares the holder elects to be converted into the right to receive shares of Purchaser Common Stock shall be treated as Stock Election Shares for purposes of this Section 3.01. (g) In the event that neither Section 3.01(d) nor Section 3.01(e) above is applicable, all Cash Election Shares shall be converted into the right to receive cash, all Stock Election Shares shall be converted into the right to receive shares of Purchaser Common Stock, and the Non-Election Shares, if any, shall be converted into the right to receive shares of Purchaser Common Stock and cash in the following manner: each Non-Election Share shall be converted into the right to receive (i) a number of shares of Purchaser Common Stock equal to the product of (A) the Common Conversion Number and (B) a fraction (the "Non-Election Fraction"), the numerator of --------------------- which shall be the excess of the Stock Election Number over the total number of Stock Election Shares and the denominator of which shall be the excess of (x) 87,886 over (y) the sum of the total number of Stock Election Shares and the total number of Cash Election Shares, (ii) an amount in cash, without interest, equal to the product of the Per Share Cash Amount and (iii) a fraction equal to one minus the Non-Election Fraction. (h) If either (i) the tax opinion of Shearman & Sterling referred to in Section 9.02(c) cannot be rendered (as reasonably determined by Shearman & Sterling and concurred in by Baker Botts L.L.P.) or (ii) the tax opinion of Baker Botts L.L.P. referred to in Section 9.03(c) cannot be rendered (as reasonably determined by Baker Botts, L.L.P. and concurred in by Shearman & Sterling), in either case as a result of the Merger potentially failing to satisfy continuity of interest requirements under applicable federal income tax principles relating to reorganizations under section 368(a) of the Code, then the Company shall have the right at its sole discretion to elect to restructure the transaction as a taxable sale of Company Common Stock (or, at the Company's 16 23 option, as a reverse subsidiary merger treated for federal income tax purposes as a taxable sale of Company Common Stock). The parties confirm their understanding that, under the Law as in effect on the date hereof, the continuity of interest requirement, under applicable federal income tax principles, shall be considered to be satisfied if at least 40% in value of the sum of the Merger Consideration plus any other amount treated for federal income tax purposes as consideration provided by the Purchaser or a related party for the Shares constitutes shares of Purchaser Common Stock, valued in accordance with the relevant federal income tax principles. In the event that the Company elects the option to restructure the transaction as a taxable sale of Company Common Stock (or as a taxable reverse subsidiary merger) pursuant to this Subsection, the provisions of this Agreement shall be applied to the transaction as if that transaction were the Merger, except where the provision refers to section 368 of the Code or clearly contemplates that the Merger will qualify as a tax-free reorganization within the meaning of section 368. (i) To be effective, a Form of Election must be properly completed, signed and submitted to the Purchaser's transfer agent and registrar, as paying agent (the "Paying Agent"), and accompanied by certificates ------------ representing shares of Company Common Stock (the "Company Certificates") as -------------------- to which the election is being made. The Purchaser shall have the discretion, which it may delegate in whole or in part to the Paying Agent, to determine whether Forms of Election have been properly completed, signed and submitted or revoked and to disregard immaterial defects in Forms of Election. The decision of the Purchaser (or the Paying Agent) in these matters shall be conclusive and binding. Neither the Purchaser nor the Paying Agent shall be under any obligation to notify any person of any defect in a Form of Election submitted to the Paying Agent. The Paying Agent shall also make all computations contemplated by this Section 3.01(i), and all these computations shall be conclusive and binding on the holders of shares of Company Common Stock. (j) For the purposes of this Agreement, a holder of shares of Company Common Stock who does not submit a Form of Election that is received by the Paying Agent prior to the Election Deadline shall be deemed to have made a Non-Election. If the Purchaser or the Paying Agent shall determine that any purported Cash Election or Stock Election was not properly made, the shares subject to improperly made Cash Election or Stock Election shall be treated as Non-Election Shares. (k) Each of the Purchaser and the Company shall use its best efforts to cause copies of the Form of Election to be mailed to the record holders of Company Common Stock not less than 20 days prior to the Effective Time. A Form of Election must be received by the Paying Agent by 5:00 p.m., New York City time, on the Business Day that is immediately prior to the Effective Time (the "Election Deadline"), in order to be effective. All ----------------- elections may be revoked until the Election Deadline in writing by the record holders submitting Forms of Election. (l) Notwithstanding any other provision of this Section 3.01 or in any Form of Election to the contrary, unless the Company shall provide a written notice to the Purchaser and to each holder of Shares stating that the Board of Directors of the 17 24 Company has determined to permit holders of Shares to make individual elections, each and every holder of Shares shall automatically be deemed to have submitted a Mixed Election indicating that such holder elects to receive shares of Purchaser Common Stock for 50% of such holder's Shares and cash for 50% of such holder's Shares. (m) Each share of Purchaser Common Stock issued to holders of Company Common Stock pursuant to the Merger will be issued with an associated Right (as defined in the Rights Agreement dated as of April 26, 1994 between the Purchaser and Harris Trust Company of New York, as Rights Agent (the "Rights Agreement")). Purchaser shall supplement the Rights Agreement to ---------------- provide that no Shareholder will be an "Acquiring Person" (as defined in the Rights Agreement) by virtue of acquiring Purchaser Common Stock in the Merger unless or until it or any of its "Affiliates" or "Associates" (as defined in the Rights Agreement) shall purchase or otherwise become the "Beneficial Owner" (as defined in the Rights Agreement) of additional Shares of Purchaser Common Stock or any other Person or Persons who is (or collectively are) the Beneficial Owners of shares of Purchaser Common Stock shall become an Affiliate or Associate of such Shareholder unless, in either such case, such Shareholder, together with all Affiliates or Associates of such Shareholder, is not then the Beneficial Owner of 20% or more of the Purchaser Common Stock then outstanding. SECTION 3.02. Cancellation of Treasury Shares. Each share of Company ------------------------------- Common Stock held in the Company treasury immediately prior to the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof, shall cease to be outstanding, shall be cancelled and retired without payment of any consideration therefor and shall cease to exist. SECTION 3.03 Exchange Agent; Exchange Procedures. (a) Subject to ----------------------------------- the terms and conditions of this Agreement, at or prior to the Effective Time, the Purchaser shall appoint an exchange agent that is reasonably acceptable to the Company (the "Exchange Agent"), to effect the exchange of Shares for shares -------------- of Purchaser Common Stock and cash in accordance with the provisions of this Article III. As soon as reasonably practicable following the Effective Time, the Purchaser shall deposit, or cause to be deposited, with the Exchange Agent, for exchange in accordance with this Article III, certificates representing shares of Purchaser Common Stock (the "Purchaser Certificates"), and cash in amounts ---------------------- sufficient to allow the Exchange Agent to make all deliveries of the Purchaser Certificates and cash in exchange for the Company Certificates in connection with the Merger, as contemplated by this Article III, and any cash payable in respect of fractional shares in accordance with Section 3.05 (the "Exchange -------- Fund"). - ---- (b) The Purchaser shall instruct the Exchange Agent to mail to each record holder of shares of Company Common Stock as soon as reasonably practicable after the Effective Time, (i) a Transmittal Letter (which shall specify that delivery shall be effected, and risk of loss and title to shares of Company Common Stock shall pass, only upon the delivery of a Company Certificate or Company Certificates representing those shares to the Exchange Agent, and which letter shall otherwise be in the form and have the other provisions as the Purchaser shall reasonably specify, which form shall be reasonably acceptable to the Company) and (ii) instructions for use in effecting the surrender of the Company Certificates for 18 25 (x) Purchaser Certificates to which the holder of shares of Company Common Stock is entitled pursuant to Section 3.01(a), (y) the cash to which the holder of shares of Company Common Stock is entitled pursuant to Section 3.01(a), and (z) cash in lieu of fractional shares, if any (the shares of Purchaser Common Stock and cash described in clauses (x), (y) and (z) above being referred to collectively as the "Merger Consideration"). Commencing immediately after the -------------------- Effective Time, upon the surrender to the Exchange Agent of a Company Certificate, together with a duly executed and completed letter of transmittal and all other documents and other materials reasonably required by the Exchange Agent to be delivered in connection therewith, the holder thereof shall be entitled to receive the Merger Consideration into which the shares of Company Common Stock which immediately prior to the Effective Time were represented by the Company Certificate so surrendered shall have been converted in accordance with the provisions of Section 3.01, together with a cash payment in lieu of fractional shares, if any, in accordance with Section 3.05. No interest will be paid or will accrue on the cash payable, if any, upon surrender of the Company Certificate. Unless and until any Company Certificate is so surrendered, no dividends or other distributions, if any, payable to the holders of record of shares of Purchaser Common Stock, as of any date subsequent to the Effective Time, shall be paid to the holder of the Company Certificate in respect thereof. Upon the surrender of any Company Certificate, the record holder of the Purchaser Certificate or Purchaser Certificates representing shares of Purchaser Common Stock issued in exchange therefor, if any, shall be entitled to receive, (i) at the time of surrender, the amount of any dividends or other distributions in respect of shares of Purchaser Common Stock having a record date after the Effective Time and a payment date prior to the surrender date, and (ii) at the appropriate payment date, the amount of dividends or other distributions in respect of shares of Purchaser Common Stock having a record date after the Effective Time and a payment date subsequent to the date of surrender. No interest shall be payable in respect of the payment of dividends or distributions pursuant to the immediately preceding sentence. (c) The Purchaser or the Exchange Agent shall be entitled to deduct and withhold from the Merger Consideration, and from any dividends or other distributions which the holder is entitled to receive pursuant to Section 3.03(b), such amounts that the Purchaser or the Exchange Agent are required to deduct or withhold therefrom under the Code and/or any applicable provision of state, local or foreign law. SECTION 3.04. Transfer Books. All shares of Purchaser Common Stock -------------- issued upon the surrender for exchange of shares of Company Common Stock in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Company Common Stock. SECTION 3.05. No Fractional Share Certificates. No fraction of a -------------------------------- share of Purchaser Common Stock shall be issued, but in lieu thereof, each Shareholder who would otherwise be entitled to a fraction of a share of Purchaser Common Stock shall, upon surrender of the shares of Company Common Stock to the Exchange Agent, be paid an amount in cash by the Exchange Agent (without interest) equal to the value of such fraction of a share based upon the closing price of Purchaser Common Stock at the Effective Time. Promptly after the determination of the aggregate amount of cash to be paid to holders of fractional interests, the Exchange Agent shall send by mail, postage prepaid, to each such holder a check payable to such holder for the amount of cash payable in lieu of such holder's fractional interests. 19 26 SECTION 3.06. Lost, Stolen or Destroyed Certificates. In the event -------------------------------------- any Company Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Company Certificates, upon the making of an affidavit, which shall be accompanied by an indemnity bond or other security or indemnity acceptable to the Purchaser, of that fact by the holder thereof, such shares of Purchaser Common Stock and any dividends or other distributions with respect to Purchaser Common Stock to which such holder is entitled. SECTION 3.07. Termination of Exchange Fund. Any portion of the ---------------------------- Exchange Fund which remains undistributed one year after the Effective Time shall be delivered to the Purchaser upon demand, and each holder of shares of Company Common Stock who has not theretofore surrendered the holder's Company Certificates in accordance with the provisions of this Article III shall thereafter look only to the Purchaser for satisfaction of the holder's Merger Consideration and any dividends or distributions payable in accordance with Section 3.03(b). Notwithstanding the foregoing, none of the Purchaser, the Company or the Exchange Agent shall be liable to any former holder of shares of Company Common Stock for any shares or amounts properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. SECTION 3.08. Certain Adjustments. If, in the period between the ------------------- date of this Agreement and the Effective Time, the outstanding shares of Purchaser Common Stock shall be changed into a different number of shares or other securities by reason of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Purchaser Common Stock), reorganization, recapitalization or other like change with respect to Purchaser Common Stock, the Common Conversion Number and the Cash Election Number and the form of securities issuable in the Merger shall be appropriately adjusted to provide to the holders of shares of Company Common Stock the same economic effect as contemplated by this Agreement prior to such event. SECTION 3.09. Restricted Securities. The parties acknowledge that --------------------- the shares of Purchaser Common Stock to be issued pursuant to this Article III and pursuant to Section 8.07 shall not have been registered and shall be characterized as "restricted securities" under federal securities laws, and, under such laws, such shares may be resold without registration under the Securities Act only in certain limited circumstances. Each certificate evidencing shares of Purchaser Common Stock to be issued pursuant to this Article III shall bear the following legend: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION WITHOUT AN EXEMPTION UNDER THE SECURITIES ACT OR AN OPINION OF LEGAL COUNSEL REASONABLY ACCEPTABLE TO 20 27 THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." SECTION 3.10. Taking of Necessary Action; Further Action. The ------------------------------------------ parties hereto shall take all such reasonable and lawful action as may be necessary or appropriate in order to effectuate the Merger, and the transactions contemplated hereby, as promptly as possible. SECTION 3.11. Dissenters' Rights. (a) Notwithstanding any provision ------------------ of this Agreement to the contrary, shares of Company Common Stock that are outstanding immediately prior to the Effective Time and which are held by Persons who shall have not voted in favor of the Merger or consented thereto in writing and who shall have demanded properly in writing payment of the fair market value of such shares of Company Common Stock in accordance with the BCL (collectively, the "Dissenting Shares") shall not be converted into or represent ----------------- the right to receive shares of Purchaser Common Stock or cash as provided in this Agreement. Such Persons shall be entitled to receive payment from the Surviving Corporation of the fair market value of such shares of Company Common Stock held by them in accordance with the provisions of the BCL, except that all Dissenting Shares held by Shareholders who shall have failed to perfect or who effectively shall have withdrawn or lost their rights to appraisal of such shares under the BCL shall thereupon be deemed to have been converted into and to have become exchangeable for, as of the Effective Time, the right to receive Purchaser Common Stock and/or cash as provided herein, upon surrender in the manner provided in Section 3.01, of the certificate or certificates that formerly evidenced such shares of Company Common Stock. (b) The Company shall give to the Purchaser (i) prompt notice of any demands for appraisal received by the Company, withdrawals of such demands, and any other instruments served pursuant to the BCL and received by the Company and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for payment of fair market value under the BCL. The Company shall not, except with the prior written consent of the Purchaser, make any payment with respect to any such demands, or offer to settle, or settle, any such demands. Any amount payable to any Person exercising dissenters' rights shall be paid solely by the Surviving Corporation out of its own funds. SECTION 3.12. Purchase Price Adjustment. (a) The Per Share Cash ------------------------- Amount and the Common Conversion Number will be adjusted on the Closing Date as described below. (b) The Company shall provide to the Purchaser three business days before the Closing Date a Closing Statement stating, as of the Closing Date: (i) the Company Long-Term Debt, (ii) the Unpaid Company Transaction Fees, (iii) the Unpaid Severance, Retention and Phantom Share Costs, (iv) the NORIC Cash and (v) Company dividends paid since September 30, 2000, accompanied by reasonable detail as to the computation thereof. (c) The Closing Statement shall also state an amount (the "Adjustment ---------- Amount") equal to - ------ (i) NORIC Cash, minus $84,665,000; minus, ----- ----- 21 28 (ii) Company Long-Term Debt minus $135,000,000; minus ----- ----- (iii) Unpaid Company Transaction Fees minus $12,000,000; minus ----- ----- (iv) Unpaid Severance, Retention and Phantom Share Costs minus ----- $57,165,000; minus ----- (v) Company dividends paid since September 30, 2000 minus $500,000. ----- (d) If the Adjustment Amount is greater than zero, then the Per Share Cash Amount and the Common Conversion Number will be increased as follows: (i) The Per Share Cash Amount will be increased by an amount in cash equal to 50% of the Adjustment Amount, divided by 43,943; and (ii) the Common Conversion Number will be increased by an amount equal to the product of: (A) a fraction, the numerator of which is 50% of the Adjustment Amount and the denominator of which is the Average Parent Share Price, multiplied by (B) a fraction, the numerator of which is 1 and the denominator of which is 43,943. (e) If the Adjustment Amount is less than zero, then the Per Share Cash Amount and the Common Conversion Number will be decreased as follows: (i) the Per Share Cash Amount will be decreased by an amount in cash equal to 50% of the absolute value of the Adjustment Amount divided by 43,943; and (ii) the Common Conversion Number will be decreased by an amount equal to the product of: (A) a fraction, the numerator of which is 50% of the absolute value of the Adjustment Amount and the denominator of which is the Average Parent Share Price, multiplied by (B) a fraction, the numerator of which is one and the denominator of which is 43,943. SECTION 3.13. Escrow. Upon the Closing, if less than all the ------ Shareholders of the Company shall have then executed Joinder Agreements, the Company and the Purchaser shall enter into an escrow agreement with a bank selected by the Purchaser with the approval of the Company (the "Escrow Agent") ------------ in form and substance reasonably satisfactory to the Purchaser and the Company (the "Escrow Agreement"). Notwithstanding any other provision of this Agreement, ---------------- 10% of the shares of Purchaser Common Stock and/or cash to be delivered at the Closing to each holder of Shares that does not, prior to the Closing, execute and deliver to the Company a Joinder Agreement (as defined in Section 6.13(a) below), shall be delivered to the Escrow Agent to be held by the Escrow Agent in accordance with the terms of the Escrow Agreement (the "Escrow Consideration"). -------------------- The Escrow Consideration will secure, and will be applied to the extent necessary to satisfy, the rights of the Purchaser's Indemnified Persons to receive indemnification for certain matters described in Section 10.01 and Section 8.01. The Escrow Agreement will provide that the Escrow Consideration will be applied to pay indemnification to the Purchaser on the same basis as the security described in Section 10.08 can be applied to such indemnification rights. 22 29 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company and (with respect to the representations concerning each Shareholder contained in Section 4.01(b), 4.22, 4.29 and 4.36 only) each Shareholder hereby represent and warrant to the Purchaser that, except as disclosed in the Disclosure Schedule: SECTION 4.01. Organization, Authority and Qualification of the ------------------------------------------------ Company. (a) The Company is a corporation duly organized, validly existing and - - ------- in good standing under the laws of the State of New York and has all necessary power and authority to own, operate or lease the properties and assets now owned, operated or leased by it and to carry on its business as it is currently conducted, except where the failure to have such power and authority would not have a Material Adverse Effect. The Company has all necessary power and authority to enter into this Agreement, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. The Company is duly licensed or qualified as a foreign corporation to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business makes such licensing or qualification necessary, except for such failures to be so licensed or qualified and in good standing that would not have a Material Adverse Effect. True and correct copies of the Certificate of Incorporation and Bylaws of the Company, each as in effect on the date hereof, have been made available by the Company to the Purchaser. The execution and delivery of this Agreement by the Company, the performance by the Company of its obligations hereunder and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all requisite action on the part of the Company. (b) Each Shareholder has full legal capacity and authority to enter into this Agreement and to carry out such person's obligations hereunder. This Agreement has been duly executed and delivered by the Company and each Shareholder, and (assuming due authorization, execution and delivery by the Purchaser) this Agreement constitutes a legal, valid and binding obligation of the Company and each Shareholder enforceable against the Company and each Shareholder in accordance with its terms. SECTION 4.02. Capital Stock of the Company; Ownership of the Shares. ----------------------------------------------------- (a) The authorized capital stock of the Company consists of 200,000 shares of Company Common Stock, of which 165,000 shares are voting Company Common Stock and 35,000 shares are non-voting Company Common Stock. As of the date hereof there are, and as of the Effective Date there will be, (i) 76,197 shares of voting Company Common Stock and (ii) 11,689 shares of non-voting Company Common Stock issued and outstanding, all of which are duly authorized, validly issued, fully paid and nonassessable. No shares of Company Common Stock are held in the treasury of the Company. None of the issued and outstanding shares of Company Common Stock were issued in violation of any preemptive rights. Except as set forth in Section 4.02(a) of the Disclosure Schedule, there are no (i) options, warrants, convertible securities or other rights, agreements, arrangements or commitments of any character relating to the capital stock of the Company or obligating the Shareholders or the Company to issue or sell any shares of capital stock of, or any other interest in, the Company and (ii) outstanding contractual obligations of the Company to repurchase, redeem or otherwise acquire any shares of Company Common Stock or to provide funds to, or make any investment (in the form of a 23 30 loan, capital contribution or otherwise) in, any other Person. To the Knowledge of the Company, Section 4.02(a) of the Disclosure Schedule sets forth all voting trusts, stockholder agreements, proxies or other agreements in effect with respect to the voting or transfer of any of the Company Common Stock, except those contemplated or required by this Agreement. (b) Section 4.02(b) of the Disclosure Schedule sets forth a list (the "Shareholders' List") prepared by the Company that accurately reflects the name ------------------- of each Shareholder and the number of shares of Company Common Stock held of record by each Shareholder (and is based upon the stock register of the Company) as of the date hereof. SECTION 4.03. Company Subsidiaries. (a) Section 4.03(a) of the -------------------- Disclosure Schedule sets forth a list, true and complete in all material respects, of all Company Subsidiaries, listing for each Company Subsidiary its name, type of entity, the jurisdiction and date of its incorporation or organization, its authorized capital stock, partnership capital or equivalent, the number and type of its issued and outstanding shares of capital stock, partnership interests or similar ownership interests and the current ownership of such shares, partnership interests or similar ownership interests. (b) Other than the Company Subsidiaries, there are no other corporations, partnerships, joint ventures, associations or other entities in which the Company owns, of record or beneficially, any direct or indirect equity or other interest, or any right (contingent or otherwise) to acquire the same. There are no partnerships or joint venture agreements or other business entities in which the Company or any Company Subsidiary owns any equity interest. The agreement referenced in Section 4.03(b), Item 1 of the Disclosure Schedule does not create any obligations or Liabilities on behalf of the Company or any Company Subsidiary. (c) Each Company Subsidiary that is a corporation: (i) is a corporation duly organized and validly existing under the laws of its jurisdiction of incorporation, (ii) has all necessary power and authority to own, operate or lease the properties and assets owned, operated or leased by such Company Subsidiary and to carry on its business as it is currently conducted by such Company Subsidiary and (iii) is duly licensed or qualified as a foreign corporation to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business makes such licensing or qualification necessary, except for such failures to be so licensed or qualified and in good standing that would not have a Material Adverse Effect. Each Company Subsidiary that is not a corporation: (i) is duly organized and validly existing under the laws of its jurisdiction of organization, (ii) has all necessary power and authority to own, operate or lease the properties and assets owned, operated or leased by such Company Subsidiary and to carry on its business as it is currently conducted by such Company Subsidiary and (iii) is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business makes such licensing or qualification necessary, except for such failures to be so licensed or qualified and in good standing that would not have a Material Adverse Effect. (d) All the outstanding shares of capital stock of each Company Subsidiary are validly issued, fully paid and nonassessable and are owned by the Company, whether directly or indirectly, free and clear of all Encumbrances. 24 31 (e) There are no options, warrants, convertible securities or other rights, agreements, arrangements or commitments of any character, relating to the capital stock of any Company Subsidiary or obligating the Company or any Company Subsidiary to issue or sell any shares of capital stock of, or any other interest in, any Company Subsidiary. (f) There are no voting trusts, stockholder agreements, proxies or other agreements or understandings in effect with respect to the voting or transfer of any shares of capital stock of, or any other interests in, any Company Subsidiary. (g) True and complete copies of the charter and by-laws (or similar organizational documents), of each Company Subsidiary have been made available by the Company to the Purchaser and are in full force and effect. SECTION 4.04. Corporate Books and Records. In all material respects, --------------------------- the minute books of the Company and the Company Subsidiaries contain accurate records of all meetings and accurately reflect all other actions taken by the shareholders, Boards of Directors and all committees of the Boards of Directors of the Company and the Company Subsidiaries. Complete and accurate copies of all such minute books of the Company and each Company Subsidiary have been made available by the Company to the Purchaser. SECTION 4.05. No Conflict. Assuming that all consents, approvals, ----------- authorizations and other actions described in Section 4.06 have been obtained and all filings, approvals and notifications listed in Section 4.06 of the Disclosure Schedule have been made or obtained, the execution, delivery and performance of this Agreement by the Company do not and will not (a) violate or conflict with any provision of the Certificate of Incorporation or Bylaws or similar organizational documents of the Company or any Company Subsidiary, (b) violate or conflict with any Law or Governmental Order applicable to the Company, any Company Subsidiary or any of their respective assets and properties, or (c) conflict with, result in any breach of or constitute a default (or an event which, with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment or cancellation of, or result in the creation of any Encumbrance on any assets or properties of the Company or any Company Subsidiary pursuant to any Material Contract or any other material license, permit, franchise or other instrument or arrangement to which the Company or any Company Subsidiary is a party or by which any of the Company Common Stock or any of such assets or properties is bound or affected, except any such conflicts, violations, breaches, defaults or other occurrences which would not have a Material Adverse Effect. SECTION 4.06. Governmental Consents and Approvals. The execution, ----------------------------------- delivery and performance of this Agreement by the Company do not and will not require any consent, approval, authorization or other order of, action by, filing with or notification to, any Governmental Authority, except (a) the pre- merger notification requirements of the HSR Act, (b) the filing and recordation of appropriate merger documents as required by the BCL and the DGCL, (c) any other consent, approval, authorization, filing or notice the failure of which to make or obtain would have a Material Adverse Effect or prevent or materially delay the consummation of the Merger and (d) any consent, approval, authorization, filing or notice required as a result of the identity of the Purchaser. 25 32 SECTION 4.07. Financial Information, Books and Records. (a) True ---------------------------------------- and complete copies of (i) the audited consolidated balance sheets of the Company for each of the two fiscal years ended as of December 31, 1998 and December 31, 1999, and the related audited consolidated statements of operations and cash flows of the Company, (ii) the audited consolidated balance sheet of Rhode Island Corporation for the fiscal year ended December 31, 1997 and the related audited consolidated statements of operations and cash flows of Rhode Island Corporation, together with all related notes and schedules thereto, and (iii) the audited consolidated balance sheets of NCOC for each of the three fiscal years ended as of December 31, 1997, December 31, 1998 and December 31, 1999 and the related audited consolidated statements of operations and cash flows of NCOC; in each case together with all related notes and schedules thereto, accompanied by the reports thereon of Arthur Andersen LLP (collectively referred to herein as the "Financial Statements") and (iv) the unaudited -------------------- consolidated balance sheet of (A) the Company as of June 30, 2000, and the related consolidated statement of operations, together with all related notes and schedules thereto (the "June 30 Balance Sheet") and (B) NCOC as of September --------------------- 30, 2000, and the related consolidated statement of operations, together with all related notes and schedules thereto (collectively referred to herein as the "Interim Financial Statements"), have been made available by the Company to the ---------------------------- Purchaser. The Financial Statements and the Interim Financial Statements (including the related notes and schedules thereto) (x) were prepared in accordance with the books of account and other financial records of the Company, NCOC and Rhode Island Corporation, as applicable, (y) present fairly, in all material respects, the consolidated financial condition of the Company and the Company Subsidiaries and NCOC, as applicable, as of the dates thereof or for the periods covered thereby, subject, in the case of unaudited financial statements, to normal year-end adjustments, and (z) have been prepared in accordance with U.S. GAAP applied on a basis consistent with the past practices of the Company, except as noted in the opinion of Arthur Andersen LLP for financial statements of Rhode Island Corporation. (b) The books of account and other financial records of the Company and the Company Subsidiaries (i) are in all material respects complete and correct, and do not contain or reflect any material inaccuracies or discrepancies and (ii) have been maintained in accordance with good business and accounting practices and in accordance with U.S. GAAP. SECTION 4.08. No Undisclosed Liabilities. Except as would not -------------------------- reasonably be expected to have a Material Adverse Effect, to the Knowledge of the Company, there are no Liabilities of the Company or any Company Subsidiary other than Liabilities (a) reflected or reserved against on the balance sheets included in the Interim Financial Statements or (b) incurred since the dates of such balance sheets in the ordinary course of the business, consistent with past practice, of the Company and the Company Subsidiaries. SECTION 4.09. Absence of Certain Changes, Events and Conditions. ------------------------------------------------- Since September 30, 2000, the business of the Company and the Company Subsidiaries has been conducted in all material respects in the ordinary course, consistent with past practice, and, since such date, there has not been (a) any Material Adverse Effect, (b) any material change by the Company or any Company Subsidiary in its accounting methods, principles or practices, or (c) any increase in or establishment of any bonus, insurance, severance, deferred compensation, 26 33 pension, retirement, profit sharing, stock option, stock purchase or other employee benefit plan, except in the ordinary course of business consistent with past practice. SECTION 4.10. Litigation. As of the date hereof, there is no Action ---------- pending or, to the Knowledge of the Company, threatened against the Company, any Company Subsidiary or any Property of the Company or any Company Subsidiary, before any Governmental Authority. There are no outstanding Governmental Orders against the Company or any Company Subsidiary or any Property of the Company or any Company Subsidiary that would reasonably be expected to have a Material Adverse Effect. SECTION 4.11. Compliance with Laws. Each of the Company and the -------------------- Company Subsidiaries has conducted and continues to conduct its business in compliance with all Laws (other than Environmental Laws which are governed solely by Section 4.16) and Governmental Orders applicable to the Company or any Company Subsidiary, except for violations or failures so to comply, if any, that are not reasonably expected to have a Material Adverse Effect. SECTION 4.12. Material Contracts. (a) As of the date hereof, Section 4.12(a) of the Disclosure Schedule lists each of the following contracts and agreements (whether oral or written) of the Company and the Company Subsidiaries (collectively, the "Material Contracts"): ------------------ (i) any agreement (other than an oil and gas lease) for capital expenditures or the acquisition or construction of fixed assets which requires aggregate future payments in excess of $1,500,000; (ii) any gas, crude oil or liquids sales agreement, gas, crude oil or liquids purchase agreement, or gas, crude oil or liquids marketing agreement, under which the Company or any Company Subsidiary is a seller, that cannot be terminated by the Company or the Company Subsidiary, as the case may be, without penalty upon not more than ninety (90) calendar days' notice; (iii) any agreement for, or that contemplates, the sale of any Working Interests in any Property, or the sale of any other asset (other than sales of oil and gas production in the ordinary course of business), which involves any payment to the Company or the Company Subsidiaries in excess of $500,000; (iv) any agreement that constitutes a lease (other than an oil and gas lease) under which the Company or any Company Subsidiary is the lessor or lessee of real or personal property, that (A) cannot be terminated by the Company or the Company Subsidiary, as the case may be, without penalty upon not more than ninety (90) calendar days' notice and (B) involves an annual base rental in excess of $250,000; (v) any agreement for the future acquisition of Seismic Data that requires aggregate future payments in excess of $1,000,000; (vi) any Hydrocarbon or financial hedge, swap, exchange or similar agreement; 27 34 (vii) all contracts and agreements relating to Indebtedness of the Company or any Company Subsidiary in excess of $500,000, other than Permitted Encumbrances; (viii) all material contracts and agreements with any Governmental Authority (other than oil and gas leases and any unitization agreement or operating agreement listed in Section 4.12(a)(xi) of the Disclosure Schedule) to which the Company or any Company Subsidiary is a party; (ix) all non-competition agreements or other contracts and agreements that limit or purport to limit the ability of the Company or any Company Subsidiary to compete in any line of business or with any Person or in any geographic area or during any period of time; (x) all contracts and agreements between or among the Company or any Company Subsidiary and the Shareholders or any Affiliate of the Shareholders; (xi) all contracts or agreements establishing any joint ventures or partnerships and all unit agreements and operating agreements applicable to the Properties; (xii) all employment agreements; (xiii) all collective bargaining agreements with labor unions covering the employees of the Company or the Company Subsidiaries; (xiv) all profit sharing, stock option, stock purchase, stock appreciation, deferred compensation, severance or other material plan or arrangement for the benefit of current or former directors, officers and employees; (xv) all contracts with independent contractors or consultants (or similar arrangements) to which the Company or any Company Subsidiary is a party and which are not cancelable without penalty or further payment and without more than ninety (90) days' notice; (xvi) all approved authorizations for expenditure requiring the expenditure by the Company or any Company Subsidiary of more than $500,000, as of November 10, 2000; and (xvii) all other contracts and agreements the absence of which would reasonably be expected to have a Material Adverse Effect. (b) Each of the Material Contracts listed on Section 4.12(a) of the Disclosure Schedule is a valid agreement, arrangement or commitment of the Company or a Company Subsidiary party thereto, enforceable in all material respects in accordance with its terms, and neither the Company nor any such Company Subsidiary nor, to the Knowledge of the Company, any other party to such Material Contract is in violation, breach or default of any material provision thereof (including the occurrence of any event that, with notice, lapse of time or both, would constitute a default). 28 35 SECTION 4.13. Title to Property. (a) Except as to those matters set ----------------- forth in Section 4.13 of the Disclosure Schedule, the Company or a Company Subsidiary, as the case may be, has Defensible Title to the Property, free and clear of Encumbrances, other than Permitted Encumbrances. (b) Section 4.13(b) of the Disclosure Schedule sets forth a brief description of all Leases and Wells. With respect to any Lease or Well, "Defensible Title" shall mean such record and beneficial right, title and ---------------- interest in and to such Lease or Well that: (i) entitles the Company or the Company Subsidiary, as applicable, to receive a Net Revenue Interest in such Well that is equal to or greater than the Net Revenue Interest set forth in Section 4.13(b) of the Disclosure Schedule therefor, without reduction, suspension or diminution throughout the duration of the estate constituting such Property, except as shown in Section 4.13(b) of the Disclosure Schedule, and except for changes or adjustments that result from the establishment of units, changes in existing units (or the participating areas therein), whether voluntary or by order of the appropriate regulatory agency having jurisdiction, or the entry into of pooling or unitization agreements after the date hereof or that result from or are incidental to Operations conducted as permitted or required by Section 6.01; (ii) obligates or subjects the Company or the Company Subsidiary, as applicable, to bear a Working Interest in each Well that is no greater than the record title or operating rights interest set forth in Section 4.13(b) of the Disclosure Schedule therefor, without increase throughout the duration of the estate constituting such Property, except as shown in Section 4.13(b) of the Disclosure Schedule and except for any changes or adjustments that are caused by contribution requirements provided for under provisions contained in any operating agreement listed in Section 4.12 of the Disclosure Schedule, that result from the establishment of units, changes in existing units (or the participating areas therein), or the entry into of pooling or unitization agreements, whether voluntary or by order of the appropriate regulatory agency having jurisdiction, after the date hereof or that result from or are incidental to Operations conducted as permitted or required by Section 6.01; and (iii) the Leases are valid and enforceable and grant the rights purported to be granted thereby and all rights necessary thereunder for the current Operations of the Company or the Company Subsidiary, as applicable. (c) Section 4.13(c) of the Disclosure Schedule contains a description of the Easements. With respect to Easements and related Equipment, Defensible Title shall mean record or beneficial right, title and interest in the applicable Easement sufficient to enable the Company or any Company Subsidiary to conduct its Operations as currently conducted with respect thereto, without material interference by any other Person, and, to the Knowledge of the Company or the Company Subsidiary, as applicable, all material Easements are valid and enforceable and grant the rights purported to be granted thereby and all rights necessary for the current Operations of such business without material interference by any other Person. 29 36 (d) Section 4.13(d) of the Disclosure Schedule sets forth a brief description of each parcel of real property comprising the Fee Mineral Interests. With respect to Fee Mineral Interests, Defensible Title means all the record and beneficial right, title and interest in and to each such parcel of land, respectively, that was conveyed or granted to the Company or any Company Subsidiary, or their respective predecessors-in-title in and to the lands described in Section 4.13(d) of the Disclosure Schedule, or in the instrument of conveyance referred to and described by volume or book and page in Section 4.13(d) of the Disclosure Schedule, as each instrument of conveyance is recorded in the county or parish where the land is located. (e) Section 4.13(e) of the Disclosure Schedule sets forth a brief description of each parcel of Other Real Property. With respect to Other Real Property, Defensible Title shall mean the right of quiet enjoyment of all such real property, whether leased or fee, for the term of any applicable agreement relating thereto, and all such interests in Other Real Property are valid and enforceable and grant the rights purported to be granted thereby and all rights necessary thereunder for the current Operations of such business without material interference. (f) To the Knowledge of the Company, no material portion of the royalties, rentals, and other payments due under the Leases are past due. All material Leases are in full force and effect. To the Knowledge of the Company, neither the Company nor any Company Subsidiary has ever been notified of a material breach or default by the Company or any Company Subsidiary under any material Lease, which claim of breach or default has not been resolved. To the Knowledge of the Company, no event has occurred or failed to occur which constitutes, or which, with the giving of notice or the passage of time or both, would constitute a default, violation, or breach under any such Lease. (g) As used in this Section 4.13 only, Knowledge of the Company means the actual knowledge of the Senior Officers based upon North Central's periodical attendance of operators' meetings, conduct of joint audits under operating agreements and conduct of periodic field tours of its Properties. SECTION 2.14. Intellectual Property. The Company and the Company --------------------- Subsidiaries own or license, or otherwise have the right to use, all patent, patent rights, trademarks, trademark rights, trade names, trade name rights, service marks, service mark rights, copyrights, technology, know-how, processes and other proprietary intellectual property rights and computer programs ("Intellectual Property") currently used in the conduct of the business of the --------------------- Company and the Company Subsidiaries, except where the failure to so own or otherwise have the right to use such Intellectual Property would not have a Material Adverse Effect. No Person has notified either the Company or any Company Subsidiary that their use of the Intellectual Property infringes on the rights of any Person, subject to such claims and infringements as do not give rise to any liability on the part of the Company and the Company Subsidiaries that could have a Material Adverse Effect, and, to the Company's Knowledge, no Person is infringing on any right of the Company or any Company Subsidiary with respect to any such Intellectual Property. No claims are pending or, to the Company's Knowledge, threatened that the Company or any Company Subsidiary is infringing or otherwise adversely affecting the rights of any Person with regard to any Intellectual Property that would give rise to a Material Adverse Effect. 30 37 SECTION 4.15. Employee Benefit Matters. (a) With respect to each employee ------------------------ benefit plan, program, arrangement and contract (including, without limitation, any "employee benefit plan," as defined in section 3(3) of ERISA), maintained or contributed to by the Company or any Company Subsidiary (the "Plans"), the ----- Company has made available to the Purchaser a true and correct copy of (i) the most recent annual report (Form 5500) filed with the IRS for each Plan, (ii) a complete copy of each such Plan, (iii) each trust agreement relating to each such Plan, (iv) the most recent summary plan description for each Plan for which a summary plan description is required, and (v) the most recent determination letter, if any, issued by the IRS with respect to any Plan qualified under section 401(a) of the Code. Neither the Company nor any Company Subsidiary maintains any plan subject to Title IV of ERISA, and neither the Company nor any Company Subsidiary has any actual or contingent liability under ERISA. (b) With respect to the Plans, no event has occurred and, to the Knowledge of the Company, there exists no condition or set of circumstances in connection with which the Company or any Company Subsidiary could be subject to any liability under the terms of such Plans, ERISA, the Code or any other applicable Law that would have a Material Adverse Effect. Each of the Plans has been operated and administered in all material respects in accordance with applicable Laws and administrative or governmental rules and regulations, including, but not limited to, ERISA and the Code, except where a violation of any such law, rule or regulation would not have a Material Adverse Effect. Each Plan intended to be "qualified" within the meaning of section 401(a) of the Code has received a favorable determination letter as to such qualification from the IRS, and no event has occurred, either by reason of any action or failure to act, which would cause the loss of any such qualification, except where such loss of qualification would not have a Material Adverse Effect. (c) There is no labor dispute, strike or work stoppage against the Company or any Company Subsidiary, pending or threatened in writing, which may interfere with the respective business activities of the Company or any Company Subsidiary. As of the date of this Agreement, to the Knowledge of the Company, neither the Company nor any Company Subsidiary, nor their representatives or employees, has committed any unfair labor practices in connection with the operation of the respective businesses of the Company or any Company Subsidiary, and there is no charge or complaint against the Company by the National Labor Relations Board or any comparable state agency pending or, to the knowledge of the Company, threatened, except where such unfair labor practice, charge or complaint would not have a Material Adverse Effect. (d) The Company has made available to the Purchaser (i) copies of all employment agreements with officers of the Company or any Company Subsidiary; (ii) copies of all severance agreements, programs and policies of the Company or any Company Subsidiary with or relating to its employees; and (iii) copies of all plans, programs, agreements and other arrangements of the Company or any Company Subsidiary with or relating to its employees which contain change of control provisions. (e) Except as listed in Schedule 4.15(e) or as may be required by Law, no Plan provides retiree medical or retiree life insurance benefits to any Person. 31 38 (f) Section 4.15(f) of the Disclosure Schedule sets forth, as of the date of this Agreement, the number of outstanding phantom shares under the Phantom Share Plan by date of grant and the Initial Value (as defined in the Phantom Share Plan) applicable to each date of grant. In addition, Section 4.15(f) of the Disclosure Schedule sets forth the methodology determined by the board of directors of NCOC for computing the amount to be paid for Phantom Shares, pursuant to the terms of the Phantom Share Plan. Section 4.15(f) of the Disclosure Schedule also sets forth, for each eligible employee under the Severance Pay Plan, the annual base salary of each such employee, the number of years or partial years of Continuous Service (as such terms are defined in such Plan), the service anniversary date for purposes of determining Continuous Service and the lump sum severance payment under Section 5 of such Plan that would be payable to such employee assuming a termination as of October 31, 2000, and the aggregate of such payments for all eligible employees. Section 4.15(f) of the Disclosure Schedule sets forth, in the aggregate, amounts due under all Severance Agreements other than amounts due under the Severance Pay Plan and Severance Agreements, for any director, officer, employee or consultant of the Company and any Company Subsidiary including, without limitation, severance payments to Messrs. Winne, Becci, Deupree and Beckham. Except for amounts payable pursuant to the Severance Pay Plan and the Severance Agreements as set forth on Section 4.15(f) of the Disclosure Schedule, neither the Company nor any Company Subsidiary has agreed to pay any amounts relating to termination of employment with the Company or any Company Subsidiary, other than accrued salary and vacation, and two weeks' pay to employees terminated on less than two weeks' notice. Schedule 4.15(f) of the Disclosure Schedule sets forth individually and on a collective basis for all eligible employees (assuming all such eligible employees remain with the Company through the Closing Date) for each employee eligible to receive payments under the Retention Bonus Plans dated June 1, 2000, the Retention Bonus payable to each such eligible employee. SECTION 4.16. Environmental Matters. Except as disclosed in Section 4.16 of the Disclosure Schedule or as would not reasonably be expected to have a Material Adverse Effect: (a) the Company and the Company Subsidiaries are in compliance with all applicable Environmental Laws and the Properties have been operated by the Company and the Company Subsidiaries in compliance with all applicable Environmental Laws; (b) there are no existing, pending or, to the Company's Knowledge, threatened actions, suits, investigations, inquiries, proceedings or clean- up obligations by any Governmental Authority relating to any Environmental Laws with respect to the Properties; and (c) all notices, permits or similar authorizations, if any, required to be obtained or filed in connection with the operation of the Properties by the Company or the Company Subsidiaries, including, without limitation, treatment, storage, disposal or release of Hazardous Materials or solid waste into the environment, have been duly obtained or filed. 32 39 SECTION 4.17. Reserve Reports. (a) The Company has delivered to the --------------- Purchaser a copy of the oil and gas reserve report for the Company prepared by NCOC and reviewed by Miller & Lents, Ltd. as of June 30, 2000 (the "Reserve ------- Report"). Neither the Company nor any Company Subsidiary has Knowledge of any - ------ facts that would make the factual information provided by the Company and the Company Subsidiaries to Miller & Lents, Ltd., and on which the Reserve Report was based, inaccurate in any material respect at the time provided. The estimates of proved reserves provided by NCOC to Miller & Lents in connection with their review of the Reserve Report are in accordance with definitions contained in Rule 4-10(a) of Regulation S-X promulgated by the SEC. The estimates of probable and possible reserves provided by NCOC to Miller & Lents in connection with their review of the Reserve Report are in accordance with the definitions of the Society of Petroleum Engineers, Inc. (b) OTHER THAN AS EXPRESSLY SET FORTH ABOVE IN THIS SECTION 4.17, THE COMPANY MAKES NO REPRESENTATION OR WARRANTY, AND HEREBY DISCLAIMS ANY REPRESENTATION OR WARRANTY, THAT THE RESERVE ESTIMATES, COST AND CASH FLOW ESTIMATES, PRICE ESTIMATES OR PRODUCTION OR FLOW RATE ESTIMATES CONTAINED IN THE RESERVE REPORT, OR IN ANY SUPPLEMENT THERETO OR UPDATE THEREOF, ARE IN ANY WAY COMPLETE, ACCURATE OR NOT MISLEADING, THE SAME BEING PREDICTIONS AS TO FUTURE EVENTS WHICH ARE INHERENTLY SUBJECT TO INCOMPLETENESS OR INACCURACY. SECTION 4.18. Hedging. (a) The Company and the Company Subsidiaries do ------- not have any outstanding obligations for the delivery of Hydrocarbons attributable to any of the Properties of the Company or any Company Subsidiary in the future on account of prepayment, advance payment, take-or-pay or similar obligations without then or thereafter being entitled to receive full value therefor. (b) Section 4.18(b) of the Disclosure Schedule sets forth all futures, hedge, swap, collar, put, call, floor, cap, option or other contracts that are intended to benefit from, relate to or reduce or eliminate the risk of fluctuations in interest rates, basis risk or the price of commodities ("Hedges"), including Hydrocarbons or securities, to which the Company or any ------ Company Subsidiary is bound as of the date hereof. Such Hedges are in full force and effect on the date of this Agreement. (c) Since September 30, 2000, no prepayments, payments or other amounts have been paid with respect to any Hedges, other than monthly settlement payments in the ordinary course on the Hedges shown in Section 4.18(b) of the Disclosure Schedules. SECTION 4.19. Taxes. Except as set forth in Section 4.19 of the ----- Disclosure Schedule, and except for matters that would not have a Material Adverse Effect, (a) the Company and each of the Company Subsidiaries have timely filed all returns and reports required to be filed by them with respect to Taxes ("Tax Returns") prior to the date of this Agreement, taking into account any ----------- extension of time to file granted to or obtained on behalf of the Company and the Company Subsidiaries, (b) all Taxes shown to be payable on such Tax Returns or reports have been paid or will be paid, (c) all such Tax Returns are true, correct, and 33 40 complete, (d) the liabilities and reserves for Taxes reflected in the June 30 Balance Sheet are adequate to cover all Taxes for all periods ending at or prior to the date thereof and, in the case of Taxes attributable to the activities or assets of North Central, there is no liability for Taxes for any period or portion of a period beginning after such date other than Taxes arising in the ordinary course of business, (e) neither the Company nor any of the Company Subsidiaries has waived or agreed to an extension of the statute of limitations with respect to assessment of any Tax (other than waivers or agreements which are no longer in effect), (f) neither the Company nor any of the Company Subsidiaries has filed a consent to the application of Section 341 of the Code, (g) there are no stock elimination transactions, within the meaning of Treas. Reg. (S) 1.1502-13(1)(3), as to which either the Company or any of the Company Subsidiaries will be required to recognize income as a result of the Merger, and (h) as of the date of this Agreement, no deficiency for any material amount of Tax has been asserted or assessed by a taxing authority against the Company or any of the Company Subsidiaries. Except as set forth in Section 4.19 of the Disclosure Schedule, and except for matters that would not have a Material Adverse Effect, all ad valorem, property, production, severance and similar taxes and assessments based on or measured by the ownership of property or the production of Hydrocarbons or the receipt of proceeds therefrom assessed against the Properties have been properly paid. Neither the Company nor any of the Company Subsidiaries has paid any estimated Taxes or other Taxes for a Tax period or portion thereof that is included in the Shareholder Tax Periods, as defined in Section 8.01(a), in excess of amounts which the Company or Company Subsidiary has determined in good faith are due for such Tax period or portion thereof. SECTION 4.20. Insurance. The Company has all insurance policies that it --------- believes are required in connection with the operation of the business of the Company and the Company Subsidiaries. The Company has made available to the Purchaser true and correct summaries of each of the insurance policies relating to the Company or the Company Subsidiaries that are currently in effect. With respect to each such insurance policy, none of the Company, any Company Subsidiary or, to the Knowledge of the Company, any other party to the policy is in breach or default thereunder (including with respect to the payment of premiums or the giving of notice) and the Company does not know of any occurrence of any event which, with notice or the lapse of time or both, would constitute such a breach or default or permit termination, modification or acceleration under the policy, except for such breaches or defaults as would not result in a Material Adverse Effect. SECTION 4.21. Brokers. Except for Goldman, Sachs & Co., no broker, finder ------- or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement, based upon arrangements made by or on behalf of the Shareholders or the Company. SECTION 4.22. Tax Treatment. Neither the Company nor the Shareholders has ------------- or have knowingly taken or failed to take any action that would prevent the Merger from qualifying as a tax-free reorganization within the meaning of section 368(a) of the Code. SECTION 4.23. Production and Pipeline Imbalances. Section 4.23 of the ---------------------------------- Disclosure Schedule sets forth all Company and Company Subsidiary pipeline and production imbalances and penalties as of September 30, 2000 with respect to the Properties. 34 41 SECTION 4.24. Equipment. All Wells and Equipment constituting a part --------- of the Properties (a) are, in the aggregate, in a state of repair so as to be adequate in all material respects for reasonable prudent operations in the areas in which they are operated, and (b) are adequate, together with all related Properties, to comply in all material respects with the requirements of all applicable contracts, including sales contracts. Subject to the Permitted Encumbrances, the Company or the Company Subsidiaries have defensible title to the Equipment owned by the Company or the Company Subsidiaries and constituting a part of the Properties. SECTION 4.25. Operation of the Properties. Since September 30, 2000 --------------------------- through the date hereof, North Central: (a) has caused the Properties to be maintained and operated in a reasonable manner and in substantially the same manner as such Properties were maintained and operated prior to September 30, 2000; (b) has not sold, assigned, transferred, farmed out, conveyed, encumbered, mortgaged, or otherwise disposed of any of the Properties with a value in excess of $500,000, except for the sale of Hydrocarbons in the ordinary course of business; (c) has not, to the extent related to the Properties, made any major change in the character of North Central's business or operations or otherwise conducted North Central's business and operations other than in the ordinary course of business; (d) except as would not have a Material Adverse Effect, has not permitted any Leases or rights with respect to the Properties to expire, or waived any material rights with respect to the Properties; (e) has not entered into any agreement or made any commitment (other than this Agreement) to take any of the actions referred to in clauses (a) through (d) above; and (f) to the Company's Knowledge, there have been no material casualty losses (above or below the surface of the ground) which affected any of the Properties. SECTION 4.26. Plugging and Abandonment. There are no Wells on the ------------------------ Properties that have been permanently plugged and abandoned by North Central that were not plugged and abandoned in accordance in all material respects with the applicable requirements of the Leases and applicable Laws. To the Knowledge of the Company, there are no Wells on the Properties that the Company or the Company Subsidiaries are currently required by Law or contract to plug and abandon. SECTION 4.27. No Parachute Payments. Neither the Company nor any --------------------- Company Subsidiary is a party to an agreement that provides for the payment of any amount that would constitute a "parachute payment" within the meaning of Section 280G of the Code. SECTION 4.28. Vote Required. The affirmative vote of (a) the holders ------------- of two-thirds of the voting power of all the outstanding Company Common Stock, voting together as a 35 42 single class, (b) the holders of two-thirds of the voting power of the voting Company Common Stock, voting separately as a single class and (c) the holders of two-thirds of the voting power of the non-voting Company Common Stock, voting separately as a single class, in each case to adopt this Agreement and to approve the transactions contemplated hereby (the "Company Stockholder Vote") is ------------------------ the only vote of the holders of any class or series of Company capital stock necessary to approve or adopt this Agreement or the transactions contemplated hereby. SECTION 4.29. Voting Power of Significant Stockholders; Dissenting ---------------------------------------------------- Shares. (a) The Significant Shareholders hold (i) two-thirds of the voting - - ------ power of the outstanding Company Common Stock, (ii) two-thirds of the voting power of the outstanding voting Company Common Stock and (iii) two-thirds of the voting power of the outstanding non-voting Company Common Stock, and therefore hold sufficient voting power to approve the Merger. (b) Immediately prior to the Effective Time, less than 5% of all the outstanding shares of Company Common Stock will be Dissenting Shares. SECTION 4.30. Non-Energy Company Activity. Substantially all cash --------------------------- and cash equivalent investments held by the Company and its Non-Energy Company Subsidiaries are held in interest-bearing bank accounts at the Boston Safe Deposit & Trust Company. Since October 12, 2000, the sole activity of the Company and its Non-Energy Company Subsidiaries has been to manage its cash and cash equivalent investments, and to pay its expenses as they come due in the ordinary course and consistent with past practices. SECTION 4.31. Seismic Data. Section 4.31(a) of the Disclosure ------------ Schedule sets forth all material seismic data held by the Company or any Company Subsidiary with respect to its Properties (the "Seismic Data"). Except as ------------ provided in Section 4.31 of the Disclosure Schedule, the Company or the relevant Company Subsidiary owns or has the right to use without any limitations or restrictions adversely affecting the use of the same in the ordinary conduct of its business, the Seismic Data. The execution of this Agreement (a) has not altered or impaired, nor will alter or impair, any such rights, and (b) has not breached, or will not breach, any agreements pertaining to such Seismic Data. Section 4.31(b) of the Disclosure Schedule sets forth the Seismic Data which is subject to restrictions on transfer and change of control provisions, including, without limitation, consents to assign and the payment of transfer fee. SECTION 4.32. Suspense Funds. Section 4.32 of the Disclosure -------------- Schedule sets forth all suspense funds held by the Company or the Company Subsidiaries for the account of a third party or an Affiliate that are associated with the Properties as of September 30, 2000. SECTION 4.33. Future Sales Contracts. The Company or the Company ---------------------- Subsidiaries have not collected any proceeds from the sale of Hydrocarbons from the Properties which are subject to a later refund. SECTION 4.34. Holding Company; Investment Company. Seller is not a ----------------------------------- "holding company," or a "subsidiary company" of a "holding company," or an affiliate of a "holding company" or of a "subsidiary company" of a "holding company" or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. Seller is 36 43 not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.35. Federal Regulations. Any gas gathering system ------------------- constituting a part of the Properties has as its primary function the provision of natural gas gathering services, as the term "gathering" is interpreted under Section 1(b) of the Natural Gas Act (the "NGA"). None of the Properties have --- been or are certificated by the Federal Energy Regulatory Commission (the "FERC") under Section 7(c) of the NGA or are now subject to FERC jurisdiction ---- under the NGA. None of the Properties have been or are providing service pursuant to Section 311 of the NGA. SECTION 4.36. Securities Act. (a) Each of the Significant -------------- Shareholders is an "accredited investor" as defined in Rule 501 promulgated under the Securities Act. (b) Each Shareholder is acquiring the Shares of Purchaser Common Stock to be issued to such Shareholder for such Shareholder's own account and not with a view to, or for sale in connection with, any distribution thereof in violation of the Securities Act. Each Shareholder acknowledges that the Shares of Purchaser Common Stock have not been registered and that such Shares of Purchaser Common Stock may not be transferred or sold under the Securities Act and that such Shares of Purchaser Common Stock may not be transferred or sold unless they are registered under the Securities Act or an exemption is available. (c) Each Shareholder understands that the Shares of Purchaser Common Stock issuable in the Merger have not been registered under the Securities Act or any applicable state securities laws and that such Shares may not be resold unless they are registered under the Securities Act or an exemption is available. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser hereby represents and warrants to the Company as follows: SECTION 5.01. Organization and Authority of the Purchaser. The ------------------------------------------- Purchaser is a corporation duly organized, validly existing and in good standing under the Laws of the jurisdiction of its incorporation, and has all necessary power and authority to own, operate or lease the properties and assets now owned, operated or leased by it and to carry on its business as it is currently conducted, except where the failure to have such power and authority would not have a Purchaser Material Adverse Effect. The Purchaser has all necessary corporate power and authority to enter into this Agreement, to carry out its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Purchaser, the performance by the Purchaser of its obligations hereunder and the consummation by the Purchaser of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of the Purchaser and no other corporate proceedings on the part of the Purchaser are necessary to authorize this Agreement or the consummation of the transactions contemplated hereby (other than, with respect to the Merger, the approval of the holders of a majority of the issued and outstanding common stock of the 37 44 Purchaser, and the filing and recording of appropriate merger documents as required by the BCL and the DGCL). This Agreement has been duly executed and delivered by the Purchaser, and (assuming due authorization, execution and delivery by the Company) this Agreement constitutes a legal, valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its terms. SECTION 5.02. Certificate of Incorporation and Bylaws. The Purchaser --------------------------------------- has filed with the SEC complete and correct copies of the Restated Certificate of Incorporation and the Bylaws, each as amended to date, of the Purchaser. Such Restated Certificate of Incorporation and Bylaws are in full force and effect. SECTION 5.03. Capitalization. The authorized capital stock of the -------------- Purchaser consists of (a) 100,000,000 shares of Purchaser Common Stock and (b) 2,000,000 shares of preferred stock, par value $1.00 per share ("Purchaser --------- Preferred Stock"). As of September 30, 2000, (i) 40,521,081 shares of Purchaser - --------------- Common Stock were issued and outstanding, (ii) zero shares of Purchaser Preferred Stock were issued and outstanding, (iii) 15,575 shares of Purchaser Common Stock were held in the treasury of the Purchaser and (iv) 4,551,966 shares of Purchaser Common Stock were reserved for future issuance pursuant to incentive plans (primarily in the form of stock options). In addition, 100,000,000 Preferred Stock Purchase Rights related to Purchaser's Shareholder Rights Plan were authorized; $115,000,000 in aggregate principal amount of 5 1/2% Convertible Subordinated Notes due 2006 were outstanding which are convertible into Purchaser Common Stock at the rate of 23.7051 shares per $1,000 in principal amount of such notes; and $150,000,000 in aggregate principal amount of 6 1/2% Cumulative Quarterly Income Convertible Securities of Pogo Trust I, which are convertible into Purchaser Common Stock at the rate of 2.1053 shares per $50 in principal amount of such convertible securities, were outstanding. SECTION 5.04. Financing. The Purchaser has, or has commitments from --------- responsible financial institutions to enable it to borrow, sufficient funds to permit the Purchaser to acquire all the outstanding shares of Company Common Stock in the Merger. The Purchaser has delivered to the Company a true and correct copy of a commitment letter relating to such commitment. SECTION 5.05. No Conflict. Assuming compliance with the notification ----------- requirements of the HSR Act and the making and obtaining of all filings, notifications, consents, approvals, authorizations and other actions referred to in Section 5.06, except as may result from any facts or circumstances relating solely to the Company, the execution, delivery and performance of this Agreement by the Purchaser do not and will not (a) violate, conflict with or result in the breach of any provision of the Restated Certificate of Incorporation or Bylaws of the Purchaser, (b) conflict with or violate any Law or Governmental Order applicable to the Purchaser or by which any property or asset of the Purchaser is bound or (c) conflict with, result in any breach of or constitute a default (or an event which, with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment or cancellation of, or result in the creation of any Encumbrance on any of the assets or properties of the Purchaser pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or obligation to which the Purchaser is a party or by which any of 38 45 such assets or properties are bound or affected, except for any such conflicts, breaches, defaults or other occurrences which would not be reasonably expected to have a Purchaser Material Adverse Effect, prevent or delay the consummation of the Merger or otherwise prevent the Purchaser from performing its obligations under this Agreement. SECTION 5.06. Governmental Consents and Approvals. The execution, ----------------------------------- delivery and performance of this Agreement by the Purchaser do not and will not require any consent, approval, authorization or other order of, action by, filing with, or notification to, any Governmental Authority on the part of the Purchaser, except (a) as described in a writing given to the Company by the Purchaser on the date of this Agreement, (b) the pre-merger notification requirements of the HSR Act and the Investment Canada Act, (c) the filing and recordation of appropriate merger documents as required by the BCL and the DGCL and (d) the filing with the SEC under Section 14(a) of the Securities Exchange Act of proxy material relating to the meeting of its stockholders to approve the Merger, the filing of such registration statements and other documents as may be required to comply with Section 6.10, such other reports and information under the Exchange Act as may be required in connection with this Agreement and the transactions contemplated hereby, and such filings, authorizations, orders and approvals as may be required under state securities laws and the rules of the New York Stock Exchange and (e) the filing of Form D under Regulation D under the Securities Act and (f) any other consent, approval, authorization, filing or notice the failure to make or obtain which would not reasonably be expected to have a Purchaser Material Adverse Effect or prevent or materially delay the consummation of the Merger. SECTION 5.07. Litigation. Except as disclosed in a writing given to ---------- the Company by the Purchaser on the date of this Agreement, there is no Action pending or, to the knowledge of the Purchaser, threatened against the Purchaser or any properties or assets of the Purchaser, before any Governmental Authority, (a) which seeks to delay or prevent the consummation of, or which would be likely to materially adversely affect the Purchaser's ability to consummate, the transactions contemplated by this Agreement, or (b) which would be reasonably likely to have a Purchaser Material Adverse Effect. SECTION 5.08. Tax Treatment. The Purchaser has not knowingly taken ------------- or failed to take any action which would prevent the Merger from qualifying as a tax-free reorganization within the meaning of section 368(a) of the Code. SECTION 5.09. SEC Filings; Financial Statements. (a) The Purchaser --------------------------------- has filed all forms, reports and documents required to be filed by it with the SEC since January 1, 1998 through the date of this Agreement (collectively, the "Purchaser SEC Reports"). As of the respective dates they were filed, (i) the --------------------- Purchaser SEC Reports were prepared in all material respects in accordance with the requirements of the Securities Act or the Exchange Act, as the case may be, and (ii) none of the Purchaser SEC Reports contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. (b) The audited consolidated financial statements and unaudited financial statements of the Purchaser included in the Purchaser's Annual Report on Form 10-K for the 39 46 12 months ended December 31, 1999 and the Purchaser's Quarterly Report on Form 10-Q for the quarterly periods ended March 31, 2000, June 30, 2000 and September 30, 2000 have been prepared in accordance with U.S. GAAP applied on a consistent basis (except, in the case of the unaudited financial statements, for the omission of information as permitted by Form 10-Q promulgated by the SEC), and fairly present, in all material respects, the financial position of the Purchaser and its consolidated subsidiaries as of the dates thereof and the results of their operations and changes in financial position for the periods then ended (subject, in the case of any unaudited interim financial statements, to normal audit adjustments). (c) The Purchaser has heretofore made available to the Company complete and correct copies of (i) all agreements, documents and other instruments not yet filed by the Purchaser with the SEC but that are currently in effect and that the Purchaser expects to file with the SEC after the date of this Agreement, and (ii) all material amendments and modifications that have not been filed by the Purchaser with the SEC to all agreements, documents and other instruments that previously had been filed with the SEC and are currently in effect. (d) Neither the Purchaser nor any subsidiary of the Purchaser has any Liabilities of a nature or character required to be disclosed in a Purchaser SEC Report or included in the financial statements of the Company included in the Purchaser SEC Reports, except for liabilities and obligations (i) reflected or disclosed on the consolidated balance sheet of the Purchaser and the consolidated subsidiaries of the Purchaser as at December 31, 1999, including any notes thereto, (ii) reflected or disclosed in any Purchaser SEC Report filed since December 31, 1999 and prior to the date of this Agreement, or (iii) incurred since December 31, 1999 in the ordinary course of business consistent with past practice which have not had, and would not reasonably be expected to have, a Purchaser Material Adverse Effect. SECTION 5.10. Compliance With Laws. Each of the Purchaser and its -------------------- subsidiaries has conducted and continues to conduct its business in compliance with all Laws and Governmental Orders applicable to the Purchaser or any of its subsidiaries, except for violations or failures so to comply, if any, that are not reasonably expected to have a Purchaser Material Adverse Effect. SECTION 5.11. Taxes. Except for matters that would not have a ----- Purchaser Material Adverse Effect, (a) the Purchaser and its subsidiaries have timely filed all returns and reports required to be filed by them with respect to Taxes ("Purchaser Tax Returns") prior to the date of this Agreement, taking --------------------- into account any extension of time to file granted to or obtained on behalf of the Purchaser and its subsidiaries, (b) all Taxes shown to be payable on such Tax Returns or reports have been paid or will be paid, (c) all such Tax Returns are true, correct, and complete in all material respects, (d) the liabilities and reserves for Taxes reflected in the balance sheet dated September 30, 2000 contained in the Purchaser SEC Reports are adequate to cover all Taxes for all periods ending at or prior to the date thereof and there is no liability for Taxes for any period or portion of a period beginning after such date other than Taxes arising in the ordinary course of business. SECTION 5.12. Authorization and Issuance of Purchaser Common Stock. ---------------------------------------------------- The authorization, issuance and delivery of Purchaser Common Stock pursuant to this Agreement 40 47 have been duly authorized by all requisite corporate action on the part of the Purchaser, and when issued and delivered in accordance with this Agreement, the Purchaser Common Stock will be validly issued and outstanding, fully paid and nonassessable with no personal liability attaching to the ownership thereof, free of any Encumbrances created by the Purchaser and not subject to preemptive or similar rights created by statute, the Purchaser's Restated Certificate of Incorporation or Bylaws or any agreement to which the Purchaser is a party or by which the Purchaser is bound. SECTION 5.13. Absence of Purchaser Material Adverse Effect. Since -------------------------------------------- September 30, 2000, except as disclosed in the Purchaser SEC Reports, there has not been any Purchaser Material Adverse Effect. SECTION 5.14. Brokers. No broker, finder or investment banker (other ------- than Merrill Lynch & Co.) is entitled to any brokerage, finder's or other fee or commission in connection with the Merger or the other transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Purchaser. SECTION 5.15. Vote Required. The affirmative vote of the holders of ------------- a majority of the voting power of the outstanding shares of Purchaser Common Stock to adopt this Agreement, to approve the issuance of shares of Purchaser Common Stock and the other transactions contemplated hereby, is the only vote of the holders of any class of shares of Purchaser capital stock necessary to approve or adopt this Agreement or the transactions contemplated hereby. ARTICLE VI ADDITIONAL AGREEMENTS SECTION 6.01. Conduct of Business Prior to the Closing. (a) The ---------------------------------------- Company covenants and agrees that, between the date of this Agreement and the time of the Closing, except as set forth in Section 6.01(a) of the Disclosure Schedule or as contemplated by any other provision of this Agreement, unless the Purchaser shall otherwise consent in writing (which consent shall not be unreasonably withheld): (i) the businesses of the Company and the Company Subsidiaries shall be conducted only in, and the Company and the Company Subsidiaries shall not take any action except in, the ordinary course of business and in a manner consistent with past practice; (ii) the Company shall use its commercially reasonable efforts to preserve substantially intact its business organization, to keep available the services of the current employees of the Company and the Company Subsidiaries and to preserve the current relationships of the Company and the Company Subsidiaries with customers, contract holders and other Persons with whom the Company or any Company Subsidiary has significant business relations; and (iii) the Company shall cause North Central to take the following actions: 41 48 (A) Continue to operate (or cause to be operated) the Properties only in the ordinary course of business, as a reasonably prudent operator, in accordance with all applicable Laws; (B) Maintain in full force and effect all policies of insurance covering the Properties now maintained by the Company or any Company Subsidiary through the Closing Date; (C) Use its reasonable best efforts to preserve in full force and effect all of the material Leases, Easements, and other contracts which relate to or constitute a part of the Properties and to perform all obligations of the Company and any Company Subsidiary in or under such material Leases, Easements, and other contracts; (D) Not to enter into any agreement or arrangement granting any preferential right to purchase any of the Properties or requiring the consent of any Person to the transactions contemplated hereunder; (E) Not to enter into any contracts or other agreements relating to the Properties that are not terminable on notice of ninety (90) days or less without penalty; (F) Promptly notify the Purchaser of any asserted or threatened claim or Action involving or affecting the Properties of which the Company or any Company Subsidiary receives notice or of which the Company has Knowledge; (G) Not to relinquish voluntarily its position as operator with respect to any of the Properties; (H) Maintain all Equipment and personal property included in the Properties in accordance with reasonably prudent operating practices and procedures; (I) Pay all ad valorem, severance and production, property and sales Taxes and assessments with respect to the Properties which become due and payable prior to the Closing Date; (J) Not to cancel any material indebtedness or waive any material claims or rights against any third party or Affiliate; and (K) Not to initiate any unitization with respect to any Property and to notify the Purchaser promptly upon receiving notice of any unitization of any Property. (b) By way of amplification and not limitation, except as contemplated by this Agreement, as reflected in Section 6.01(b) of the Disclosure Schedule or as required by Law, neither the Company nor any Company Subsidiary shall, between the date of this Agreement and the Closing, directly or indirectly do, or propose to do, any of the following, 42 49 without the prior written consent of the Purchaser (which consent shall not be unreasonably withheld): (i) amend or otherwise change its Restated Certificate of Incorporation or Bylaws or equivalent organizational documents; (ii) issue, sell, pledge, dispose of, grant, encumber, farmout, lease or authorize the issuance, sale, pledge, disposition, grant, farmout, lease or Encumbrance of (A) any shares of capital stock of the Company or any Company Subsidiary of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of such capital stock, or any other ownership interest (including, without limitation, any phantom interest) of the Company or any Company Subsidiary, or (B) any assets of the Company or any Company Subsidiary having a value in excess of $100,000 individually or $300,000 in the aggregate, except sales of Hydrocarbons in the ordinary course of business and in a manner consistent with past practice; (iii) declare, set aside, make or pay any dividend or other distribution payable in cash, stock, property or otherwise, with respect to any of its capital stock; (iv) reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock; (v) (A) acquire or dispose of (including, without limitation, by merger, consolidation or acquisition or disposition of stock or assets) any interest in any corporation, partnership, other business organization or any division thereof or any assets, other than in the ordinary course of business, consistent with past practice, and any other acquisitions for consideration which are not, in the aggregate, in excess of $5,000,000; (B) incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse, or otherwise as an accommodation become responsible for, the obligations of any Person (other than the Company or a wholly owned Company Subsidiary), except for indebtedness incurred in the ordinary course of business, consistent with past practice, in amounts not in excess of $10,000,000 in the aggregate, net of any repayments made after the date of this Agreement and except for amounts necessary to pay the Company's obligations under Article VII of this Agreement; (C) make any loans or advances to any Persons (other than loans or advances by the Company and/or the Non-Energy Company Subsidiaries to North Central, or between NCOC and its subsidiary), except loans or advances not in excess of $100,000 in the aggregate to employees in the ordinary course of business, consistent with past practice; (D) make or obligate itself to make any capital expenditure in excess of the amounts specified in North Central's 2000 fiscal year budget or 2001 fiscal year budget proposed by North Central and approved by the Purchaser; provided, however, if no budget is -------- ------- proposed and approved, the limit will be $5,000,000 in the aggregate per month, other than pursuant to any commitment as of the date hereof; or (E) enter into or amend any contract, agreement, commitment or arrangement that, if fully performed, would not be permitted under this subsection (v); 43 50 (vi) increase the compensation payable or to become payable to its officers or employees, issue, or reprice the initial value of, any shares under the Phantom Stock Plan, or grant any severance or termination pay to, or enter into any employment or severance agreement with, any director, officer or other employee of the Company or any Company Subsidiary, or establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any director, officer or employee; provided, however, no -------- ------- provision of this Section 6.01(b)(vi) shall restrict or prohibit the payment of bonuses to officers and employees not to exceed $850,000 in the aggregate; (vii) take any action with respect to accounting policies or procedures, except in accordance with GAAP; (viii) pay, discharge or satisfy any material claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business and consistent with past practice, of liabilities reflected or reserved against in the consolidated balance sheet of the Company and the Company Subsidiaries as at June 30, 2000 or the consolidated balance sheet of North Central as at September 30, 2000, or subsequently incurred in the ordinary course of business and consistent with past practice or in accordance with the provisions of this Section 6.01; or (ix) permit the Company or any Non-Energy Company Subsidiary to engage in any active trade or business or to take any action other than to lend or contribute to North Central their available cash balances as provided in Section 6.14 and to pay their normal general and administrative expenses, in the ordinary course and consistent with past practices, as they become due. (c) The Purchaser covenants and agrees that, between the date of this Agreement and the time of the Closing, except as disclosed in a writing given to the Company by the Purchaser on the date of this Agreement or as contemplated by any other provision of this Agreement, unless the Company shall otherwise consent in writing (which consent shall not be unreasonably withheld): (i) the businesses of the Purchaser and its subsidiaries shall be conducted only in, and the Purchaser and its subsidiaries shall not take any action except in, the ordinary course of business and in a manner consistent with past practice; and (ii) the Purchaser shall use its commercially reasonable efforts to preserve substantially intact its business organization, to keep available the services of the current employees of the Purchaser and its subsidiaries and to preserve the current relationships of the Purchaser and its subsidiaries with customers, contract holders and other Persons with whom the Purchaser or any of its subsidiaries has significant business relations. 44 51 (d) By way of amplification and not limitation, except as contemplated by this Agreement, except as disclosed in a writing given to the Company by the Purchaser on the date of this Agreement or as required by Law, the Purchaser shall not, between the date of this Agreement and the Closing, directly or indirectly, do, or propose to do, any of the following, without the prior written consent of the Company (which consent shall not be unreasonably withheld): (i) amend or otherwise change its Restated Certificate of Incorporation or Bylaws or equivalent organizational documents; (ii) issue, sell, pledge, dispose of, grant, encumber or authorize the issuance, sale, pledge, disposition, grant or Encumbrance of (A) any shares of capital stock of the Purchaser of any class, except upon conversion of convertible securities outstanding on the date hereof, upon any issuance of stock upon the exercise of rights outstanding under the Rights Agreement, and upon exercise of employee or director stock options or other compensatory rights outstanding on the date hereof or hereafter issued or granted in the ordinary course of business consistent with past practice, or (B) any options, warrants, convertible securities or other rights of any kind to acquire any shares of such capital stock, or any other ownership interest (including, without limitation, any phantom interest) of the Purchaser or any of its subsidiaries except any such issuance, sale or other disposition by a subsidiary of the Purchaser to the Purchaser or another subsidiary of the Purchaser, options or restricted stock or other compensatory rights issued or granted in the ordinary course of business consistent with past practice; (iii) declare, set aside, make or pay any dividend or other distribution payable in cash, stock, property or otherwise, with respect to any of its capital stock, except in the ordinary course of business in a manner consistent with past practice; (iv) reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock except for Purchaser Common Stock acquired as consideration for the exercise of employee or director stock options or to satisfy tax withholding obligations with respect thereto and for Purchaser Common Stock acquired to satisfy matching contribution obligations under Purchaser's 401(k) plan; (v) (A) acquire or dispose of or permit any subsidiary of the Purchaser to acquire or dispose of (including, without limitation, by merger, consolidation or acquisition or disposition of stock or assets) any interest in any corporation, partnership, other business organization or any division thereof or any assets, other than in the ordinary course of business, consistent with past practice, and any other acquisitions for consideration which are not, in the aggregate, in excess of $75,000,000 or any other dispositions for consideration which are not, in the aggregate, in excess of $50,000,000, and except for transactions between the Purchaser and one or more subsidiaries of the Purchaser or between subsidiaries of the Purchaser; (B) incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse, or otherwise as an accommodation become responsible for, the obligations of any Person (other than the Purchaser or its wholly owned subsidiaries), except for indebtedness 45 52 incurred in the ordinary course of business, consistent with past practice, in amounts not in excess of $50,000,000 in the aggregate, net of any repayments made after the date of this Agreement; or (C) enter into or amend any contract, agreement, commitment or arrangement that, if fully performed, would not be permitted under this subsection (v); or (vi) enter into a merger, consolidation, share exchange or other business combination transaction with any other Person, provided, however, -------- ------- in the event that the Purchaser becomes the subject of an unsolicited tender offer or exchange offer, or any third party publicly announces a Competing Transaction (as defined in Section 6.09) which was not solicited by the Purchaser, the Purchaser may enter into a merger, consolidation, share exchange or other business combination transaction, with a Person other than the Person who made such tender offer or exchange offer or made such public announcement of a Competing Transaction. SECTION 6.02. Access to Information. Except as required pursuant to --------------------- any confidentiality agreement or similar agreement or arrangement to which the Company or any Company Subsidiary is a party or pursuant to applicable Law, from the date hereof until the Closing, upon reasonable notice, the Company shall, and shall cause each of the Company Subsidiaries and each of the Company's and the Company Subsidiaries' officers, directors, employees, agents, representatives, accountants and counsel to: (a) afford the officers, employees and authorized agents, accountants, counsel and representatives of the Purchaser (collectively, "Representatives") reasonable access, during normal business --------------- hours, to the offices, properties, oil and gas fields, other facilities, books and records of the Company and each Company Subsidiary and to those officers, directors, employees, agents, accountants and counsel of the Company and of each Company Subsidiary who have any knowledge relating to the Company, any Company Subsidiary or the business and (b) furnish to the Representatives such additional financial and operating data and other information regarding the assets, properties and goodwill of the Company and the Company Subsidiaries as the Purchaser may from time to time reasonably request. SECTION 6.03. Confidentiality. The parties shall comply with, and --------------- shall cause their respective Representatives to comply with, all of their respective obligations under the Confidentiality Agreements dated September 16, 2000 and November 16, 2000, between the Company and the Purchaser. SECTION 6.04. Company Stockholders' Meeting and Voting. (a) As soon ---------------------------------------- as practicable after the date hereof, the Company shall call and hold a special meeting of its stockholders (the "Company Stockholders' Meeting") for the ----------------------------- purpose of voting upon the approval of the Merger. (b) The Shareholders agree to vote their shares in all classes of the Company Common Stock in favor of the approval of the Merger at the Company Special Meeting. Any solicitation of votes or consents from any holder of Company Common Stock who is not an accredited investor shall be made only in conjunction with a purchaser representative as contemplated by Regulation D. 46 53 (c) From the date hereof until the earlier of the Effective Time and the termination of this Agreement, the Shareholders agree not to sell or otherwise transfer any of their shares of Company Common Stock to any Person other than a Person that (i) agrees with the Purchaser in writing to vote in favor of the approval of the Merger at the Company Special Meeting and to be bound by the provisions of Section 6.04(c) and (ii) (A) upon the closing of such transfer, will, assuming the conversion of all such shares of Company Common Stock into shares of Purchaser Common Stock, own less than 5% of the Voting Securities (as defined in the Standstill and Voting Agreement) of the Purchaser, (B) is not a member of a "group" (as defined in Section 13(d)(3) of the Exchange Act) or an Affiliate or an Associate of a member of such a "group" with respect to the Purchaser and (C) has not publicly announced that he, she or it is accumulating Voting Securities for any of the purposes set forth in Section 2.1 of the Standstill and Voting Agreement. (d) The Company and the Purchaser shall cooperate in preparing solicitation and/or information materials in connection with such meeting so as to comply with applicable Law, including Regulation D under the Securities Act, and the Company will include in such materials all information the Purchaser reasonably deems necessary regarding the Purchaser in order to effect such compliance. SECTION 6.05. Purchaser Stockholders' Meeting. (a) The Purchaser ------------------------------- shall call and hold a special meeting of its stockholders (the "Purchaser --------- Stockholders' Meeting") as promptly as practicable for the purpose of voting - --------------------- upon (i) the approval and (ii) the adoption of this Agreement, the Merger and the approval of the issuance of shares of Purchaser Common Stock pursuant to the terms of the Merger (the "Purchaser Stock Issuance"). The Purchaser shall ------------------------ prepare and file with the SEC a proxy statement (together with any amendments thereof or supplements thereto, the "Proxy Statement") relating to the Purchaser --------------- Stockholders' Meeting. The Proxy Statement shall include the recommendation of the Board of Directors of the Purchaser to vote in favor of (i) the approval and adoption of this Agreement and the Merger and (ii) the Purchaser Stock Issuance; provided, however, that the Board of Directors of the Purchaser may, at any time - -------- ------- prior to the Purchaser Stockholders' Meeting, withdraw, modify or change its recommendation to the extent the Board of Directors of the Purchaser determines in good faith after consultation with independent legal counsel (who may be the Purchaser's regular outside counsel) that such action is required by reason of the fiduciary duties of the Board of Directors of the Purchaser to the Purchaser's stockholders under applicable Law. (b) Subject to the proviso to the last sentence of Section 6.05(a), the Purchaser shall use its reasonable best efforts to solicit from its stockholders proxies in favor of the approval of the Merger and the Purchaser Stock Issuance and shall take all other actions necessary or advisable to secure the vote or consent of its stockholders required by the DGCL and the rules of the New York Stock Exchange. SECTION 6.06. Regulatory and Other Authorizations; Notices and ------------------------------------------------ Consents. (a) Upon the terms and subject to the conditions hereof, each of the - -------- parties hereto shall (i) use its commercially reasonable efforts to take, or cause to be taken, all appropriate action and do, or cause to be done, all things necessary, proper or advisable under applicable Law or otherwise to consummate and make effective the Merger and the other transactions contemplated by this Agreement, (ii) use its commercially reasonable efforts to obtain from Governmental 47 54 Authorities any consents, licenses, permits, waivers, approvals, authorizations or orders required to be obtained or made by the Purchaser or the Company or any of their subsidiaries in connection with the authorization, execution and delivery of this Agreement and the consummation of the Merger and the other transactions contemplated by this Agreement and (iii) make all necessary filings, and thereafter make any other required submissions with respect to this Agreement, the Merger and the other transactions contemplated by this Agreement required under the HSR Act and any other applicable Law. The parties hereto shall cooperate with each other in connection with the making of all such filings. (b) The Purchaser and the Company shall file promptly (but in no more than ten (10) Business Days from the date hereof) notifications under the HSR Act and shall respond as promptly as practicable to all inquiries or requests received from the Federal Trade Commission or the Antitrust Division of the Department of Justice for additional information or documentation and shall respond as promptly as practicable to all inquiries and requests received from any State Attorney General or other Governmental Authority in connection with antitrust matters. The parties shall cooperate with each other in connection with the making of all such filings or responses, including providing copies of all such documents to the other party and its advisors prior to filing or responding. SECTION 6.07. Notice of Certain Matters. The Purchaser shall give ------------------------- prompt notice to the Company, and the Company shall give prompt notice to the Purchaser, of (a) the occurrence, or non-occurrence, of any event the occurrence or non-occurrence of which would be likely to cause (i) any representation or warranty contained in this Agreement to be untrue or inaccurate or (ii) any covenant, condition or agreement contained in this Agreement not to be complied with or satisfied, and (b) any failure of the Purchaser or the Company, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder. SECTION 6.08. Non-Accredited Investor Advisor. Prior to the Company ------------------------------- Stockholders Meeting, the Company shall engage a qualified person or persons to serve as a representative to advise those Shareholders who are not accredited investors (as defined in Section 501(a) of Regulation D promulgated under the Securities Act) on their rights in connection with and the risks associated with their investment in shares of Purchaser Common Stock, and the transactions contemplated hereby. SECTION 6.09. No Solicitation of Transactions. (a) The Company, each ------------------------------- Shareholder and the Purchaser each agree that, for a period of time from the date hereof until the date of termination of this Agreement in accordance with the provisions of Section 11.01 hereof, such party will not, directly or indirectly, through any officer, director, employee, representative or agent or otherwise, (i) solicit, initiate or encourage any inquiries or proposals that constitute, or could reasonably be expected to lead to, any Competing Transaction (as defined below) or (ii) agree to, enter into, accept, approve or recommend any Competing Transaction, or enter into or conduct any negotiations in respect thereof. Unless precluded by a confidentiality agreement in connection with an unsolicited proposal, the Company or any Shareholder, on the one hand, will notify the Purchaser, on the other hand, or the Purchaser, on the one hand, shall notify the Company, on the other hand, of any proposal of a Competing Transaction or any request for information in connection with any Competing Transaction or 48 55 for access to the properties, books or records of the Company or the Purchaser by any person or entity that informs the Company or the Purchaser that it is considering making, or has made, any proposal of a Competing Transaction. Such notice shall be made orally and in writing and shall indicate in reasonable detail the identity of the offeror and the terms and conditions of such proposal, inquiry or contact. Nothing contained in this Agreement shall prohibit the Board of Directors of the Purchaser from furnishing information to, or entering into discussions or negotiations with, any Person in connection with an unsolicited proposal by such Person to acquire the Purchaser pursuant to any Competing Transaction, if, and only to the extent that, (i) the Board of Directors of Purchaser, after consultation with independent legal counsel (who may be such party's regularly engaged independent legal counsel), determines in good faith that the failure to take such action would cause the Board of Directors to breach its fiduciary duties to its stockholders imposed by applicable Law and (ii) prior to furnishing such information to, or entering into discussions or negotiations with, such Person, such party uses its reasonable best efforts to obtain from such Person an executed confidentiality agreement on customary terms. In addition, in circumstances in which Purchaser's Board of Directors has received a bona fide unsolicited proposal with respect to a Competing Transaction which the Purchaser's Board of Directors has determined in good faith, after consultation with its financial advisors, creates a substantial risk that the Merger will not be consummated, and Purchaser's Board of Directors determines in good faith that taking such action is an appropriate response to such proposal and is required by its fiduciary duties under applicable law, Purchaser may solicit or initiate discussions with a Person other than the Person who made such unsolicited proposal, and enter into discussions or negotiations with such other Person. (b) A "Competing Transaction" means any of the following involving --------------------- the Purchaser or the Company, as the case may be (other than the Merger and the other transactions contemplated by this Agreement): (i) a merger, consolidation, share exchange, business combination or other similar transaction; (ii) any sale, lease, exchange, transfer or other disposition of 25% or more of the assets of such party and its subsidiaries, taken as a whole; (iii) a tender offer or exchange offer for 25% or more of the outstanding voting securities of such party; or (iv) in the case of the Purchaser, any solicitation in opposition to approval of the Merger or the issuance of shares of Purchaser Common Stock pursuant to the Merger. SECTION 6.10. Registration. If the Purchaser so elects by giving ------------ written notice to the Company, or in the event that the issuance of Purchaser Common Stock in the Merger is determined not to be exempt from registration under the Securities Act (a "Private Placement") in the reasonable judgment of ----------------- the Company or the Purchaser in reliance upon the advice of counsel, (a) the Purchaser as promptly as practicable will prepare and file with the SEC a Registration Statement on Form S-4 (the "Merger S-4") with respect to the Merger ---------- and use reasonable best efforts to cause the Merger S-4 to become effective, (b) the Company will cooperate with the Purchaser in the preparation of the Merger S-4 and use its reasonable best efforts to assist and facilitate such filing and declaration of effectiveness, and (c) the parties hereto shall cooperate with each other and use commercially reasonable efforts to cause the consummation of the Merger notwithstanding the inability or failure to achieve a Private Placement, including negotiating expeditiously and in good faith with respect to any and all amendments to this Agreement necessary or appropriate to permit consummation of the Merger. 49 56 SECTION 6.11. Directors' and Officers' Indemnification and Insurance. ------------------------------------------------------ (a) The indemnification provisions of the Restated Certificate of Incorporation and Bylaws of the Surviving Corporation and each subsidiary thereof shall not be amended, repealed or otherwise modified for a period of six years from the Effective Time in any manner that would affect adversely the rights thereunder of individuals who, at or prior to the Effective Time, were directors, officers, employees, fiduciaries or agents of the Company, unless such modification shall be required by Law. (b) In the event the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any Person, then, and in each such case, proper provision shall be made so that the successors and assigns of the Surviving Corporation, or at its option, the Purchaser, shall assume the obligations set forth in this Section 6.11. (c) For a period of six years after the Effective Time, the Purchaser shall maintain in effect the current directors' and officers' liability insurance policies maintained by the Company or any Company Subsidiary (provided that the Purchaser may substitute therefor policies of at least the -------- same coverage containing terms and conditions which are no less advantageous) with respect to claims arising from facts or events that occurred prior to the Effective Time. SECTION 6.12. Plan of Reorganization. (a) This Agreement is intended ---------------------- to constitute a "plan of reorganization" within the meaning of section 1.368- 2(g) of the income tax regulations promulgated under the Code. From and after the date of this Agreement and until the Effective Time, each party hereto shall use its reasonable best efforts to cause the Merger to qualify, and no party hereto will knowingly take any action, cause any action to be taken, fail to take any action or cause any action to fail to be taken which action or failure to act could prevent the Merger from qualifying, as a reorganization under the provisions of section 368(a) of the Code. Following the Effective Time, neither the Purchaser nor any of its affiliates shall knowingly take any action, cause any action to be taken, fail to take any action or cause any action to fail to be taken, which action or failure to act could cause the Merger to fail to qualify as a reorganization under section 368(a) of the Code. (b) As of the date hereof, the Company does not know of any reason (i) why it would not be able to deliver to Baker Botts, L.L.P. or Shearman & Sterling, at the date of the legal opinions referred to below, certificates substantially in compliance with IRS published advance ruling guidelines, with customary exceptions and modifications thereto, to enable such firms to deliver the legal opinions contemplated by Sections 9.02(c) and 9.03(c), or (ii) why Baker Botts, L.L.P. or Shearman & Sterling would not be able to deliver the opinions required by Sections 9.02(c) and 9.03(c). (c) As of the date hereof, the Purchaser does not know of any reason (i) why it would not be able to deliver to Baker Botts, L.L.P. or Shearman & Sterling, at the date of the legal opinions referred to below, certificates substantially in compliance with IRS published advance ruling guidelines, with customary exceptions and modifications thereto, to enable such firms to deliver the legal opinions contemplated by Sections 9.02(c) and 9.03(c), or (ii) why 50 57 Baker Botts, L.L.P. or Shearman & Sterling would not be able to deliver the opinions required by Sections 9.02(c) and 9.03(c). SECTION 6.13. Other Shareholders. (a) Subject to the terms and ------------------ conditions hereof, until the Closing Date, the Company shall use its commercially reasonable efforts to cause all holders of Shares that are not parties hereto to become parties to this Agreement prior to the Closing, and to agree to be bound by all provisions hereof applicable to the Shareholders, including the obligation to indemnify the Purchaser's Indemnified Persons pursuant to Article X, by executing and delivering to the Company an irrevocable consent to be bound by the provisions of, and to become a party to, this Agreement, in the form attached hereto as Exhibit 6.13 (a "Joinder Agreement"). ----------------- By executing and delivering to the Company a completed Joinder Agreement, a holder of Shares shall be deemed to be a "Shareholder" party hereto, and shall be bound by all covenants, agreements, representations and warranties made by the Shareholders hereunder, as if such holder was an original party hereto. Each holder of Shares that is not a party hereto and that desires to exchange all of such holder's Shares upon the terms and conditions set forth herein will be entitled to become a party to this Agreement prior to the Closing by complying with the provisions of this Section 6.13 and will not be subject to any escrow requirements under this Agreement. (b) Notwithstanding any other provision of this Agreement, 10% of the shares of Purchaser Common Stock and/or cash to be delivered at the Closing to each holder of Shares that does not, prior to the Closing, execute and deliver to the Company a Joinder Agreement, shall be delivered to the Escrow Agent as provided in Section 3.13. SECTION 6.14. Phantom Stock Plan and Severance Payments. The parties ----------------------------------------- acknowledge that the Merger will constitute a Change of Control, as that term is defined in the Phantom Share Plan, as amended, in the Severance Pay Plan, the Severance Agreement, and in the Retention Bonus Plan instituted by North Central (collectively, the "Phantom Stock and Severance Plans"). The board of directors --------------------------------- of NCOC has determined that Section 4.15(f) of the Disclosure Schedule sets forth the correct methodology for computing the amount to be paid for Phantom Shares pursuant to the terms of the Phantom Share Plan. Except with respect to payments under the Severance Pay Plan and Severance Agreement to employees of North Central designated by Purchaser in writing at least five days prior to the closing, all payments required by a Change of Control under the terms of the Phantom Stock and Severance Plans shall be made by North Central immediately prior to the Effective Time. In order to fund such payments, the Company and/or one or more of the Non-Energy Company Subsidiaries shall lend or contribute the required funds to North Central prior to the time that North Central is required to make such payments or North Central will borrow such funds pursuant to the NCOC revolving credit facility. SECTION 6.15. No Trading. Each Shareholder covenants and agrees ---------- that, after the date hereof and prior to the Effective Time, neither such Shareholder nor any Affiliate or Associate of such Shareholder will buy or sell any Shares of Purchaser Common Stock, including any short sale, or any option, warrant on or other derivative security with respect to Purchaser Common Stock. 51 58 SECTION 6.16. Standstill and Voting Agreement. As of the Effective ------------------------------- Time, each of the Shareholders (or the Shareholders' Representative on behalf of the Shareholders) shall execute and deliver to the Purchaser the Standstill and Voting Agreement. ARTICLE VII EMPLOYEE MATTERS SECTION 7.01. Compensation and Benefits; Service Recognition. (a) ---------------------------------------------- Effective upon the Effective Time, employees of North Central who continue as employees of North Central following the Merger shall be afforded the right to participate in employee welfare, pension and savings plans on the same basis as similarly situated employees of Purchaser; provided, however, that changes may -------- ------- be made to such employee benefit plans to the extent necessary to comply with applicable Law. (b) For the period of time that the terms and conditions of the Severance Plan and Severance Agreements are in full force and effect, the Purchaser shall maintain, and cause its subsidiaries to maintain, welfare plans which in the aggregate will provide a level of benefits for former employees covered by such severance arrangements that are at least as favorable to participants as those in effect immediately prior to the Effective Time; provided, however, that changes may be made to such employee benefit plans to - -------- ------- the extent necessary to comply with applicable Law. (c) For the purposes of the welfare benefits described in Sections 7.01(b) of this Agreement, the Purchaser shall provide, or cause its subsidiaries to provide, such welfare benefits at a cost to employees or former employees in a ratio at least as favorable to participants as the ratio of employee contributions to employer contributions in effect immediately prior to the Effective Time. (d) For a period of two years following the Effective Time or until an earlier termination of employment, the Purchaser shall ensure, and cause its subsidiaries to ensure, that each individual employed by the Company or any of the Company Subsidiaries as of the Effective Time shall continue to be paid after the Effective Time a base salary at no lower a rate than in effect immediately before the Effective Time. (e) The Purchaser shall maintain, and cause its subsidiaries to maintain, the Severance Plan in effect as of the Effective Time for a period of one year after the Effective Time; provided, however, that, if the Purchaser -------- ------- desires to amend or modify such plan, no such amendment or modification may adversely impair the rights of any participant under the plan without his consent. (f) Anything above to the contrary notwithstanding, as of the Effective Time, in the event that a "Change of Control," as defined in the following described agreements and plans, occurs and a payment is due to any employee or participant, the Company agrees to make such payments, or to cause North Central to make such payments to the employee or participant, on the effective date of Change of Control or the Effective Time, whichever is earlier, and to the extent such payments are not made by the Company or North Central, the Purchaser agrees to assume and honor the following arrangements and payments thereunder for 52 59 employees of the Company or the Company Subsidiary relating to a Change in Control in accordance with the terms of the relevant plans or agreements as they existed immediately prior to the Effective Time: (i) the Severance Plan, as amended, (ii) the Severance Agreements dated as of June 1, 2000 with Messrs. Winne, Becci, Deupree and Beckham and (iii) the Retention Bonus Plan dated June 1, 2000, as revised. If the Purchaser desires to amend such plans, agreements or letters after the Effective Time, no such amendment shall be made if it adversely impairs the rights of any affected employee, unless the employee's consent is obtained. (g) To the extent service is relevant for purposes of eligibility, participation or vesting under any employee benefit plan, program or arrangement established or maintained by the Purchaser or its subsidiaries for the benefit of employees of the Purchaser or its subsidiaries, the employees of the Company shall be credited for service accrued prior to the Effective Time with the Company or the Company Subsidiaries. (h) The current and former employees of the Company and the Company Subsidiaries are intended third party beneficiaries of this Article VII, and may enforce its provisions in the same manner as if they were signatories to this Agreement. ARTICLE VIII TAX MATTERS SECTION 8.01. Indemnity. (a) The Shareholders agree to indemnify --------- the Purchaser against all Taxes of the Company and the Company Subsidiaries, or of any member of any affiliated group with which the Company or any Company Subsidiary files or has previously filed a consolidated or combined income tax return, with respect to any period or portion thereof (i) insofar as such Taxes are attributable to North Central, that ends on or before the date of this Agreement, and (ii) insofar as such Taxes are attributable to the Company and the Non-Energy Company Subsidiaries, that ends immediately prior to the Effective Time (collectively, the "Shareholder Tax Periods"). The Purchaser ----------------------- agrees to indemnify the Shareholders against all Taxes for periods or portions thereof (collectively, the "Purchaser Tax Periods") which are not included in --------------------- the Shareholder Tax Periods. Estimated Taxes paid on or before the end of a Shareholder Tax Period shall be treated as a payment of Taxes with respect to such period. (b) With respect to any Tax that is payable with respect to a taxable period that is included in both the Shareholder Tax Periods and the Purchaser Tax Periods, the portion of any such Tax allocable to the Shareholder Tax Periods shall be deemed to equal: (i) in the case of Taxes that are based upon or related to income or receipts, the amount which would be payable if the taxable year ended with the last date included in the Shareholder Tax Periods; and (ii) in the case of Taxes imposed on a periodic basis and measured by the level of any item, the amount of such Taxes for the entire period multiplied by a fraction the numerator of which is the number of calendar days in the period ending with the last date included in the Shareholder Tax Periods and the denominator of which is the number of calendar days in the entire period. 53 60 SECTION 8.02. Tax Returns and Payments. (a) From the date of this ------------------------ Agreement through and after the Closing Date, the Shareholders shall prepare and submit to the Purchaser for filing or otherwise furnish to the appropriate party (or cause to be prepared and submitted or so furnished) in a timely manner all Tax Returns relating to the Company or the Company Subsidiaries for any taxable period that ends before or includes the Closing Date. With respect to any such Tax Return, as to which an amount of Tax is allocable to the Purchaser, the Shareholders shall provide the Purchaser with a copy of such completed Tax Return and a statement (with which the Shareholders will make available supporting schedules and information) certifying the amount of Tax shown on such Tax Return that is allocable to the Purchaser at least 20 days prior to the due date (including any extension thereof) for the filing of such Tax Return, and the Purchaser shall have the right to review such Return and statement prior to the filing of such Tax Return. The Shareholders and the Purchaser agree to consult and to attempt in good faith to resolve any issues arising from the Purchaser's review of such Tax Return and statement. (b) The Shareholders shall pay or cause to be paid, when due and payable, all Taxes which accrue with respect to the Company and the Company Subsidiaries for the Shareholder Tax Periods, and taking into account the last sentence of Section 8.01(a). Payments by the Shareholders of any amounts due hereunder in respect of Taxes shall be made (i) at least three Business Days before the due date of the applicable estimated or final Tax Return required to be prepared by the Shareholders and filed by the Purchaser, and (ii) within 10 Business Days following either an agreement between the Shareholders and the Purchaser that an indemnity amount is payable, or a "determination" as defined in section 1313(a) of the Code. SECTION 8.03. Refunds/Tax Benefits. (a) Except as indicated in -------------------- the last sentence of this Section 8.03(a), any refunds (including interest to the extent actually received) received by the Purchaser, the Company or any Company Subsidiary of Taxes relating to and attributable to events arising in any period or portion thereof which is included in the Shareholder Tax Periods shall be for the account of the Shareholders, and the Purchaser shall pay over to the Shareholders any such refund for the account of the Shareholders, within five Business Days of receipt. The Purchaser shall, if the Shareholders so request and at the Shareholders' expense, file (or cause to be filed) a claim for any refunds or equivalent amounts to which the Shareholders are entitled hereunder (including, without limitation, any refunds arising from payments described in the second succeeding sentence). The Purchaser shall permit the Shareholders to control (at the Shareholders' expense) the prosecution of any such refund claimed. In addition, any refund or other Tax benefit arising from the payment by North Central on or prior to the Closing Date of amounts described in Section 6.14 shall be for the account of the Shareholders, regardless of the Tax period to which such refund or other Tax benefit relates. If any refund which the Purchaser has paid over to the Shareholders pursuant to this Section 8.03 is subsequently adjusted, whether on audit or otherwise, a payment in the amount of such adjustment will be made by the Shareholders to the Purchaser or by the Purchaser to the Shareholders, as appropriate, so as to put the parties as nearly as possible in the same position as if the original payment by the Purchaser to the Sellers had been in the amount of the refund as finally determined. 54 61 (b) The Purchaser agrees to pay to the Shareholders the benefit received by the Company or any Company Subsidiary from the use in any Tax period or portion thereof which is included in the Purchaser Tax Periods of a carryforward of a Tax Asset arising in a Tax period or portion thereof which is included in the Shareholder Tax Periods. Such benefit shall be considered to equal the excess of (i) the amount of Taxes that would have been payable by the Company or the Company Subsidiary in the absence of such carryforward over (ii) the amount of Taxes actually payable by the Company or the Company Subsidiary. Payment of such amount shall be made within five Business Days of filing the applicable Tax Returns for the period to which the Tax Asset is carried forward. If, subsequent to any such payment by the Purchaser to the Shareholders, there shall be a "determination" (as defined in section 1313 of the Code) resulting from an audit which results in a reduction of the Tax Asset so carried forward, the Shareholders shall promptly repay to the Purchaser any amount that would not have been payable to the Shareholders pursuant to the preceding sentence had the amount of the benefit been calculated taking into account such determination, together with any amount equal to any interest and penalties payable by the Purchaser as a result of such determination. For this purpose, "Tax Asset" means --------- any net operating loss, net capital loss, investment tax credit, foreign tax credit or charitable deduction or any other similar tax attribute (including deductions or credits relating to alternative minimum taxes) which is apportioned under applicable Treasury Regulations or allocable under applicable state or local income or franchise Tax law to the Company or any Company Subsidiary. (c) If an audit adjustment, claim for refund or amended return ("Adjustment") after the date hereof shall both increase a Tax liability which ---------- is allocated to the Shareholders (or reduce losses or credits otherwise available) for a Tax period or portion thereof which is included in the Shareholder Tax Periods (a "Prior Period Tax Increase") and decrease a Tax ------------------------- liability of the Purchaser, the Company or any Company Subsidiary for a Tax period or portion thereof which is included in the Purchaser Tax Periods, then, when and to the extent that the Purchaser, the Company or any Company Subsidiary derives a benefit from such decrease (through a reduction of Taxes, refund of Taxes paid or credit against Taxes due), the Prior Period Tax Increase shall not be indemnifiable by the Shareholders pursuant to Section 8.01 to the extent of such refund, reduction or credit. Similarly, if an Adjustment shall both decrease a Tax liability which is allocated to the Shareholders for a Tax period or portion thereof which is included in the Shareholder Tax Periods and increase the Tax liability of the Purchaser, the Company or any Company Subsidiary (or reduce losses or credits otherwise available) for a Tax period or portion thereof which is included in the Purchaser Tax Periods (a "Prior Period Tax ---------------- Decrease"), then, to the extent of such increase, the Purchaser shall not be - -------- required to pay over the Prior Period Tax Decrease to the Shareholders. (d) Any estimated Taxes paid during a Tax period or portion thereof which is included in the Shareholder Tax Periods that result in the total Taxes paid by the Company or the Company Subsidiaries (including estimated Taxes paid with respect to Tax periods or portions thereof which are included in the Shareholder Tax Periods) to exceed the Taxes due and payable with respect to such Tax periods or portions thereof shall be for the account of the Shareholders. The Shareholders shall provide the Purchaser with a statement (with which the Shareholders will make available supporting schedules and information) certifying the amount of any such excess, and the Purchaser shall pay over to the Shareholders any such excess within five Business Days of the Shareholders providing such statement to the Purchaser. 55 62 (e) Any Tax benefits attributable to the Retention Bonus Plan paid to North Central employees shall be for the account of the Purchaser. SECTION 8.04. Contests. (a) After the Closing, the Purchaser shall -------- promptly notify the Shareholders in writing of the commencement of any Tax audit or administrative or judicial proceeding or of any demand or claim on the Purchaser, the Company or any Company Subsidiary which, if determined adversely to the taxpayer or after the lapse of time, is likely to give rise to grounds for indemnification by the Shareholders. Such notice shall contain factual information (to the extent known to the Purchaser) describing the asserted Tax liability in reasonable detail and shall include copies of any notice or other document received from any Tax Authority in respect of any such asserted Tax liability. If the Purchaser fails to give the Shareholders prompt notice of an asserted Tax liability, then (i) if the Shareholders are precluded by the failure to give prompt notice from contesting the asserted Tax liability in both the administrative and judicial forums, the Shareholders shall not have any obligation to indemnify for any loss arising out of such asserted Tax liability, and (ii) if the Shareholders are not so precluded from contesting, but such failure to give prompt notice results in a detriment to the Shareholders, any amount which the Shareholders are otherwise required to pay the Purchaser with respect to such liability shall be reduced by the amount of such detriment. (b) Except as indicated in the last sentence of this Section 8.04(b), the Shareholders may elect to direct, through counsel of their own choosing and at their own expense, any audit, claim for refund and administrative or judicial proceeding involving any asserted liability with respect to which indemnity may be sought from the Shareholders (any such audit, claim for refund or proceeding relating to an asserted Tax liability are referred to herein collectively as a "Contest"). If the Shareholders elect to direct the Contest of an asserted Tax ------- liability, they shall, within 30 calendar days of receipt of the notice of asserted Tax liability, notify the Purchaser of their intent to do so, and the Purchaser shall cooperate and shall cause the Company and the Company Subsidiaries to cooperate, at the Shareholders' expense, in each phase of such Contest. If the Shareholders elect not to direct the Contest, fail to notify the Purchaser of their election as herein provided or contest their indemnification obligation, the Purchaser may pay, compromise or contest, at its own expense, such asserted liability. However, in such case, the Purchaser may not settle or compromise any asserted liability over the objection of the Shareholders; provided, however, that consent to settlement or compromise shall not be - -------- ------- unreasonably withheld. In any event, both the Purchaser and the Shareholders may participate, at their own expense, in the Contest. If a Contest includes both an asserted liability with respect to which an indemnity may be sought from the Shareholders and an asserted liability for which no such indemnity may be sought, the foregoing provisions of this Section 8.04(b) shall apply only to such portion of the Contest as involves the asserted liability with respect to which an indemnity may be sought from the Shareholders. SECTION 8.05. Cooperation and Exchange of Information. The --------------------------------------- Shareholders and the Purchaser will provide each other with such cooperation and information as either of them reasonably may request of the other in filing any Tax Return, amended return or claim for refund, determining a liability for Taxes or a right to a refund of Taxes or participating in or conducting any audit or other proceeding in respect of Taxes. Such cooperation and information shall include providing copies of relevant Tax Returns or portions thereof, together with accompanying schedules and related records (whether in computerized or written form), 56 63 work papers and documents relating to rulings or other determinations by Tax authorities. Each party shall make its employees available on a mutually convenient basis to provide explanations of any documents or information provided hereunder. Each party will retain all returns, schedules and work papers and all material records or other documents relating to Tax matters of the Company and the Company Subsidiaries for its taxable period first ending after the last date which is included in the Shareholder Tax Periods and for all prior taxable periods until the later of (i) the expiration of the statute of limitations of the taxable periods to which such returns and other documents relate, including extensions, or (ii) six years following the due date (without extension) for such returns. Any information obtained hereunder shall be kept confidential, except as may be otherwise necessary in connection with the filing of returns or claims for refund or in conducting an audit or other proceeding. SECTION 8.06. Conveyance Taxes. Liability for all sales, transfer, ---------------- stamp, real property transfer or gains and similar Taxes incurred as a result of the sale of Shares contemplated hereby shall be borne 50% by the Purchaser and 50% by the Shareholders. SECTION 8.07. Miscellaneous. (a) The Shareholders and the ------------- Purchaser agree to treat all payments made under the indemnity provisions of this Agreement or Section 3.12, and for any misrepresentations or breach of warranties or covenants, as adjustments to the Merger Consideration for Tax purposes. If, in the reasonable opinion of either counsel to the Purchaser or counsel to the Shareholders, the making by the Purchaser of any such payment or a specified portion thereof or any payment or a specified portion thereof, by the Purchaser pursuant to this Article VIII in cash would jeopardize the qualification of the Merger as a tax-free reorganization within the meaning of section 368(a) of the Code, then the Purchaser (if Purchaser's counsel so concludes) or the Shareholders (if the Shareholders' counsel so concludes) may elect that such payment or portion thereof be made in Purchaser Common Stock having a value equal to the amount of such payment or portion thereof. For this purpose, the value of the Purchaser Common Stock shall be determined in the same manner as the Average Parent Share Price, except that the last trading day used for this purpose shall be the trading day which is five days prior to the date of the payment. For this purpose, the Average Parent Share Price shall be not less than $22.25 nor greater than $27.25. (b) Payments by the Shareholders hereunder shall be limited to the amount of any liability or damage that remains after deducting therefrom (i) any tax benefit realizable by the Purchaser, the Company or any Company Subsidiary by reason of the deductibility of such liability or damage (determined by multiplying such deductible amount by the then applicable highest effective corporate income tax rate), and any deferred tax benefit attributable to such liability or damage (determined on the same basis but present valued to the extent obtained through depreciation or amortization deductions), and (ii) any indemnity, contribution or other similar payment recoverable by the Purchaser from any third party with respect thereto. (c) The Shareholders shall cause any tax-sharing agreements or arrangements with the Company Subsidiaries to be terminated as of the date of this Agreement. (d) Any breach of the representations and warranties contained in Section 4.19 shall be a ground for indemnification by the Shareholders of the Purchaser, subject to Section 10.04(d) and other applicable provisions of this Agreement. 57 64 (e) Any breach of the representations and warranties contained in Section 5.11 shall be a ground for indemnification by the Purchaser of the Shareholders. (f) Notwithstanding any provision of this Agreement to the contrary, the obligations of the Shareholders and the Purchaser to indemnify and hold harmless each other pursuant to this Article VIII or the representations and warranties contained in Section 4.19 or Section 5.11 shall terminate at the close of business on the expiration of the applicable statute of limitations with respect to the Tax liabilities in question (giving effect to any waiver, mitigation or extension thereof). (g) It is intended that all Tax benefits and refunds attributable to the payments by North Central on or prior to the Closing Date which are described in Section 6.14 of this Agreement shall be for the account of the Shareholders, and this Article VIII and all other provisions of this Agreement shall be construed accordingly. (h) Prior to the Effective Time, each of the Shareholders will provide the Purchaser a certification of non-foreign status, in the manner prescribed by Treas. Reg. (S) 1445-2(b)(2). ARTICLE VII CONDITIONS TO CLOSING SECTION 9.01. Conditions to the Obligations of Each Party. The ------------------------------------------- obligations of the Company and the Purchaser to consummate the Merger are subject to the satisfaction or waiver (where permissible), at or prior to the Closing, of each of the following conditions: (a) any waiting period (and any extension thereof) applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated; (b) no Governmental Authority or court of competent jurisdiction located or having jurisdiction in the United States shall have enacted, issued, promulgated, enforced or entered any Law or Governmental Order which is then in effect making the consummation of the Merger illegal or otherwise prohibiting the consummation of the Merger; (c) this Agreement and the Merger shall have been approved and adopted by the requisite affirmative vote of the Shareholders in accordance with the rules of the BCL; and (d) this Agreement, the Merger and the Purchaser Stock Issuance shall have been approved and adopted by the requisite affirmative vote of the stockholders of the Purchaser in accordance with the DGCL, the rules of the New York Stock Exchange and the Purchaser's charter. SECTION 9.02. Conditions to the Obligations of the Company. The -------------------------------------------- obligations of the Company to consummate the Merger shall be subject to the satisfaction or waiver (where permissible), at or prior to the Closing, of each of the following conditions: 58 65 (a) Representations, Warranties and Covenants. (i) The ----------------------------------------- representations and warranties of the Purchaser contained in this Agreement shall have been true and correct when made and shall be true and correct as of the Closing Date, with the same force and effect as if made on the Closing Date, other than such representations and warranties as are made as of another date, which shall be true and correct as of such date, except to the extent that the failures to be so true and correct would not, individually or in the aggregate, have a Purchaser Material Adverse Effect; (ii) the covenants and agreements contained in this Agreement to be complied with by the Purchaser on or before the Closing shall have been complied with in all material respects; and (iii) the Company shall have received a certificate from the Purchaser to such effect signed by a duly authorized officer thereof; (b) No Proceeding or Litigation. No Action shall have been --------------------------- commenced or threatened by any Governmental Authority against either the Company or the Purchaser seeking to restrain or materially and adversely alter the transactions contemplated by this Agreement which do, or would reasonably be expected to, render it impossible or unlawful to consummate such transactions; (c) Reorganization Opinion. The Shareholders shall have received ---------------------- from Shearman & Sterling a written opinion, reasonably satisfactory to the Shareholders and dated as of the Closing Date, addressed to the Company and the Shareholders, that the Merger will be treated for federal income tax purposes as a reorganization qualifying under section 368(a) of the Code and no gain or loss will be recognized by the Shareholders who exchange their Company Common Stock in the Merger except with respect to cash received in the Merger; (d) Registration Rights Agreement. The Purchaser shall have ----------------------------- executed and delivered to the Shareholder Representative, on behalf of the Shareholders, a registration rights agreement substantially in the form of Exhibit 9.02(d) hereto (the "Registration Rights Agreement"); and ----------------------------- (e) Standstill and Voting Agreement. The Purchaser shall have ------------------------------- executed and delivered to the Shareholder Representative, on behalf of the Shareholders, a standstill and voting agreement substantially in the form of Exhibit 9.02(e) hereto (the "Standstill and Voting Agreement"). ------------------------------- SECTION 9.03. Conditions to the Obligations of the Purchaser. The ---------------------------------------------- obligations of the Purchaser to consummate the Merger shall be subject to the satisfaction or waiver (where permissible), at or prior to the Closing, of each of the following conditions: (a) Representations, Warranties and Covenants. (i) The ----------------------------------------- representations and warranties of the Company contained in this Agreement shall have been true and correct when made and shall be true and correct as of the Closing Date, with the same force and effect as if made on the Closing Date, other than such representations and warranties as are made as of another date, which shall be true and correct as of such date, except to the extent that the failures to be so true and correct would not, individually or in the aggregate, have a Material Adverse Effect; (ii) the covenants and agreements contained 59 66 in this Agreement to be complied with by the Company and the Company Subsidiaries on or before the Closing shall have been complied with except to the extent that any failure to perform in the aggregate does not or would not reasonably be expected to have a Material Adverse Effect; and (iii) the Purchaser shall have received a certificate from the Company and the Company Subsidiaries to such effect signed by a duly authorized officer thereof; (b) No Proceeding or Litigation. No Action shall have been --------------------------- commenced or threatened by any Governmental Authority against either the Company or the Purchaser seeking to restrain or materially and adversely alter the transactions contemplated by this Agreement which do, or would reasonably be expected to, render it impossible or unlawful to consummate such transactions; and (c) Reorganization Opinion. Except as otherwise provided in ---------------------- Section 9.03(c), the Purchaser shall have received from Baker Botts, L.L.P. a written opinion, reasonably satisfactory to the Purchaser and dated as of the Closing Date, addressed to the Purchaser that the Merger will be treated for federal income tax purposes as a reorganization qualifying under section 368(a) of the Code and no gain or loss will be recognized by the Purchaser or the Company as a result of the Merger. If the Company has elected to restructure the transaction as a taxable sale of Company Common Stock (or as a taxable reverse subsidiary merger) pursuant to Section 3.01(h), the Purchaser shall have received from Baker Botts, L.L.P. a written opinion, reasonably satisfactory to the Purchaser and dated as of the Closing Date, addressed to the Purchaser that no gain or loss will be recognized by the Purchaser or the Company as a result of the transaction. (d) Standstill and Voting Agreement. Each of the Shareholders (or ------------------------------- the Shareholder Representative on behalf of the Shareholders) shall have executed and delivered to the Purchaser, on behalf of the Shareholders, the Standstill and Voting Agreement. (e) Registration Rights Agreement. Each of the Shareholders (or the ----------------------------- Shareholder Representative on behalf of the Shareholders) shall have executed and delivered to the Purchaser, on behalf of the Shareholders, the Registration Rights Agreement. (f) Credit Agreement. The Company shall have delivered to the ---------------- Purchaser evidence of the termination of the Credit Agreement dated as of July 1, 1999 between Morgan Guaranty Trust Company of New York and Rhode Island Corporation and the release of all security and collateral pledged by the Company or any Company Subsidiary in connection therewith. (g) Service Agreement. The Company shall have delivered to the ----------------- Purchaser evidence of termination of the service agreement between Goelet, LLC, the Company and Company Subsidiaries without further liability to the Company and the Company Subsidiaries. 60 67 ARTICLE VIII INDEMNIFICATION SECTION 10.01. Indemnification of the Purchaser. Each Shareholder -------------------------------- agrees jointly and not severally, subject to the other terms and conditions of this Agreement (including the limitations contained in Section 10.04) and without gross-up for Taxes, to defend, indemnify and hold harmless the Purchaser and each of the Purchaser's subsidiaries, Affiliates, officers, directors, employees, agents and their successors and assigns (the Purchaser and all such other Persons are collectively referred to as the "Purchaser's Indemnified ----------------------- Persons"), from and against each and every Loss paid, imposed on or incurred by - ------- the Purchaser's Indemnified Persons relating to, resulting from or arising out of: (a) any breach of any representation, warranty, covenant or agreement made by the Company in this Agreement or (b) any Liability of the Company or any Non- Energy Company Subsidiary, incurred or arising out of events which occurred prior to the Effective Time (but excluding any Liability directly relating to, arising out of or resulting from the operations of North Central, for which North Central has liability). The Purchaser's Indemnified Persons shall also be entitled to recourse against the Escrow Consideration for any indemnifiable loss on the same pro rata basis as would have been applied if the Persons on whose behalf the shares and cash have been placed into escrow had executed Joinder Agreements pursuant to Section 6.13. A Purchaser's Indemnified Person shall give the Shareholders written notice of any matter which such Purchaser's Indemnified Person has determined has given or could give rise to a right of indemnification hereunder within sixty (60) days of such determination, supported by reasonable documentation setting forth the nature of the circumstances entitling the Purchaser's Indemnified Person to indemnity hereunder (including, but not limited to, references to the provisions hereof upon which the Purchaser's Indemnified Person is relying in making such claim). SECTION 10.02. Indemnification of the Shareholders. The Purchaser ----------------------------------- agrees, subject to the other terms and conditions of this Agreement and without gross-up for Taxes, to defend, indemnify and hold harmless the former directors, officers, employees and agents of the Company, the Company Subsidiaries, the Shareholders and their respective successors, assigns, heirs and legal and personal representatives (the Shareholders and such other Persons are collectively referred to as the "Company's Indemnified Persons") from and ----------------------------- against, and shall reimburse the Company's Indemnified Persons for, each and every Loss paid, imposed on or incurred by the Company's Indemnified Persons, directly or indirectly, relating to, resulting from or arising out of any breach of any representation, warranty, covenant or agreement made by the Purchaser in this Agreement. A Company's Indemnified Person shall give the Purchaser prompt written notice of any matter which such Shareholders' Representative has determined has given or could give rise to a right of indemnification hereunder within sixty (60) days of such determination, supported by reasonable documentation setting forth the nature of the circumstances entitling the Company's Indemnified Person to indemnity hereunder (including, but not limited to, references to the provisions hereof upon which the Company's Indemnified Person is relying in making such claim). SECTION 10.03. Notice and Defense of Third Party Claims. If any ---------------------------------------- claim or proceeding shall be brought or asserted under this Article X against an indemnified party or any successor thereto (each, an "Indemnified Person") in ------------------ respect of which indemnity may be sought 61 68 under this Article X from an indemnifying Person or any successor thereto (each, an "Indemnifying Person"), the Indemnified Person shall give prompt written ------------------- notice of such claim or proceeding to the Indemnifying Person in accordance with Section 10.01 or 10.02, as applicable, who shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Person and the payment of all expenses; provided that any delay or failure so to -------- notify the Indemnifying Person shall relieve the Indemnifying Person of its obligations hereunder only to the extent, if at all, that it is materially prejudiced by reason of such delay or failure. The Indemnified Person shall have the right to employ separate counsel in any of the foregoing claims or proceedings and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Indemnified Person unless the Indemnified Person shall in good faith determine that there exist actual or potential conflicts of interest which make representation by the same counsel inappropriate. The Indemnified Person's right to participate in the defense or response to any claim or proceeding should not be deemed to limit or otherwise modify its obligations under this Article X. In the event that the Indemnifying Person, within fifteen (15) days after notice of such claim or proceeding, fails to assume the defense thereof, the Indemnified Person shall have the right to undertake the defense, compromise or settlement of such claim or proceeding, subject to the right of the Indemnifying Person to assume the defense of such claim or proceeding with counsel reasonably satisfactory to the Indemnified Person at any time prior to the settlement, compromise or final determination thereof. Anything in this Article X to the contrary notwithstanding, the Indemnifying Person shall not, without the Indemnified Person's prior written consent, settle or compromise any claim or proceeding or consent to the entry of any judgment with respect to any claim or proceeding. In the event the Indemnifying Party exercises the right to undertake any such defense against any claim hereunder, the Indemnified Person shall cooperate with the Indemnifying Person in such defense and make available to the Indemnifying Person all witnesses, pertinent records, materials and information in the Indemnified Person's possession or reasonably available to the Indemnified Person or under the Indemnified Person's control relating thereto as is reasonably requested by the Indemnifying Person. SECTION 10.04. Limitations. (a) An Indemnified Person shall not be ----------- entitled to indemnification under Article VIII and this Article X unless notice of a claim for indemnity shall have been given within the applicable survival period under Sections 8.07(d) and 13.01. (b) The Shareholders' aggregate obligation to indemnify the Purchaser and hold it harmless under Article VIII and Section 10.01 shall in no event exceed $63,000,000 (the "Maximum Amount"). At such time, if any, as an aggregate -------------- amount equal to the Maximum Amount has been paid to the Purchaser by the Shareholders under this Section 10.04, no Shareholder shall thereafter have any further liability under Article VIII and Article X. (c) Each Shareholder's obligation to indemnify the Purchaser and hold it harmless under Section 10.01 (and Article VIII with respect to Tax matters) shall in no event exceed a percentage of the Maximum Amount equal to the percentage of the total aggregate Merger Consideration received by such Shareholder ("Pro Rata Share"). Each Shareholder's obligation to pay any -------------- indemnifiable Loss pursuant to Section 10.01 (and Article VIII with respect to Tax matters) shall be limited to such Shareholder's Pro Rata Share of such Loss. At such time, if any, as any Shareholder shall have paid to the Purchaser an amount equal to such 62 69 Shareholder's Pro Rata Share of the Maximum Amount under Section 10.01 (and Article VIII with respect to Tax matters), such Shareholder shall have no further liability under such Section 10.01 (and Article VIII with respect to Tax matters). (d) No claim may be made against any Shareholder for indemnification pursuant to Section 10.01 or Article VIII with respect to any individual item of Loss, unless the aggregate dollar amount of all claims against the Shareholders for indemnification shall exceed $7,000,000, in which case the Shareholders shall be liable for claims for indemnification only in excess of such aggregate amount. Any adjustment to any Tax benefit attributable to a payment pursuant to Section 6.14 shall not be subject to this Section 10.04(d). (e) Notwithstanding anything herein to the contrary, (i) in no event shall the aggregate liability of the Purchaser hereunder exceed $63,000,000 (the "Loss Ceiling") and (ii) the Purchaser shall have no further obligations under ------------ this Article X at the time when the Purchaser has paid indemnification hereunder in amounts equal in the aggregate to the Loss Ceiling. (f) No claim may be made against the Purchaser for indemnification pursuant to Section 10.02 or Article VIII with respect to any individual item of Loss, unless the aggregate dollar amount of all claims for indemnification shall exceed $7,000,000, in which case the Purchaser shall be liable for claims for indemnification only in excess of such aggregate amount. Any adjustment to any Tax benefit attributable to a payment pursuant to Section 6.14 shall not be subject to this Section 10.04(f). SECTION 10.05. Tax Matters. Anything in this Article X to the ----------- contrary notwithstanding, the rights and obligations of the parties with respect to indemnification for any and all Tax matters (including those contained in Section 4.19 and Section 5.12) shall be governed by Article VIII; provided that -------- the limitations, manner of payment and procedures shall be governed by this Article X. SECTION 10.06. Tax Benefits; Insurance Proceeds. Any -------------------------------- indemnification payment required to be made pursuant to this Agreement shall be reduced by (a) any net Tax benefits derived or to be derived by the Indemnified Person or any of its Affiliates with respect to the item giving rise to the indemnification payment, and (b) any insurance proceeds received by the Indemnified Person or any of its Affiliates with respect to the item giving rise to the indemnification payment. SECTION 10.07. Escrow Funds and Shares. The shares of Purchaser ----------------------- Common Stock and cash placed in escrow pursuant to Section 3.13 shall be applied to satisfy the indemnification rights of the Purchaser's Indemnified Persons pursuant to Article VIII and Article X on the same pro rata basis as would have been applied if the Persons on whose behalf the shares and cash have been placed into escrow had executed Joinder Agreements pursuant to Section 6.13 and otherwise in accordance with the terms of the Escrow Agreement. SECTION 10.08. Security; Limited Recourse. (a) The Shareholders -------------------------- will arrange for the issuance, on the Closing Date, of an irrevocable letter of credit in an amount equal to the Maximum Amount minus the amount of the Escrow ----- Consideration, issued by a 63 70 bank or other financial institution having a rating of at least "A+" from Standards & Poor's selected by the Shareholders, in favor of the Purchaser (the "Security"). The Security shall be in form and substance reasonably satisfactory -------- to the Company and the Purchaser. In the event that the issuer of the Security is downgraded below "A+", the Shareholders will replace the Security with a new irrevocable letter of credit issued by a financial institution having a rating of at least "A+." For purposes of this Section 10.08(a), the amount of the Escrow Consideration will be deemed to be the sum of (x) the amount of cash placed into escrow, plus (y) the product of the number of shares of Purchaser ---- Common Stock placed into escrow multiplied by the Average Parent Share Price. (b) The Security will be drawable in an amount necessary to satisfy the indemnification obligations of the Shareholders under Article VIII and Article X (i) upon the written request of the Shareholder Representative or (ii) upon the presentation to the issuer of the Security of the final non-appealable decision of an arbitrator or the final non-appealable judgment of a court having jurisdiction over the matters relating to the indemnification obligations of the Shareholders, in which instance the Security shall be drawable in the amount of such final non-appealable judgment. (c) The Security and the Escrow Consideration, if any, shall be the sole and exclusive remedy for any claims, demands, actions or causes of action by any of the Purchaser's Indemnified Persons under Article VIII and Article X of this Agreement, and the Purchaser's Indemnified Persons shall make claims under this Agreement only against the Security and the Escrow Consideration. SECTION 10.09. Exclusive Remedies. (a) The Purchaser, the Company ------------------ and the Shareholders acknowledge and agree that (i) following the Closing, the indemnification provisions of Article VIII and this Article X shall be the sole and exclusive remedy of each party for any breach by the other party of the representations and warranties in this Agreement and for any failure by the other party to perform and comply with any covenants and agreements that, by their terms, were to have been performed or complied with by such party prior to the Closing. In furtherance of the foregoing, each party hereby waives, to the fullest extent permitted under applicable law, any and all other rights, claims and causes of action it may have, from and after the Closing, against the other party hereto or its officers, directors, employees, agents, representatives and Affiliates relating thereto. (b) Except as set forth in this Agreement, the parties hereto are not making any representation, warranty, covenant or agreement with respect to the matters contained herein. Notwithstanding anything to the contrary contained in this Agreement, no breach of any representation, warranty, covenant or agreement contained herein shall give rise to any right on the part of any party hereto, after the consummation of the transactions contemplated by this Agreement, to rescind this Agreement or any of the transactions contemplated hereby. (c) Notwithstanding anything to the contrary contained in this Agreement, no party hereto shall have any liability under any provision of this Agreement for, and in no event shall the amount specified in Section 10.04(d) be applied to, any indirect, consequential or punitive damages or claims for loss of business or loss of profits. 64 71 ARTICLE XI TERMINATION AND WAIVER SECTION 11.01. Termination. This Agreement may be terminated at any ----------- time prior to the Closing: (a) by the Purchaser upon a material breach of any representation, warranty, covenant or agreement on the part of the Company set forth in this Agreement or if any representation or warranty of the Company shall have become untrue in any material respects, in either case such that the conditions set forth in Section 9.03 would not be satisfied; provided, -------- however, that, if such breach is curable by the Company, through the ------- exercise of its reasonable best efforts and for so long as the Company continues to exercise such reasonable best efforts after written notice thereof from the Purchaser to the Company, the Purchaser may not terminate this Agreement under this Section 11.01(a); (b) by the Company upon a material breach of any representation, warranty, covenant or agreement on the part of the Purchaser set forth in this Agreement, or if any representation or warranty of the Purchaser shall have become untrue in any material respect, in either case such that the conditions set forth in Section 9.02 would not be satisfied; provided, -------- however, that, if such breach is curable by the Purchaser through the ------- exercise of its reasonable best efforts and the Purchaser continues to exercise such reasonable best efforts after written notice thereof from the Company to the Purchaser, the Company may not terminate this Agreement under this Section 11.01(b); (c) by the Purchaser or the Company if this Agreement shall fail to receive the requisite affirmative vote for approval at the Company Shareholders' Meeting; (d) by the Company or the Purchaser if this Agreement and the issuance of shares of Purchaser Common Stock pursuant to the terms of the Merger shall fail to receive the requisite affirmative vote for approval at the Purchaser Stockholders' Meeting; (e) by either the Company or the Purchaser if the Closing shall not have occurred by June 1, 2001; provided, however, that the right to -------- ------- terminate this Agreement under this Section 11.01(e) shall not be available to any party whose failure to fulfill any obligation under this Agreement shall have been the cause of, or shall have resulted in, the failure of the Closing to occur on or prior to such date; (f) by either the Purchaser or the Company in the event that any Governmental Authority shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and nonappealable; or (g) by the mutual written consent of the Company and the Purchaser. 65 72 SECTION 11.02. Effect of Termination. In the event of termination of --------------------- this Agreement as provided in Section 11.01, this Agreement shall forthwith become void and there shall be no liability on the part of either party hereto except (a) as set forth in Sections 6.03 and 13.02, (b) that nothing herein shall relieve either party from liability for any willful breach of this Agreement, (c) that upon the termination of this Agreement by the Company or the Purchaser pursuant to Section 11.01(d), the Purchaser shall pay the Company a fee of $12,600,000 and (d) that, upon termination of this Agreement by the Company or the Purchaser pursuant to Section 11.01(c), the Company shall pay the Purchaser a fee of $12,600,000. SECTION 11.03. Waiver. Either party to this Agreement may (a) extend ------ the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties of the other party contained herein or in any document delivered by the other party pursuant hereto or (c) waive compliance with any of the agreements or conditions of the other party contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party to be bound thereby. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition, of this Agreement. The failure of any party to assert any of its rights hereunder shall not constitute a waiver of any of such rights. ARTICLE XII SHAREHOLDER REPRESENTATIVE SECTION 12.01. Designation. Subject to the terms and conditions of ----------- this Article XII, Goelet, LLC is designated as the representative of the Shareholders (the "Shareholder Representative") by each Shareholder to serve, -------------------------- and the Purchaser hereby acknowledges that the Shareholder Representative shall serve, as the sole representative of the Shareholders from and after the Effective Time with respect to the matters set forth in this Agreement, such service to be without compensation except for the reimbursement of out-of-pocket expenses and indemnification specifically provided herein. The Shareholder Representative has accepted such designation as of the date hereof. Notwithstanding anything to the contrary contained in this Agreement, the Shareholder Representative shall have no duties or responsibilities except those expressly set forth herein, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on behalf of any Shareholder shall otherwise exist against the Shareholder Representative. SECTION 12.02. Authority. Each of the Shareholders, by executing this --------- Agreement, will and hereby does, effective as of the Effective Time, irrevocably appoint the Shareholder Representative as the agent, proxy and attorney-in-fact for such Shareholder for all purposes of this Agreement, including full power and authority on such Shareholder's behalf (a) to execute and deliver to the Purchaser the Registration Rights Agreement and the Standstill and Voting Agreement, (b) to take all actions which the Shareholder Representative considers reasonably necessary or desirable in connection with the defense, pursuit or settlement of any determinations relating to any claims for indemnification pursuant to Article X, including to sue, defend, negotiate, settle and compromise any such claims for indemnification made by or against, and other disputes with, the Purchaser or the Purchaser Indemnified Persons pursuant 66 73 to this Agreement or any of the agreements or transactions contemplated hereby; (c) to engage and employ agents and representatives (including accountants, legal counsel and other professionals) and to incur such other expenses as the Shareholder Representative shall deem necessary or prudent in connection with the administration of the foregoing; (d) to accept and receive notices to the Shareholders pursuant to this Agreement; and (e) to take all other actions and exercise all other rights which the Shareholder Representative (in his sole discretion) considers necessary or appropriate in connection with this Agreement. Each of the Shareholders, by executing this Agreement, agrees that such agency and proxy are coupled with an interest, and are therefore irrevocable without the consent of the Shareholder Representative and shall survive the death, incapacity, bankruptcy, dissolution or liquidation of any Shareholder. All decisions and acts by the Shareholder Representative shall be binding upon all of the Shareholders, and no Shareholder shall have the right to object, dissent, protest or otherwise contest the same. SECTION 12.03. Reliance by Third Parties on the Shareholder -------------------------------------------- Representative's Authority. The Shareholder Representative is authorized to act - -------------------------- on the Shareholders' behalf and, notwithstanding any dispute or disagreement among the Shareholders and the other parties hereto, shall be entitled to rely on any and all action taken by the Shareholder Representative without any liability to, or obligation to inquire of, any of the Shareholders even if such party shall be aware of any actual or potential dispute or disagreement among the Shareholders. Each of the other parties hereto is expressly authorized to rely on the genuineness of the signature of the Shareholder Representative and, upon receipt of any writing which reasonably appears to have been signed by the Shareholder Representative, the other parties hereto may act upon the same without any further duty of inquiry as to the genuineness of the writing. SECTION 12.04. Exculpation and Indemnification. Neither the ------------------------------- Shareholder Representative nor any agent employed by him shall be liable to any Shareholder relating to the performance of his duties under this Agreement for any errors in judgment, negligence, oversight, breach of duty or otherwise, except to the extent it is finally determined in a court of competent jurisdiction by clear and convincing evidence that the actions taken or not taken by the Shareholder Representative constituted fraud or were taken or not taken in bad faith. The Shareholder Representative shall be indemnified and held harmless by the Shareholders against all Losses paid or incurred in connection with any action, suit, proceeding or claim to which the Shareholder Representative is made a party by reason of the fact that he was acting as the Shareholder Representative pursuant to this Agreement; provided, however, that -------- ------- the Shareholder Representative shall not be entitled to indemnification hereunder to the extent it is finally determined in a court of competent jurisdiction that the actions taken or not taken by the Shareholder Representative constituted fraud or were taken or not taken in bad faith. The Shareholder Representative shall be protected in acting upon any notice, statement or certificate believed by him to be genuine and to have been furnished by the appropriate person and in acting or refusing to act in good faith on any matter. 67 74 ARTICLE XIII GENERAL PROVISIONS SECTION 13.01. Survival of Representations and Warranties. (a) The ------------------------------------------ representations, warranties and agreements in this Agreement and in any certificate delivered pursuant hereto shall survive the Effective Time for a period of 12 months, provided, however, that Section 4.19 shall survive until -------- ------- the close of business on the applicable statute of limitations with respect to the Tax Liabilities in question (giving effect to any waiver, mitigation or extension thereof). (b) The Purchaser acknowledges and agrees (and, upon the occurrence of the Closing, shall be deemed to have acknowledged and agreed as of the Closing Date) that it (i) has made its own inquiry and investigation into, and, based thereon, has formed an independent judgment concerning, the Company and the Company Subsidiaries, (ii) has been furnished with or given adequate access to such information about the Company and the Company Subsidiaries as it has requested and (iii) except as provided for pursuant to this Agreement, will not assert any claim against any of the Company's or any Company Subsidiaries' directors, officers, employees, agents, stockholders, affiliates, consultants, investment bankers or representatives, or hold any such Person liable for any inaccuracies, misstatements or omissions with respect to information furnished by the Company, any Company Subsidiary or any such Person concerning the Company and the Company Subsidiaries. SECTION 13.02. Expenses. All costs and expenses, including, without -------- limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses, whether or not the Closing shall have occurred. SECTION 13.03. Notices. All notices, requests, claims, demands and ------- other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by courier service, by cable, by telecopy, by telegram, by telex or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 13.03): (a) if to the Company: NORIC Corporation c/o Goelet LLC 425 Park Avenue New York, NY 10022 Telecopy: (212) 588-9499 Attention: Robert Kiley 68 75 with a copy to: Shearman & Sterling 599 Lexington Avenue New York, NY 10022 Telecopy: (212) 848-7179 Attention: Whitney D. Pidot, Esq. (b) if to the Purchaser: Pogo Producing Company 5 Greenway Plaza, Suite 2700 P.O. Box 2504 Houston, Texas 77252-2504 Telecopy: (713) 297-4970 Attention: Gerald A. Morton, Vice President-Law and Corporate Secretary with a copy to: Baker Botts, L.L.P. One Shell Plaza 910 Louisiana Houston, Texas 77002 Telecopy: (713) 229-1522 Attention: Stephen A. Massad (c) If to any Shareholder, at the address specified below such person's name on the signature pages to this Agreement or in the relevant Joinder Agreement. SECTION 13.04. Public Announcements. No party to this Agreement shall -------------------- make, or cause to be made, any press release or public announcement in respect of this Agreement or the transactions contemplated hereby, or otherwise communicate with any news media without the prior consent of the other party, unless required by law or stock exchange rule, and the parties shall cooperate as to the timing and contents of any such press release or public announcement. SECTION 13.05. Headings. The descriptive headings contained in this -------- Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 13.06. Severability. If any term or other provision of this ------------ Agreement is invalid, illegal or incapable of being enforced by any rule of Law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as 69 76 possible in a mutually acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the fullest extent possible. SECTION 13.07. Entire Agreement. This Agreement constitutes the ---------------- entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. SECTION 13.08. Assignment. Neither this Agreement nor any of the ---------- rights, interests or obligations hereunder shall be assigned by operation of law or otherwise without the prior written consent of the parties hereto, which consent may be granted or withheld in the sole discretion of the parties. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Notwithstanding anything contained in this Agreement to the contrary, except for the provisions of Articles III, VII, VIII and X (collectively, the "Third Party Provisions"), nothing in this Agreement, express ---------------------- or implied, is intended to confer on any Person other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement. The Third Party Provisions may be enforced by the beneficiaries thereof. SECTION 13.09. Amendment. This Agreement may not be amended or --------- modified except (a) by an instrument in writing signed by each of, or on behalf of each of, the parties or (b) by a waiver in accordance with Section 11.03. SECTION 13.10. Governing Law; Forum. Except to the extent that the -------------------- laws of the State of Delaware are applicable to the internal affairs of the Purchaser or mandatorily applicable to the Merger, this Agreement shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts executed in and to be performed in that State. Any dispute or controversy arising under or in connection with this Agreement that cannot be mutually resolved by the parties hereto shall be settled exclusively by arbitration in New York, New York, United States of America, before one arbitrator of exemplary qualifications and stature, who shall be selected jointly by the Purchaser and the Company or (after the Effective Time) the Shareholder Representative, or, if the Purchaser and the Company or (after the Effective Time) the Shareholder Representative, cannot agree on the selection of the arbitrator, shall be selected by the American Arbitration Association from its Large and Complex Cases Panel; provided that any arbitrator selected by the -------- American Arbitration Association shall not, without the consent of the parties hereto, be affiliated with the Purchaser, the Company, the Shareholders or any of their respective affiliates. Judgment may be entered on the arbitrator's award in any court having jurisdiction. The arbitrator's award shall be issued in writing. SECTION 13.11. Counterparts. This Agreement may be executed and ------------ delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed and delivered shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement. 70 77 SECTION 13.12. Specific Performance. The parties hereto agree that -------------------- irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity. [The Remainder of This Page is Intentionally Left Blank] 71 78 IN WITNESS WHEREOF, the Company and the Purchaser have caused this Agreement to be executed by their respective officers thereunto duly authorized and each Significant Shareholder has executed this Agreement, in each case as of the date first written above. POGO PRODUCING COMPANY By: /s/ Paul G. Van Wagenen _________________________________________ Name: Paul G. Van Wagenen Title: Chairman, President and Chief Executive Officer 79 NORIC CORPORATION By: /s/ Robert W. Kiley _____________________________________ Name: Robert W. Kiley Title: President and Chief Operating Officer By: /s/ Mark Rosenbaum _____________________________________ Name: Mark Rosenbaum Title: Chief Financial Officer and Treasurer 80 SIGNIFICANT SHAREHOLDERS: TRUSTEES OF THE TRUST U/W TRUSTEES OF THE TRUST U/W ROBERT WALTON GOELET F/B/O ROBERT WALTON GOELET F/B/O BEATRICE G. MANICE ROBERT G. GOELET /s/ Robert G. Goelet /s/ Robert G. Goelet _______________________________ _________________________________ Robert G. Goelet, as Trustee Robert G. Goelet, as Trustee /s/ Philip Goelet /s/ Alexandra C. Goelet _______________________________ _________________________________ Philip Goelet, as Trustee Alexandra C. Goelet, as Trustee /s/ Edmond de La Haye Jousselin /s/ Philip Goelet _______________________________ _________________________________ Edmond de La Haye Jousselin, Philip Goelet, as Trustee as Trustee /s/ John H. Manice /s/ Edmond de La Haye Jousselin _______________________________ _________________________________ John H. Manice, as Trustee Edmond de La Haye Jousselin, as Trustee _______________________________ Pamela Manice, as Trustee TRUSTEES OF THE TRUST U/W ROBERT WALTON GOELET F/B/O JOHN GOELET /s/ Robert G. Goelet _______________________________ Robert G. Goelet, as Trustee /s/ Christopher Goelet _______________________________ Christopher Goelet, as Trustee /s/ Philip Goelet _______________________________ Philip Goelet, as Trustee /s/ Edmond de La Haye Jousselin _______________________________ Edmond de La Haye Jousselin, as Trustee /s/ Robert S. Rich _______________________________ Robert S. Rich, as Trustee 81 TRUSTEES OF THE TRUST U/A TRUSTEES OF THE TRUST U/A DATED August 26, 1930 F/B/O DATED August 26, 1930 F/B/O BEATRICE G. MANICE ROBERT G. GOELET /s/ Robert G. Goelet /s/ Alexandra C. Goelet _______________________________ _______________________________ Robert G. Goelet, as Trustee Alexandra C. Goelet, as Trustee /s/ Philip Goelet /s/ Philip Goelet _______________________________ _______________________________ Philip Goelet, as Trustee Philip Goelet, as Trustee /s/ Edmond de La Haye Jousselin /s/ Edmond de La Haye Jousselin _______________________________ _______________________________ Edmond de La Haye Jousselin, Edmond de La Haye Jousselin, as Trustee as Trustee /s/ John H. Manice _______________________________ John H. Manice, as Trustee _______________________________ Pamela Manice, as Trustee TRUSTEES OF THE TRUST U/A DATED December 18, 1931 F/B/O JOHN GOELET /s/ Robert G. Goelet _______________________________ Robert G. Goelet, as Trustee /s/ Christopher Goelet _______________________________ Christopher Goelet, as Trustee /s/ Philip Goelet _______________________________ Philip Goelet, as Trustee /s/ Edmond de La Haye Jousselin _______________________________ Edmond de La Haye Jousselin, as Trustee /s/ Robert S. Rich _______________________________ Robert S. Rich, as Trustee 82 TRUSTEES OF THE TRUST U/A TRUSTEES OF THE TRUST U/A DATED JULY 27, 1935 F/B/O DATED JULY 27, 1935 F/B/O BEATRICE G. MANICE ROBERT G. GOELET /s/ Robert G. Goelet /s/ Alexandra C. Goelet _______________________________ ________________________________ Robert G. Goelet, as Trustee Alexandra C. Goelet, as Trustee /s/ Philip Goelet /s/ Philip Goelet _______________________________ ________________________________ Philip Goelet, as Trustee Philip Goelet, as Trustee /s/ Edmond de La Haye Jousselin /s/ Edmond de La Haye Jousselin _______________________________ ________________________________ Edmond de La Haye Jousselin, Edmond de La Haye Jousselin, as Trustee as Trustee /s/ John H. Manice _____________________________ John H. Manice, as Trustee _____________________________ Pamela Manice, as Trustee TRUSTEES OF TRUSTEES OF THE TRUST U/A TRUSTEES OF THE TRUST U/A DATED JULY 27, 1935 F/B/O DATED JULY 27, 1935 F/B/O FRANCIS GOELET JOHN GOELET /s/ Robert G. Goelet /s/ Robert G. Goelet _____________________________ ________________________________ Robert G. Goelet, as Trustee Robert G. Goelet, as Trustee /s/ Philip Goelet /s/ Christopher Goelet _____________________________ ________________________________ Philip Goelet, as Trustee Christopher Goelet, as Trustee /s/ Edmond de La Haye Jousselin /s/ Philip Goelet _____________________________ ________________________________ Edmond de La Haye Jousselin, Philip Goelet, as Trustee as Trustee /s/ Edmond de La Haye Jousselin ________________________________ Edmond de La Haye Jousselin, as Trustee /s/ Robert S. Rich ________________________________ Robert S. Rich, as Trustee 83 /s/ Robert G. Goelet ________________________________ Name: Robert G. Goelet /s/ Philip Goelet ________________________________ Name: Philip Goelet /s/ Christopher Goelet ________________________________ Name: Christopher Goelet /s/ Gilbert Kerlin ________________________________ Name: Gilbert Kerlin WINDWARD OIL & GAS CORPORATION By: /s/ Gilbert Kerlin ____________________________ Name: Gilbert Kerlin Title: President EX-4.2 3 h84916ex4-2.txt REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 4.2 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT dated as of March 14, 2000 (this "Agreement"), among POGO PRODUCING COMPANY, a Delaware corporation (the "Company"), the persons listed on Schedule A hereto and any other person who from time to time agrees to become a party to this Agreement in accordance with the provisions hereof (each person listed on Schedule A and each such other person who becomes a party hereto is referred to herein as a "Shareholder" and collectively, the "Shareholders"). W I T N E S S E T H: WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of November 19, 2000 (the "Merger Agreement"), among the Company, NORIC Corporation, a New York Corporation ("NORIC") and the Shareholders (as defined in the Merger Agreement), the parties have agreed that NORIC would be acquired by the Company through the merger of NORIC with and into the Company on the terms set forth therein (the "Merger"); WHEREAS, pursuant to the Merger Agreement, upon consummation of the Merger, the Shareholders will receive in exchange for their shares of common stock of NORIC, shares of common stock, par value $1.00 per share, of the Company ("Common Stock") which have been issued pursuant to one or more exemptions from registration under the Securities Act of 1933, as amended (the "Securities Act"); WHEREAS, the Shareholders and the Company desire to set forth herein their agreement with respect to the registration rights, and certain other related covenants, applicable to the shares of Common Stock to be issued by the Company to the Shareholders upon consummation of the Merger; and WHEREAS, pursuant to Section 12.02 of the Merger Agreement, the Shareholders irrevocably appointed Goelet, LLC as the agent, proxy and attorney-in-fact for the Shareholders to execute and deliver to the Company this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual obligations, covenants and agreements herein contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1 Definitions. Capitalized terms used herein and not defined have the meanings assigned to such terms in the Merger Agreement. For purposes of this Agreement, the following terms shall have the meanings set forth below: 2 "Commission" means the United States Securities and Exchange Commission or any other similar or successor agency of the United States government administering the Securities Act and the Exchange Act. "Effective Time" has the meaning specified in the Merger Agreement. "Offering" means the registration of the Company's securities under the Securities Act for sale to the public. "Prospectus" means the prospectus included in any Registration Statement, together with and including any amendment or supplement to such prospectus, covering the Offering of any portion of the Registrable Securities covered by a Registration Statement, and all material incorporated by reference in such Prospectus. "Public Offering" shall mean the offer of shares of Common Stock or securities convertible into or exchangeable for Common Stock on a broadly distributed basis, pursuant to a firm-commitment or best-efforts underwriting or purchase arrangement. "Registering Shareholder" shall mean any Shareholder that has registered any Registrable Securities under any Registration Statement. "Registrable Securities" means the Shares issued to the Shareholders pursuant to the Merger and any other securities issued by the Company to the Shareholders at any time after the closing of the Merger in respect of the Shares (and in respect of the Common Stock generally) by means of exchange, reclassification, dividend, distribution, split up, combination, subdivision, recapitalization, merger, spin-off, reorganization or otherwise; provided, however, that as to any Registrable Securities, such securities shall cease to constitute the same for purposes of this Agreement if and when (i) a registration statement with respect to the sale of such securities shall have been declared effective by the Commission and such securities shall have been sold pursuant thereto in accordance with the intended plan and method of distribution therefor set forth in the Prospectus forming part of such registration statement; (ii) such securities shall have been sold in compliance with Rule 144 under the Securities Act; (iii) such securities may be resold pursuant to Rule 144(k) under the Securities Act (or any successor provision) or all of such Shareholder's Registrable Securities may be resold in a single ninety (90) day period under Rule 144(e)(1)(i) of the Securities Act and do not require qualification under any state securities or "blue sky" law then in effect, or the use of an applicable exemption therefrom and, in each case, the Company has notified the transfer agent for the Common Stock that any restrictive legend on such Shares may be removed in connection with a transfer thereof; or (iv) such securities cease to be issued and outstanding for any reason. "Registration Statement" means any registration statement filed by the Company with the Commission covering Registrable Securities, including the Prospectus, amendments and supplements to such Registration Statement, including 2 3 post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such Registration Statement. "Shares" means the shares of Common Stock issued by the Company to the Shareholders upon consummation of the Merger, any shares of stock or other securities into which or for which such shares of Common Stock may be changed, converted or exchanged after the Effective Time, and any other shares or securities issued to the Shareholders after the Effective Time in respect of such shares of Common Stock (or such shares of stock or other securities into which or for which such shares are so changed, converted or exchanged) upon any reclassification, stock combination, stock subdivision, stock dividend, share exchange, merger, consolidation or similar transaction. The number of shares of Common Stock issued by the Company to each Shareholder upon consummation of the Merger is set forth on Schedule A annexed hereto. "Shareholder Representative" has the meaning set forth in Section 6.2 hereof. ARTICLE II REGISTRATION RIGHTS 2.1 Registration; Public Offering. (a) The Company shall prepare and file, not later than 150 days after the Effective Time, a "shelf" Registration Statement on Form S-3 (or other appropriate form) for an offering to be made on a continuous basis pursuant to Rule 415 promulgated under the Securities Act of such number of Registrable Securities then owned by the Shareholders. The Company shall use its reasonable best efforts to cause the Registration Statement to be declared effective no later than on the 181st calendar day following the Effective Time. The Company will use its reasonable best efforts to keep the Registration Statement continuously effective and usable for the resale of the Registrable Securities under the Securities Act until the earlier of (i) two (2) years from the Effective Time, (ii) the first date upon which all the Registrable Securities covered by such shelf Registration Statement have been sold pursuant to such shelf Registration Statement or (iii) the first date upon which all the Registrable Securities cease to be outstanding for any reason. (b) If during the period from the 181st day following the Effective Time through the second anniversary of the Effective Time, the Shareholder Representative, upon the request of the Shareholders holding at least 50% of the Registrable Securities, shall request the Company in writing (a "Demand") to permit the use of the shelf Registration Statement for a Public Offering of a specified number of Registrable Securities, the Company shall, subject to the provisions of Section 3.1(b), use its reasonable best efforts to take such action as may be necessary to enable the requesting shareholders to effect a Public Offering of the Registrable Securities requested to be included in the Public Offering; provided that the number of Registrable Securities requested to be distributed pursuant to such Demand shall not be less than 4,000,000 and shall not exceed 7,000,000 and provided further that the number of shares of Registrable Securities each Shareholder will be entitled to have included in such Public Offering 3 4 pursuant to this Section 2.1 shall be allocated among all Shareholders requesting to participate in such Public Offering in proportion (as nearly as practicable) to the amount of Registrable Securities owned by each requesting Shareholder at the time of the Public Offering. Except as provided in Section 2.1(b), the manner of distribution for Registrable Securities included in the shelf Registration Statement shall not include a Public Offering. (c) In connection with any Demand under Section 2.1(b), the Shareholder Representative shall enter into an underwriting agreement and other ancillary agreements (such as a custody agreement) in customary form with the underwriter or underwriters. The Shareholder Representative will select the lead underwriter for such offering from the list of institutions set forth on Schedule B hereto or their successors and the Company shall select the co-manager for such offering from the institutions on such list or their successors. No Shareholders shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Shareholder, the Registrable Securities of such Shareholder and such Shareholder's intended method of distribution and any other representations required by law or reasonably required by the underwriter. If any Shareholder of Registrable Securities disapproves the terms of the underwriting, such Shareholder may elect to withdraw all its Registrable Securities by written notice to the Company, the managing underwriter and the Shareholder Representative. (d) In the event that, pursuant to Section 6.10 of the Merger Agreement, the issuance of Purchaser Common Stock in the Merger is registered under the Securities Act on Form S-4, the registration otherwise required by this Section 2.1 may be accomplished by providing for the resales required to be registered pursuant to this Section 2.1 in the prospectus included in the Form S-4. In such event, (a) such prospectus may not be used for resales until the 181st calendar day following the Effective Time and the use thereof for resales thereafter shall otherwise be subject to the same terms and conditions provided for herein, (b) no public resales may be made pursuant to Rule 145(d) under the Securities Act, or otherwise (other than pursuant to a Public Offering in which Shareholders participate under Section 2.4) until the 181st calendar day following the Effective Time, and (c) any public resales pursuant to Rule 145(d) or otherwise during the twelve month period specified in Section 2.6 (other than pursuant to a Public Offering requested pursuant Section 2.1 or in which Shareholders participate under Section 2.4) shall be subject to the volume limitations specified in Section 2.6. 2.2 Limit on Demand. The Company shall not be required to permit the use of the shelf Registration Statement to effect any Public Offering pursuant to Section 2.1 after one Demand requested by the Shareholders pursuant to Section 2.1 shall have been effected. 2.3 Effective Distribution. A Public Offering requested pursuant to Section 2.1 shall not be deemed to be effected (a) if such Public Offering is interfered with for any reason by any stop order, injunction or other order or requirement of the 4 5 Commission or any other governmental authority, or as a result of the initiation of any proceeding for such a stop order by the Commission through no fault of the Shareholders or the Shareholder Representative and the result of such interference is to prevent the Shareholders from disposing of such Registrable Securities proposed to be sold in accordance with the intended methods of disposition, or (b) if the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with any underwritten offering shall not be satisfied or waived with the consent of the Shareholder Representative, other than as a result of any breach by the Shareholder Representative or any underwriter of its obligations thereunder or hereunder. 2.4 "Piggy-Back" Rights. If the Company proposes to register any shares of Common Stock for itself or any of its stockholders (the "Existing Holders") under the Securities Act on a Registration Statement on Form S-1, Form S-2 or Form S-3 (or an equivalent general registration form then in effect) for purposes of a Public Offering of such shares, the Company shall give written notice of such proposal at least ten (10) business days before the anticipated filing date, which notice shall include the intended method of distribution of such shares, to the Shareholder Representative. Such notice shall specify at a minimum the number of shares of Common Stock proposed to be registered, the proposed filing date of such Registration Statement, any proposed means of distribution of such shares and the proposed managing underwriter, if any. Subject to Section 2.6, upon the written request of any Shareholder given within five business days after the receipt of any such written notice by facsimile confirmed by mail (which request shall specify the Registrable Securities intended to be disposed of by such Shareholder), the Company will use its commercially reasonable efforts to include in such Public Offering the Registrable Securities referred to in the Shareholder's request; provided, however, that any participation in such Public Offering by any Shareholder shall be on substantially the same terms as the Company's (or its other stockholders') participation therein; and provided further that the amount of Registrable Securities to be included in any such Public Offering shall not exceed the maximum number which the managing underwriter of such Public Offering considers in its reasonable commercial judgment to be appropriate based on market conditions and other relevant factors (the "Maximum Number"). The Shareholders shall have the right to withdraw a request to include Registrable Securities in any Public Offering pursuant to this Section 2.4 by giving written notice to the Company of its election to withdraw such request at least two (2) business days prior to the proposed effective date of such Registration Statement. In connection with any exercise of rights under this Section 2.4, the registration under the Securities Act of the Registrable Securities to be included therein may be by means of the shelf Registration Statement filed pursuant to Section 2.1, rather than a separate registration statement filed to register the shares to be sold for the account of the Company or any Existing Holders, so long as the rights of the Shareholders to participate in the Public Offering being effected under Section 2.4 are not thereby prejudiced or impaired in any material respect. 2.5 Allocation of Securities Included in a Public Offering. If the lead managing underwriter for any Public Offering to be effected pursuant to Section 2.4 of 5 6 this Agreement shall advise the Shareholder Representative in writing that the number of shares of Common Stock sought to be included in such Public Offering (including those sought to be offered by the Company and those sought to be offered by the Shareholders) is more than the Maximum Number, the shares of Common Stock to be included in such Public Offering shall be allocated pursuant to the following procedures: first, the Company shall be entitled to include all of the securities that it has proposed to include, and then, to the extent that any other securities may be included without exceeding the Maximum Number, the number of Registrable Securities that will be included in such Registration Statement shall be allocated among all Shareholders requesting such registration in proportion (as nearly as practicable) to the amount of Registrable Securities owned by each requesting Shareholder at the time of filing the Registration Statement. 2.6 Sale Restrictions. Other than pursuant to a Public Offering requested pursuant to Section 2.1 or in which Shareholders participate under Section 2.4, during the twelve (12) month period starting on the 181st day following the Effective Time, the Shareholders shall not be permitted to sell, pursuant to the shelf Registration Statement or pursuant to Rule 144, in the aggregate, more than 1,000,000 Shares during any period of 90 consecutive days of such twelve month period (the "90 Day Restriction Periods"). Each Shareholder will be entitled to sell on any given day a number of shares equal to the number of shares which such Shareholder has notified the Shareholder Representative such Shareholder desires to sell, provided however, that if Shareholders desire to sell more shares than is permitted by the limitation described above, then each Shareholder desiring to sell Shares that day will have the number of shares they may sell reduced pro rata based on the number of shares they requested to sell. 2.7 Lock-Up Agreement. It shall be a condition to each Shareholder's participation in any Public Offering pursuant to Section 2.1(b) or Section 2.4, that such Shareholder agrees to execute and deliver to the underwriter or underwriters for such offering a customary lock-up agreement in form and substance reasonably satisfactory to the underwriter, providing for a lock-up of the Registrable Securities of each such Shareholder for a period of up to 90 days after the closing of the relevant offering. ARTICLE III OBLIGATIONS OF THE COMPANY 3.1 (a) The Company shall (i) prepare and file with the Commission such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be reasonably necessary to make and to keep such Registration Statement effective and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities proposed to be registered pursuant to such Registration Statement for the period specified in that Section 2.1; and (ii) take all such other action either necessary or desirable to permit the shares of Registrable Securities held by the Shareholders to be registered and disposed of in accordance with the method of disposition described herein. 6 7 (b) Notwithstanding anything to the contrary contained herein, the Company may, upon written notice to the Shareholders whose Registrable Securities are included in the shelf Registration Statement filed pursuant to Section 2.1, suspend such Shareholders' use of any prospectus which is a part of the shelf Registration Statement if, in the reasonable judgment of counsel to the Company, the Company possesses material nonpublic information, including information concerning it or its business or affairs or information concerning the pursuit of a merger, disposition or similar transaction, and the Company determines in good faith that disclosure would have a material adverse effect on the Company and its subsidiaries taken as a whole or would materially adversely affect the ability to consummate such merger, disposition or similar transaction; provided that the Company may not suspend any such sales for more than an aggregate of sixty (60) consecutive days or for an aggregate of one hundred twenty (120) days (a "Blackout Period") in any period of twelve (12) consecutive months. Upon the termination of the condition described above, the Company shall give prompt notice to the Shareholders whose Registrable Securities are included in the shelf Registration Statement, and shall promptly terminate any suspension of sales it has put into effect and shall take such other actions to permit registered sales of Registrable Securities as contemplated by this Agreement. (c) In connection with any Registration Statement, the following provisions shall apply: (1) The Company shall furnish to the Shareholder Representative, prior to the filing thereof with the Commission, a copy of any Registration Statement, and each amendment thereof and each amendment or supplement, if any, to the Prospectus included therein and shall afford the Shareholder Representative, the managing underwriters, and their respective counsel, if any, a reasonable opportunity within a reasonable time period to review and comment on copies of all such documents (including a reasonable opportunity to review copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed. (2) The Company shall take such action as may be necessary so that: (i) any Registration Statement and any amendment thereto and any Prospectus forming part thereof and any amendment or supplement thereto (and each report or other document incorporated therein by reference) complies in all material respects with the Securities Act and the Exchange Act and the respective rules and regulations thereunder, (ii) any Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (iii) any Prospectus forming part of any Registration Statement, and any amendment or supplement to such Prospectus, does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 7 8 (3) (A) The Company shall advise the Shareholders and the Shareholder Representative and, if requested by the Shareholders and the Shareholder Representative, confirm such advice in writing: (i) when a Registration Statement and any amendment thereto has been filed with the Commission and when the Registration Statement or any post-effective amendment thereto has become effective; and (ii) of any request by the Commission for amendments or supplements to the Registration Statement or the Prospectus included therein or for additional information related thereto. (B) The Company shall advise the Shareholders and the Shareholder Representative and, if requested by any Shareholder or the Shareholder Representative, confirm such advice in writing of: (i) the issuance by the Commission of any stop order suspending effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (ii) the receipt by the Company of any notification with respect to the suspension of the qualification of the securities included therein for sale in any jurisdiction or the initiation of any proceeding for such purpose; and (iii) the happening of any event that requires the making of any changes in the Registration Statement or the Prospectus so that, as of such date, the Registration Statement and the Prospectus do not contain an untrue statement of a material fact and do not omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in the light of the circumstances under which they were made) not misleading (which advice shall be accompanied by an instruction to suspend the use of the Prospectus relating to such Registrable Securities until the requisite changes have been made). (4) The Company shall use its reasonable best efforts to prevent the issuance, and if issued to obtain the withdrawal, of any order suspending the effectiveness of the Registration Statement relating to such Registrable Securities at the earliest possible time. (5) The Company shall furnish to the Shareholders and the Shareholder Representative with respect to the Registration Statement relating to such Registrable Securities, without charge, such number of copies of such Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and all reports, other documents and exhibits 8 9 (including those incorporated by reference) as the Shareholders and the Shareholder Representative shall reasonably request. (6) The Company shall furnish to the Shareholders and the Shareholder Representative such number of copies of any Prospectus (including any preliminary Prospectus and any amended or supplemented Prospectus) relating to such Registrable Securities, in conformity with the requirements of the Securities Act, as the Shareholders and the Shareholder Representative may reasonably request in order to effect the offering and sale of the shares of such Registrable Securities to be offered and sold, but only while the Company shall be required under the provisions hereof to cause the Registration Statement to remain effective, and the Company consents (except during a Blackout Period or event contemplated by Section 3.1(b)) to the use of the Prospectus or any amendment or supplement thereto by the Shareholders in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto. (7) To the extent necessary in connection with any offering of Registrable Securities pursuant to any Registration Statement, the Company shall use its commercially reasonable efforts to register or qualify the Registrable Securities covered by such Registration Statement under the securities or blue sky laws of such states as the Shareholder Representative shall reasonably request, maintain any such registration or qualification current until the earlier of the sale of the Registrable Securities so registered or ninety (90) calendar days subsequent to the effective date of the Registration Statement, and do any and all other acts and things either reasonably necessary or advisable to enable any Shareholder to consummate the public sale or other disposition of the Registrable Securities in jurisdictions where such Shareholder desires to effect such sales or other disposition; provided that the Company shall not be required to take any action that would subject it to the general jurisdiction of the courts of any jurisdiction in which it is not so subject or to qualify as a foreign corporation in any jurisdiction where the Company is not so qualified. (8) In connection with any offering of Registrable Securities registered pursuant to this Agreement, the Company shall (x) furnish the Shareholders, at the Company's expense, on a timely basis with certificates free of any restrictive legends representing ownership of the Registrable Securities being sold in such denominations and registered in such names as the Shareholders shall request and (y) instruct the transfer agent and registrar of the Registrable Securities to release any stop transfer orders with respect to the Registrable Securities. (9) Upon the occurrence of any event contemplated by Section 3.1(c)(3)(B)(iii) above, the Company shall promptly prepare a post-effective amendment to any Registration Statement or an amendment or supplement to the related Prospectus or file any other required document so that, as thereafter delivered to purchasers of the Registrable Securities included therein, 9 10 the Prospectus will not include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. If the Company notifies the Shareholders and the Shareholder Representative of the occurrence of any Blackout Period or any event contemplated by Section 3.1(b) above, the Shareholders shall suspend the use of the Prospectus, for a period not to exceed sixty (60) calendar days in accordance with Section 3.1(b), until the requisite changes to the Prospectus have been made. (10) The Company shall make generally available to its security holders or otherwise provide in accordance with Section 11(a) of the Securities Act as soon as practicable after the effective date of the applicable Registration Statement an earnings statement satisfying the provisions of Section 11(a) of the Securities Act. (11) The Company shall, if requested, promptly include or incorporate in a Prospectus supplement or post-effective amendment to a Registration Statement, such information as the managing underwriters administering an underwritten offering of the Registrable Securities registered thereunder reasonably request to be included therein and to which the Company does not reasonably object and shall make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after they are notified of the matters to be included or incorporated in such Prospectus supplement or post-effective amendment. (12) If requested in connection with a Public Offering pursuant to a Demand under Section 2.1(b), the Company shall enter into an underwriting agreement with a nationally recognized investment banking firm or firms selected as provided in Section 2.1(c) containing representations, warranties, indemnities and agreements then customarily included by an issuer in underwriting agreements with respect to secondary underwritten distributions, and in connection therewith, if an underwriting agreement is entered into, cause the same to contain indemnification provisions and procedures substantially identical to those set forth in Article V (or such other provisions and procedures acceptable to the managing underwriters, if any) with respect to all parties to be indemnified pursuant to Article V and take all such other actions as are reasonably requested by the managing underwriters for such underwritten offering in order to expedite or facilitate the registration or the disposition of such Registrable Securities. (13) In the event the Shareholder Representative proposes to conduct an underwritten Public Offering pursuant to Section 2.1, then the Company shall: (i) make reasonably available for inspection by the Shareholder Representative and its counsel, any underwriter participating in any distribution pursuant to such Registration Statement, and any attorney, accountant or other agent retained by the Shareholder Representative or any such underwriter, all relevant financial and other records, pertinent corporate documents and properties of the Company and 10 11 its subsidiaries as shall be reasonably necessary to enable them to conduct a "reasonable" investigation for purposes of Section 11(a) of the Securities Act; (ii) cause the Company's officers, directors and employees to make reasonably available for inspection all relevant information reasonably requested by the Shareholder Representative or any such underwriter, attorney, accountant or agent in connection with any such Registration Statement, in each case, as is customary for similar due diligence examinations; provided that any information that is designated in writing by the Company, in good faith, as confidential at the time of delivery of such information shall be kept confidential by the Shareholder Representative, such underwriter, or any such, attorney, accountant or agent, unless such disclosure is made in connection with a court proceeding or required by law, or such information becomes available to the public generally or through a third party without an accompanying obligation of confidentiality; (iii) obtain opinions of counsel to the Company and updates thereof which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, addressed to the Shareholder Representative and the underwriters, if any, covering such matters as are customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by the Shareholder Representative and underwriters (it being agreed that the matters to be covered by such opinion or written statement by such counsel delivered in connection with such opinions shall include in customary form, without limitation, as of the date of the opinion and as of the effective date of the Registration Statement or most recent post-effective amendment thereto, as the case may be, "negative assurance" statements to the effect that nothing has come to the attention of such counsel that leads them to believe such Registration Statement and the Prospectus included therein, as then amended or supplemented, including the documents incorporated by reference therein, contain an untrue statement of a material fact or omit to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading); (iv) obtain "cold comfort" letters and updates thereof from the independent public accountants of the Company (and, if necessary, any other independent public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to the Shareholder Representative and the underwriters, if any, in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with primary underwritten offerings; and (v) deliver such documents and certificates as may be reasonably requested by the Shareholder Representative and the managing underwriters, if any, and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. The foregoing actions set forth in clauses (iii), (iv) and (v) of this Section 3.01(c)(13) shall be performed at each closing under any underwritten offering to the extent required thereunder. 11 12 (14) The Company will ensure that the Registrable Securities are admitted for listing on the New York Stock Exchange or other stock exchange or trading system on which the Shares primarily trade on or prior to the 181st day after the Effective Time. (15) The Company shall use its reasonable best efforts to take all other steps reasonably necessary to effect the registration, offering and sale of the Registrable Securities covered by a Registration Statement contemplated hereby and enter into any other customary agreements and take such other actions, including participation of senior management in "roadshows" as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities in any underwritten offering contemplated hereby, and the Company shall secure the participation of its senior management for such purposes. (d) With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of the Registrable Securities to the public without registration, the Company agrees to: (1) Make and keep public information available, as those terms are understood and defined in and interpreted under Rule 144, at all times; (2) During the term of this Agreement, furnish to the Shareholders and the Shareholder Representative upon request: (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 or (ii) a copy of the most recent annual or quarterly report of the Company. ARTICLE IV EXPENSES 4.1 Expenses Payable by the Company. Except as provided in Section 4.2 below, all fees and expenses incident to the registration and sale of Registrable Securities shall be borne by the Company whether or not a Registration Statement is filed or becomes effective, including, without limitation, (i) all registration, qualification and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the New York Stock Exchange and (B) fees and expenses of compliance with state securities or blue sky laws (including, without limitation, fees and disbursements of counsel for the Company or the underwriters, or both, in connection with blue sky qualifications of the Registrable Securities)), (ii) messenger and delivery expenses, word processing, duplicating and printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depository Trust Company, printing preliminary Prospectuses, Prospectuses, Prospectus supplements, including those delivered to or for the account of the Shareholders and the Shareholder Representative as provided in this Agreement, (iii) fees and disbursements of counsel for the Company, (iv) fees and disbursements of all independent certified public accountants for the Company (including, without limitation, the expenses of any "comfort letters" required by or incident to such performance), (v) Securities Act liability 12 13 insurance, if the Company so desires such insurance, (vi) all out-of-pocket expenses of the Company (including, without limitation, expenses incurred by the Company, its officers, directors, employees and agents performing legal or accounting duties or preparing or participating in "roadshow" presentations or of any public relations, investor relations or other consultants or advisors retained by the Company in connection with any roadshow, including travel and lodging expenses of such roadshows), and (vii) the fees and expenses incurred in connection with the quotation or listing of shares of Common Stock on any securities exchange or automated securities quotation system. 4.2 Expenses Payable by the Shareholders. Each Shareholder shall pay all underwriting discounts and commissions or broker's commissions incurred in connection with the sale or other disposition of Registrable Securities for or on behalf of such Shareholder's account as well as the fees and expenses of the Shareholder's counsel, the Shareholder Representative and the Shareholder Representative's counsel. ARTICLE V INDEMNIFICATION 5.1 Indemnification by the Company. The Company shall indemnify and hold harmless each of the Registering Shareholders and their respective directors, trustees, officers, employees, agents, affiliates, successors and assigns (each, a "Shareholder Indemnitee," and collectively, the "Shareholder Indemnitees") from and against any and all losses, claims, damages, liabilities, debts, obligations, monetary damages, judgements, fines, fees, penalties, interest obligations, deficiencies, and expenses, interest, court costs, reasonable costs of investigators, reasonable fees and expenses of attorneys, accountants, financial advisors, engineers and other expenses, and other expenses of litigation ("Losses") incurred or suffered in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted to which any Shareholder Indemnitee may become subject under the Securities Act, the Exchange Act or other federal or state securities law or regulation, at common law or otherwise, insofar as such Losses arise out of, result from or are based upon (a) any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or (b) any violation by the Company of the Securities Act or the Exchange Act, or other federal or state securities law applicable to the Company and relating to any action or inaction required of the Company in connection with such registration. In addition, the Company will reimburse any Shareholder Indemnitee for any reasonable investigation, legal or other expenses incurred by such Shareholder Indemnitee in connection with investigating or defending any such Loss. Notwithstanding anything herein to the contrary, the Company will not be liable with respect to the portion of any such Loss that (i) arises out of, results from or is based upon any alleged untrue statement or alleged omission made in such Registration Statement, preliminary Prospectus, Prospectus, or amendment or supplement thereto in reliance upon and in conformity with written information furnished to the Company by the Shareholder Indemnitee specifically for use therein or 13 14 (ii) attributable to a Registering Shareholder's (A) use of a Prospectus after being notified by the Company to suspend use thereof pursuant to Section 3.1(b) or Section 3.1(c)(3)(B)(iii) above or (B) failure to deliver a final Prospectus to the Person asserting any losses, claims, damages and liabilities and judgments caused by any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such material misstatement or omission or alleged material misstatement or omission was cured in an amended or supplemented Prospectus prepared by the Company and delivered to the Registering Shareholder at or prior to the time written confirmation of sale to such Person was required to be made. The foregoing indemnity will remain in full force and effect regardless of any investigation made by or on behalf of the Registering Shareholder, and will survive the transfer of such securities by the Registering Shareholder. 5.2 Indemnification by Registering Shareholders. If a Registering Shareholder sells Registrable Securities under a Prospectus that is part of a Registration Statement, such Registering Shareholder will, severally and not jointly, indemnify and hold harmless the Company, any underwriter participating in the distribution and their respective directors and officers who signed such Registration Statement and each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act) (each, a "Controlling Person") under the same circumstances as the foregoing indemnity from the Company to the Registering Shareholders but only to the extent that such Losses arise out of or are based upon any untrue or allegedly untrue statement of a material fact or omission or alleged omission of a material fact that was made in the Prospectus, the Registration Statement, or any amendment or supplement thereto, in reliance upon and in conformity with written information relating to a Registering Shareholder furnished to the Company by such Registering Shareholder expressly for use therein. In no event will the aggregate liability of a Registering Shareholder exceed the amount of the net proceeds received by the Registering Shareholder upon the sale of the Registrable Securities giving rise to such indemnification obligation. Such indemnity will remain in full force and effect regardless of any investigation made by or on behalf of the Company or such officer, director, employee or Controlling Person, and will survive the transfer of such securities by the Registering Shareholder. 5.3 Contribution. If the indemnification provided for in Sections 5.1 or 5.2 is unavailable to an indemnified party or is insufficient to hold such indemnified party harmless for any Losses in respect of which any such Section would otherwise apply by its terms (other than by reason of exceptions provided therein), then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Losses. Such contribution will be in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the actions, statements or omissions that resulted in 14 15 such Losses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party, on the one hand, and indemnified party, on the other hand, will be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been taken or made by, or relates to information supplied by, such indemnifying party or indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent any such action, statement or omission. The amount paid or payable by a party as a result of any such Losses will be deemed to include any investigation, legal or other fees or expenses incurred by such party in connection with any investigation or proceeding, to the extent such party would have been indemnified for such expenses if the indemnification provided for in Sections 5.1 or 5.2 was available to such party. In no event will the aggregate liability of a Registering Shareholder exceed the amount of the net proceeds received by the Registering Shareholder upon the sale of the Registrable Securities giving rise to such indemnification obligation. 5.4 Conduct of Indemnification Proceedings. Any Person entitled to indemnification hereunder will (a) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification, and (b) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided that the failure to give such notice shall not relieve an indemnifying party of liability except to the extent it has been prejudiced as a result. Any Person entitled to indemnification hereunder will have the right to employ separate counsel and to participate in (but not control) the defense of such claim, but the fees and expenses of such counsel will be at the expense of such Person and not of the indemnifying party unless (x) the indemnifying party has agreed to pay such fees or expenses, (y) the indemnifying party has failed to assume the defense of such claim and employ counsel reasonably satisfactory to such Person within a reasonable period of time pursuant to this Agreement, or (z) a conflict of interest exists between such Person and the indemnifying party with respect to such claims that would make such separate representation required under applicable ethical rules. In the case of clause (z) above if the Person notifies the indemnifying party in writing that such Person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party will not have the right to assume the defense of such claim on behalf of such Person. If such defense is not assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). No indemnified party will be required to consent to entry of any judgment or enter into any settlement that does not include as an unconditional term the giving of a release, by all claimants or plaintiffs, to such indemnified party from all liability with respect to such claim or litigation. Any indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel (other than required local counsel) for all parties indemnified by such indemnifying party with respect to such claim. 15 16 5.5 Underwriting Agreement Controls. In the event of any conflict between the indemnification and contribution terms as herein set forth and as set forth in any underwriting agreement entered pursuant hereto, the underwriting agreement shall control. ARTICLE VI OTHER AGREEMENTS 6.1 Rule 144. The Company shall file, on a timely basis, all reports required to be filed by it under the Securities Act and the Exchange Act, and will take such further action and provide such documents as the Shareholders may reasonably request, all to the extent required from time to time to enable the Shareholders to sell Registrable Securities without registration under the Securities Act within the limitation of the conditions provided by (i) Rule 144 under the Securities Act, as such rule may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the Commission. Upon the request of a Shareholder, the Company will deliver to the Shareholder a statement verifying that it has complied with such information and requirements. 6.2 Shareholder Representative. (a) The Shareholders agree to appoint one Person to act as their representative, attorney in fact and proxy with respect to certain matters specified in this Agreement (the "Shareholder Representative"). The parties have designated Goelet, LLC as the initial Shareholder Representative. The Shareholder Representative may resign at any time, and a Shareholder Representative may be removed at any time by the vote of Shareholders who collectively own more than 50% of the Registrable Securities at such time (the "Majority Holders"). In the event of the death, resignation or removal of the Shareholder Representative, a new Shareholder Representative shall be appointed by a vote of Majority Holders, such appointment to become effective upon the written acceptance thereof by the new Shareholder Representative. Any failure by the Majority Holders to appoint a new Shareholder Representative upon the death, resignation or removal of the Shareholder Representative shall not have the effect of releasing the Shareholders from any liability under this Agreement. (b) The Shareholder Representative shall have such powers and authority as are necessary to carry out the functions assigned to the Shareholder Representative under this Agreement; provided, however, that the Shareholder Representative will have no obligation to act on behalf of the Shareholders, except as expressly provided herein. The Shareholder Representative will at all times be entitled to rely on any directions received from the Majority Holders. The Shareholder Representative shall, at the expense of the Shareholders, be entitled to engage such counsel, experts and other agents and consultants as they shall deem necessary in connection with exercising their powers and performing their function hereunder and (in the absence of bad faith on the part of the Shareholder Representative) shall be entitled to conclusively rely on the opinions and advice of such Persons. 16 17 (c) The Shareholder Representative shall not be entitled to any fee, commission or other compensation for the performance of its services hereunder, but shall be entitled to the reimbursement by the Shareholders of all his, her or its fees and expenses incurred as the Shareholder Representative pursuant to Section 4.2 hereof. In connection with this Agreement, and any instrument, agreement or document relating hereto or thereto, and in exercising or failing to exercise all or any of the powers conferred upon the Shareholder Representative hereunder, the Shareholder Representative shall incur no responsibility whatsoever to any Shareholder by reason of any error in judgment or other act or omission performed or omitted hereunder or any such other agreement, instrument or document, excepting only responsibility for any act or failure to act which represents willful misconduct. Each Shareholder shall indemnify, pro rata based upon such holder's percentage interest, the Shareholder Representative against all losses, damages, liabilities, claims, obligations, costs and expenses, including reasonable attorneys', accountants' and other experts' or consultant's fees and the amount of any judgment against the Shareholder Representative, of any nature whatsoever, arising out of or in connection with any claim, investigation, challenge, action or proceeding or in connection with any appeal thereof, relating to the acts or omissions of the Shareholder Representative hereunder. The foregoing indemnification shall not apply in the event of any action or proceeding which finally adjudicates the liability of the Shareholder Representative hereunder for his or her gross negligence or willful misconduct. In the event of any indemnification hereunder, upon written notice from Shareholder Representative to the Shareholders as to the existence of a deficiency toward the payment of any such indemnification amount, each such holder shall promptly deliver to the Shareholder Representative full payment of his or her ratable share of the amount of such deficiency, in accordance with such Shareholder's percentage interest. In no event shall the Company be responsible for any reimbursement or indemnification of the Shareholder Representative. (d) All of the indemnities, immunities and powers granted to the Shareholder Representative under this Agreement shall survive the termination of this Agreement. (e) Notwithstanding anything herein to the contrary, each Shareholder hereby acknowledges that the Company shall not have any responsibility or obligation whatsoever to any such Shareholder or to any other party with respect to or arising out of any actions taken or any inaction by the Shareholder Representative. (f) The Company shall have the right to rely conclusively upon all instructions, requests, consents, elections and other actions taken or omitted to be taken by the Shareholder Representative pursuant to this Agreement and any instrument, agreement or document relating hereto, all of which actions or omissions shall be legally binding upon all the Shareholders. 17 18 ARTICLE VII MISCELLANEOUS 7.1 Amendments; Waivers. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated, except upon the execution and delivery of a written agreement executed by the Company and the Shareholder Representative; provided, however, that the Shareholder Representative shall not amend, modify or supplement this Agreement in a manner that is detrimental to the Shareholders without first obtaining the written consent of the Majority Holders to such amendment, modification or supplement; provided further, however, that any amendment, modification or supplement made by the Shareholder Representative with such consent shall bind all Shareholders. 7.2 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto pertaining to its subject matter, and supersedes and replaces all prior agreements and understandings of the parties in connection with such subject matter. 7.3 Notices. All notices and other communications hereunder shall be given in writing and delivered personally, by registered or certified mail (postage prepaid, return receipt requested), by overnight courier (postage prepaid), facsimile transmission or similar means, to the party to receive such notices or communications at the address set forth below (or such other address as shall from time to time be designated by such party to the other parties in accordance with this Section 6.3): If to the Shareholder Representative or any Shareholder: Goelet, LLC 425 Park Avenue 28th Floor New York, NY 10022 Telecopy: (212) 588-9499 Attention: Robert W. Kiley with a copy to: Shearman & Sterling 599 Lexington Avenue New York, NY 10022 Telecopy: (212) 848-7179 Attention: Whitney D. Pidot, Esq. 18 19 If to the Company: Pogo Producing Company 5 Greenway Plaza, Suite 2700 P.O. Box 2504 Houston, Texas 77252-2504 Telecopy: (713) 297-4970 Attention: Gerald A. Morton, Vice President-Law and Corporate Secretary with a copy to: Baker Botts, L.L.P. One Shell Plaza 910 Louisiana Houston, Texas 77002 Telecopy: (713) 229-1522 Attention: Stephen A. Massad All such notices and communications hereunder shall be deemed given when received, as evidenced by the signed acknowledgment of receipt of the person to whom such notice or communication shall have been personally delivered, the acknowledgment of receipt returned to the sender by the applicable postal authorities, the confirmation of delivery rendered by the applicable overnight courier service, or the confirmation of a successful facsimile transmission of such notice or communication. A copy of any notice or other communication given by any party to any other party hereto, with reference to this Agreement, shall be given at the same time to the other parties to this Agreement. 7.4 GOVERNING LAW. THE PARTIES HERETO AGREE THAT THIS AGREEMENT, AND THE RESPECTIVE RIGHTS, DUTIES AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 7.5 Transfer or Assignment of Registration Rights. The registration rights set forth in this Agreement shall be transferable or assignable by the Shareholders, in whole or in part and from time to time, but only in connection with a transfer or assignment of Registrable Securities under circumstances in which such securities remain Registrable Securities in the hands of the transferee; provided that each transferee agrees in writing to be subject to all the terms and conditions of this Agreement; provided, however, that no such assignment of registration rights shall be made of such rights associated with a transfer of fewer than 150,000 shares of Common Stock to any one Person (appropriately adjusted for any stock splits, stock dividends, subdivisions, combinations or the like) unless such assignment relates to all the Registrable Securities then owned by the transferor; and provided, further, that in connection with any such 19 20 assignment, the transferee shall be required to enter into the Standstill and Voting Agreement dated as of the date hereof among the Company and the Shareholders. 7.6 Severability. Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law. If any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. 7.7 No Waiver. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. 7.8 No Third Party Beneficiaries. This Agreement is not intended to be for the benefit of, and shall not be enforceable by, any Person (whether or not listed on Schedule A hereto) who or which is not a party hereto. Any Person (whether or not listed on Schedule A hereto) who or which is not a party hereto shall not be entitled to any benefit hereunder except, in the case of any Person listed on Schedule A hereto, such Person shall be entitled to become a party hereto by executing a counterpart to this Agreement. If any Person listed on Schedule A hereto executes a counterpart to this Agreement, such Person shall thereafter be deemed to have agreed to be bound by the provisions hereof, as if such Person was an original party hereto and such Person shall thereafter be entitled to any benefit accorded to the Shareholders hereunder. 7.9 Headings. The Section headings in this Agreement are for convenience of reference only and are not intended to be a part of this Agreement or to affect the meaning or interpretation of this Agreement. 7.10 Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one agreement. [The remainder of this page has been intentionally left blank.] 20 21 IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date first set forth above. POGO PRODUCING COMPANY By: /s/ James P. Ulm, II ----------------------------- Name: James P. Ulm, II Title: Vice President and Chief Financial Officer 21 22 THE SHAREHOLDERS LISTED ON SCHEDULE A BY GOELET, LLC, AS SHAREHOLDER REPRESENTATIVE By: /s/ Robert W. Kiley ------------------------ Name: Robert W. Kiley Title: President and Chief Operating Officer By: /s/ Mark Rosenbaum -------------------- Name: Mark Rosenbaum Title: Vice President, Chief Financial Officer and Treasurer 22 23 SCHEDULE A 1. Trust under the Agreement dated August 26, 1930 for the benefit of Beatrice G. Manice 2. Trust under the Agreement dated July 27, 1935 for the benefit of Beatrice G. Manice 3. Trust under the Will of Robert Walton Goelet for the benefit of Beatrice G. Manice 4. Trust under the Agreement dated August 26, 1930 for the benefit of Robert G. Goelet 5. Trust under the Agreement dated July 27, 1935 for the benefit of Robert G. Goelet 6. Trust under the Will of Robert Walton Goelet for the benefit of Robert G. Goelet 7. Trust under the Agreement dated July 27, 1935 for the benefit of Francis Goelet 8. Trust under the Agreement dated December 18, 1931 for the benefit of John Goelet 9. Trust under the Agreement dated December 17, 1976 for the benefit of Grandchildren of John Goelet 10. Trust under the Agreement dated July 27, 1935 for the benefit of John Goelet 11. Trust under the Will of Robert Walton Goelet for the benefit of John Goelet 12. Robert G. Goelet 13. John H. Manice 14. Trust under the Agreement dated September 4, 1980 for the benefit of Anne de La Haye Jousselin 15. Robert G. Manice 16. Robert G. Manice, as custodian for Henry W. Manice under the New York Uniform Transfers to Minors Act 23 24 17. Robert G. Manice, as custodian for Emily P. Manice under the New York Uniform Transfers to Minors Act 18. Robert G. Manice, as custodian for Harriet W. Manice under the New York Uniform Transfers to Minors Act 19. Amelia M. Berkowitz 20. Pamela Manice 21. Alexandra G. Goelet 22. Robert Gardiner Goelet 23. Philip Goelet 24. Christopher Goelet 25. Gilbert Kerlin 26. Windward Oil & Gas Corporation 27. Arthur Field 24 EX-4.3 4 h84916ex4-3.txt STANDSTILL AND VOTING AGREEMENT 1 EXHIBIT 4.3 STANDSTILL AND VOTING AGREEMENT THIS STANDSTILL AND VOTING AGREEMENT is dated as of March 14, 2001 (this "Agreement") between Pogo Producing Company, a Delaware corporation (the "Company"), and the Shareholders (as defined below) who are signatories hereto. W I T N E S S E T H: WHEREAS, in connection with that certain Merger Agreement among the Company, NORIC Corporation, a New York corporation ("NORIC") and the Shareholders of NORIC named therein (the "Merger Agreement"), dated November 19, 2000, the parties have agreed that NORIC would be acquired by the Company through the Merger of NORIC with and into the Company on the terms set forth therein (the "Merger"), WHEREAS, pursuant to the Merger Agreement, upon consummation of the Merger, the Shareholders will receive in exchange for their shares of common stock of NORIC, the number of shares of common stock, par value $1.00 per share, of the Company ("Common Stock"), as is set forth opposite each Shareholders' name on Exhibit A (the "Shares") and WHEREAS, the Shareholders and the Company desire to set forth herein their agreement with respect to the restrictions on acquisitions of additional Common Stock, restriction on voting, and certain other covenants applicable to the Shares; NOW, THEREFORE, in consideration of the premises and the mutual obligations, covenants and agreements herein contained, the parties hereto agree as follows: Section 1. Definitions. 1.1 Certain Defined Terms. For purposes of this Agreement, the following terms shall have the following meanings (all terms defined in this Section 1.1 or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa): "Affiliate" shall mean any corporation, partnership or other Person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with any Shareholder, and shall include any Person acting on behalf of any Shareholder or affiliates of either of them, as the case may be. For purposes of the preceding sentence, "control" (including the terms "controlling," "controlled by" and "under common control with") means possession, directly or indirectly, of the power to direct or cause direction of management and policies of a Person through ownership of equity, by contract, pursuant to a voting trust or otherwise. "Associate" shall have the meaning assigned to such term in Rule 12b-2 under the Exchange Act, as in effect on the date hereof. "Beneficial owner" or "beneficially owned" or "beneficial ownership" shall have the meaning assigned to such terms in Rule 13d-3 under the Exchange Act, as in effect on the date hereof. 2 "Common Stock" shall have the meaning set forth in the recitals. "Company" shall have the meaning set forth in the recitals. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Matter" shall mean any item that comes before the holders of Voting Securities at a regular, annual, or special meeting of holders of Voting Securities, or that comes before them by written consent, whether for majority, plurality, unanimous or other vote, and whether or not duly announced by notice or agenda. "Matter" shall include, but not be limited to: the election of directors, the calling, postponement, or adjournment of meetings; the sale of the Company's stock or assets; any merger, consolidation, dissolution, liquidation or business combination of the Company; the adoption of amendments to the Company's charter or bylaws; any change in the authorized capital structure of the Company or of the classes or series of shares authorized or of the rights, privileges and preferences thereof; the issuance of debt securities of the Company; the adoption of any employee benefit or incentive plan, the selection or approval of independent public accountants, or the execution of a loan or line of credit agreement by the Company. "Person" shall mean any association, corporation, company, group or partnership or other entity or individual. "Registration Rights Agreement" shall mean that certain Registration Rights Agreement dated as of the date hereof between the Company and the Shareholders. "Shareholder Representative" shall have the meaning set forth in the Registration Rights Agreement. "Shareholders" shall mean those certain stockholders of the Company who are parties to this Agreement, the Merger Agreement or the Registration Rights Agreement (each a "Shareholder" and collectively the "Shareholders"). "Voting Securities" shall mean Common Stock and any other securities of the Company or any of its successors entitled to vote generally in the election of directors, and securities exercisable for and convertible into such securities, in each case now or hereafter outstanding. Section 2. Agreements of the Shareholders. 2.1 Standstill Agreement. Each of the Shareholders agrees that, so long as this Agreement remains in effect, neither he, she nor it, nor any of his, her or its Affiliates or Associates shall, directly or indirectly: (a) (i) in any manner acquire or offer to acquire, directly or indirectly, by purchase or otherwise, beneficial ownership of any Voting Securities, or (ii) propose to enter into, directly or indirectly, any merger, tender or exchange offer, restructuring or business combination or joint venture transaction involving the Company or any of its subsidiaries or the assets of the Company or any of its subsidiaries, or (iii) propose to 2 3 purchase, directly or indirectly, a material portion of the assets of the Company or any of its subsidiaries; (b) "solicit," or participate in the "solicitation" of, "proxies" (as such terms are defined or used in Rule 14a-1 under the Exchange Act) in opposition to the recommendation of the majority of the Board of Directors of the Company or become a participant in an election contest with respect to the election of directors of the Company or otherwise influence or affect the vote of any stockholder; (c) form, join or participate in a partnership, limited partnership, syndicate or other "group" (as defined in Section 13(d)(3) of the Exchange Act) or enter into any contract, arrangement, understanding or relationship or otherwise act in concert with any other person for the purpose of acquiring, holding, voting or disposing of Voting Securities; (d) seek to appoint, elect or remove any member of the Board of Directors of the Company or seek to affect or influence the Company's management, Board of Directors, business or affairs or make any public statements proposing or suggesting any change in the Board of Directors or management of the Company or its business or affairs or any action taken by the Board of Directors or management of the Company; (e) initiate or propose to the holders of Voting Securities, or otherwise solicit their approval of, any proposal, resolution or Matter to be voted on by the holders of Voting Securities; (f) ask the Company to, or seek to cause the Company (or its directors) to, call a special meeting of stockholders to amend the Company's charter or bylaws or any other governing documents; (g) initiate, induce or attempt to induce or encourage another Person to propose a tender or exchange offer or change of control of the Company; (h) make any public statements (or statements that must be publicly disclosed) inconsistent with the provisions of this Agreement; or (i) disclose any intention, plan or arrangement to take any of the actions enumerated in clauses (a) through (h) above or participate in, aid or abet or otherwise induce or attempt to induce or encourage any person to take any of the actions enumerated in clauses (a) through (h) above or take any other action inconsistent with the foregoing. 2.2 Voting. With respect to all Matters, the Shareholders will vote all Voting Securities either (1) in accordance with the recommendation of the Board of Directors or (2) in equal proportion to the votes cast by stockholders of the Company who are not parties to this Agreement. 2.3 Irrevocable Proxy and Power of Attorney. To facilitate the operation of this Agreement, each Shareholder hereby grants to the Shareholder Representative an irrevocable 3 4 proxy and power of attorney to vote all such Shareholder's Shares on all Matters in accordance with Section 2.2 hereof. Such proxy shall be durable and shall continue in force until terminated in writing by the Shareholder Representative by notice to the Company and the Shareholders, and such proxy shall be deemed coupled with an interest. Termination of the proxy with respect to some or all Shares will not affect any proxy respecting any other Shares and will not terminate this Agreement. The Shareholder Representative's exercise of his proxy will extinguish any prior proxy granted by any Shareholder. The foregoing proxy and power of attorney is intended to be a durable power of attorney and shall survive, and shall not be affected by, the subsequent death, incompentency, disability, incapacity, bankruptcy or termination of any Shareholder and shall bind each Shareholder's heirs, personal representatives, executors, administrators and assigns. 2.4 Disposition of Shares. Until the date which is two years following the Closing Date of the Merger Agreement, no Shareholder will sell, transfer, give, donate, bequeath or otherwise dispose of Shares except: 2.4.1 Pursuant to the procedures set forth in the Registration Rights Agreement, including without limitation that no public resales may be made (other than pursuant to a Public Offering (as defined in the Registration Rights Agreement) in which shareholders participate under Section 2.4 of the Registration Rights Agreement) until the 181st day following the Effective Time (as defined in the Registration Rights Agreement) and that any public resales during the twelve-month period specified in Section 2.6 of the Registration Rights Agreement shall be subject to the volume limitations specified in such Section 2.6; or 2.4.2 To a Person who (1) upon closing of such transfer will own less than 5% of the Voting Securities and (2) is not a member of a "group" (within the meaning of Section 13(d)(3) of the Exchange Act) or an Affiliate or an Associate of a member of such a "group" and (3) has not publicly announced that he, she or it is accumulating Voting Securities for any of the purposes set forth in Section 2.1 hereof, provided that as a condition to such transfer, the Company shall be provided such documentation as it may reasonably request, including an opinion of counsel, to the effect that such transfer does not require registration under the Securities Act of 1933 or any applicable state securities law. 2.5 Addition of New Shareholders. Additional Persons may be added as parties to this Agreement, and will be deemed to have agreed to the provisions hereof, upon execution and delivery to the Company of a copy of this Standstill and Voting Agreement executed by such Persons and by delivery to the Company supplemental forms of Exhibit A, containing as to such Persons the information required by Exhibit A (namely, name, address for notice, and number of Shares owned) for attachment to this Agreement. Upon such delivery such persons shall be "Shareholders" for all purposes hereof, and the Common Stock identified on Exhibit A by such Stockholders shall be "Shares" for all purposes hereof, until terminated as provided herein. 4 5 Section 3. Term of Agreement. This Agreement shall continue in full force and effect until the Shareholders and their Affiliates and Associates collectively beneficially own less than 10% of the Voting Securities. Section 4. General. 4.1 Remedies. Each of the parties hereto acknowledge and agree that the Company would be irreparably damaged if any of the provisions of this Agreement are not performed by the other parties hereto in accordance with their specific terms or are otherwise breached, and that money damages alone would not be easily calculable and would not be a sufficient remedy for any breach of this Agreement. Accordingly, the Company shall be entitled, without the requirement of posting a bond or other security, to equitable relief, including injunctive relief and specific performance, in the event of any breach of the provisions of this Agreement by the other parties hereto, in addition to all other remedies available at law or in equity. 4.2 Amendments; Waivers. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated, except upon the execution and delivery of a written agreement executed by the Company and the Shareholders. 4.3 Notices. All notices and other communications hereunder shall be given in writing and delivered personally, by registered or certified mail (postage prepaid, return receipt requested), by overnight courier (postage prepaid), facsimile transmission or similar means, to the party to receive such notices or communications at the address set forth below (or such other address as shall from time to time be designated by such party to the other parties by like notice): If to the Company: Pogo Producing Company 5 Greenway Plaza, Suite 2700 P.O. Box 2504 Houston, Texas 77252-2504 Telecopy: (713) 297-4970 Attention: Gerald A. Morton, Vice President-Law and Corporate Secretary If to a Shareholder: To the Shareholder Representative
All such notices and communications hereunder shall be deemed given when received, as evidenced by the signed acknowledgement of receipt of the person to whom such notice or communication shall have been personally delivered, the acknowledgement of receipt returned to the sender by the applicable postal authorities, the confirmation of delivery rendered by the applicable overnight courier service, or the confirmation of a successful facsimile transmission of such notice or communication. A copy of any notice or other communication given by any party to any other party hereto, with reference to this Agreement, shall be given at the same time to the other parties to this Agreement. 4.4 GOVERNING LAW. THE PARTIES TO AGREE THAT THIS AGREEMENT, AND THE RESPECTIVE RIGHTS, DUTIES AND OBLIGATIONS OF THE PARTIES 5 6 HEREUNDER, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE. 4.5 Severability. Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law. If any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. 4.6 No Waiver. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its rights to exercise any such or other right, power or remedy or to demand such compliance. 4.7 No Third Party Beneficiaries. This Agreement is not intended to be for the benefit of, and shall not be enforceable by, any Person (whether or not listed on Exhibit A hereto) who or which is not a party hereto. Any Person (whether or not listed on Exhibit A hereto) who or which is not a party hereto shall not be entitled to any benefit hereunder except, in the case of any Person listed on Schedule A hereto, such Person shall be entitled to become a party hereto by executing a counterpart of this Agreement. 4.8 Headings. The Section headings in this Agreement are for convenience of reference only and are not intended to be a part of this Agreement or to affect the meaning or interpretation of this Agreement. 4.9 Warranty of Authority. Each Stockholder represents, covenants and warrants that it, he or she is the record and beneficial owner of the Shares and has the authority and power to execute this Agreement and that it, he or she is bound by the terms and conditions hereof. 4.10 Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one agreement. 4.11 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto pertaining to its subject matter, and supersedes and replaces all prior agreements conversations, negotiations, writings or understandings of the parties in connection with such subject matter. [The remainder of this page has been intentionally left blank.] 6 7 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed all as of the day and year first above written. POGO PRODUCING COMPANY By: /s/ James P. Ulm, II ----------------------- Name: James P. Ulm, II Title: Vice President and Chief Financial Officer 7 8 THE SHAREHOLDERS LISTED ON SCHEDULE A BY GOELET, LLC, AS SHAREHOLDER REPRESENTATIVE By: /s/ Robert W. Kiley -------------------- Name: Robert W. Kiley Title: President and Chief Operating Officer By: /s/ Mark Rosenbaum -------------------- Name: Mark Rosenbaum Title: Vice President, Chief Financial Officer and Treasurer 8 9 SCHEDULE A
- ------------------------------------------------------------------------------------------------------------- NUMBER OF SHARES OF COMMON STOCK OF POGO PRODUCING COMPANY, PAR VALUE $1.00 PER SHARE, BENEFICIALLY OWNED NAME OF SHAREHOLDER BY SUCH SHAREHOLDER ------------------- ------------------- - ------------------------------------------------------------------------------------------------------------- Robert G. Goelet, Philip Goelet and Edmond de La Haye Jousselin, as Trustees under Agreement dated August 26, 1930 for the benefit of Beatrice G. Manice 1,778,554 - ------------------------------------------------------------------------------------------------------------- Robert G. Goelet, Philip Goelet and Edmond de La Haye Jousselin, as Trustees under Agreement dated July 27, 1935 for the benefit of Beatrice G. Manice 571,678 - ------------------------------------------------------------------------------------------------------------- Robert G. Goelet, Philip Goelet and Edmond de La Haye Jousselin, as Trustees under the Will of Robert Walton Goelet for the benefit of Beatrice G. Manice 381,119 - ------------------------------------------------------------------------------------------------------------- Alexandra C. Goelet, Philip Goelet and Edmond de La Haye Jousselin, as Trustees under Agreement dated August 26, 1930 for the benefit of Robert G. Goelet 1,778,554 - ------------------------------------------------------------------------------------------------------------- Alexandra C. Goelet, Philip Goelet and Edmond de La Haye Jousselin, as Trustees under Agreement dated July 27, 1935 for the benefit of Robert G. Goelet 571,678 - ------------------------------------------------------------------------------------------------------------- Robert G. Goelet, Philip Goelet and Edmond de La Haye Jousselin, as Trustees under the Will of Robert Walton Goelet for the benefit of Robert G. Goelet 571,678 - ------------------------------------------------------------------------------------------------------------- Robert G. Goelet, Philip Goelet and Edmond de La Haye Jousselin, as Trustees of the Trust under Agreement dated July 27, 1935 for the benefit of Francis Goelet 571,678 - ------------------------------------------------------------------------------------------------------------- Robert G. Goelet, Philip Goelet and Edmond de La Haye Jousselin, as Trustees of the Trust under Agreement dated December 18, 1931 for the benefit of John Goelet 1,333,915 - ------------------------------------------------------------------------------------------------------------- Henrietta Goelet and Robert S. Rich, as Trustees of the Trust under Agreement dated December 17, 1976 for the benefit of grandchildren of John Goelet 444,638 - -------------------------------------------------------------------------------------------------------------
9 10
- ------------------------------------------------------------------------------------------------------------- NUMBER OF SHARES OF COMMON STOCK OF POGO PRODUCING COMPANY, PAR VALUE $1.00 PER SHARE, BENEFICIALLY OWNED NAME OF SHAREHOLDER BY SUCH SHAREHOLDER ------------------- ------------------- - ------------------------------------------------------------------------------------------------------------- Robert G. Goelet, Philip Goelet and Edmond de La Haye Jousselin, as Trustees of the Trust under Agreement dated July 27, 1935 for the benefit of John Goelet 571,678 - ------------------------------------------------------------------------------------------------------------- Robert G. Goelet, Philip Goelet and Edmond de La Haye Jousselin, as Trustees under the Will of Robert Walton Goelet for the benefit of John Goelet 476,398 - ------------------------------------------------------------------------------------------------------------- Robert G. Goelet 682,281 - ------------------------------------------------------------------------------------------------------------- John H. Manice 70,697 - ------------------------------------------------------------------------------------------------------------- Robert G. Goelet, Philip Goelet and Edmond de La Haye Jousselin, as Trustees of the Trust dated September 4, 1980, as amended, for the benefit of Anne de La Haye Jousselin 82,755 - ------------------------------------------------------------------------------------------------------------- Robert G. Manice 29,499 - ------------------------------------------------------------------------------------------------------------- Robert G. Manice, as custodian for Henry W. Manice under the New York Uniform Transfers to Minors Act 2,871 - ------------------------------------------------------------------------------------------------------------- Robert G. Manice, as custodian for Emily P. Manice under the New York Uniform Transfers to Minors Act 2,871 - ------------------------------------------------------------------------------------------------------------- Robert G. Manice, as custodian for Harriet W. Manice under the New York Uniform Transfers to Minors Act 2,871 - ------------------------------------------------------------------------------------------------------------- Amelia M. Berkowitz 70,697 - ------------------------------------------------------------------------------------------------------------- Pamela Manice 80,602 - ------------------------------------------------------------------------------------------------------------- Alexandra Gardiner Goelet 47,640 - ------------------------------------------------------------------------------------------------------------- Robert Gardiner Goelet 47,640 - ------------------------------------------------------------------------------------------------------------- Philip Goelet 175,379 - ------------------------------------------------------------------------------------------------------------- Christopher Goelet 170,642 - ------------------------------------------------------------------------------------------------------------- Gilbert Kerlin 1,492,750 - ------------------------------------------------------------------------------------------------------------- Windward Oil & Gas Corporation 590,698 - ------------------------------------------------------------------------------------------------------------- Arthur N. Field 14,355 - -------------------------------------------------------------------------------------------------------------
10 11 [COUNTERPART SIGNATURE PAGE TO THE STANDSTILL AND VOTING AGREEMENT DATED _________, 2001] THE UNDERSIGNED SHAREHOLDER, listed on Exhibit A to the Standstill Agreement dated as of __________, 2000 between Pogo Producing Company, and [LIST SIGNING STOCKHOLDERS] (the "Standstill Agreement"), a copy of which is attached hereto, hereby agrees to become a party to the attached Standstill and Voting Agreement and be bound by the provisions thereof as if the undersigned was an original party thereto. IN WITNESS THEREOF, the undersigned has executed this counterpart to the Standstill and Voting Agreement on this _____ day of ____________, _______. ----------------------------- Name: 11 EX-4.4 5 h84916ex4-4.txt CREDIT AGREEMENT DATED 3/8/01 1 EXHIBIT 4.4 [EXECUTION COPY] ================================================================================ CREDIT AGREEMENT, dated as of March 8, 2001, among POGO PRODUCING COMPANY, as the Borrower, CERTAIN COMMERCIAL LENDING INSTITUTIONS, as the Lenders, BANK OF MONTREAL, acting through its Chicago, Illinois branch as the Administrative Agent for the Lenders, TORONTO DOMINION (TEXAS), INC., as Syndication Agent, BNP PARIBAS, as Documentation Agent, and BANK OF AMERICA, N.A. and FLEET NATIONAL BANK, as Managing Agents --------------------------------- BMO NESBITT BURNS, as Underwriter, Sole Bookrunner and Lead Arranger ================================================================================ 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS.....................................................1 1.1 Defined Terms..................................................................1 ------------- 1.2 Use of Defined Terms..........................................................26 -------------------- 1.3 Cross-References..............................................................26 ---------------- 1.4 Accounting and Financial Determinations.......................................26 --------------------------------------- ARTICLE II COMMITMENTS, BORROWING PROCEDURES AND NOTES.........................................26 2.1 Commitments...................................................................26 ----------- 2.2 Swing Line Advances...........................................................27 ------------------- 2.3 Letters of Credit.............................................................29 ----------------- 2.4 Reduction and Termination of the Commitment Amounts...........................33 --------------------------------------------------- 2.5 Borrowing Procedure...........................................................33 ------------------- 2.6 Continuation and Conversion Elections.........................................34 ------------------------------------- 2.7 Funding.......................................................................34 ------- 2.8 Determination of Borrowing Base...............................................34 ------------------------------- 2.9 Revolving Notes...............................................................35 --------------- ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES..........................................35 3.1 Repayments and Prepayments....................................................35 -------------------------- 3.2 Interest Provisions...........................................................37 ------------------- 3.3 Fees..........................................................................39 ---- ARTICLE IV CERTAIN LIBOR AND OTHER PROVISIONS..................................................40 4.1 Fixed Rate Lending Unlawful...................................................40 --------------------------- 4.2 Rates Unavailable.............................................................41 ----------------- 4.3 Increased LIBOR Loan Costs, etc...............................................41 ------------------------------- 4.4 Funding Losses................................................................41 -------------- 4.5 Increased Capital Costs.......................................................42 ----------------------- 4.6 Period of Liability; Lender Substitution......................................42 ---------------------------------------- 4.7 Taxes.........................................................................43 ----- 4.8 Payments, Computations, etc...................................................43 --------------------------- 4.9 Sharing of Payments...........................................................44 ------------------- 4.10 Setoff.......................................................................44 ------ 4.11 Use of Proceeds..............................................................45 --------------- ARTICLE V CONDITIONS TO BORROWING.............................................................45 5.1 Initial Borrowing.............................................................45 -----------------
3 5.2 Conditions Precedent to Credit Event..........................................48 ------------------------------------ ARTICLE VI REPRESENTATIONS AND WARRANTIES......................................................49 6.1 Organization, etc.............................................................49 ----------------- 6.2 Due Authorization, Non-Contravention, etc.....................................49 ----------------------------------------- 6.3 Government Approval, Regulation, etc..........................................50 ------------------------------------ 6.4 Validity, etc.................................................................50 ------------- 6.5 Financial Information.........................................................50 --------------------- 6.6 No Material Adverse Change....................................................50 -------------------------- 6.7 Litigation, etc...............................................................50 --------------- 6.8 Subsidiaries..................................................................51 ------------ 6.9 Ownership of Properties.......................................................51 ----------------------- 6.10 Taxes........................................................................51 ----- 6.11 Pension and Welfare Plans....................................................51 ------------------------- 6.12 Environmental Warranties.....................................................51 ------------------------ 6.13 Regulations U and X..........................................................53 ------------------- 6.14 Absence of Defaults..........................................................53 ------------------- 6.15 Information Memorandum.......................................................53 ---------------------- ARTICLE VII AFFIRMATIVE COVENANTS...............................................................53 7.1 Financial Information, Reports, Notices, etc..................................54 -------------------------------------------- 7.2 Compliance with Laws; Taxes...................................................56 --------------------------- 7.3 Maintenance of Properties.....................................................56 ------------------------- 7.4 Insurance.....................................................................56 --------- 7.5 Books and Records.............................................................57 ----------------- 7.6 Environmental Covenant........................................................57 ---------------------- 7.7 Performance Under Material Operating Contracts................................57 ---------------------------------------------- 7.8 Security......................................................................57 -------- ARTICLE VIII NEGATIVE COVENANTS..................................................................58 8.1 Limitations on Indebtedness and Lease Expenses................................58 ---------------------------------------------- 8.2 Liens.........................................................................59 ----- 8.3 Financial Condition...........................................................61 ------------------- 8.4 Investments...................................................................61 ----------- 8.5 Restricted Payments, etc......................................................63 ------------------------ 8.6 Consolidation, Merger, etc....................................................65 -------------------------- 8.7 Asset Dispositions............................................................65 ------------------ 8.8 Modification of Certain Agreements............................................66 ---------------------------------- 8.9 Transactions with Affiliates..................................................66 ---------------------------- 8.10 Negative Pledges, etc........................................................66 --------------------- 8.11 Commodity Hedging Contracts..................................................67 ---------------------------
4 ARTICLE IX EVENTS OF DEFAULT...................................................................67 9.1 Listing of Events of Default..................................................67 ---------------------------- 9.2 Action if Bankruptcy..........................................................69 -------------------- 9.3 Action if Other Event of Default..............................................70 -------------------------------- ARTICLE X THE AGENTS..........................................................................70 10.1 Actions......................................................................70 ------- 10.2 Funding Reliance, etc........................................................70 --------------------- 10.3 Exculpation..................................................................71 ----------- 10.4 Successor to Administrative Agent............................................71 --------------------------------- 10.5 Loans by the Agents..........................................................72 ------------------- 10.6 Credit Decisions.............................................................72 ---------------- 10.7 Copies, etc..................................................................72 ----------- ARTICLE XI MISCELLANEOUS PROVISIONS............................................................72 11.1 Waivers, Amendments, etc.....................................................72 ------------------------ 11.2 Notices......................................................................73 ------- 11.3 Payment of Costs and Expenses................................................73 ----------------------------- 11.4 Indemnification..............................................................74 --------------- 11.5 Survival.....................................................................75 -------- 11.6 Severability.................................................................75 ------------ 11.7 Headings.....................................................................75 -------- 11.8 Execution in Counterparts, Effectiveness, etc................................76 --------------------------------------------- 11.9 Governing Law; Entire Agreement..............................................76 ------------------------------- 11.10 Successors and Assigns......................................................76 ---------------------- 11.11 Assignments and Participations..............................................76 ------------------------------ 11.12 Confidentiality.............................................................78 --------------- 11.13 Other Transactions..........................................................79 ------------------ 11.14 NO ORAL AGREEMENTS..........................................................79 ------------------
SCHEDULES AND EXHIBITS SCHEDULE I - Disclosure Schedule EXHIBIT A - Form of Note EXHIBIT B - Form of Borrowing Request EXHIBIT C - Form of Continuation/Conversion Notice EXHIBIT D - Form of Assignment and Assumption Agreement EXHIBIT E-1 - Form of Opinion of Gerald A. Morton, the Vice President - Law and Corporate Secretary to Borrower EXHIBIT E-2 - Form of Baker & Botts, L.L.P., special New York counsel to Borrower EXHIBIT F - Form of Pledge Agreement 5 EXHIBIT G - Form of Request for Swing Line Advance EXHIBIT H - Form of Swing Line Note 6 CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of March 8, 2001, among POGO PRODUCING COMPANY, a Delaware corporation (the "Borrower"), the various financial institutions which are or may become parties hereto (collectively, the "Lenders"), and BANK OF MONTREAL, acting through its Chicago, Illinois branch as administrative agent (the "Administrative Agent") for the Lenders, TORONTO DOMINION (TEXAS), INC., as syndication agent ("Syndication Agent") for the Lenders, BNP PARIBAS, as documentation agent ("Documentation Agent") for the Lenders, and BANK OF AMERICA, N.A. and FLEET NATIONAL BANK, as managing agents ("Managing Agents") for the Lenders. W I T N E S S E T H : WHEREAS, the Borrower requests that the Agents and the Lenders enter into this Credit Agreement to extend Commitments, make Loans to the Borrower and issue Letters of Credit for the account of the Borrower in accordance with the terms and conditions hereof; WHEREAS, the Agents and the Lenders are willing to enter into the Credit Agreement and the Lenders are willing, on the terms and subject to the conditions hereinafter set forth, to extend such Commitments, make such Loans to the Borrower and issue Letters of Credit for the account of the Borrower; and WHEREAS, the proceeds of Loans to be made and the Letters of Credit to be issued after the date hereof will be used to finance the NCOC Acquisition, refinance existing Indebtedness and for general corporate purposes of the Borrower and its Subsidiaries; NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1 Defined Terms. The following terms (whether or not underscored) when used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Acquisition" means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business or division of a Person, (b) the acquisition of in excess of 50% of the capital stock of a corporation, which stock has ordinary voting power for the election of the members of the acquiree's board of directors (other than stock having such power only by reason of the happening of a contingency), or the acquisition of in excess of 50% of the partnership interests or other equity interests of any Person not a corporation which acquisition gives the acquirer ordinary 1 7 voting power to direct or cause the direction of the management and policies of the acquiree, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is a Subsidiary of that Person) provided that the Borrower or a Subsidiary of the Borrower is the surviving entity. "Acquisition Documents" means (i) the Merger Agreement, (ii) the Standstill and Voting Agreement, (iii) the Registration Rights Agreement and (iv) each other agreement, document or instrument executed in connection with the foregoing. "Additional Costs" is defined in Section 4.3. "Additional Senior Unsecured Indebtedness" means unsecured Indebtedness incurred by the Borrower after the Effective Date (after giving effect to the NCOC Acquisition and any Indebtedness incurred or assumed in connection therewith) in an aggregate principal amount not to exceed $50,000,000 at any time outstanding. "Additional Subordinated Indebtedness" means Indebtedness for borrowed money incurred by the Borrower after the Effective Date in an aggregate principal amount not to exceed $200,000,000 at any time outstanding which complies with the following requirements: (a) such new Indebtedness has subordination terms not materially less favorable to the Lenders as holders of the Notes than the then existing Subordinated Indebtedness unless such terms are approved by the Required Lenders; (b) the aggregate principal payments for such new Indebtedness scheduled to be paid in any Fiscal Year ending prior to the Stated Maturity Date are no greater than the aggregate scheduled principal payments under the existing Subordinated Indebtedness; and (c) the maturity dates thereof are no earlier than 24 months after the Stated Maturity Date. "Administrative Agent" is defined in the preamble and includes each other Person as shall have subsequently been appointed as the successor Administrative Agent pursuant to Section10.4. "Affiliate" of any Person means any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person. A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power (a) to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners, or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise, 2 8 provided, however, for purposes of this definition (i) no director or employee of the Borrower or any Subsidiary shall be considered an Affiliate of the Borrower or any Subsidiary solely by virtue of having that status, (ii) no trustee under, and no committee with responsibility for administering, any Plan shall be considered an Affiliate of the Borrower or any Subsidiary, and (iii) the Borrower and its Subsidiaries shall not be considered Affiliates of one another. As used in this Agreement, "Affiliate" means Affiliates of the Borrower and its Subsidiaries unless otherwise indicated. "Agents" means, collectively, the Administrative Agent, the Syndication Agent, the Documentation Agent and the Managing Agents. "Agreement" means, on any date, this Credit Agreement as originally in effect on the Effective Date and as thereafter from time to time amended, supplemented, amended and restated, or otherwise modified and in effect on such date. "Alternate Reserve Report" means a report, in form and detail satisfactory to the Administrative Agent and the Required Lenders, on reserves updated internally by the Borrower making adjustments for any changes in production volumes, expenses, Applicable Prices and for dispositions of properties in the six-month period subsequent to the immediately preceding Reserve Report Date and based upon the immediately preceding Reserve Report and, at the Borrower's option, for any acquisitions of properties not included in the immediately preceding Reserve Report or the restoration to the Borrowing Base of properties previously removed from the Borrowing Base by the Borrower. "Applicable Gas Price" means the average (rounded to the nearest $.01) of the natural gas prices being used (including prices for future periods) by the Administrative Agent for evaluation of oil and gas reserve lending transactions in accordance with the Administrative Agent's customary standards (which prices, other than those fixed by contract and subject to BTU adjustment to reflect the liquids content of Borrower's natural gas, will be consistent with those then being applied to other borrowers of the Administrative Agent generally) as of each January 1 or July 1, as applicable; provided, however, that for purposes of determining the Borrowing Base, production volumes hedged under Commodity Hedging Contracts or production volumes committed under long-term sales contracts will be included in the Reserve Reports at the contracted price and the Applicable Gas Price will be BTU-adjusted to reflect the liquids content of Borrower's natural gas. "Applicable Margin" means with respect to any Prime Rate Loan, LIBOR Loan, or the Commitment Fees payable hereunder, the applicable percentage per annum set forth below under the caption "Prime Spread", "LIBOR Spread" or "Unused Fee", as the case may be, determined by reference to the percentage of the Borrowing Base that the outstanding Credit Exposure represents at that time: 3 9
- ------------------------------------------------------------------------------------------------- LIBOR SPREAD ================================== APPLICABLE RATING LEVEL PRIME ================================== UNUSED BORROWING BASE USAGE SPREAD Level I Level II FEE ------- -------- - ------------------------------------------------------------------------------------------------- 75% of the Borrowing Base < outstanding Credit Exposure < = 100% of the Borrowing Base 0.25% 1.75% 2.00% 0.50% - ------------------------------------------------------------------------------------------------- 60% of the Borrowing Base < outstanding Credit Exposure < = 75% of the Borrowing Base 0.00% 1.50% 1.75% 0.375% - ------------------------------------------------------------------------------------------------- 40% of the Borrowing Base < outstanding Credit Exposure < = 60% of the Borrowing Base 0.00% 1.25% 1.50% 0.375% - ------------------------------------------------------------------------------------------------- outstanding Credit Exposure < = 40% of the Borrowing Base 0.00% 1.125% 1.25% 0.375% - -------------------------------------------------------------------------------------------------
provided, however, that during any Deficiency Period, the "Prime Spread" with respect to Prime Rate Loans shall be "0.25%" per annum and the "LIBOR Spread" with respect to LIBOR Loans shall be the applicable "LIBOR Spread" provided above, plus "0.50%" per annum. For purposes of the foregoing, any change in the Applicable Margin will occur automatically without prior notice upon (i) the issuance of any Senior Debt or Additional Subordinated Indebtedness and (ii) any Borrowing Base redetermination. "Applicable Oil Price" means the average (rounded to the nearest $.01) of the crude oil and liquid products prices being used (including prices for future periods) by the Administrative Agent for evaluation of oil and gas reserve lending transactions in accordance with the Administrative Agent's customary standards (which prices, other than those fixed by contract and adjusted to reflect the quality of Borrower's crude oil, will be consistent with those then being applied to other borrowers of the Administrative Agent generally) as of each January 1 and July 1, as applicable; provided, however, that, for purposes of determining the Borrowing Base, production volumes hedged pursuant to Commodity Hedging Contracts or production volumes committed under long-term sales contracts will be included in the Reserve Reports at the contracted price and the Applicable Oil Price will be adjusted to reflect the quality of Borrower's crude oil. "Applicable Price" means the Applicable Gas Price and the Applicable Oil Price, as the case may be. 4 10 "Applicable Rating Level" means the level set forth below that corresponds to ratings of the Index Debt or, if no Index Debt is then outstanding and rated, then the corporate debt rating of Borrower, issued from time to time by S&P or Moody's, as applicable:
------------------------------------------------ S&P MOODY'S - ------------------------------------------------------------------------ Level I "BB+" and higher "Ba1" and higher - ------------------------------------------------------------------------ Level II "BB" and lower "Ba2" and lower - ------------------------------------------------------------------------
For purposes of the foregoing, (a) if either Moody's or S&P shall not have in effect a rating for the Index Debt or a corporate debt rating of Borrower (other than by reason of the circumstances referred to in the last sentence of this definition), then such rating agency shall be deemed to have established a rating of Level II; (b) if the ratings for the Index Debt or the corporate debt rating of Borrower, as applicable, established or deemed to have been established by Moody's and S&P shall fall within different Levels, the Applicable Rating Level shall be based on the higher of the two ratings; and (c) if the ratings for the Index Debt or the corporate debt rating of Borrower, as applicable, established or deemed to have been established by Moody's and S&P shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency, irrespective of when notice of such change shall have been furnished by Borrower to the Agent and the Lenders pursuant to Section 7.2(i) hereof or otherwise. Each change in the Applicable Rating Level shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next change to the Applicable Rating Level. If the rating system of Moody's or S&P shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations or corporations, as applicable, Borrower and the Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such rating agency and, pending the effectiveness of any such amendment, the Applicable Rating Level shall be determined by reference to the rating most recently in effect prior to such change or cessation. "Approved Fund" means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender. "Arch Subsidiaries" means Arch Petroleum, Inc., a Delaware corporation and its Subsidiary, Pogo Canada Ltd., an Alberta corporation. "Assignment and Assumption Agreement" means an Assignment and Assumption Agreement substantially in the form of Exhibit D. "Authorized Person" means the Chief Executive Officer, the President, any Vice President or the Treasurer of Borrower whose signatures and incumbency shall have been certified to the Administrative Agent and the Lenders pursuant to Section 5.1.1, or any other officer or employee of Borrower specified as such to the Administrative Agent in writing by any of the aforementioned officers of Borrower. 5 11 "B8/32 Partners" means B8/32 Partners, Ltd., a corporation organized under the laws of the Kingdom of Thailand in which the Borrower holds on the Effective Date an equity interest equal to Thaipo Limited's working interest in the Block B8/32 Concession located in the Gulf of Thailand. "Borrower" is defined in the preamble. "Borrowing" means the Loans of the same Type made by all Lenders on the same Business Day and pursuant to the same Borrowing Request in accordance with Section 2.1. "Borrowing Base" means, at any time, that amount, determined in accordance with Section 2.8 and calculated using the Administrative Agent's usual and customary criteria for oil and gas reserve evaluation. During the period from the Effective Date to the date of the next determination of the Borrowing Base pursuant to the provisions of Section 2.8, the amount of the Borrowing Base shall be Four Hundred Seventy-Five Million Dollars ($475,000,000). "Borrowing Base Properties" means those oil and gas properties included in the most recent Reserve Report or Alternate Reserve Report from which the determination of the Borrowing Base is made hereunder which are (a) owned by (i) the Borrower, (ii) a Restricted Subsidiary or (iii) Qualified Partnership Properties, (b) located in the United States, Canada, the Kingdom of Thailand or such other location which is designated in writing by Borrower to the Administrative Agent and which designation is acceptable to the Administrative Agent and the Required Lenders and (c) free of all Liens, including Liens securing Non-Recourse Indebtedness, other than Liens permitted by clauses (e), (f), (g), (h) and (j) of Section 8.2. "Borrowing Request" means a loan request and certificate duly executed by an Authorized Person of the Borrower, substantially in the form of Exhibit B hereto. "Business Day" means any day which is neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed in Chicago, Illinois or Houston, Texas; provided that, when used in connection with a LIBOR Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capitalized Lease Liabilities" means all monetary obligations of the Borrower or any of its Subsidiaries under any leasing or similar arrangement which, in accordance with GAAP, would be classified as a capitalized lease, and, for purposes of this Agreement and each other Loan Document, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP, and the stated maturity of any such obligations shall be the date of the last payment of rent or any other amount due under the lease giving rise thereto prior to the first date upon which such lease may be terminated by the lessee thereunder without payment of a penalty. "Cash Equivalent Investment" means, at any time: (a) securities maturing not more than one year after such time, issued or guaranteed by the United States Government; 6 12 (b) commercial paper, maturing not more than nine months from the date of issue, which is issued by (i) a corporation (other than an Affiliate or a Subsidiary of the Borrower) organized under the laws of any state of the United States or of the District of Columbia and rated to be of investment grade by S&P or Moody's, or (ii) any Lender (or its holding company); (c) any certificate of deposit or banker's acceptance, maturing not more than one year after such time, which is issued by either (i) a commercial banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $100,000,000, or (ii) any Lender; (d) any repurchase agreement entered into with any Lender (or other commercial banking institution of the stature referred to in clause (c)(i)) which (i) is secured by a fully perfected security interest in any obligation of the type described in any of clauses (a) through (c), and (ii) has a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such Lender (or other commercial banking institution) thereunder; or (e) any loan participation in a loan which is to a borrower with a long-term debt rating of investment grade or higher from any nationally recognized rating agency and is made by (i) a commercial banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $100,000,000, or (ii) any Lender. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. "CERCLIS" means the Comprehensive Environmental Response Compensation Liability Information System List. "Certain Permitted Liens" means (i) inchoate Liens existing at law, (ii) other non-consensual Liens permitted by Section 8.2 that are subordinate to the Liens created by the Pledge Agreement, (iii) Liens permitted by Section 8.2(c) other than with respect to the capital stock of NCOC and (iv) Liens created by the Pledge Agreement and other Liens expressly permitted by the Pledge Agreement. "Change in Control" means the Acquisition by any Person, or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of the Borrower. "Closing Date" means March 8, 2001. "Code" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time. 7 13 "Collateral" means any and all "Collateral", as defined in the Pledge Agreement. "Commitment" means, relative to any Lender, such Lender's obligation to make Revolving Loans pursuant to Section 2.1.1, to participate in Swing Line Advances pursuant to Section 2.2.2 and to participate in Letters of Credit pursuant to Section 2.3.4. "Commitment Amount" means, on any date, $515,000,000, as such amount may be changed from time to time pursuant to Section 2.4. "Commitment Fees" is defined in Section 3.3.1. "Commitment Termination Date" means the earliest of: (a) the Stated Maturity Date; (b) the date on which the Commitment Amount is terminated in full or reduced to zero pursuant to Section 2.4; and (c) the date on which any Commitment Termination Event occurs. Upon the occurrence of any event described in clause (b) or (c), the Commitments shall terminate automatically and without any further action. "Commitment Termination Event" means (a) the occurrence of any Event of Default described in clauses (a) through (d) of Section 9.1.9; or (b) any other Event of Default shall have occurred and be continuing and either (i) the Loans are declared to be due and payable pursuant to Section 9.3, or (ii) in the absence of such declaration, the Administrative Agent, acting at the direction of the Required Lenders, gives notice to the Borrower that the Commitments have been terminated. "Commodity Hedging Contract" means a commodity hedging or purchase agreement or similar arrangement to which the Borrower or any of its Subsidiaries is a party, the purpose of which is to protect against fluctuations in commodity prices or the exchange of notional commodity obligations, either generally or under specific contingencies. 8 14 "Continuation/Conversion Notice" means a notice of continuation or conversion and certificate duly executed by an Authorized Person of the Borrower, substantially in the form of Exhibit C. "Controlled Group" means all members of a controlled group of corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA. "Credit Event" means a Borrowing, Swing Line Advance or the issuance of a Letter of Credit hereunder. "Credit Exposure" means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Revolving Loans, its obligation to participate in any Swing Line Advances and its LC Exposure at such time. "Current Ratio" means, at the end of any Fiscal Quarter, the ratio of: (a) consolidated current assets of the Borrower and its consolidated Subsidiaries and Affiliates, to (b) consolidated current liabilities, less current maturities of long-term debt (including current maturities of Non-Recourse Indebtedness), of the Borrower and its consolidated Subsidiaries and Affiliates. "Default" means any Event of Default or any condition, occurrence or event which, after notice or lapse of time or both, would constitute an Event of Default. "Deficiency Period" means any period commencing upon any date when the aggregate Credit Exposures outstanding exceeds the Borrowing Base then in effect less all other Senior Debt outstanding, less 75% of all Additional Subordinated Indebtedness issued since the last redetermination of the Borrowing Base, and continuing until the date that, pursuant to the redetermination of the Borrowing Base, or by reason of mandatory prepayments of the Loans, the aggregate Credit Exposures outstanding no longer exceed the Borrowing Base then in effect less all other Senior Debt outstanding, less 75% of all Additional Subordinated Indebtedness issued since the last redetermination of the Borrowing Base. "Disclosure Schedule" means the Disclosure Schedule attached hereto as Schedule I, as it may be amended, supplemented or otherwise modified from time to time by the Borrower with the written consent of the Administrative Agent and the Required Lenders. "Discounted Present Value" means, at any time that a calculation thereof is being made, the sum total of the Future Net Income for each Fiscal Year, or portion thereof, commencing on or after the date six months from the date of such calculation, as presented in the then most recent Reserve Report or Alternate Reserve Report delivered pursuant to Section 7.2(e), discounted to present value 9 15 as of the date six months from the date of such calculation at such rate and in such manner as provided by the requirements of the SEC from time to time in effect. "Documentation Agent" is defined in the preamble. "Dollar" and the sign "$" mean lawful money of the United States. "Domestic Office" means, relative to any Lender, the office of such Lender designated as such below its signature hereto or designated in the Lender Assignment Agreement or such other office of a Lender (or any successor or assign of such Lender) within the United States as may be designated from time to time by notice from such Lender, as the case may be, to each other Person party hereto. A Lender may have separate Domestic Offices for purposes of making, maintaining or continuing, as the case may be, Prime Rate Loans. "EBITDAX" means, for any period, with respect to the Borrower and its consolidated Subsidiaries and Affiliates, determined on a consolidated basis in accordance with GAAP and without duplication, (a) the sum of the amounts for such period of (i) net income (or loss) after taxes, plus (ii) interest expense (net of capitalized interest) and dividends paid on preferred and preference stock of the Borrower, plus (iii) depreciation expense and depletion expense, plus (iv) amortization expense, plus (v) United States federal and state and foreign taxes, plus (vi) exploration expenses, plus (vii) other non-cash charges and expenses plus (viii) any losses arising outside of the ordinary course of business which have been included in the determination of consolidated net income, less (b) any gains arising outside the ordinary course of business which have been included in the determination of consolidated net income. "Effective Date" means the date this Agreement becomes effective pursuant to Section 11.8. "Eligible Assignee" means (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved Fund, or (d) any other Person (other than a natural Person) that regularly purchases or invests in bank loans approved by the Administrative Agent and the Borrower; provided, however, if (x) such Person is taking delivery of an assignment in connection with physical settlement of a credit derivatives transaction or (y) an Event of Default has occurred and is continuing, the Borrower's approval shall not be required. The foregoing approvals by Administrative Agent and the Borrower, if applicable, shall not be unreasonably withheld or delayed. "Environmental Laws" means all applicable laws, statutes, ordinances, rules, regulations, judgments, writs, injunctions, decrees, orders and awards promulgated or issued by any Governmental Authority concerning the protection of, or regulating the discharge of substances into, the environment. "Environmental Laws" shall not include the Occupational Safety and Health Act of 1970 or similar state statutes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. 10 16 "Event of Default" is defined in Section 9.1. "Excluded Taxes" means, with respect to any of the Agents, any Lender, or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (i) income, franchise or doing business taxes imposed on (or measured by) its net income or bank share taxes, imposed by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (ii) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (iii) in the case of a Foreign Lender, any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Lender's failure to comply with Section 4.7(c), except to the extent that such Foreign Lender was entitled, at the time of designation of a new lending office, to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 4.7(a). "Existing Credit Facilities" means (i) that certain Amended and Restated Credit Agreement, dated as of August 1, 1997, as amended from time to time, among the Borrower, Bank of Montreal as Agent and the lenders named therein and (ii) that certain Credit Agreement, dated October 30, 1998, as amended from time to time, among NCOC, Chase Bank of Texas, National Association, as Agent, and the lenders named therein. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum (equal for each day during such period) to (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York; or (b) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. "Financing Transactions" means the execution, delivery and performance by the Borrower of the Loan Documents, the borrowing of the Loans, the use of the proceeds thereof and the issuance of Letters of Credit hereunder. "Fiscal Quarter" means any fiscal quarter of a Fiscal Year of the Borrower. "Fiscal Year" means the period of twelve consecutive calendar months ending on December 31st; references to a Fiscal Year with a number corresponding to any calendar year (e.g. the "2001 Fiscal Year") refer to the Fiscal Year ending on the December 31st occurring during such calendar year. 11 17 "Fixed Charges" means, for any period, without duplication with respect to the Borrower and its consolidated Subsidiaries and Affiliates, determined on a consolidated basis in accordance with GAAP, the sum of (i) the total interest charges (including the interest component of capitalized leases) for such period, net of interest income, plus (ii) dividends paid on preferred and preference stock of the Borrower, plus (iii) the current portion of Indebtedness for borrowed money, and all obligations evidenced by bonds, debentures, notes or other similar instruments (including the current portion of Non-Recourse Indebtedness, but excluding any Loans outstanding hereunder) and the current portion of production payments to be paid as of the end of such period, plus (iv) the amount of mandatory redemptions of preferred stock to be made by the Borrower in cash during the succeeding twelve-month period (excluding redemptions of shares of such preferred stock held by Subsidiaries or Affiliates of the Borrower). "Fixed Charge Coverage Ratio" at any date means the ratio of EBITDAX to Fixed Charges for the four Fiscal Quarters most recently ended on such date. "Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than the United States of America. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "FPSO Lease Obligations" means those lease payment obligations arising pursuant to the Amended and Restated Bareboat Charter Agreement by and between Thaipo Limited, Chevron Offshore (Thailand) Limited and Palang Sophon Limited and Tantawan Production B.V. originally dated as of February 9, 1996, as amended from time to time. "FSO Lease Obligations" means those lease payment obligations arising pursuant to the Bareboat Charter Agreement by and between Thaipo Limited, Thai Romo Limited, Palang Sophon Limited, B8/32 Partners and Watertight Shipping B.V. dated as of August 24, 1998, as amended from time to time. "F.R.S. Board" means the Board of Governors of the Federal Reserve System or any successor thereto. "Fund" means any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business. "Future Net Income" means, for each year or portion thereof, the amount for such year or portion thereof, as reflected in the then most recent Reserve Report or Alternate Reserve Report, as the case may be, which would result from the expected sale of recoverable hydrocarbons from or attributable to the Borrower's interest in any Proved Reserves located on Borrowing Base Properties. Future Net Income shall be calculated by taking the Gross Revenues less all applicable royalties, net profits interests and similar burdens on production, and costs and expenses (other than general and administrative costs and expenses) which the Borrower can reasonably be expected to incur or, in the case of Qualified Partnership Properties, the Borrower's interest can reasonably be expected to bear in producing each product from such Proved Reserves (including production, severance and ad 12 18 valorem or like taxes, transportation costs, operating expenses, capital expenses with respect to such Proved Reserves, and the cost of drilling, completing and equipping additional wells, including any dry holes, which are reasonably expected to be drilled for the purpose of completing development of such Proved Reserves and obtaining therefrom the volumes of such production included for the purposes hereof). Commencing with the third year from the date such calculation is made, such costs and expenses will be escalated at a rate of the average (rounded to the nearest .01 of 1%) of the escalation being used by the Administrative Agent for evaluation of oil and gas transactions in accordance with the Administrative Agent's customary standards (which escalations will be consistent with those being applied to other borrowers of the Administrative Agent generally) as of each January 1 or July 1, as applicable. "GAAP" is defined in Section 1.4. "Gross Revenues" means the sum, for the several product classes of hydrocarbon production, of annual production attributed to each product multiplied by the Applicable Prices, as the case may be, per unit volume applicable to each product. "Governmental Approval" means (a) any authorization, consent, approval, license, ruling, permit, tariff, certification, waiver, exemption, filing, variance, claim, order, judgment or decree of, or with, (b) any required notice to, (c) any declaration of or with, or (d) any registration by or with, any Governmental Authority. "Governmental Authority" means any United States federal, state or local or any foreign government, governmental regulatory or administrative authority, agency or commission or any court, tribunal or judicial or arbitral body. "Guarantee" means any agreement, undertaking or arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) for the indebtedness or other obligation to pay money of any other Person (other than by endorsements of instruments in the course of collection or deposit), or guarantees the payment of dividends or other distributions in respect of the shares of any other Person; provided, however, that any agreement, undertaking or arrangement by which the Borrower or any of its Subsidiaries guarantees any payments with respect to (i) any Hybrid Preferred Securities or, (ii) obligations under oil and gas exploration, development, operation and related agreements and licenses entered into in connection with oil and gas exploration and production activities shall not constitute a Guarantee hereunder. The amount of any Person's obligation under any Guarantee shall (subject to any limitation set forth therein) be deemed to be the outstanding principal amount of the indebtedness or other obligations subject thereto. "Hazardous Material" means (a) any "hazardous substance", as defined by CERCLA; 13 19 (b) any "hazardous waste", as defined by the Resource Conservation and Recovery Act, as amended; (c) any petroleum, crude oil or any fraction thereof; (d) any hazardous, dangerous or toxic chemical, material waste or substance within the meaning of any Environmental Law; (e) any radioactive material, including any naturally occurring radioactive material, and any source, special or by-product material as defined in 42 U.S.C. Section 2011 et. seq., and any amendments or reauthorizations thereof; (f) asbestos-containing materials in any form or condition; or (g) polychlorinated biphenyls in any form or condition. "Hedging Agreement" means any interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates between Borrower or its Subsidiaries and any Person. "Hedging Obligations" means, with respect to any Person, all liabilities (including but not limited to obligations and liabilities arising in connection with or as a result of early or premature termination of a Commodity Hedging Contract or a Hedging Agreement, whether or not occurring as a result of a default thereunder) of such Person under a Commodity Hedging Contract or a Hedging Agreement. "herein", "hereof", "hereto", "hereunder" and similar terms contained in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular Section, paragraph or provision of this Agreement or such other Loan Document. "Highest Lawful Rate" is defined in Section 3.2.5. "Houston Time" means the current time in Houston, Texas. "Hybrid Preferred Securities" means preferred or common equity interests issued by any Hybrid Preferred Securities Subsidiary. "Hybrid Preferred Securities Subsidiary" means any business trust (or similar entity) (i) all of the common equity interest of which is owned (either directly or indirectly through one or more wholly-owned Subsidiaries) by the Borrower, (ii) that has been formed for the purpose of issuing Hybrid Preferred Securities, and (iii) substantially all of the assets of which consist at all times of subordinated debt or other obligations of the Borrower or a Subsidiary of the Borrower and payments made from time to time on such subordinated debt or other obligations. 14 20 "Impermissible Qualification" means, relative to the opinion or certification of any independent public accountant as to any financial statement of the Borrower, any qualification or exception to such opinion or certification (a) which is of a "going concern" nature; (b) which relates to the limited scope of examination of matters relevant to such financial statement; or (c) which relates to the treatment or classification of any item in such financial statement and which, as a condition to its removal, would require an adjustment to such item the effect of which would be to cause the Borrower to be in default of any of its obligations under Section 8.3. "including" means including without limiting the generality of any description preceding such term, and, for purposes of this Agreement and each other Loan Document, the parties hereto agree that the rule of ejusdem generis shall not be applicable to limit a general statement, which is followed by or referable to an enumeration of specific matters, to matters similar to the matters specifically mentioned. "Indebtedness" of any Person means at the time of any determination thereof, without duplication: (a) the principal amount of all obligations of such Person for borrowed money and the principal amount of all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (b) all reimbursement obligations, contingent or otherwise, of that Person in respect of all letters of credit (except those which have as collateral cash or Cash Equivalent Investments, whether or not drawn) and banker's acceptances issued for the account of such Person; (c) all Capitalized Lease Liabilities of that Person except to the extent such obligations are offset by the contractual obligations of a third party to make payments to such Person to reimburse such Person for a portion of those Capitalized Lease Liabilities and such third party is current with respect to such payments; (d) all preferred stock of the Borrower, other than preferred stock of the Borrower now existing or hereafter issued which by its express terms is not required to be redeemed in cash, property, notes or other debt instruments by the Borrower prior to a date seven years after the Effective Date, is excluded from this definition; (e) the net mark-to-market value determined in accordance with GAAP of that Person in respect of obligations and liabilities arising in connection with or as a result 15 21 of early or premature termination of a Commodity Hedging Contract or a Hedging Agreement, whether or not occurring as a result of a default thereunder; (f) advance payment agreements on which performance is incomplete and all obligations of such Person to pay the deferred purchase price of property (including obligations arising under conditional sales or other title retention agreements), or services, except trade accounts payable, accrued expenses and deferred compensation and other pension, benefit and welfare expenses, in each case, arising in the ordinary course of business; (g) obligations of the types described in clauses (a) through (f) of this definition secured by a Lien on property owned by such Person, whether or not such obligations shall have been assumed by such Person or are limited in recourse; and (h) all Guarantees of such Person. For all purposes of this Agreement, the Indebtedness of any Person shall include only that portion of the Indebtedness of any partnership or joint venture for which such Person is liable by contract or by operation of law unless abrogated by contract. Indebtedness of a Person shall not include (i) any Hybrid Preferred Securities issued by such Person, any subordinated Indebtedness or other obligations of such Person initially issued to any Hybrid Preferred Securities Subsidiary in connection with the issuance of Hybrid Preferred Securities or any Guarantee by such Person of payments with respect to any Hybrid Preferred Securities or (ii) intercompany loans and advances among the Borrower and its Subsidiaries. "Indemnified Liabilities" is defined in Section 11.4. "Indemnified Parties" is defined in Section 11.4. "Index Debt" means senior, unsecured, long-term indebtedness for borrowed money of Borrower that is not guaranteed by any other Person or subject to any other credit enhancement. "Information Memorandum" means the Confidential Information Memorandum dated January, 2001 in respect of the facilities provided for in this Agreement and distributed to the initial Lenders under this Agreement. "Interest Period" means, relative to any LIBOR Loans comprising part of the same Borrowing, the period beginning on (and including) the date on which such LIBOR Loan is made or continued as, or converted into, a LIBOR Loan pursuant to Section 2.5 or 2.6 and shall end on (but exclude) the day which numerically corresponds to such date one, two, three or six months thereafter (or, if such month has no numerically corresponding day, on the last Business Day of such month), as the Borrower may select in its relevant notice pursuant to Section 2.5 or 2.6; provided, however, that 16 22 (a) the Borrower shall not be permitted to select Interest Periods to be in effect at any one time which have expiration dates occurring on more than five different dates; (b) Interest Periods commencing on the same date for Loans comprising part of the same Borrowing shall be of the same duration; (c) if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next following Business Day (unless, if such Interest Period applies to LIBOR Loans, such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the Business Day next preceding such numerically corresponding day); and (d) no Interest Period for a Loan may end later than six months after the Stated Maturity Date. "Investment" means, relative to any Person, (a) any loan or advance made by such Person to any other Person (excluding commission, travel and other loans or advances to officers and employees made in the ordinary course of business); (b) any Guarantee of such Person; and (c) any equity interest held by such Person in any other Person. The amount of any Investment shall be the original principal (in the case of a loan or advance) or capital amount thereof, less all payments of principal (in the case of a loan or advance) or return of or on equity in respect thereof (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property at the time of that transfer or exchange. "Issuing Bank" means Bank of Montreal in its capacity as the issuer of Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.3.9. An Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of such Issuing Bank, in which case the term "Issuing Bank" shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate. "LC Disbursement" means a payment made by any Issuing Bank pursuant to a Letter of Credit. "LC Exposure" means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time, plus (b) the aggregate amount of all LC Disbursements 17 23 that have not yet been reimbursed by or on behalf of Borrower at such time. The LC Exposure of any Lender at any time shall be its Percentage of the total LC Exposure at such time. "Lease Expense" of the Borrower or any of its Subsidiaries means at the time of any determination thereof, without duplication, (a) Capitalized Lease Liabilities, (b) rental obligations under operating leases of that Person and (c) Guarantees by that Person of Lease Expense of any other Person, other than (i) any Guarantee by that Person of any such Lease Expense of the Borrower or any of its Subsidiaries and (ii) any Guarantee by that Person of the portion of any such Lease Expense of any of its Affiliates that is included at that time on the consolidated balance sheet of the Borrower and its consolidated Subsidiaries and Affiliates. "Lender Commitment Amount" means, with respect to each Lender, an amount equal to such Lender's Percentage times the Commitment Amount. "Lenders" is defined in the preamble. "Letter of Credit" means any letter of credit issued pursuant to this Agreement. "LIBOR" means, relative to any Interest Period for LIBOR Loans, the rate of interest appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., New York City time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate of interest is not available at such time for any reason, then "LIBOR" with respect to such LIBOR Loan for such Interest Period shall be the rate of interest at which dollar deposits of U.S.$5,000,000 and for a maturity comparable to such Interest Period are offered to the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., New York City time, two Business Days prior to the commencement of such Interest Period. "LIBOR Loan" means a Loan bearing interest, at all times during an Interest Period applicable to such Loan, at a fixed rate of interest determined by reference to the LIBOR. "LIBOR Office" means, relative to any Lender, the office of such Lender designated as such below its signature hereto (or designated in the Lender Assignment Agreement) or such other office of a Lender as designated from time to time by notice from such Lender to the Borrower and the Administrative Agent, whether or not outside the United States, which shall be making or maintaining LIBOR Loans of such Lender hereunder. "Lien" means any security interest, mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance or lien (statutory or other) of any kind or nature whatsoever (other than a Guarantee) with respect to any property, real or personal. 18 24 "Loan" means any Revolving Loan or Swing Line Advance. "Loan Document" means this Agreement, the Notes, any Subsidiary Guaranty, the Pledge Agreement, any Borrowing Request, any Continuation/Conversion Notice, any agreement with respect to fees described in Section 3.3 and each other agreement delivered by Borrower, any Subsidiary or Affiliate of Borrower in connection with this Agreement, as such may be amended from time to time. "Majority-owned Subsidiary" means, with respect to any Person, (i) any corporation or limited liability company of which more than 90% of the outstanding capital stock or membership interests having ordinary voting power to elect a majority of the board of directors of such corporation or managers of such limited liability company (irrespective of whether at the time capital stock or membership interest of any other class or classes of such entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by such Person, by such Person and one or more other Majority-owned Subsidiaries of such Person, or by one or more other Majority-owned Subsidiaries of such Person and (ii) any partnership that is a Subsidiary of such Person. "Managing Agents" is defined in the preamble. "Material Adverse Effect" means any change in or effect on the Borrower or any of its Subsidiaries that individually or in the aggregate with any other changes in or effects on the Borrower or any of its Subsidiaries, which (i) is materially adverse to the business, properties, financial condition or results of operations of the Borrower and its Subsidiaries taken as a whole or (ii) could have a material adverse effect on the Borrower's ability to perform its respective obligations under the Loan Documents; provided, however, that "Material Adverse Effect" shall not be deemed to include any changes or effects arising out of any effects of FAS 133 or other changes in GAAP or in the generally applicable interpretation thereof. "Merger Agreement" means that certain Agreement and Plan of Merger, dated as of November 19, 2000, among the Borrower, NORIC and the NORIC shareholders party thereto, as amended from time to time. "Moody's" means Moody's Investor Services, Inc. and any successor thereto that is a nationally recognized rating agency. "NCOC" means North Central Oil Corporation, a Delaware corporation. "NCOC Acquisition" means the merger of NORIC with Borrower pursuant to the terms and conditions of the Acquisition Documents, a result of which is that NCOC becomes a wholly-owned Subsidiary of the Borrower. "NCOC Reserve Report" means the report covering North Central Oil Corporation's Estimated Proved, Plus Probable, Plus Possible Future Reserves and Income Attributable to Certain Leasehold and Royalty Interests of NCOC as of June 30, 2000, prepared by Miller and Lents, Ltd. 19 25 "Non-Recourse Indebtedness" means any Indebtedness of the Borrower or any of its Subsidiaries with respect to which the holder thereof agrees that (i) neither the Borrower nor any of its Restricted Subsidiaries is personally liable therefor and (ii) such holder may require payment only to the extent specifically identified properties of an Unrestricted Subsidiary are available to provide therefor, such matters to be set forth in form and substance reasonably satisfactory to the Required Lenders in an agreement between such holder and such Unrestricted Subsidiary. "Non-Standard Determination" means a determination or redetermination of the Borrowing Base that may be made either (i) in the event that Borrower fails to comply with the delivery requirements for Reserve Reports or Alternate Reserve Reports set forth in Section 7.1(e), (ii) upon the occurrence of any event that permits redetermination of the Borrowing Base under Section 8.7, (iii) at the discretion of the Required Lenders, no more than once during any six month period ending either November 1st, or May 1st, as applicable, (iv) at the request of the Borrower, no more than once during any six month period ending either November 1st, or May 1st, as applicable, in any case as provided in Section 2.8(b), or (v) notwithstanding any previous request of the Borrower under the preceding clause (iv), at the request of the Borrower within a period of 60 days after the Borrower's issuance of any Additional Subordinated Indebtedness or any Refinancing Indebtedness, in connection with the Borrower's issuance of any Additional Subordinated Indebtedness or any Refinancing Indebtedness. "NORIC" means NORIC Corporation, a New York corporation. "Notes" means the Revolving Notes and the Swing Line Note. "Obligations" means all obligations (monetary or otherwise) of the Borrower arising under or in connection with this Agreement, the Notes and the other Loan Documents. "Organic Document" means, relative to any Person and as applicable, its certificate or articles of organization, formation or incorporation (or comparable document), its by-laws or operating agreement, and all partnership agreements or limited liability company agreement, regulations or other general rules of governance or association and similar arrangements applicable to ownership. "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document, other than any Taxes and any Excluded Taxes). "Participant" is defined in Section 11.11. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Pension Plan" means a "pension plan", as such term is defined in section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a multi-employer plan as defined in section 4001(a)(3) of ERISA), and to which the Borrower or any corporation, trade or business that is, along 20 26 with the Borrower, a member of a Controlled Group, may have liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. "Percentage" means, relative to any Lender, the percentage set forth opposite its signature hereto or set forth in the Lender Assignment Agreement, as such percentage may be adjusted from time to time pursuant to Lender Assignment Agreement(s) executed by such Lender and its Assignee Lender(s) and delivered pursuant to Section 11.11. "Person" means any natural person or any corporation, limited liability company, trust, joint venture, firm, association, company, partnership, Governmental Authority or any other entity. "Plan" means any Pension Plan or Welfare Plan. "Pledge Agreement" means the Pledge Agreement of even date herewith executed and delivered by the Borrower pursuant to Section 5.1.4, substantially in the form attached hereto as Exhibit F (with any modifications thereto necessary to comply with applicable state laws or filing requirements), as such may be amended, supplemented or modified from time to time, and any and all further documents, financing statements, agreements and instruments which may be required under applicable law, or which the Administrative Agent may reasonably request, in order to satisfy the requirements of Section 7.8. "Post-Maturity Rate" is defined in Section 3.2.2. "Prime Rate" means, on any date and with respect to all Prime Rate Loans, a fluctuating rate of interest per annum equal to the higher of (a) the rate of interest most recently announced by the Administrative Agent at its Domestic Office as its Prime Rate; and (b) the Federal Funds Rate most recently determined by the Administrative Agent plus 1%. The Prime Rate is not necessarily intended to be the lowest rate of interest charged by the Administrative Agent in connection with extensions of credit. The Prime Rate is a fluctuating rate of interest and changes in the rate of interest on that portion of any Loans maintained as Prime Rate Loans will take effect simultaneously with each change in the Prime Rate. The Administrative Agent will give notice promptly to the Borrower and the Lenders of changes in the Prime Rate. "Prime Rate Loan" means a Loan bearing interest at a fluctuating rate determined by reference to the Prime Rate. 21 27 "Proved Developed Behind Pipe Reserves" means those Proved Reserves which are recoverable from zones behind casing in existing wells, which will require additional completion work or a future recompletion prior to the start of production. "Proved Developed Producing Reserves" means those Proved Reserves which are recoverable from completion intervals in existing wells currently open and producing to market. Improved recovery reserves are considered to be producing only after an improved recovery project has been installed and is in operation. "Proved Developed Shut-in Reserves" means Proved Reserves that are recoverable from completion intervals open, but not producing. "Proved Reserves" means those recoverable hydrocarbons which have been proved to a high degree of certainty by reason of existing production, adequate testing, or in certain cases by adequate core data and other engineering and geologic information on zones which are present in existing wells or in known reservoirs which are recoverable under existing economic and operating conditions. Reserves that can be produced economically through the application of established improved recovery techniques are included in the proved classification when (a) successful testing by a pilot project or the operation of any installed program in that reservoir or one in the immediate area with similar rock and fluid properties provides support for the engineering analysis on which the project or program was based, and (b) it is reasonably certain the project will proceed. Reserves to be recovered by improved recovery techniques that have yet to be established through repeated economically successful applications are included in the proved category only after successful testing by a pilot project or after the operation of an installed program in the reservoir provides support for the engineering analysis on which the project or program was based. Improved recovery includes all methods for supplementing natural reservoir forces and energy, or otherwise increasing ultimate recovery from a reservoir, including (i) pressure maintenance, (ii) cycling, and (iii) secondary recovery in its original sense. Improved recovery also includes the enhanced recovery methods of thermal, chemical flooding, and the use of miscible and immiscible displacement fluids. "Proved Undeveloped Reserves" means Proved Reserves that are recoverable by new wells on undrilled acreage, from existing wells where a relatively large expenditure is required for recompletion and from acreage where the application of an improved recovery technique is planned and the costs required to place the project in operation are relatively large. Proved Undeveloped Reserves on undrilled acreage shall be limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved Reserves for other undrilled units are Proved Undeveloped Reserves only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. "Qualified Partnership Properties" means Proved Reserves owned by a partnership or joint venture in which the Borrower or a Majority-owned Subsidiary is a general partner or a venturer. "Quarterly Payment Date" means the last day of each January, April, July and October or, if any such day is not a Business Day, the next succeeding Business Day. 22 28 "Refinancing Indebtedness" means subordinated Indebtedness incurred after the Effective Date refinancing any or all of the Indebtedness described in clauses (a)(i), (a)(ii) and (a)(iii) of the definition of "Subordinated Indebtedness". "Registration Rights Agreement" means that certain Registration Rights Agreement, dated as of March 14, 2001, among the Borrower and the "Shareholders" (as defined therein) who are signatories thereto, as amended from time to time. "Regulatory Change" means, with respect to any Lender, any change in or adoption of United States federal, state or foreign law, rule or regulation or the adoption of, making of, or any change in any interpretations or directives applying to a class of banks including such Lender under any United States federal, state or foreign law or regulations by any court, governmental or monetary authority or central bank charged with the interpretation or administration thereof. "Release" means a "release", as such term is defined in CERCLA. "Request for Swing Line Advance" has the meaning given it in Section 2.2.1(a). "Required Borrowing Base Lenders" means with respect to any action in connection with the Borrowing Base, the Lenders holding at least 75% of the then aggregate outstanding principal amount of the Notes then held by the Lenders, or, if no such principal amount is then outstanding, the Administrative Agent and Lenders responsible for at least 75% of the then current Commitment Amount. "Required Lenders" means, at any time, Lenders holding at least 60% of the then aggregate outstanding principal amount of the Notes then held by the Lenders, or, if no such principal amount is then outstanding, Lenders having at least 60% of the Commitments. "Reserve Report" means a report prepared by the Borrower and audited by Ryder Scott Company Petroleum Engineers (or Miller and Lents, Ltd. with respect to the NCOC Reserve Report) or other independent petroleum engineers satisfactory to the Agent and the Required Lenders showing, in form and detail satisfactory to the Agent and Required Lenders, such engineers' estimate of the Proved Reserves on the Borrowing Base Properties and the future Gross Revenue and Future Net Income to be derived from such Proved Reserves as of the Reserve Report Date for each year. The Reserve Report shall estimate the Proved Reserves and income data for the Proved Developed Producing Reserves, the Proved Developed Shut-In Reserves, the Proved Developed Behind Pipe Reserves and the Proved Undeveloped Reserves, and shall, in each case, report only the Proved Reserves and income data attributable to Borrower's or a Restricted Subsidiary's working interest percentage in or Borrower's or a Restricted Subsidiary's pro rata share of, as the case may be, any Proved Reserves located on the Borrowing Base Properties, less the Borrower's or a Restricted Subsidiary's obligations or pro rata share of such obligations, as the case may be, for advance payments for each such property. All calculations including the calculation of Applicable Prices in the Reserve Report shall be made on a property-by-property and an interest-by-interest basis in order to reflect the varying royalties, costs and expenses, working interests and advance payments applicable to the various Borrowing Base Properties covered by the Reserve Report. Except as 23 29 otherwise specifically required herein, the Reserve Report shall be prepared and presented in accordance with the requirements of the SEC from time to time in effect. "Reserve Report Date" means January 1, with respect to Reserve Reports, and July 1, with respect to Alternate Reserve Reports, it being understood that no date shall be deemed a Reserve Report Date until the applicable Reserve Reports or Alternate Reserve Reports with respect thereto are available. "Restricted Subsidiary" means any of (i) Arch Subsidiaries, NCOC, B8/32 Partners, Thaipo Limited, Rhode Island Corporation and Walton Corporation, (ii) any Subsidiary which is shown in a Reserve Report as owning any oil and gas properties which are included in the Borrowing Base, and (iii) any other Subsidiary which is designated by Borrower in writing to the Administrative Agent and which designation is accepted by the Administrative Agent and the Required Lenders. "Revolving Loan" is defined in Section 2.1.1 of this Agreement. "Revolving Note" means a promissory note of the Borrower payable to any Lender, in the form of Exhibit A hereto (as such promissory note may be amended, exchanged, endorsed or otherwise modified from time to time), and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Rhode Island Corporation" means Rhode Island Corporation, a New York corporation. "S&P" means Standard & Poor's Rating Services, a division of The McGraw Hill Companies, Inc., and any successor thereto that is a nationally recognized rating agency. "SEC" means the Securities and Exchange Commission or any successor agency. "Senior Debt" means, at the time of any determination thereof, without duplication with respect to any of the Borrower and its Restricted Subsidiaries, the principal amount of all Indebtedness of that Person constituting borrowed money (including, without limitation, with respect to the Borrower, the Loans outstanding under this Agreement and Additional Senior Unsecured Indebtedness) other than (i) Subordinated Indebtedness, (ii) Non-Recourse Indebtedness, (iii) any Guarantee by that Person of any such Indebtedness of the Borrower or any of its Subsidiaries, and (iv) any Guarantee by that Person of the portion of any such Indebtedness of any of its Affiliates that is included at that time on the consolidated balance sheet of the Borrower and its consolidated Subsidiaries and Affiliates. "Significant Subsidiary" means any Subsidiary (i) with assets having a book value equal to or greater than ten percent (10%) of the consolidated assets of Borrower and its Subsidiaries or (ii) which accounts for more than ten percent (10%) of EBITDAX of Borrower and its Subsidiaries. "Standstill and Voting Agreement" means that certain Standstill and Voting Agreement, dated as of March 14, 2001, between Borrower and the "Shareholders" (as defined therein) who are signatories thereto, as amended from time to time. 24 30 "Stated Maturity Date" means March 7, 2006. "Subordinated Indebtedness" means (a) the Borrower's (i) 5-1/2% Convertible Subordinated Notes, due 2006, issued under the Indenture dated as of June 15, 1996 between the Borrower and State Street Bank and Trust Company, as Trustee, (ii) 8-3/4% Senior Subordinated Notes, due 2007, issued under the Indenture dated as of May 15, 1997 between the Borrower and State Street Bank and Trust Company, as Trustee, (iii) 10-3/8% Senior Subordinated Notes, due 2009, issued under the Indenture dated as of June 15, 1999, and (iv) Refinancing Indebtedness; provided, that: (A) such Refinancing Indebtedness has subordination terms not materially less favorable to the Lenders as holders of the Notes than the then existing Subordinated Indebtedness, unless such terms are approved by the Required Lenders; and (B) the aggregate principal payments for such Refinancing Indebtedness scheduled to be paid (1) in any Fiscal Year ending prior to the Stated Maturity Date are no greater than the aggregate principal payments under the existing schedule of principal payments of the Subordinated Indebtedness being repaid and (2) prior to a period ending 24 months after the Stated Maturity Date, shall not exceed the aggregate principal payments under the existing schedule of principal payments of the Subordinated Indebtedness being repaid; and (b) the Additional Subordinated Indebtedness. "Subsidiary" means, (A) with respect to any Person, (i) any corporation or limited liability company of which more than 50% of the outstanding capital stock or member interests having ordinary voting power to elect a majority of the board of directors of such corporation or managers of such limited liability company (irrespective of whether at the time capital stock or member interest of any other class or classes of such entity shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person and (ii) any partnership in which such Person or any Subsidiary of such Person is the sole general partner or is the managing general partner if there is more than one general partner and that partnership is consolidated (other than on a proportionate basis) with such Person for purposes of financial reporting under GAAP and (B) with respect to the Borrower, all Restricted Subsidiaries and Unrestricted Subsidiaries. "Swing Line Advances" has the meaning given it in Section 2.2. "Swing Line Lender" means Bank of Montreal, its successors and assigns. 25 31 "Swing Line Note" means a promissory note of the Borrower payable to the Swing Line Lender, in the form of Exhibit H hereto (as such promissory note may be amended, exchanged, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Lender resulting from Swing Line Advances outstanding from time to time, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Swing Line Obligations" means, at the particular time in question, the sum of all outstanding Swing Line Advances. "Swing Line Rate" has the meaning given it in Section 2.2.1. "Syndication Agent" is defined in the preamble. "Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority other than any Excluded Taxes. "Thaipo Limited" means Thaipo Limited, a corporation organized under the laws of the Kingdom of Thailand and which is a Subsidiary of the Borrower. "Ticking Fees" is defined in Section 3.3.2. "Transactions" means the NCOC Acquisition and the Financing Transactions. "Type" means, relative to any Borrowing or Loan, the portion thereof, if any, being maintained as a Prime Rate Loan or a LIBOR Loan. "UCC Searches" means central and local current financing statement searches from each state in which any Collateral is located, and such other jurisdictions as the Administrative Agent may request, covering the Borrower together with copies of all financing statements listed in such searches. "United States" or "U.S." means the United States of America, its fifty States and the District of Columbia. "Unrestricted Subsidiary" means any Subsidiary of Borrower which is not a Restricted Subsidiary. "Upfront Fees" is defined in Section 3.3.4. "Walton Corporation" means Walton Corporation, a Delaware corporation. "Welfare Plan" means a "welfare plan", as such term is defined in section 3(1) of ERISA. 26 32 SECTION 1.2 Use of Defined Terms. Unless otherwise defined or the context otherwise requires, terms for which meanings are provided in this Agreement shall have such meanings when used in the Disclosure Schedule and in each other Loan Document, notice and other communication delivered from time to time in connection with this Agreement or any other Loan Document. SECTION 1.3 Cross-References. Unless otherwise specified, references in this Agreement and in each other Loan Document to any Article or Section are references to such Article or Section of this Agreement or such other Loan Document, as the case may be, and, unless otherwise specified, references in any Article, Section or definition to any clause are references to such clause of such Article, Section or definition. SECTION 1.4 Accounting and Financial Determinations. Unless otherwise specified, all accounting terms used herein or in any other Loan Document shall be interpreted, all accounting determinations and computations hereunder or thereunder (including under Section 8.3) shall be made, and all financial statements required to be delivered hereunder or thereunder shall be prepared in accordance with, generally accepted accounting principles as in effect from time to time ("GAAP"), applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the most recent audited consolidated financial statements of the Borrower and its consolidated Subsidiaries and Affiliates. ARTICLE II COMMITMENTS, BORROWING PROCEDURES AND NOTES SECTION 2.1 Commitments. On the terms and subject to the conditions of this Agreement (including Article V), each Lender severally agrees to make Loans pursuant to the Commitments described in this Section 2.1. SECTION 2.1.1 Loan Commitment. From time to time on any Business Day occurring prior to the Commitment Termination Date, each Lender will make revolving loans (relative to such Lender, its "Revolving Loan") to the Borrower equal to such Lender's Percentage of the aggregate amount of the Borrowing requested by the Borrower to be made on such day. On the terms and subject to the conditions hereof, the Borrower may from time to time borrow, prepay and reborrow Revolving Loans. SECTION 2.1.2 Lenders Not Permitted or Required To Make Loans in Excess of Commitment. Neither any Lender nor the Swing Loan Lender shall be permitted or required to make any Revolving Loan or Swing Line Advance, respectively, if, after giving effect thereto, (a) the aggregate Credit Exposures outstanding would exceed the lesser of (i) the Commitment Amount and (ii) the Borrowing Base then in effect less all other Senior Debt outstanding, less 75% of all Additional Subordinated Indebtedness issued since the date of the last Borrowing Base redetermination; or (b) the aggregate outstanding Credit Exposure of any such Lender would exceed such Lender's Percentage of the Commitment Amount. 27 33 SECTION 2.2 Swing Line Advances. In addition to borrowings pursuant to Section 2.1.1, Borrower may request the Swing Line Lender to make advances to Borrower on any Business Day (unless Borrower and the Swing Line Lender agree otherwise) occurring prior to the Commitment Termination Date as provided in Section 2.2.1 (herein called "Swing Line Advances"); provided, however, that at no time shall the outstanding aggregate principal amount of all Swing Line Advances under this Agreement exceed $10,000,000. At any time when the Swing Line Lender has made Swing Line Advances to the Borrower, such outstanding Swing Line Advances shall be included in calculating the Swing Line Lender's Percentage of the Commitment Amount. SECTION 2.2.1 Procedure for Swing Line Advances. (a) No later than 10:00 a.m., Houston Time, on a Business Day on which Borrower desires a Swing Line Advance, Borrower shall transmit to Swing Line Lender and to Administrative Agent by telecopy a notice in substantially the form of Exhibit G attached hereto (herein called a "Request for Swing Line Advance"). Swing Line Lender will specify the rate of interest per annum which will be the fixed rate of interest to be charged for such Swing Line Advance until maturity (herein called the "Swing Line Rate"). (b) Swing Line Lender shall wire transfer the Swing Line Advance in immediately available funds by no later than 1:00 p.m., Houston Time, on the date requested for such Swing Line Advance to Administrative Agent, which shall deposit such funds to an account designated by Borrower by no later than 1:15 p.m., Houston Time, on the same day. (c) Borrower shall repay each such Swing Line Advance on or before 1:00 p.m., Houston Time, on the following Business Day or at such other maturity (such date of maturity being no more than 30 days after the date of the Swing Line Advance and no later than the Stated Maturity Date) as is agreed to by Borrower, Administrative Agent and the Swing Line Lender. The repayment shall be paid on such date by Borrower (which payment may be in the form of a Swing Line Advance of not more than $5,000,000 advanced to Borrower on that day) to Administrative Agent in immediately available funds with instructions to Administrative Agent to forward such proceeds to the Swing Line Lender. Any accrued and unpaid interest pursuant to Swing Line Advances shall be paid by Borrower (which payment may be in the form of a Swing Line Advance advanced to Borrower on that day) to Administrative Agent in immediately available funds (i) on the first Business Day of each calendar quarter with respect to any Prime Rate Loan and (ii) on the last day of the Interest Period with respect to any LIBOR Loan, each with instructions to Administrative Agent to forward such proceeds to the Swing Line Lender. (d) Interest on the Swing Line Advances shall be computed on the basis of a year of 365 or 366 days and actual days elapsed (including the first day, but excluding the last day) occurring in the period for which payable and shall not exceed the Highest Lawful Rate. Past due principal and interest (to the extent allowed by law) shall bear interest at the lesser of the Default Rate or the Highest Lawful Rate and shall be payable on demand. (e) The Swing Line Advances made by the Swing Line Lender shall be evidenced by the Swing Line Note. The date, amount, Swing Line Rate and maturity of each Swing Line 28 34 Advance made by the Swing Line Lender to Borrower, and each payment made on account of the principal thereof, shall be recorded by the Swing Line Lender on its books. (f) The obligation of the Swing Line Lender to make each Swing Line Advance after timely acceptance by Borrower is further subject to the conditions contained in Article V. SECTION 2.2.2 Special Provisions for Swing Line Advances. (a) Participations in Swing Line Advances. (i) If, at any time, any Event of Default shall have occurred and be continuing, each Lender, promptly upon request by the Swing Line Lender delivered to Administrative Agent, shall purchase an undivided participation interest in all outstanding Swing Line Advances in an amount equal to its Percentage times the outstanding amount of such Swing Line Advances. Each Lender (other than the Swing Line Lender) will transfer immediately to Administrative Agent for credit to Swing Line Lender, in immediately available funds, the amount of its participation. Upon receipt thereof, the Swing Line Lender will deliver to such other Lender a Swing Line Advance Participation Certificate, dated the date of receipt of such funds and in the amount of such Lender's participation. (ii) Whenever, at any time after the Swing Line Lender has received from any other Lender such other Lender's participating interest in a Swing Line Advance, the Swing Line Lender receives any payment on account thereof, Administrative Agent will distribute to such other Lender its participating interest in such amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender's participating interest was outstanding and funded); provided, however, that in the event that any payment received by Swing Line Lender is required to be returned, such other Lender will return to Swing Line Lender any portion thereof previously distributed to it. (b) Acknowledged Privity. Borrower expressly agrees that, in respect of each Lender's funded participation interest in any Swing Line Advance, such Lender shall be deemed to be in privity of contract with Borrower and have the same rights and remedies against Borrower under the Loan Documents as if such funded participation interest in such Swing Line Advance were a Revolving Loan. (c) Unconditional Obligation. Each Lender's obligation to purchase participation interests in Swing Line Advances as provided in this Section shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (A) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against Swing Line Lender, Borrower or any other Person for any reason whatsoever, (B) the existence of any Default or Event of Default at any time, (C) the occurrence of any event or existence of any condition that 29 35 could reasonably be expected to have a Material Adverse Effect, or (D) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. SECTION 2.3 Letters of Credit. SECTION 2.3.1 Letter of Credit Commitment. Subject to the terms and conditions set forth herein, upon request by Borrower, the Issuing Bank will issue Letters of Credit for Borrower's account or the account of any Subsidiary, in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time prior to the Commitment Termination Date. The Borrower agrees to pay the fees set forth in Section 3.3.3 with respect to each Letter of Credit. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by Borrower with, the Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control. SECTION 2.3.2 Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Bank) to an Issuing Bank and the Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with Section 2.3.3), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the Issuing Bank, Borrower also shall submit a letter of credit application on the Issuing Bank's standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed $50,000,000 and (ii) the sum of the total Credit Exposures shall not exceed the total Commitments of the Lenders. SECTION 2.3.3 Expiration Date. Each Letter of Credit shall expire at or prior to the date which is five (5) Business Days prior to the Stated Maturity Date. SECTION 2.3.4 Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Lender's Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank, such Lender's Percentage of each LC Disbursement made by the Issuing Bank and not reimbursed by Borrower on the date due as provided in paragraph 2.3.5, or of any reimbursement payment required to be 30 36 refunded to Borrower for any reason. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of an Event of Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. SECTION 2.3.5 Reimbursement. If the Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, Borrower shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement not later than 12:00 noon, Houston Time, on the date that such LC Disbursement is made, if Borrower shall have received notice of such LC Disbursement prior to 10:00 a.m., Houston Time, on such date, or, if such notice has not been received by Borrower prior to such time on such date, then not later than 12:00 noon, Houston Time, on (i) the Business Day that Borrower receives such notice, if such notice is received prior to 10:00 a.m., Houston Time, on the day of receipt, or (ii) the Business Day immediately following the day that Borrower receives such notice, if such notice is not received prior to such time on the day of receipt; provided that Borrower may, subject to the conditions to Borrowing set forth herein, request in accordance with Section 2.1 or Section 2.2, that such payment be financed with a Loan in an equivalent amount and, to the extent so financed, Borrower's obligation to make such payment shall be discharged and replaced by such Loan. If Borrower fails to make such payment when due, the Administrative Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from Borrower in respect thereof and such Lender's Percentage thereof. Promptly following receipt of such notice, each Lender shall pay to the Administrative Agent its Percentage of the payment then due from Borrower, in the same manner as provided in Section 2.5 with respect to Loans made by such Lender (and Section 2.5 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the Issuing Bank the amounts so received by it from the Lenders. Promptly following receipt by the Administrative Agent of any payment from Borrower pursuant to this paragraph, the Administrative Agent shall distribute such payment to the Issuing Bank or, to the extent that Lenders have made payments pursuant to this paragraph to reimburse the Issuing Bank, then to such Lenders and the Issuing Bank as their interests may appear. Any payment made by a Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC Disbursement (other than the funding of Prime Rate Loans as contemplated above) shall not constitute a Loan and shall not relieve Borrower of its obligation to reimburse such LC Disbursement. SECTION 2.3.6 Obligations Absolute. Borrower's obligation to reimburse LC Disbursements as provided in paragraph 2.3.5 shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein proving to be untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a 31 37 legal or equitable discharge of, or provide a right of setoff against, Borrower's Obligations hereunder. Neither the Agents, the Lenders or the Issuing Bank nor any of their Affiliates shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of such Issuing Bank; provided that the foregoing shall not be construed to excuse such Issuing Bank from liability to Borrower to the extent of any direct or actual damages (as opposed to special, indirect, consequential or punitive damages, claims in respect of which are hereby waived by Borrower to the extent permitted by applicable law) suffered by Borrower that are caused by such Issuing Bank's failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. SECTION 2.3.7 Disbursement Procedures. An Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. Such Issuing Bank shall promptly notify the Administrative Agent and Borrower by telephone (confirmed by telecopy) of such demand for payment and whether such Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve Borrower of its obligation to reimburse such Issuing Bank and the Lenders with respect to any such LC Disbursement. SECTION 2.3.8 Interim Interest. If an Issuing Bank shall make any LC Disbursement, then, unless Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that Borrower reimburses such LC Disbursement, at the rate per annum then applicable to Prime Rate Loans; provided that, if Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph 2.3.5, then the Post-Maturity Rate shall apply. Interest accrued pursuant to this paragraph shall be for the account of the Issuing Bank, except that interest accrued on and after the date of payment by any Lender pursuant to paragraph 2.3.5 to reimburse the Issuing Bank shall be for the account of such Lender to the extent of such payment. SECTION 2.3.9 Replacement of the Issuing Bank. An Issuing Bank may be replaced at any time by written agreement among Borrower, the Administrative Agent, the replaced 32 38 Issuing Bank and the successor Issuing Bank. The Administrative Agent shall notify the Lenders of any such replacement of an Issuing Bank. At the time any such replacement shall become effective, Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 3.3.3. From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of such Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term "Issuing Bank" shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit. SECTION 2.3.10 Cash Collateralization. If (i) any Event of Default shall occur and be continuing, or (ii) on the Commitment Termination Date, Borrower shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Lenders, an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid interest thereon; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to Borrower described in Section 9.1.9; provided further, if the outstanding principal amount of all outstanding Loans and all other Obligations have become due and payable pursuant to Section 9.2 or 9.3, an amount equal to the LC Exposure as of such date shall be deemed to be forthwith due and payable by the Borrower as of the date of any such occurrence and the Borrower's obligation to pay such amount shall be absolute and unconditional without regard to whether any beneficiary of any outstanding Letter of Credit has attempted to draw down all or a portion of such amount under the terms of the Letter of Credit, and to the fullest extent permitted by applicable law, shall not be subject to any defense or be affected by a right of set-off, counterclaim or recoupment which the Borrower may now or hereafter have against any such beneficiary, the Issuing Bank, the Administrative Agent, the Lenders or any other Person for any reason whatsoever. Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the Obligations of Borrower under this Agreement and the Borrower hereby grants to and by its deposit with the Administrative Agent grants to the Administrative Agent, for the benefit of the Lenders, a security interest in such cash collateral. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account for the benefit of the Lenders. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at Borrower's risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse the Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement Obligations of Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Lenders with LC Exposure representing greater than 75% of the total LC Exposure), be applied to satisfy other Obligations of Borrower under this Agreement. If Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an 33 39 Event of Default, such amount (to the extent not applied as aforesaid) shall be returned promptly to Borrower after such Event of Default has been cured or waived. SECTION 2.4 Reduction and Termination of the Commitment Amounts. The Commitment Amount is subject to reduction from time to time or termination pursuant to this Section. SECTION 2.4.1 Optional. Borrower may, from time to time on any Business Day occurring after the time of the initial Borrowing hereunder, voluntarily reduce the Commitment Amount; provided, however, that all such reductions shall require at least three (3) Business Days' prior notice to the Administrative Agent, and each such reduction of the Commitment Amount shall be in a minimum amount of $5,000,000 and in increments of $1,000,000. SECTION 2.4.2 Mandatory. Each Lender's Commitment shall be automatically terminated on the Commitment Termination Date. SECTION 2.4.3 Pro Rata; Payment of Fees. Each reduction in the Commitment Amount shall be made ratably among the Lenders in accordance with their respective Percentages. The Borrower shall pay to the Administrative Agent for the account of the Lenders, on the date of each reduction or upon such termination, the Commitment Fees accrued pursuant to Section 3.3.1 on the amount of the Commitments so reduced or terminated through the date of such reduction or termination. SECTION 2.5 Borrowing Procedure. The Borrower may from time to time irrevocably request that a Borrowing be made in a minimum amount of (i) $1,000,000 for Prime Rate Loans and (ii) $5,000,000 for LIBOR Loans, and in an integral multiple of $1,000,000 or, if less, in the unused amount of the Commitment Amount or outstanding Swing Line Advance. Such request shall be made by delivering a Borrowing Request to the Administrative Agent on or before 10:00 a.m., Houston Time, (x) on the Business Day of such Borrowing in the case of a Prime Rate Borrowing and (y) on a Business Day not less than three Business Days in advance of a LIBOR Borrowing. On the terms and subject to the conditions of this Agreement, each Borrowing shall be comprised of the Type of Loans, and shall be made on the Business Day, specified in such Borrowing Request. With respect to any Borrowing, the Administrative Agent shall have given each of the Lenders notice of such Borrowing on or before 10:30 a.m., Houston Time, on the date of such Borrowing and on or before 11:00 a.m., Houston Time, on such Business Day each Lender shall deposit with the Administrative Agent same day funds in an amount equal to such Lender's Percentage of the requested Borrowing. Such deposit will be made to an account which the Administrative Agent shall specify from time to time by notice to the Lenders. To the extent funds are received from the Lenders, the Administrative Agent shall make such funds available to the Borrower by wire transfer to the accounts the Borrower shall have specified in its Borrowing Request. No Lender's obligation to make any Loan shall be affected by any other Lender's failure to make any Loan. 34 40 SECTION 2.6 Continuation and Conversion Elections. The Borrower may from time to time irrevocably elect that all, or any portion in an aggregate minimum amount of $5,000,000 and an integral multiple of $1,000,000, of any Borrowing be, in the case of Prime Rate Loans, converted into LIBOR Loans or, in the case of LIBOR Loans, be converted into Prime Rate Loans or continued as LIBOR Loans of the same or different Type. Such request for a continuation or conversion of a Borrowing shall be made by delivering a Continuation/Conversion Notice to the Administrative Agent on or before 10:00 a.m., Houston Time, on a Business Day, such Continuation/Conversion Notice to be delivered at least three (3) Business Days in advance for any Borrowing continued as or converted into a LIBOR Loan. In the absence of delivery of a Continuation/Conversion Notice with respect to any LIBOR Loan at least three (3) Business Days before the last day of the then current Interest Period with respect thereto, such LIBOR Loan shall, on such last day, automatically convert to a Prime Rate Loan. Notwithstanding the above, no portion of the outstanding principal amount of any Loans may be continued as, or be converted into, LIBOR Loans when any Default has occurred and is continuing. SECTION 2.7 Funding. Each Lender may, if it so elects, fulfill its obligation to make, continue or convert LIBOR Loans hereunder by causing one of its foreign branches or Affiliates (or an international banking facility created by such Lender) to make or maintain such LIBOR Loan; provided, however, that such LIBOR Loan shall nonetheless be deemed to have been made and to be held by such Lender and evidenced by such Lender's Revolving Note, and the obligation of the Borrower to repay such LIBOR Loan shall be only to such Lender; provided further, that any such funding arrangement does not result in additional costs to the Borrower under Section 4.3, 4.4, 4.5 or 4.7 or otherwise that would not have been incurred but for such funding arrangement. SECTION 2.8 Determination of Borrowing Base. (a) Upon each delivery of a Reserve Report or Alternate Reserve Report pursuant to Section 7.1 on or before the respective dates required thereby, then with respect to the annual or semi-annual, as the case may be, determination of the Borrowing Base, the Administrative Agent will propose to the Lenders a Borrowing Base for acceptance by the Required Borrowing Base Lenders. If such Borrowing Base, as proposed by the Administrative Agent is accepted by the Required Borrowing Base Lenders, then such agreed Borrowing Base shall be communicated by the Administrative Agent to the Borrower on or before (i) the next May 1st, in the case of a Reserve Report and (ii) the next November 1st, in the case of an Alternate Reserve Report, and shall remain in effect until the next November 1st or May 1st; provided that if such proposed Borrowing Base is not approved by the Required Borrowing Base Lenders prior to the applicable date then, within 30 days following the applicable date, the Required Borrowing Base Lenders will establish and agree to a Borrowing Base established using criteria agreed upon by the Required Borrowing Base Lenders, and such amount will be promptly communicated to the Borrower; provided that the then current Borrowing Base shall remain in effect until the Borrower is notified of the new Borrowing Base. The new Borrowing Base shall become effective as of the date that the Borrower receives notification from the Administrative Agent of the new Borrowing Base. The Borrowing Base, as determined and established pursuant to this Section 2.8(a) shall be subject, at all times, to the redetermination of the then effective Borrowing Base as a result of a Non-Standard Determination. 35 41 (b) With respect to a Non-Standard Determination of the Borrowing Base, (i) the Administrative Agent or the Required Lenders shall have the right, but not the obligation, at any time to notify the Borrower of their intent to perform a Non-Standard Determination of the Borrowing Base and (ii) the Borrower shall have the right to request a Non-Standard Determination by sending a written request to the Administrative Agent for the performance of a Non-Standard Determination of the Borrowing Base. In connection with any Non-Standard Determination and notwithstanding the delivery of any new Alternate Reserve Report, the Administrative Agent shall propose, and the Required Borrowing Base Lenders shall agree to and approve, a new Borrowing Base which shall become effective upon receipt by the Borrower of notice of such new Borrowing Base until such new Borrowing Base may be redetermined as a result of a scheduled semi-annual determination of the Borrowing Base pursuant to Section 2.8(a). In connection with any Non-Standard Determination, the Borrower shall deliver promptly upon the request of the Administrative Agent a new Alternate Reserve Report to the Administrative Agent; provided that such Alternate Reserve Report, whether or not delivered, shall not preclude or impact the making of such Non-Standard Determination of the Borrowing Base by the Administrative Agent or the approval of such Borrowing Base by the Required Borrowing Base Lenders. SECTION 2.9 Revolving Notes. Each Lender's Revolving Loans shall be evidenced by a Revolving Note payable to the order of such Lender in a maximum principal amount equal to such Lender's Percentage of the original Commitment Amount. The Borrower hereby irrevocably authorizes each Lender to make (or cause to be made) appropriate notations on the grid attached to such Lender's Revolving Note (or on any continuation of such grid), which notations, if made, shall evidence, inter alia, the date of, the outstanding principal of, and the interest rate and Interest Period applicable to the Revolving Loans evidenced thereby. Such notations shall be conclusive and binding on the Borrower absent manifest error; provided, however, that the failure of any Lender to make any such notations shall not limit or otherwise affect any Obligations of the Borrower. ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES SECTION 3.1 Repayments and Prepayments. The Borrower shall make mandatory repayments and prepayments and may also make voluntary prepayments from time to time pursuant to this Section 3.1. Each prepayment of any Loans made pursuant to this Section shall be without premium or penalty, except as may be required by Section 4.4. SECTION 3.1.1 Repayments. The Borrower shall repay in full the unpaid aggregate principal amount of each Loan upon the Commitment Termination Date. SECTION 3.1.2 Mandatory Prepayments on Revolving Loans. If at any time prior to the Commitment Termination Date, the aggregate Credit Exposures outstanding exceed the Borrowing Base then in effect less all other Senior Debt outstanding, less 75% of all Additional Subordinated Indebtedness issued since the last redetermination of the Borrowing Base, the Borrower shall forthwith repay the Revolving Loans in an aggregate amount equal to such excess; provided that the Borrower shall have the option to prepay such Revolving Loans, in no more than five substantially equal monthly installments, in an amount such that upon the conclusion of such 36 42 mandatory prepayments, the sum of the principal amount of all outstanding Senior Debt plus 75% of Additional Subordinated Debt issued since the then most recent redetermination of the Borrowing Base will not exceed the Borrowing Base then in effect. The first such payment pursuant to the proviso in the preceding sentence shall be due within 90 days after the commencement date of that Deficiency Period, and the remaining payments shall be due on the numerically corresponding day of each of the subsequent four months. If a subsequent month does not contain a numerically corresponding day, the Borrower shall make such payment on the last Business Day of such month, or if the numerically corresponding day is not a Business Day, such payment will be due on the preceding Business Day. No mandatory prepayment pursuant to this Section shall automatically effect a reduction in the Commitment Amount. Administrative Agent agrees to give Borrower prompt notice of the occurrence of a Deficiency Period. SECTION 3.1.3 Repayment Upon Acceleration. The Borrower shall, immediately upon any acceleration of any Loans pursuant to Section 9.2 or 9.3, repay all Loans. SECTION 3.1.4 Voluntary Prepayments. The Borrower may, from time to time on any Business Day prior to the Stated Maturity Date, make a voluntary prepayment, in whole or in part, of the outstanding principal amount of all Loans; provided, however, that: (i) any such prepayment shall be made pro rata among the Lenders with respect to Loans of the same Type and, if applicable, having the same Interest Period; (ii) any and all amounts payable pursuant to Section 4.4 hereof in connection with such prepayment shall be paid on the date of such prepayment; (iii) the Borrower shall give (A) with respect to LIBOR Loans, not less than three nor more than five Business Days and (B) with respect to Prime Rate Loans, not less than same day nor more than three Business Days, prior written notice (on or before 10:00 a.m. Houston Time) to the Administrative Agent of any voluntary prepayments of any Loans; and (iv) all such voluntary partial prepayments shall be in a minimum amount equal to $1,000,000 for Prime Rate Loans and $5,000,000 for LIBOR Loans, and an integral multiple of $1,000,000. No voluntary prepayment pursuant to this Section shall automatically effect a eduction in the Commitment Amount. SECTION 3.2 Interest Provisions. Interest on the outstanding principal amount of the Revolving Loans shall accrue and be payable in accordance with this Section 3.2. SECTION 3.2.1 Rates. As selected by the Borrower pursuant to an appropriately delivered Borrowing Request or Continuation/Conversion Notice, the Loans shall accrue interest as follows: 37 43 (a) Prime Rate Loans shall accrue interest at a rate per annum equal to the sum of the Prime Rate from time to time in effect, plus the Applicable Margin; and (b) LIBOR Loans shall accrue interest during each Interest Period applicable thereto at a rate per annum equal to the sum of LIBOR for such Interest Period, plus the Applicable Margin. All LIBOR Loans shall bear interest at the interest rate applicable thereto from and including the first day of the applicable Interest Period to (but not including) the last day of such Interest Period. SECTION 3.2.2 Post-Maturity Rates. After the date any principal amount of any Loan is due and payable (whether on the Stated Maturity Date, upon acceleration or otherwise), or after any other monetary Obligation of the Borrower shall have become due and payable and any applicable grace or cure period shall have expired, the Borrower shall pay interest (after as well as before judgment) on such amounts at a rate per annum equal to the Prime Rate, plus a margin of 2%, until paid. SECTION 3.2.3 Payment Dates. Interest accrued on each Loan shall be payable, without duplication: (a) on the Stated Maturity Date; (b) except with respect to payment or prepayment of Prime Rate Loans, on the date of any payment or prepayment, in whole or in part, of principal outstanding on such Loan; (c) with respect to Prime Rate Loans, on each Quarterly Payment Date occurring after the date of the initial Borrowing hereunder; (d) with respect to LIBOR Loans, the last day of each applicable Interest Period (and, if such Interest Period shall exceed 90 days, on the 90th day of such Interest Period); and (e) if the Stated Maturity Date is accelerated pursuant to Section 9.2 or Section 9.3, immediately upon such acceleration. Interest accrued on Loans or other monetary Obligations pursuant to Section 3.2.2 shall be payable upon demand. SECTION 3.2.4 [Intentionally omitted]. SECTION 3.2.5 Maximum Interest. It is the intention of the parties hereto to conform strictly to applicable usury laws and, anything herein to the contrary notwithstanding, the obligations of the Borrower to the Lenders under this Agreement, the other Loan Documents and any other document or instrument executed in connection herewith or therewith, shall be subject to the 38 44 limitation that payments of interest or of other amounts constituting interest under applicable law to a Lender shall not be required to the extent that receipt thereof would be in excess of the Highest Lawful Rate, or otherwise contrary to provisions of law applicable to such Lender limiting rates of interest which may be charged or collected by such Lender. Accordingly, if the transactions or the amount paid or otherwise agreed to be paid for the use, forbearance or detention of money under this Agreement, the other Loan Documents and any other document or instrument executed in connection herewith or therewith would exceed the Highest Lawful Rate or otherwise be usurious under applicable law (including the federal and state laws of the United States of America, or of any other jurisdiction whose laws may be mandatorily applicable) with respect to any Lender then, in that event, notwithstanding anything to the contrary in this Agreement or the other Loan Documents and any other document or instrument executed in connection herewith or therewith, it is agreed as follows as to such Lender: (a) with respect to such Lender, the provisions of this Section 3.2.5 shall govern and control over any other provision in this Agreement, the other Loan Documents and any other document or instrument executed in connection herewith or therewith and each provision set forth therein is hereby so limited; (b) the aggregate of all consideration which constitutes interest under applicable law that is contracted for, charged or received under this Agreement, the other Loan Documents, or under any of the other aforesaid agreements or otherwise in connection with this Agreement by such Lender shall under no circumstances exceed the maximum amount of interest allowed by applicable law (such maximum lawful interest rate, if any, with respect to such Lender herein called the "Highest Lawful Rate"), and all amounts owed under this Agreement, the other Loan Documents and any other document or instrument executed in connection herewith or therewith shall be held subject to reduction and (i) the amount of interest which would otherwise be payable to such Lender hereunder and under the other Loan Documents and any other document or instrument executed in connection herewith or therewith, shall be automatically reduced to the amount allowed under applicable law and (ii) any unearned interest paid by the Borrower in excess of the Highest Lawful Rate shall be credited to the Borrower by such Lender (or, if such consideration shall have been paid in full, refunded to the Borrower); (c) all sums paid, or agreed to be paid, to such Lender for the use, forbearance and detention of the indebtedness of the Borrower to such Lender hereunder shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of such indebtedness until payment in full so that the actual rate of interest is uniform throughout the full term thereof; (d) if at any time the interest provided pursuant to Sections 3.2.1 or 3.2.2, as the case may be, together with any other fees payable pursuant to or in connection with this Agreement and deemed interest under applicable law, with respect to any Lender exceeds that amount which would have accrued at the Highest Lawful Rate, the amount of interest and any such fees to accrue to such Lender pursuant to this Agreement shall be limited, notwithstanding anything to the contrary in this Agreement to that amount which 39 45 would have accrued at the Highest Lawful Rate for such Lender, but any subsequent reductions, as applicable, shall not reduce the interest to accrue pursuant to this Agreement below such Lender's Highest Lawful Rate until the total amount of interest payable to such Lender (including all consideration which constitutes interest) equals the amount of interest which would have been payable to such Lender (including all consideration which constitutes interest) assuming a varying rate per annum equal to the interest provided pursuant to Sections 3.2.1 and 3.2.2 at all times in effect, plus the amount of fees which would have been received but for the effect of this Section 3.2.5. To the extent, if any, applicable to any Lender, on each day, if any, that Chapter 303 of the Texas Finance Code, as amended (formerly Tex. Rev. Civ. Stat. Ann. Art. 5069-1D.003) establishes the Highest Lawful Rate, the Borrower agrees that the Highest Lawful Rate for such Lender shall be the "indicated (weekly) rate ceiling" (as defined in Chapter 303 of the Texas Finance Code, as amended) for that day, provided that such Lender may also rely, to the extent permitted by applicable laws, on alternative maximum rates of interest under other laws applicable to such Lender if greater. To the extent that Texas law shall be applicable to the determination of the Highest Lawful Rate of any Lender, the provisions of Chapter 346 of the Texas Finance Code (which regulates certain revolving credit accounts (formerly Tex. Rev. Civ. Stat. Ann. Art. 5069, Ch. 15)) shall not apply to this Agreement, to any Loan or to any Notes, nor shall this Agreement, any Loan or any Note be governed by or be subject to the provisions of such Chapter 346 in any manner whatsoever. SECTION 3.3 Fees. The Borrower agrees to pay the fees set forth in this Section. All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent (or the Issuing Bank, in the case of fees payable to it) for distribution, in the case of Commitment Fees, Ticking Fees and participation fees, to the Lenders entitled thereto. All such fees shall be non-refundable. SECTION 3.3.1 Commitment Fee. The Borrower agrees to pay to the Administrative Agent for the account of each Lender for the period commencing on the date of the initial Borrowing or initial issuance of a Letter of Credit and continuing through the Commitment Termination Date, commitment fees for each Lender (collectively, the "Commitment Fees") at a rate per annum for each day of such period equal to the percentage set forth under the "Unused Fee" column of the Applicable Margin times the amount which is the average daily unused portion of each Lender's Lender Commitment Amount. Fees payable pursuant to this Section 3.3.1 shall be payable by the Borrower in arrears on each Quarterly Payment Date, commencing with the first such day following the date of the initial Borrowing or initial issuance of a Letter of Credit and on the Commitment Termination Date. SECTION 3.3.2 Ticking Fee. The Borrower agrees to pay to the Administrative Agent for the account of each Lender, for the period commencing on April 1, 2001 and continuing through the date of the initial Borrowing or initial issuance of a Letter of Credit, ticking fees (collectively, the "Ticking Fees") equal to an amount calculated at the rate of 0.125% per annum times such Lender's respective Percentage of the Commitment Amount. Fees payable pursuant to this Section 3.3.2 shall be payable by the Borrower in arrears on each Quarterly Payment Date, commencing with the first such day following April 1, 2001. 40 46 SECTION 3.3.3 Letter of Credit Fees. Borrower agrees to pay (i) to the Administrative Agent for the account of each Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue at the same Applicable Margin as interest on LIBOR Loans on the average daily amount of such Lender's LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date on which such Lender's Commitment terminates and the date on which such Lender ceases to have any LC Exposure, and (ii) to the Issuing Bank upon issuance of any Letter of Credit by such Issuing Bank a fronting fee equal to an amount calculated at the rate of 0.125% per annum based on the stated amount and term of such Letter of Credit, as well as the Issuing Bank's standard fees with respect to the administration, issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Participation fees shall be payable in arrears on last day of each March, June, September and December of each year shall be payable on the third Business Day following such last day, commencing on the first such date to occur after the Effective Date, provided that all such fees shall be payable on demand with respect to any Letter of Credit for which Borrower is required to deposit cash collateral pursuant to Section 2.3.10. Any other fees payable to the Issuing Bank pursuant to this paragraph shall be payable within ten (10) days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). SECTION 3.3.4 Other Fees. The Borrower agrees to pay to the Administrative Agent for its own account and for the account of each Lender, as applicable, fees, including, without limitation, an upfront fee (the "Upfront Fee"), in the amounts and at the times separately agreed upon between Borrower and the Administrative Agent, including, without limitation, the amounts agreed upon between Borrower and the Administrative Agent in that certain fee letter agreement dated as November 10, 2000, as amended, between the Borrower and the Administrative Agent's Affiliate, BMO Nesbitt Burns. ARTICLE IV CERTAIN LIBOR AND OTHER PROVISIONS SECTION 4.1 Fixed Rate Lending Unlawful. If any Lender shall determine (which determination shall, upon notice thereof to the Borrower and the Lenders, be conclusive and binding on the Borrower if made in good faith) that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful for such Lender to make, continue or maintain any Loan as, or to convert any Loan into, a LIBOR Loan, the obligations of such Lender to make, continue, maintain or convert any such Loans shall, upon such determination, forthwith be suspended until such Lender shall notify the Administrative Agent that the circumstances causing such suspension no longer exist, and LIBOR Loans of such Lender shall automatically convert into Prime Rate Loans at the end of the then current Interest Periods with respect thereto or sooner, if required by such law or regulation. 41 47 SECTION 4.2 Rates Unavailable. If the Administrative Agent or the Required Lenders shall have determined that by reason of circumstances affecting the Administrative Agent's or the Required Lenders' relevant market, adequate means do not exist for ascertaining the interest rate applicable hereunder to LIBOR Loans of such Type, then, upon notice from the Administrative Agent (given at the direction of the Required Lenders if such determination shall have been made by the Required Lenders) to the Borrower and the Lenders, the obligations of all Lenders under Sections 2.5, 2.6 and 2.7 to make or continue any Loans as, or to convert any Loans into, LIBOR Loans shall forthwith be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. SECTION 4.3 Increased LIBOR Loan Costs, etc. The Borrower agrees to reimburse each Lender for any increase in the cost to such Lender of, or any reduction in, the amount of any sum receivable by such Lender in respect of, making, continuing or maintaining (or of its obligation to make, continue or maintain) any Loans as, or of converting (or of its obligation to convert) any Loans into, LIBOR Loans (such increases in costs and reductions in amounts receivable, after taking into account such Lender's estimate, which shall be conclusive if given in good faith, of the net tax benefit, if any, realized by such Lender from such additional costs and reductions, being herein called "Additional Costs"), resulting from any Regulatory Change after the Effective Date which: (i) changes the basis of taxation of any amounts payable to such Lender under this Agreement in respect of any of such LIBOR Loans (other than taxes imposed on the overall net income of such Lender for any such LIBOR Loans by the jurisdiction in which such Lender has its principal office) or (ii) imposes or modifies (without duplication of any other amount required to be paid hereunder) any reserve, special deposit, minimum capital, capital ratio or similar requirements relating to the making by such Lender of any LIBOR Loans (including any increase in cost to a Lender by reason of an increase in any reserve requirement specified from time to time by the F.R.S. Board and applicable to "Eurodollar Liabilities" as defined in Regulation D of the F.R.S. Board or other similar reserve requirements affecting Eurodollar deposits). Such Lender shall promptly notify the Administrative Agent and the Borrower in writing of the occurrence of any such event, such notice to state, in reasonable detail, the reasons therefor and the Additional Costs. Such Additional Costs shall be payable by the Borrower directly to such Lender within thirty (30) days after the Borrower's receipt of such notice, and such notice shall, in the absence of manifest error, be conclusive and binding on the Borrower. SECTION 4.4 Funding Losses. In the event any Lender shall incur any loss or reasonable expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to make, continue or maintain any portion of the principal amount of any Loan as, or to convert any portion of the principal amount of any Loan into, a LIBOR Loan) as a result of (a) any conversion or repayment or prepayment of the principal amount of any LIBOR Loans on a date other than the scheduled last day of the Interest Period applicable thereto, whether pursuant to Section 3.1 or otherwise; (b) any Loans not being made as LIBOR Loans in accordance with the Borrowing Request therefor; or 42 48 (c) any Loans not being continued as, or converted into, LIBOR Loans in accordance with the Continuation/ Conversion Notice therefor, then, upon the written notice of such Lender to the Borrower (with a copy to the Administrative Agent), the Borrower shall, within thirty (30) days after its receipt thereof, pay directly to such Lender such amount as will (in the reasonable determination of such Lender) reimburse such Lender for such loss or expense; provided, that the Borrower shall not be liable to a Lender hereunder for any such loss or expense incurred by such Lender as a result of such Lender's gross negligence or wilful misconduct, breach of this Agreement or failure to comply with a Borrowing Request or Continuation/ Conversion Notice. Such written notice (which shall include calculations in reasonable detail) shall, in the absence of manifest error, be conclusive and, if made in good faith, binding on the Borrower. SECTION 4.5 Increased Capital Costs. Without duplication of any other provision of this Article IV, if any Regulatory Change after the Effective Date affects the amount of capital required to be maintained by any Lender or any Person controlling such Lender, and such Lender determines (in its sole and absolute discretion) that the rate of return on its or such controlling Person's capital as a consequence of its Commitments or the Loans made by such Lender is reduced as a result of such Regulatory Change to a level below that which such Lender or such controlling Person could have achieved but for the occurrence of such Regulatory Change, then, in any such case upon notice from time to time by such Lender to the Borrower, the Borrower shall within thirty (30) days after its receipt thereof, pay directly to such Lender additional amounts (after taking into account such Lender's estimates, which shall be conclusive if made in good faith, of the net tax benefit, if any, realized by such Lender resulting from such Regulatory Change) sufficient to compensate such Lender or such controlling Person for such reduction in rate of return. A statement of such Lender as to any such additional amount or amounts (including calculations thereof in reasonable detail) shall, in the absence of manifest error, be conclusive and, if made in good faith, binding on the Borrower. In determining such amount, such Lender may use any method of averaging and attribution that it (in its sole and absolute discretion) shall deem applicable. SECTION 4.6 Period of Liability; Lender Substitution. (a) The Borrower shall not be liable to any Lender pursuant to Sections 4.3, 4.4, 4.5 or 4.7 in respect of such compensation for any period commencing more than 180 days before the delivery of any notice pursuant to Sections 4.3, 4.4, 4.5, or 4.7, except that, with respect to Sections 4.3, 4.4 or 4.5, the Borrower may be liable for an earlier period if the Regulatory Change resulting in such notice shall have been given retroactive effect affecting any period beginning more than 180 days prior to such notice. (b) If (i) the obligation of any Lender to make or convert or continue outstanding Loans as or into LIBOR Loans has been suspended pursuant to Section 4.1 or (ii) any Lender has demanded compensation under Section 4.3, 4.5 or 4.7, the Borrower shall have the right, with the assistance of the Administrative Agent, to designate a substitute lender or lenders (which may be one or more of the Lenders) mutually satisfactory to the Borrower and the Administrative Agent to purchase for cash, pursuant to a Lender Assignment Agreement, the outstanding Loans of such 43 49 Lender and assume the Commitment of such Lender, without recourse to or warranty by, or expense to, such Lender, for a purchase price equal to the principal amount of all of such Lender's outstanding Loans, plus any accrued but unpaid interest thereon and the accrued but unpaid fees for the account of such Lender hereunder, plus such amount, if any, as would be payable pursuant to Section 4.4 if the outstanding Loans of such Lender were prepaid in their entirety on the date of consummation of such assignment. SECTION 4.7 Taxes. (a) All payments by the Borrower of principal of, and interest on, the Loans and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future Taxes. In the event that any withholding or deduction from any payment to a Lender to be made by the Borrower hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then the Borrower will (i) pay directly to the relevant authority the full amount required to be so withheld or deducted, (ii) promptly forward to the Administrative Agent an official receipt or other documentation satisfactory to the Administrative Agent evidencing such payment to such authority, and (iii) pay to the Administrative Agent for the account of such Lender such additional amount or amounts as is necessary to ensure that the net amount actually received by such Lender will equal the full amount such Lender would have received had no such withholding or deduction been required. (b) If the Borrower is required to pay additional amounts to or for the account of any Lender pursuant to this Section as a result of a change in law or treaty occurring after such Lender first became a party to this Agreement, then such Lender will, at the Borrower's request, use reasonable efforts to change the jurisdiction of its lending office if, in the judgment of such Lender, such change will eliminate or reduce any such additional payment which may thereafter accrue and is not otherwise disadvantageous to such Lender. (c) Any Foreign Lender that is entitled to an exemption from or reduction of U.S. withholding tax, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower as will permit such payments to be made without withholding or at a reduced rate. SECTION 4.8 Payments, Computations, etc. Unless otherwise expressly provided, all payments by the Borrower pursuant to this Agreement, the Notes or any other Loan Document shall be made by the Borrower to the Administrative Agent for the pro rata account of the Lenders entitled to receive such payment. The Borrower shall make each payment required to be made to the Administrative Agent not later than 11:00 a.m., Houston Time, on the date due, in same day or immediately available funds, to such account as the Administrative Agent shall specify from time to time by notice to the Borrower. Funds received after that time shall be deemed to have been received by the Administrative Agent on the next succeeding Business Day. The Administrative Agent shall promptly remit in same day funds to each Lender its share, if any, of such payments received by the Administrative Agent for the account of such Lender. All interest on LIBOR Loans and all fees shall be computed on the basis of the actual number of days (including the first day but 44 50 excluding the last day) occurring during the period for which such interest or fee is payable over a year comprised of 360 days and in the case of interest on a Prime Rate Loan, 365 days or, if appropriate, 366 days. Whenever any payment to be made shall otherwise be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in computing interest, if any, in connection with such payment. SECTION 4.9 Sharing of Payments. If any Lender shall obtain any payment or other recovery (whether voluntary, involuntary, by application of setoff or otherwise) on account of any Loan (other than pursuant to the terms of Sections 4.3, 4.4, 4.5 and 4.7) in excess of its pro rata share of payments then or therewith obtained by all Lenders, such Lender shall purchase from the other Lenders such participations in Loans made by them as shall be necessary to cause such purchasing Lender to share the excess payment or other recovery ratably with each of them; provided, however, that if all or any portion of the excess payment or other recovery is thereafter recovered from such purchasing Lender, the purchase shall be rescinded and each Lender which has sold a participation to the purchasing Lender shall repay to the purchasing Lender the purchase price to the ratable extent of such recovery together with an amount equal to such selling Lender's ratable share (according to the proportion of the amount of such selling Lender's required repayment to the purchasing Lender to the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment (including pursuant to Section 4.10) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section to share in the benefits of any recovery on such secured claim. SECTION 4.10 Setoff. Each Lender shall, upon the occurrence of any Event of Default, have the right to the extent permitted by applicable law to appropriate and apply to the payment of the Obligations owing to it (whether or not then due), any and all balances, credits, deposits, accounts or moneys of the Borrower then or thereafter maintained with such Lender; provided, however, that no such balances, credits, deposits, accounts or moneys shall include suspense funds held by the Borrower for the account of a third party. Any such appropriation and application shall be subject to the provisions of Section 4.9. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such setoff and application made by such Lender; provided, however, that the failure to give such notice to the extent permitted by applicable law shall not affect the validity of such setoff and application. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which such Lender may have. 45 51 SECTION 4.11 Use of Proceeds. The Borrower will, and will cause each Subsidiary to, use the proceeds of the Loans and the Letters of Credit (a) to finance the NCOC Acquisition and pay for the costs and expenses to be incurred by Borrower or its relevant Subsidiaries in connection with the NCOC Acquisition, (b) to refinance existing Indebtedness of Borrower and its Subsidiaries (including NORIC and its Subsidiaries), (c) to reimburse each Issuing Bank for LC Disbursements in accordance with Section 2.3.5 or to repay Swing Line Advances, or (d) for Borrower's and its Subsidiaries' (including NCOC's and its Subsidiaries') general corporate purposes (other than any hostile acquisitions). No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the regulations of the Board, including Regulation U. Letters of Credit will be issued only to support normal and customary oil and gas operations undertaken by Borrower or any of its Subsidiaries in the ordinary course of its business. ARTICLE V CONDITIONS TO BORROWING SECTION 5.1 Initial Borrowing. The obligations of the Lenders to fund the initial Borrowing and of the Issuing Bank to issue any Letter of Credit after the date hereof shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Section 5.1. SECTION 5.1.1 Organizational Documents. The Administrative Agent shall have received a certificate of an Authorized Person of the Borrower dated as of the date of the initial satisfaction of the conditions set forth in Article V, certifying: (a) that attached to each such certificate are (A) a true and complete copy of the Organic Documents of the Borrower and its Restricted Subsidiaries, as the case may be, as in effect on the date of such certificate, (B) a true and complete copy of a certificate from the Governmental Authority of the state of such entity's organization certifying that such entity is duly organized and validly existing in such state, and (C) a true and complete copy of a certificate from the appropriate Governmental Authority of each state (without duplication) certifying that such entity is duly qualified and in good standing to transact business in such state as a foreign corporation, if the failure to be so qualified or in good standing could reasonably be expected to have a Material Adverse Effect, (b) that attached to such certificate is a true and complete copy of resolutions duly adopted by the board of directors of the Borrower authorizing the execution, delivery and performance of the Loan Documents, (c) that attached thereto is a copy of the certificate of incorporation or formation, as the case may be, of the Borrower and its Restricted Subsidiaries, and a certificate as to the good standing of the Borrower and its Restricted Subsidiaries and payment of franchise taxes by the Borrower and its Restricted Subsidiaries (other than Thaipo Limited and B8/32 Partners), dated as of a recent date; and that such certificate of incorporation or certificate of formation, as the case may be, has not been amended since the date of such certified copy, and 46 52 (d) as to the incumbency and specimen signature of each officer of the Borrower executing the Loan Documents; upon which certificate each Lender may conclusively rely until it shall have received a further certificate of an Authorized Person of the Borrower canceling or amending such prior certificate. SECTION 5.1.2 Compliance with Representations and Warranties. The Administrative Agent shall have received a certificate from an Authorized Person of the Borrower confirming compliance with Section 5.2.1 and stating that: (a) the Reserve Report of January 1, 2000 and the NCOC Reserve Report, each previously delivered to the Lenders, includes as a basis for Future Net Income only Proved Reserves located on Borrowing Base Properties; and (b) there has been no material adverse change in the respective properties or consolidated financial condition or results of operations of the Borrower and NORIC and their respective consolidated Subsidiaries and Affiliates (the Borrower, NORIC and such Subsidiaries and Affiliates taken as a whole) since September 30, 2000, the date of the most recent financial statements for such entities delivered to the Lenders. SECTION 5.1.3 Delivery of Loan Documents. The Administrative Agent (or its counsel) shall have received: (a) either (i) a counterpart of this Agreement and each other Loan Document (other than the Pledge Agreement) executed by the Borrower, the Agents and the Lenders or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement and each other Loan Document (other than the Pledge Agreement)) that the applicable party has signed a counterpart of this Agreement and each other Loan Document (other than the Pledge Agreement); (b) a pro forma balance sheet of the Borrower and its consolidated Subsidiaries and Affiliates as at September 30, 2000, giving effect to the NCOC Acquisition; and (c) copies of all financial statements (including pro forma financial statements), reports, notices and proxy statements sent by the Borrower or NORIC to its respective stockholders relating to the NCOC Acquisition and all SEC filings relating to the NCOC Acquisition. SECTION 5.1.4 Pledge Agreement. The Administrative Agent shall have received counterparts of the Pledge Agreement, dated as of the date of the initial satisfaction of the conditions set forth in Article V, duly executed and delivered by Borrower, together with the following: (a) stock certificates representing all the outstanding shares of capital stock of NCOC and Rhode Island Corporation owned directly by the Borrower on the date of the initial Borrowing under the Credit Agreement, and stock powers and instruments of transfer, endorsed in 47 53 blank, with respect to such stock certificates, or, if any securities pledged pursuant to the Pledge Agreement are uncertificated securities, confirmation and evidence satisfactory to the Administrative Agent that the security interest in such uncertificated securities has been transferred to and perfected by the Administrative Agent in accordance with the Uniform Commercial Code, as in effect in the State of New York; (b) all documents and instruments, including Uniform Commercial Code Financing Statements (Form UCC-1), required by law or reasonably requested by the Administrative Agent to be filed, registered or recorded to create or perfect the Liens intended to be created under the Pledge Agreement; and (c) (i) the UCC Searches, all dated reasonably close to the date of the initial satisfaction of the conditions set forth in Article V, in the discretion of the Administrative Agent and in form and substance satisfactory to the Administrative Agent, and (ii) evidence reasonably satisfactory to the Administrative Agent that the Liens indicated by the financing statements (or similar documents) in such UCC Searches are permitted by Section 8.2 or have been released or other arrangements satisfactory to the Administrative Agent and the Required Lenders have been made. SECTION 5.1.5 Priority; Security Interest. The Collateral and Borrowing Base Properties shall be free and clear of all Liens, except Liens permitted by Section 8.2. All filings, notices, recordings and other action necessary to perfect the Liens in the Collateral shall have been made, given or accomplished or arrangements for the completion thereof satisfactory to the Administrative Agent and its counsel shall have been made and all filing fees and other expenses related to such actions either have been paid in full or arrangements have been made for their payment in full which are satisfactory to the Administrative Agent. SECTION 5.1.6 Approvals and Consents. The Administrative Agent shall have received copies of all Governmental Approvals necessary in connection with the NCOC Acquisition, and all applicable waiting periods and appeal periods shall have expired, in each case without the imposition of any burdensome conditions. There shall be no actual government or judicial action restraining, preventing or imposing burdensome conditions on the Transactions. SECTION 5.1.7 Existing Facilities. The Administrative Agent shall have received a certificate, signed by an Authorized Person of the Borrower, stating that the Borrower or its Subsidiaries have repaid in full and terminated the Existing Credit Facilities contemporaneously with the initial Loans under this Agreement. The Administrative Agent shall have received evidence satisfactory to it that all Liens associated with the Existing Credit Facilities have been released or terminated contemporaneously with the making of such payments and that arrangements satisfactory to the Administrative Agent has been made for recording and filing of such releases. SECTION 5.1.8 Acquisition Documents; Consummation of NCOC Acquisition . The Administrative Agent shall have received copies of the Acquisition Documents in form and substance satisfactory to the Administrative Agent, which Acquisition Documents shall be certified by an Authorized Person of Borrower as complete and correct. The NCOC Acquisition shall have 48 54 been, or substantially simultaneously with the initial funding of Loans shall be, consummated as contemplated by and pursuant to the Acquisition Documents and applicable law (without any amendment to or waiver of any material terms or conditions of the Acquisition Documents not approved by the Required Lenders), and evidence therefor has been provided to the Administrative Agent in form and substance satisfactory to the Administrative Agent. SECTION 5.1.9 Opinions of Counsel. The Administrative Agent shall have received opinions, dated the date of the initial Borrowing and addressed to the Agents and the Lenders, from (a) Gerald A. Morton, the Vice President - Law and Corporate Secretary to the Borrower, substantially in the form of Exhibit E-1 hereto; and (b) Baker Botts L.L.P., special New York counsel to the Borrower, substantially in the form of Exhibit E-2 hereto. SECTION 5.1.10 Closing Fees, Expenses, etc. The Administrative Agent shall have received for its own account, or for the account of each Lender, as the case may be, all fees, costs, and expenses due and payable pursuant to Section 3.3 and Section 11.3, if then invoiced. SECTION 5.2 Conditions Precedent to Credit Event. The obligation of each Lender to fund any Loan (including the initial Borrowing), of the Swing Line Lender to make Swing Line Advances or of the Issuing Bank to issue, renew, extend or amend any Letter of Credit shall be subject to the satisfaction of each of the conditions precedent set forth in this Section 5.2. SECTION 5.2.1 Representations and Warranties, No Default, etc. The following statements shall be true and correct both before and after giving effect to any Credit Event, including the application of the proceeds thereof: (a) the representations and warranties set forth in Article VI will be true and correct with the same effect as if then made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date); (b) the aggregate Credit Exposures outstanding will not exceed the Borrowing Base then in effect less all other Senior Debt outstanding, less 75% of all Additional Subordinated Indebtedness issued since the last redetermination of the Borrowing Base; and (c) no Default shall have then occurred and be continuing. SECTION 5.2.2 Borrowing Request. The Administrative Agent shall have received a Borrowing Request for such Borrowing, Request for Swing Line Advance or a request for the issuance of a Letter of Credit, as applicable. Each of the delivery of a Borrowing Request, Request for Swing Line Advance or a request for the issuance of a Letter of Credit, as applicable, 49 55 and the acceptance by the Borrower of the proceeds of such Borrowing, Swing Line Advance or the Letter of Credit shall constitute a representation and warranty by the Borrower that on the date of such Credit Event (both immediately before and after giving effect to such Credit Event and the application of the proceeds thereof) the statements made in Section 5.2.1 are true and correct. SECTION 5.2.3 Satisfactory Legal Form. All documents executed or submitted pursuant hereto by or on behalf of the Borrower or any of its Subsidiaries shall be satisfactory in form and substance to the Administrative Agent and its counsel; the Administrative Agent and its counsel shall have received all information, approvals, opinions, documents or instruments of the Borrower as the Administrative Agent or its counsel may reasonably request. The Administrative Agent shall notify Borrower, the other Agents and the Lenders of the date of the initial satisfaction of the conditions set forth in Article V, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans and of the Issuing Bank to issue Letters of Credit hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 11.1) at or prior to 3:00 p.m., New York City time, on June 1, 2001 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). ARTICLE VI REPRESENTATIONS AND WARRANTIES In order to induce the Lenders and the Administrative Agent to enter into this Agreement and to make Loans and issue the Letters of Credit hereunder, the Borrower represents and warrants unto the Administrative Agent and each Lender as set forth in this Article VI. SECTION 6.1 Organization, etc. The Borrower and each of its Restricted Subsidiaries which is a corporation is validly organized and existing and in good standing under the laws of the State, or country, of its incorporation, and is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the nature of its business requires such qualification, except where failure to qualify could not reasonably be expected to have a Material Adverse Effect. Each of the Borrower's Restricted Subsidiaries which is a partnership or a limited liability company is validly formed or organized and existing and in good standing under the laws of the state of its formation or organization, and is duly qualified to do business and is in good standing as a foreign partnership or limited liability company where the nature of its business requires such qualification, except where failure to qualify could not reasonably be expected to have a Material Adverse Effect. The Borrower has full corporate power and authority and holds all requisite Governmental Approvals to enter into and perform its obligations in respect of the Transactions and to own and hold under lease its property and to conduct its business substantially as currently conducted by it, except where the failure to have such Governmental Approvals could not reasonably be expected to have a Material Adverse Effect. 50 56 SECTION 6.2 Due Authorization, Non-Contravention, etc. The execution, delivery and performance by the Borrower of this Agreement, the Notes and each other Loan Document executed or to be executed by it, are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, as the case may be, and do not: (a) contravene the Borrower's Organic Documents; (b) contravene any contractual restriction, law or governmental regulation or court decree or order binding on or affecting the Borrower; or (c) result in, or require the creation or imposition of, any Lien on any properties of the Borrower except for Liens created by the Pledge Agreement. SECTION 6.3 Government Approval, Regulation, etc. No Governmental Approval or other action by any Governmental Authority is required for the due execution, delivery or performance by the Borrower of this Agreement, the Notes or any other Loan Document executed or to be executed by it, except for the filing of the financing statement referred to in Section 5.1.4(b) and the filing of this Agreement with the SEC as a material document under Rule 601(b)(iv) of Regulation S-K. Neither the Borrower nor any of its Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 6.4 Validity, etc. This Agreement and the Notes constitute, and each other Loan Document executed by the Borrower will, on the due execution and delivery thereof, constitute, the legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms except as such enforceability is subject to the effect of (i) any applicable bankruptcy, insolvency, reorganization or other similar law relating to or affecting creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), including concepts of materiality, reasonableness, good faith and fair dealing. SECTION 6.5 Financial Information. The consolidated balance sheets of the Borrower and its consolidated Subsidiaries and Affiliates, as at December 31, 1999 and September 30, 2000 and the related consolidated statements of income and cash flow of the Borrower and its consolidated Subsidiaries and Affiliates, for the periods then ended, copies of which have been furnished to the Administrative Agent and each Lender, have been prepared in accordance with GAAP consistently applied, and present fairly in all material respects the consolidated financial condition of the Borrower and its consolidated Subsidiaries and Affiliates as at the dates thereof and the results of their operations for the periods then ended subject, in the case of the consolidated balance sheet of September 30, 2000 and the related consolidated statements of income and cash flow as of such date, to the making of normal year-end audit adjustments and the year-end addition of notes required pursuant to GAAP. 51 57 SECTION 6.6 No Material Adverse Change. Except as disclosed to the Administrative Agent in writing, since September 30, 2000, there has been no material adverse change in the consolidated financial condition or results of operations, business or properties of the Borrower and its consolidated Subsidiaries and Affiliates taken as a whole. SECTION 6.7 Litigation, etc. There is no pending or, to the knowledge of the Borrower, threatened labor controversy, litigation, action, or proceeding against the Borrower or any of its consolidated Subsidiaries or Affiliates, or any of their respective properties or revenues, which has a significant probability of consequences that could reasonably be expected to have a Material Adverse Effect, except as disclosed in Item 6.7 ("Litigation") of the Disclosure Schedule, or which purports to affect the legality, validity or enforceability of this Agreement, the Notes, or any other Loan Document; provided, Borrower's representation with respect to the absence of pending litigation against its Affiliates is limited to Borrower's knowledge. Neither the Borrower nor any of its Subsidiaries is in default with respect to any judgment, order, writ, injunction, decree, rule or regulation of any Governmental Authority applicable to or binding on it, which default could reasonably be expected to have a Material Adverse Effect. SECTION 6.8 Subsidiaries. As of the Closing Date after giving effect to the Acquisition, the Borrower has no Subsidiaries or Affiliates, except those which are identified in Item 6.8 ("Existing Subsidiaries and Affiliates") of the Disclosure Schedule. As of the Closing Date, the Borrower is the record or beneficial owner of the ownership interest of each such Subsidiary which is identified in Item 6.8 of the Disclosure Schedule. Such ownership interests are free and clear of any Liens, including, without limitation, claims arising out of any preemptive rights granted in connection with the issuance of any such ownership interests, except for Certain Permitted Liens. All ownership interests are duly issued, fully paid and nonassessable and there are no outstanding options, warrants or other rights entitling the holder thereof to purchase any of the ownership interests of any such Subsidiary except as disclosed in Item 6.8 of the Disclosure Schedule. SECTION 6.9 Ownership of Properties. The Borrower and each of its Restricted Subsidiaries has marketable title to all of its real properties and good title to, or has the right to use, all of its personal property, tangible and intangible, of any nature whatsoever (including concession agreements, patents, trademarks, trade names, service marks and copyrights), and all properties and assets and all revenues (present and future) of the Borrower and its Restricted Subsidiaries are free and clear of all Liens or other charges or claims (including infringement claims with respect to patents, trademarks, copyrights and the like), except (i) as to any such charges or claims are disclosed in the Borrower's most recent Form 10-K filed with the SEC and (ii) other Liens permitted under Section 8.2. SECTION 6.10 Taxes. The Borrower and each of its Subsidiaries has filed all tax returns and reports required by law to have been filed by it and has paid all taxes and governmental charges thereby shown to be owing, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been set aside on its books. 52 58 SECTION 6.11 Pension and Welfare Plans. During the twelve-consecutive-month period prior to the date of the execution and delivery of this Agreement and prior to the date of any Credit Event hereunder, no steps have been taken to terminate any Pension Plan, and no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under section 302(f) of ERISA. No condition exists or event or transaction has occurred with respect to any Pension Plan which could reasonably be expected to result in the incurrence by the Borrower or any member of the Controlled Group of any material liability, fine or penalty. SECTION 6.12 Environmental Warranties. Except as set forth in Item 6.12 ("Environmental Matters") of the Disclosure Schedule: (a) to the best actual knowledge of the Borrower, all facilities and property (including underlying groundwater) owned, leased or operated by the Borrower or any of its Subsidiaries have been and are owned, leased or operated by the Borrower and its Subsidiaries in compliance with all Environmental Laws, except where the failure to comply with which could not be reasonably expected to have a Material Adverse Effect; (b) to the best actual knowledge of the Borrower, there are no pending or threatened (i) claims, complaints, or notices received by the Borrower or any of its Subsidiaries with respect to any alleged violation of any Environmental Law, or (ii) claims, complaints, notices or inquiries to, or requests for information received by, the Borrower or any of its Subsidiaries regarding potential liability under any Environmental Law relating to operations of the Borrower or its Subsidiaries or the condition of any facilities or property (including underlying groundwater) owned, leased or operated by the Borrower or any of its Subsidiaries, in either case that, singly or in the aggregate, could reasonably be expected to have a Material Adverse Effect; (c) to the best actual knowledge of the Borrower, there have been no Releases of Hazardous Materials at, on or under any property now or previously owned, leased or operated by the Borrower or any of its Subsidiaries that, singly or in the aggregate, could reasonably be expected to have a Material Adverse Effect; (d) to the best actual knowledge of Borrower, the Borrower and its Subsidiaries have been issued and are in compliance with all Governmental Approvals relating to environmental matters that are necessary for their businesses, except where the failure to have or to comply with such Governmental Approvals could not be reasonably expected to have a Material Adverse Effect; 53 59 (e) neither the Borrower nor any Subsidiary has actual knowledge that any property now or previously owned, leased or operated by the Borrower or any of its Subsidiaries is listed or proposed for listing (with respect to owned property only) on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list of sites requiring investigation or clean-up where the anticipated costs to the Borrower and its Subsidiaries to bring such property into compliance with CERCLA could reasonably expected to have a Material Adverse Effect; (f) to the best actual knowledge of the Borrower, there are no underground storage tanks, active or abandoned, including petroleum storage tanks, on or under any property now or previously owned, leased or operated by the Borrower or any of its Subsidiaries where the anticipated costs to the Borrower and its Subsidiaries to bring such property into compliance could reasonably expected to have a Material Adverse Effect; (g) to the best actual knowledge of the Borrower, neither the Borrower nor any of its Subsidiaries has directly transported or directly arranged for the transportation of any Hazardous Material to any location which is listed or proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list or a site which currently is the subject of enforcement actions or other investigations by a Governmental Authority which could reasonably be expected to lead to claims against the Borrower or such Subsidiary under any Environmental Law which claims could reasonably be expected to have a Material Adverse Effect; (h) to the best actual knowledge of the Borrower, there are no polychlorinated biphenyls or friable asbestos present at any property now or previously owned, leased or operated by the Borrower or any Subsidiary of the Borrower that, singly or in the aggregate, could reasonably be expected to have a Material Adverse Effect; and (i) to the best actual knowledge of the Borrower, no conditions exist at, on or under any property now or previously owned, leased or operated by the Borrower which, with the passage of time, or the giving of notice or both, would give rise to liability under any Environmental Law which could reasonably be expected to have a Material Adverse Effect. SECTION 6.13 Regulations U and X. The proceeds of the Loans shall be used for the NCOC Acquisition and for general corporate purposes of the Borrower. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock, and no proceeds of any Loans will be used for a purpose which violates, or would be inconsistent with, F.R.S. Board Regulation U or X. Terms for which meanings are provided in F.R.S. Board Regulation U or X or any regulations substituted therefor, as from time to time in effect, are used in this Section with such meanings. 54 60 SECTION 6.14 Absence of Defaults. No Default exists. As of the Closing Date, neither the Borrower nor any of its Restricted Subsidiaries is in default under any material agreement or instrument governing Indebtedness to which any of them is a party. SECTION 6.15 Information Memorandum. To the best of the Borrower's knowledge, the information contained in the Information Memorandum (other than any based on or constituting pro forma financial statements, forecasts, budgets or projections) does not contain on the date hereof any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements contained therein not materially misleading in light of the circumstances under which they were made. With respect to any such information that is based on or constitutes pro forma financial statements or a forecast or projection prepared by the Borrower, the Borrower represents that in the preparation thereof it acted in good faith and utilized information available to it at the time the Information Memorandum was prepared and assumptions believed by it to be reasonable in light of the then current and foreseeable business conditions of the Borrower and its Subsidiaries. ARTICLE VII AFFIRMATIVE COVENANTS The Borrower agrees with the Administrative Agent and each Lender that, until all Commitments have terminated and the Notes and all other payment Obligations that have then become due and payable have been paid and performed in full, the Borrower will perform the obligations set forth in this Article. SECTION 7.1 Financial Information, Reports, Notices, etc. The Borrower will furnish, or will cause to be furnished, to each Lender and the Administrative Agent copies of the following financial statements, reports, notices and information: (a) as soon as available and in any event within 45 days after the end of each of the first three Fiscal Quarters of each Fiscal Year of the Borrower, consolidated balance sheets of the Borrower and its consolidated Subsidiaries and Affiliates as of the end of such Fiscal Quarter and consolidated statements of income and cash flows of the Borrower and its consolidated Subsidiaries and Affiliates for such Fiscal Quarter and for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, certified by the principal financial officer of the Borrower; (b) as soon as available and in any event within 90 days after the end of each Fiscal Year of the Borrower, a copy of the annual audit report for such Fiscal Year for the Borrower and its consolidated Subsidiaries and Affiliates, including therein consolidated balance sheets of the Borrower and its consolidated Subsidiaries and Affiliates as of the end of such Fiscal Year and consolidated statements of income and cash flows of the Borrower and its consolidated Subsidiaries and Affiliates for such Fiscal Year, in each case certified by Arthur Andersen LLP or other independent public accountants reasonably acceptable to the Administrative Agent and the Required Lenders; provided that, if such accountants' opinion contains an Impermissible Qualification, the Borrower must satisfy the Administrative Agent and the Required Lenders that the Impermissible Qualification does 55 61 not reflect a condition that materially impairs the timely collectibility by the Lenders of any monetary Obligations then outstanding; (c) as soon as available and in any event within the time limits set for submission of the statements submitted under clauses (a) and (b) above, a certificate signed by an Authorized Person of the Borrower (i) to the effect that a review of the activities of the Borrower during the subject Fiscal Year or Fiscal Quarter, as the case may be, has been made under his supervision with a view to determining whether the Borrower has fulfilled all of its obligations to be fulfilled during such period under this Agreement and the Notes and the other Loan Documents to which it is a party and, to the best of his knowledge, no Default exists, or if a Default does exist, specifying the nature and extent thereof and the nature of any corrective action taken or proposed to be taken to cure such Default and (ii) showing in reasonable detail and with appropriate calculations and computations in all respects reasonably satisfactory to the Administrative Agent compliance with the financial covenants set forth in Section 8.3; (d) as soon as possible and in any event within five (5) Business Days after the Chief Executive Officer, the President, any Vice President or the Treasurer of the Borrower learns of the occurrence of any Default, a statement of an Authorized Person of the Borrower setting forth details of such Default and the action which the Borrower has taken or proposes to take with respect thereto; (e) (i) as soon as available, but in no event later than 90 days after the close of each Fiscal Year of the Borrower, commencing with the Fiscal Year ended December 31, 2000, Reserve Reports as of January 1 of the next succeeding year, and (ii) as soon as available, but in no event later than 90 days after each June 30, commencing June 30, 2001, at the Borrower's discretion, Reserve Reports or Alternate Reserve Reports dated as of July 1; (f) notice thereof, promptly, and in any event within five (5) Business Days, after (i) the commencement of any labor controversy, litigation, action or proceeding which has a significant probability of consequences that could reasonably be expected to have a Material Adverse Effect or (ii) the receipt of any claim, complaint, notice, inquiry or request for information in respect of an alleged violation of or liability under any Environmental Law, which claim, complaint, notice, inquiry or request has a significant probability of consequences that could reasonably be expected to have a Material Adverse Effect; (g) without duplication of any other reports required under this Agreement, promptly after the sending or filing thereof, copies of all reports which the Borrower sends generally to its security holders, and all reports and registration statements which the Borrower or any of its Subsidiaries files with the SEC or any national securities exchange; (h) with each report submitted under clause (e) above, a certificate signed by an Authorized Person of the Borrower certifying, as of the date of such Reserve Report or Alternate Reserve Report, (i) the name and location of each property to which Proved 56 62 Reserves included in the Reserve Report or Alternate Reserve Report, as the case may be, are attributable and (ii) that each such property is either (A) owned by the Borrower, (B) owned by a Restricted Subsidiary or (C) a Qualified Partnership Property; (i) as soon as possible and in any event within five (5) Business Days after Borrower receives notice of a change in the rating of its Index Debt by S&P or Moody's; (j) notice thereof, promptly after becoming aware of the institution of any steps by the Borrower or any other Person to terminate any Pension Plan, or the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a Lien under section 302(f) of ERISA, or the taking of any action with respect to a Pension Plan which could result in the requirement that the Borrower furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan which could result in the incurrence by the Borrower of any material liability, fine or penalty, or any material increase in the contingent liability of the Borrower with respect to any post-retirement Welfare Plan benefit; (k) as soon as available, and in any event within 90 days after the end of each Fiscal Year, or at other times as the Administrative Agent may reasonably request, a certificate from the Borrower's risk manager setting forth the nature and extent of all insurance maintained by the Borrower and its Restricted Subsidiaries; (l) notice thereof, as soon as reasonably possible and in any event within ten (10) Business Days, if the Credit Exposures outstanding exceed the Borrowing Base then in effect less all other Senior Debt outstanding, less 75% of all Additional Subordinated Indebtedness issued since the last redetermination of the Borrowing Base; (m) as soon as available, and in any event within five (5) Business Days after any disposition of Borrowing Base Properties or other assets of the type described in Section 8.7(b) of the Borrower or any of its Restricted Subsidiaries, in one transaction or a series of related transactions, which generate net proceeds in excess of $10,000,000, written notice of such disposition of Borrowing Base Properties or other assets; and (n) such other information respecting the condition or operations, financial or otherwise, of the Borrower or any of its Subsidiaries or consolidated Affiliates as any Lender through the Administrative Agent may from time to time reasonably request. Information required to be delivered pursuant to Section 7.1(a), 7.1(b) or 7.1(g) shall be deemed to have been delivered on the date on which the Borrower provides notice to the Administrative Agent that such information has been posted on a website on the Internet at the website identified in such notice, which shall be accessible by the Lenders without charge, which notice may be included in a certificate delivered pursuant to Section 7.1(c). The Borrower shall deliver paper copies of the information referred to in Sections 7.1(a), 7.1(b) and 7.1(g) to any Lender which requests the same. 57 63 SECTION 7.2 Compliance with Laws; Taxes. The Borrower will, and will cause each of its Subsidiaries: (a) to comply in all material respects with all applicable laws, rules, regulations and orders of any Governmental Authority, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; and (b) to pay, before the same become delinquent, all taxes, assessments and governmental charges imposed upon it or upon its property, except to the extent being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books or except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. SECTION 7.3 Maintenance of Properties. The Borrower will, and will cause each of its Restricted Subsidiaries to, maintain, preserve, protect and keep its properties, whether owned in fee or leased, in good repair, working order and condition, and make necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted unless the Borrower determines in good faith that the continued maintenance of any of its properties is no longer economically desirable. SECTION 7.4 Insurance. The Borrower will, and will cause each of its Restricted Subsidiaries to, maintain or cause to be maintained with responsible insurance companies insurance with respect to its properties and business (excluding business interruption insurance) against such casualties and contingencies and of such types and in such amounts as is customary in the case of similar businesses. SECTION 7.5 Books and Records. The Borrower will, and will cause each of its Subsidiaries to, keep books and records which accurately reflect all of its material business affairs and transactions and permit the Administrative Agent or any of its representatives, at reasonable times and intervals, to visit all of its offices, to discuss its financial matters with its officers and independent public accountant (and the Borrower hereby authorizes such independent public accountant to discuss the Borrower's financial matters with the Administrative Agent or its representatives whether or not any representative of the Borrower is present) and to examine (and, at the expense of the Borrower, photocopy extracts from) any of its books or other corporate or partnership records. The Borrower shall pay any fees of such independent public accountant incurred in connection with the Administrative Agent's exercise of its rights pursuant to this Section. SECTION 7.6 Environmental Covenant. The Borrower will, and will cause each of its Subsidiaries to, (i) use, operate and maintain all facilities and properties under its control in compliance with all Environmental Laws, (ii) keep all necessary permits, approvals, certificates, licenses and other authorizations relating to environmental matters in effect and remain in compliance therewith, and (iii) handle all Hazardous Materials in compliance with all applicable Environmental Laws, except, in each case, where the failure to do so could not be reasonably expected to have a Material Adverse Effect. 58 64 SECTION 7.7 Performance Under Material Operating Contracts. The Borrower will, and will cause each of its Restricted Subsidiaries to, perform their respective obligations under all operating contracts, licenses, permits and concession agreements to which they are a party and which relate to Borrowing Base Properties, except where the failure to so perform could not be reasonably expected to have a Material Adverse Effect. SECTION 7.8 Security. The Borrower shall duly execute and deliver to the Administrative Agent the Pledge Agreement which grants a security interest and pledges to the Administrative Agent, acting on behalf of the Lenders, all of the Borrower's right, title and interest in and to (x) all common stock of NCOC and Rhode Island Corporation pledged and delivered in accordance with this Section and (y) the intercompany promissory note from NCOC, substantially in the form of Exhibit A to the Pledge Agreement (collectively, the "Collateral") in, and make all such filings and do such other acts as the Administrative Agent may request to perfect and evidence the first priority of the Pledge Agreement. The Borrower further agrees to execute, or cause its Subsidiaries and NCOC to execute, any and all further documents, financing statements, agreements and instruments, and take all further actions (including filing Uniform Commercial Code financing statements), which may be required under applicable law, or which the Administrative Agent may reasonably request, in order to effectuate the transactions contemplated by this Agreement and in order to grant, preserve, protect and perfect the validity and first priority of the security interests and pledge intended to be created pursuant to the Pledge Agreement. ARTICLE VIII NEGATIVE COVENANTS The Borrower agrees with the Administrative Agent and each Lender that, until all Commitments have terminated and the Notes and all other payment Obligations that have then become due and payable have been paid and performed in full, the Borrower will perform the obligations set forth in this Article. SECTION 8.1 Limitations on Indebtedness and Lease Expenses. The Borrower will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist or otherwise become or be liable in respect of any Indebtedness, other than, without duplication, the following: (a) Indebtedness incurred in connection with this Agreement; (b) Senior Debt and Subordinated Indebtedness existing on the Effective Date and identified under Item 8.1(b) ("Existing Indebtedness") of the Disclosure Schedule and any refinancing of such Indebtedness; (c) other Senior Debt of Thaipo Limited in an aggregate principal amount not to exceed $2,000,000 at any time outstanding; 59 65 (d) other Senior Debt constituting purchase money obligations in an aggregate principal amount not to exceed $2,000,000 at any time outstanding; (e) Additional Senior Unsecured Indebtedness and Additional Subordinated Indebtedness; (f) Obligations of NORIC and NCOC in respect of Lease Expense acquired or assumed in the NCOC Acquisition; (g) the FSO Lease Obligations and the FPSO Lease Obligations; (h) Capitalized Lease Liabilities in an aggregate amount not to exceed $10,000,000 at any time outstanding; (i) other Lease Expense constituting obligations under operating leases identified under Item 8.1(i) ("Existing Lease Expenses") of the Disclosure Schedule and under other operating leases in an aggregate amount not to exceed $5,000,000 during any Fiscal Quarter or $20,000,000 for any four consecutive Fiscal Quarters; (j) Non-Recourse Indebtedness which is not secured by a Lien on Borrowing Base Properties; (k) Indebtedness in respect of Hedging Agreements and Commodity Hedging Contracts permitted under this Agreement; and (l) Guarantees of Indebtedness of Unrestricted Subsidiaries in an aggregate amount not to exceed $5,000,000 at any time. SECTION 8.2 Liens. The Borrower will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its property, revenues or assets, including the capital stock of any Subsidiary or Affiliate owned by the Borrower or a Restricted Subsidiary, whether now owned or hereafter acquired, except: (a) Liens on pipeline or pipeline facilities which arise out of operation of law; Liens arising under operating agreements, joint venture agreements, partnership agreements, oil and gas leases, farm-out agreements, division orders, contracts for the sale, purchase, transportation, processing or exchange of oil, gas or other hydrocarbons, unitization and pooling declarations and agreements, area of mutual interest agreements, development agreements, joint ownership arrangements and other agreements which are customary in the oil and gas business; and Liens reserved in oil and gas mineral leases for bonus or rental payments and form compliance with the terms of such lease; (b) Liens on any Borrowing Base Property or other asset of Borrower or any Restricted Subsidiary granted prior to the Closing Date to secure payment of Indebtedness which is set forth in Item 8.2 ("Existing Liens") of the Disclosure Schedule, provided that 60 66 (i) such Lien shall not apply to any other Borrowing Base Property or other asset of Borrower or any Restricted Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the Closing Date; (c) Liens in respect of Capitalized Lease Liabilities and Liens on the subject assets in respect of purchase money Senior Debt permitted by Section 8.1(d); (d) Liens in respect of rights of first refusal, purchase options and similar rights granted pursuant to joint operating agreements, joint ownership agreements, stockholders agreements, Organic Documents and other similar agreements and documents; (e) Liens for taxes, assessments or other governmental charges or levies not at the time delinquent or thereafter payable without penalty or being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (f) Liens of carriers, warehousemen, mechanics, materialmen and landlords incurred in the ordinary course of business for sums not overdue or being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (g) Liens incurred in the ordinary course of business in connection with workmen's compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, leases and contracts (other than for borrowed money) entered into in the ordinary course of business (including lessee and operator obligations under statute, governmental regulations or instruments related to the ownership, exploration and production of oil, gas and minerals on state, federal or foreign lands or waters) or to secure obligations on surety or appeal bonds; (h) pre-judgment Liens and judgment Liens in existence less than 15 days after the entry thereof or with respect to which execution has been stayed or the payment of which is covered in full (subject to a customary deductible) by insurance; (i) Liens on cash or Cash Equivalent Investments which are collateral for letters of credit in an aggregate amount not to exceed $20,000,000 at any time; (j) statutory Liens and easements or other servitudes arising in the ordinary course of business and minor irregularities of title which do not materially impair the ownership or use of the property subject thereto for the purposes for which such property is owned and held; (k) Liens which do not encumber Borrowing Base Properties and which secure or relate to Non-Recourse Indebtedness; 61 67 (l) any Liens in favor of any counterparty to Commodity Hedging Contracts or Hedging Agreements and which counterparty is (i) any Lender or any Affiliate of such Lender, or (ii) any other Person, provided that the aggregate value of the obligation secured by all such Liens permitted by this clause (ii) shall not exceed U.S.$25,000,000 in the aggregate at any one time outstanding; (m) Liens on oil and gas stored on board floating production and/or storage and offloading facilities utilized by the Borrower and its Subsidiaries and Affiliates which are granted to the lessor and operator thereof and deposit arrangements required under the bareboat charters and operating agreements relating to those facilities; (n) Liens resulting from the deposit of funds or evidences of Indebtedness in trust for the purpose of defeasing Indebtedness of the Borrower or any of its Subsidiaries to the extent any such defeasance is not prohibited by this Agreement; customary Liens for the fees, costs and expenses of trustees and escrow agents pursuant to the indenture, escrow agreement or other similar agreement establishing such trust or escrow arrangement; and Liens pursuant to merger agreements, stock purchase agreements, asset sale agreements and similar agreements (i) limiting the transfer of properties and assets pending consummation of the subject transaction and (ii) in respect of earnest money deposits, good faith deposits, purchase price adjustment escrows and similar deposits and escrow arrangements made or established thereunder; (o) rights reserved to or vested in any municipality or governmental, statutory or public authority by the terms of any right, power, franchise, grant, license or permit, or by any provision of law, to terminate such right, power, franchise, grant, license or permit or to purchase, condemn, expropriate or recapture or to designate a purchaser of any of the property of such Person; rights reserved to or vested in any municipality or governmental, statutory or public authority to control or regulate any property of such Person, or to use such property in a manner which does not materially impair the use of such property for the purposes for which it is held by such Person; any obligation or duties affecting the property of such Person to any municipality or governmental, statutory or public authority with respect to any franchise, grant, license or permit; (p) Liens arising under or expressly permitted by the Loan Documents; and (q) Liens existing on any asset of any Person prior to the acquisition thereof by the Borrower or any Restricted Subsidiary or existing on any asset of any Person that becomes a Restricted Subsidiary of the Borrower after the Effective Date; provided that (i) such Liens are not created in contemplation of or in connection with such acquisition or such Person becoming a Restricted Subsidiary, (ii) such Liens do not apply to any other assets of Borrower or any other Subsidiary, and (iii) such Liens shall secure only those obligations which they secure on the date of such acquisition or the date such Person becomes a Restricted Subsidiary, as the case may be. 62 68 SECTION 8.3 Financial Condition. The Borrower will not permit: (a) its Current Ratio to be equal to or less than 1.0 to 1.0 at the end of any Fiscal Quarter; or (b) its Fixed Charge Coverage Ratio to be equal to or less than 2.50 to 1.00 at the end of any Fiscal Quarter; provided that (i) the effects of FAS 133 will be disregarded for purposes of calculating the foregoing ratios and (ii) no Default in respect of clause (a) or (b) shall be deemed to have occurred unless and until financial statements for such Fiscal Quarter are available to the Borrower that reflect such Default. SECTION 8.4 Investments. The Borrower will not, and will not permit any of its Restricted Subsidiaries to, make, incur, assume or suffer to exist any Investment in any other Person, except: (a) Investments not otherwise permitted in this Section which exist on the Effective Date so long as such Investments are not increased, extended or renewed; (b) Cash Equivalent Investments; (c) Investments by the Borrower in any of its Subsidiaries, or by any Subsidiary in the Borrower or any other Subsidiary, whether or not existing on the date hereof (including the NCOC Acquisition and the Borrower and Thaipo Limited's Guarantee of the bareboat charter and operating agreement relating to the FPSO "Tantawan Explorer"); (d) if such Investment shall not result in any violation of F.R.S. Board Regulation U, other equity Investments of a class registered pursuant to Section 12 of the Securities Exchange Act of 1934 provided that the Borrower's ownership interest will not exceed 5% of the issuer's outstanding shares entitled to vote, unless such ownership interest is acquired pursuant to a merger agreement between the Borrower and such issuer; (e) loans and advances in the ordinary course of business and stock, obligations, securities or other assets received in settlement of debts so created and owing to the Borrower or any Restricted Subsidiary of the Borrower; (f) any evidence of Indebtedness, maturing not more than one year after such time, issued or guaranteed by any agency of the United States Government, which has a rating of "A-" or better from S&P or a rating of "A3" or better from Moody's; (g) any interest bearing account at, or certificate of deposit maturing not more than one year after such time issued by, a U. S. savings and loan association which has a rating of "A-" or better from S&P or a rating of "A3" or better from Moody's on its long term unsecured debt and which has combined capital and surplus and undivided profits of not less than $100,000,000; 63 69 (h) any interest bearing account at, or certificate of deposit maturing not more than one year after such time, payable in U. S. Dollars and issued by, (i) a foreign banking institution or foreign branch of a U. S. banking institution, which banking institution has a rating of "A-" or better from S&P or a rating of "A3" or better from Moody's on its long-term unsecured debt and combined capital and surplus and undivided profits of not less than $100,000,000, or (ii) any foreign subsidiary of a U. S. banking institution, which U. S. banking institution has a rating of "A-" or better from S&P or a rating of "A3" or better from Moody's and which subsidiary has combined capital and surplus and undivided profits of not less than $100,000,000 or (iii) by any Lender; (i) any evidence of Indebtedness, maturing not more than one year after such time, issued by any State of the United States, by any county or municipality organized or incorporated under the laws of any State of the United States or by any agency or subdivision of any of the foregoing, in each case rated "A-" or better by S&P or rated "A3" or better by Moody's; (j) auction rate preferred stock of a U.S. corporation or mutual investment company rated "A-" or better by S&P or rated "A3" or better by Moody's, provided that such Investment will not result in any violation of F.R.S. Board Regulation U and further provided that the Borrower's ownership interest will not exceed (and will not be convertible into shares which exceed) 5% of the issuer's outstanding shares entitled to vote unless such ownership interest is acquired pursuant to a merger agreement between the Borrower and such issuer); and (k) mutual funds or similar investment vehicles investing primarily in Investments of the types set forth in clauses (a) through (e) of the definition of Cash Equivalent Investments or in the foregoing clauses (f) through (j), provided that ratings requirements shall be applicable to the mutual fund rather than the underlying Investments, as follows: such mutual funds shall, in each case, have a rating of "A-" or better from S&P or a rating of "A3" from Moody's or a rating satisfactory to the Administrative Agent from another recognized rating agency satisfactory to the Administrative Agent, provided, however, that it is agreed that (i) any Investment which when made complies with the requirements of any of the foregoing clauses (f), (g) or (h) may continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements; and (ii) no Investment otherwise permitted by clauses (i) or (j) shall be permitted to be made directly or indirectly through a mutual fund if, immediately before or after giving effect thereto, any Default shall have occurred and be continuing; (l) Investments by the Borrower in any of its Affiliates, whether or not existing on the date hereof, provided such Investments in Affiliates do not exceed in the aggregate at any one time outstanding $25,000,000; provided, however, that 64 70 (m) any Investment which when made complies with the requirements of the definition of the term "Cash Equivalent Investment" may continue to be held notwithstanding that such Investment if made thereafter would not comply with such requirements; and (n) no Investment in Subsidiaries or Affiliates of the Borrower otherwise permitted by the immediately preceding clauses (c) and (l) and no Investment otherwise permitted by the immediately preceding clause (d) shall be permitted to be made if, immediately before or after giving effect thereto, any Default shall have occurred and be continuing. SECTION 8.5 Restricted Payments, etc. On and at all times after the Effective Date: (a) the Borrower will not declare, pay or make any dividend or distribution (in cash, property or obligations) on any shares of any class of capital stock (now or hereafter outstanding) of the Borrower or on any warrants, options or other rights with respect to any shares of any class of capital stock (now or hereafter outstanding) of the Borrower (other than dividends or distributions payable in its common stock or rights or warrants to purchase its capital stock or split-ups or reclassifications of its stock into additional or other shares of its common stock) or apply, or permit any of its Restricted Subsidiaries to apply, any of its funds, property or assets to the purchase, redemption, sinking fund or other retirement of any shares of any class of capital stock (now or hereafter outstanding) of the Borrower, other than (i) payments of dividends as required on preferred stock outstanding and (ii) dividends on common stock and purchases and redemptions of capital stock; provided, that the aggregate of all such dividends, purchases, and redemptions paid after January 1, 1992 does not exceed the sum of (x) thirty-three percent of cumulative income, net of cumulative losses, after January 1, 1992 and (y) one hundred percent of the cumulative proceeds from the issuance of any capital stock after January 1, 1992; provided, further, that no dividends on common stock shall be paid in cash, property, or obligations unless the net worth of the Borrower, based on the Borrower's latest available balance sheet, after subtracting therefrom intangible assets including goodwill, franchises, licenses, patents, trademarks, tradenames, copyrights, service marks, and brand names, is positive; provided, further, that notwithstanding any restriction contained in this Section 8.5, the Borrower may redeem any of its shares of capital stock in exchange for, or out of the proceeds of the substantially concurrent sale of, shares of capital stock, and any dividend otherwise permitted under the terms of this Section 8.5 on the date of such dividend's declaration shall be payable notwithstanding that on the date of payment, such dividend would not be permitted under this section; and provided, further, that Hybrid Preferred Securities shall not be treated as capital stock of the Borrower for purposes of this Section 8.5(a); (b) the Borrower will not, and will not permit any of its Restricted Subsidiaries to, (i) except to the extent of any payment, prepayment, redemption, purchase or defeasance paid from the proceeds of the issuance or sale of 65 71 Refinancing Indebtedness or capital stock, make any optional payment or prepayment of principal of any Subordinated Indebtedness on any day prior to the stated, scheduled date for such payment or prepayment set forth in the documents and instruments memorializing such Subordinated Indebtedness, or optionally redeem, purchase or decrease any Subordinated Indebtedness if such payments, prepayments, redemptions, purchases or defeasance shall be in an aggregate amount in excess of $20,000,000 in any one year, or $50,000,000 in the aggregate after the date hereof and prior to Stated Maturity Date; or (ii) make any payment or prepayment of principal of any Subordinated Indebtedness which would violate the subordination provisions of such Subordinated Indebtedness; or (iii) make any payment or prepayment of interest on any Subordinated Indebtedness, other than payments or prepayments of interest in connection with any payment, prepayment, redemption, purchase or defeasance permitted under Section 8.5(b)(i), on any day prior to the stated scheduled date for such payment or prepayment set forth in the documents memorializing such Subordinated Indebtedness, or which would violate the subordination provisions of such Subordinated Indebtedness; and (c) the Borrower will not, and will not permit any Restricted Subsidiary to, make any deposit for any of the foregoing prohibited purposes and no payment, dividend, distribution, prepayment, redemption, purchase or defeasance permitted by clause (a) or (b) shall be permitted to be made if, immediately before or after giving effect thereto, any Default shall have occurred and be continuing; provided that in determining if any Default pursuant to Section 8.3 shall have occurred and is continuing immediately before or after such payment, dividend, distribution, prepayment, redemption, purchase or defeasance, the Borrower may rely on financial information available to it since the date of the financial statements most recently delivered by it pursuant to Sections 7.1(a) and 7.1(b). SECTION 8.6 Consolidation, Merger, etc. The Borrower will not, and will not permit any of its Restricted Subsidiaries to, liquidate, wind up or dissolve, consolidate with, or merge into or with, any other corporation, or purchase or otherwise acquire all or substantially all the assets of any Person or of any division of any Person except as set forth below and so long as the Borrower (if the Borrower is a party thereto) is the surviving entity: (a) any Restricted Subsidiary (other than NCOC) may liquidate or dissolve into, and may consolidate or merge with and into, the Borrower or any other Restricted Subsidiary and NCOC may liquidate or dissolve into, and may consolidate or merge with and into the Borrower; and (b) B8/32 Partners may liquidate or dissolve voluntarily into, and may merge with and into, the Borrower, any other Restricted Subsidiary or any other Person; provided that either (i) the Borrower's equity interest in the surviving Person (in the case of 66 72 a dissolution into, or consolidation or merger with and into a Person other than the Borrower or a Restricted Subsidiary) is not less than its equity interest in B8/32 Partners immediately prior to such dissolution, consolidation or merger or (ii) all of the Borrower's pro rata share of the Borrowing Base Properties owned by B8/32 Partners, or the proceeds upon liquidation thereof, become the property of the Borrower or any Restricted Subsidiary. (c) so long as no Default has occurred and is continuing or would occur after giving effect thereto, the Borrower or any Restricted Subsidiary may purchase all or substantially all of the assets of any Person (other than the Borrower) or any division of any Person, or acquire any Person (other than the Borrower) by merger. SECTION 8.7 Asset Dispositions. At the request of the Agent or the Required Lenders, in their sole discretion, the Borrowing Base may be redetermined on a Non-Standard Determination basis at any time after the sale, transfer, lease, contribution or other conveyance in one or more transactions after the date of the latest redetermination of the Borrowing Base pursuant to this Agreement: (a) by the Borrower or a Restricted Subsidiary to one or more Persons (other than the Borrower or a Restricted Subsidiary), of Borrowing Base Properties having a Discounted Present Value greater than 8% of the Borrowing Base at the latest redetermination thereof; and (b) by the Borrower or a Restricted Subsidiary to one or more Persons (other than the Borrower or a Restricted Subsidiary), of any of their assets having an aggregate value in excess of $20,000,000 (based on the greater of book value and fair market value at the time of any disposition), other than (A) Borrowing Base Properties, whether directly or indirectly by means of the sale of equity interests in a Restricted Subsidiary or otherwise, (B) oil, gas, and other liquid or gaseous hydrocarbons in the ordinary course of business, (C) equipment and other personal property in the ordinary course of business consistent with the Borrower's obligations under Section 7.3, (D) Investments permitted by Section 8.4, (E) cash payments not prohibited by this Agreement, including Restricted Payments permitted by Section 8.5, (F) Liens permitted by Section 8.2 and rights to production payments in connection with Non-Recourse Indebtedness, (G) transactions permitted by Section 8.6 and (H) the grant of options, warrants or other rights with respect to such assets. Notwithstanding any provisions to the contrary in this Agreement, NCOC may dispose of or sell any assets or interests which NCOC owns that are of the type described in clauses (B), (C), (D), (E), (F) (only with respect to Liens permitted by Section 8.2) and (G) of subsection (b) above or that have a value, in the aggregate, less than $5,000,000 per annum. 67 73 SECTION 8.8 Modification of Certain Agreements. The Borrower will not consent to any amendment, supplement or other modification of any of the terms or provisions contained in any document or instrument evidencing or governing any existing Subordinated Indebtedness which (a) accelerates the date of or increases the amount of any repayment or redemption required pursuant to such agreements, prior to March 7, 2008, (b) contains covenants regarding the matters set forth in, and that are materially more restrictive than, Section 8.3, (c) increases the rate of interest or increases or provides for fees or other compensation, except, with respect to such fees and other compensation, to the extent the same are usual and customary for transactions of such type, or (d) results in subordination terms materially less favorable to the Lenders as holders of the Notes, without obtaining the prior approval of the Required Lenders. SECTION 8.9 Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, enter into, or cause, suffer or permit to exist any arrangement or contract with any of its Affiliates unless such arrangement or contract, as of the date it was entered into, is fair and equitable to the Borrower or such Subsidiary and is (as of such date) not of a sort which would not be entered into by a prudent Person in the position of the Borrower or such Subsidiary with, or which is on terms which are less favorable than are obtainable from, any Person which is not one of its Affiliates; provided, that the foregoing provisions of this Section shall not prohibit any payment permitted by Section 8.5(a) or in respect of any Hybrid Preferred Securities or any transaction between or among the Borrower and its Subsidiaries and other of its Subsidiaries, and provided, further, that arrangements and contracts entered into by NCOC and its Subsidiaries which exist as of the Effective Date shall be excluded from determining compliance with this covenant. SECTION 8.10 Negative Pledges, etc. The Borrower will not, and will not permit any of its Restricted Subsidiaries to, enter into any agreement (i) prohibiting the creation of any Lien upon any of its properties, revenues or assets, whether now owned or hereafter acquired, (ii) restricting the ability of such Restricted Subsidiary to pay dividends or make other distributions in respect of such Subsidiary's share of net profits to the Borrower, (iii) restricting the ability of any Restricted Subsidiary to make payments of principal or interest on any loan from the Borrower or any other Subsidiary or (iv) restricting the ability of the Borrower to amend or otherwise modify this Agreement or any other Loan Document, except for: (A) this Agreement, any other Loan Document, any agreement of NORIC or its Subsidiaries outstanding after consummation of the NCOC Acquisition and, with respect to Liens, any agreement governing Capitalized Lease Liabilities or other Indebtedness incurred to lease or finance acquisitions of assets as to the assets so leased or financed, (B) any agreement of any Person acquired by the Borrower or any Subsidiary in existence at the time of such acquisition (but not created in contemplation thereof), which prohibition or restriction is not applicable to any other Person, other than the Person and the Subsidiaries of that Person, so acquired, (C) with respect to Liens, merger agreements, stock purchase agreements, asset sale agreements and similar agreements limiting the encumbrance of properties, revenues and assets pending consummation of the subject transaction, (D) with respect to Liens on assets of a partnership or joint venture that is such a Subsidiary, partnership or joint venture agreement provisions consistent with the past practices of the Borrower and its Subsidiaries and Affiliates, (E) agreements that extend, renew or refinance or replace agreements described in clauses (A) and (B) above, provided, that the restrictions contained therein are not materially less favorable to the Lenders than those under or pursuant to the agreements being so extended, renewed or refinanced or replaced. 68 74 SECTION 8.11 Commodity Hedging Contracts. The Borrower will not, and will not permit any of its Subsidiaries to, enter into Commodity Hedging Contracts (i) with respect to the forecasted production of the Borrowing Base Properties during any period of four consecutive Fiscal Quarters that in the aggregate cover more than 80% of such total forecasted production for those Fiscal Quarters as estimated by the most recently accepted Reserve Reports and (ii) with counterparties whose senior, unsecured, long-term indebtedness for borrowed money which is not guaranteed by any other Person or subject to any other credit enhancement is rated at the time such Commodity Hedging Contract is entered into less than "BBB-" by S&P or "Baa3" by Moody's. ARTICLE IX EVENTS OF DEFAULT SECTION 9.1 Listing of Events of Default. Each of the following events or occurrences described in this Section 9.1 shall constitute an "Event of Default". SECTION 9.1.1 Non-Payment of Obligations. The Borrower shall default in the payment or prepayment, including any mandatory prepayment pursuant to Section 3.1.2., when due of any principal of any Loan or of any reimbursement obligation with respect to any Letter of Credit, or the Borrower shall default (and such default shall continue unremedied for a period of five (5) days) in the payment when due of interest on any Loan, any Commitment Fee, any Ticking Fee, any Upfront Fee, or other payment obligation provided for in this Agreement or any other Loan Document. SECTION 9.1.2 Breach of Warranty. Any representation or warranty of the Borrower or any Subsidiary made or deemed to be made hereunder or in any other Loan Document or in any other writing or certificate furnished by or on behalf of the Borrower (including any certificate delivered pursuant to Article VII) to the Administrative Agent or any Lender for the purposes of or in connection with this Agreement or any such other Loan Document (including any certificates delivered pursuant to Article V) is incorrect when made in any material respect. SECTION 9.1.3 Non-Performance of Certain Covenants and Obligations. The Borrower shall default in the due performance and observance of any of its obligations under Article VIII (excluding Section 8.3) and, with respect to Section 8.2, 8.4 or 8.5, such default shall continue unremedied for a period of five (5) Business Days after notice thereof shall have been given to the Borrower by the Administrative Agent. SECTION 9.1.4 Non-Performance of Other Covenants and Obligations. The Borrower or any Subsidiary shall default in the due performance and observance of any other covenant or agreement contained herein, including Section 8.3, or in any other Loan Document, and such default shall continue unremedied for a period of 30 days after notice thereof shall have been given to the Borrower by the Administrative Agent. SECTION 9.1.5 Default on Other Indebtedness. The Borrower or any Restricted Subsidiary shall default in the payment when due or within any applicable grace period, whether by acceleration or otherwise, of any of its Indebtedness (other than Indebtedness described 69 75 in Section 9.1.1 or Non-Recourse Indebtedness) in excess in principal amount of $15,000,000, or any default shall occur in the performance or observance of any other obligation or condition with respect to any such Indebtedness if the effect of such default is to accelerate the maturity of such Indebtedness or to permit the holder or holders thereof, or any trustee or agent for such holders, to cause such Indebtedness to become due and payable prior to its expressed maturity. SECTION 9.1.6 Judgments. Any judgments or orders for the payment of money which are, in aggregate, in excess of $15,000,000 at any one time outstanding shall be rendered against the Borrower or any of its Restricted Subsidiaries and the same shall remain undischarged and either (a) enforcement proceedings shall have been commenced in respect of such judgments or orders; or (b) there shall be any period of 30 consecutive days during which enforcement of such judgments or orders is not stayed, by reason of a pending appeal or otherwise. SECTION 9.1.7 Pension Plans. Any of the following events shall occur with respect to any Pension Plan: (a) the institution of any steps by the Borrower, any member of its Controlled Group or any other Person to terminate a Pension Plan if, as a result of such termination, the Borrower or any such member could be required to make a contribution to such Pension Plan, or could reasonably expect to incur a liability or obligation to such Pension Plan, in excess of $15,000,000; or (b) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien under Section 302(f) of ERISA. SECTION 9.1.8 Control of the Borrower. Any Change in Control shall occur. SECTION 9.1.9 Bankruptcy, Insolvency, etc. The Borrower, any of its Restricted Subsidiaries or any of its Significant Subsidiaries shall (a) generally fail to pay, or admit in writing its inability or unwillingness to pay, its debts as they become due; (b) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower, any of its Restricted Subsidiaries or any of its Significant Subsidiaries or any property of any thereof, or make a general assignment for the benefit of creditors; (c) in the absence of such application, consent or acquiescence, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the 70 76 Borrower, any of its Restricted Subsidiaries or any of its Significant Subsidiaries or for a substantial part of the property of any thereof, and such trustee, receiver, sequestrator or other custodian shall not be discharged within 60 days; (d) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding (except the voluntary dissolution, not under any bankruptcy or insolvency law, of a Subsidiary pursuant to Section 8.7), in respect of the Borrower, any of its Restricted Subsidiaries or any of its Significant Subsidiaries, and, if any such case or proceeding is not commenced by the Borrower or such Subsidiary, such case or proceeding shall be consented to or acquiesced in by the Borrower or such Subsidiary or shall result in the entry of an order for relief or shall remain for 60 days undismissed; or (e) take any corporate, or in the case of a Restricted Subsidiary or a Significant Subsidiary organized as a partner, partnership action authorizing, or in furtherance of, any of the foregoing. SECTION 9.1.10 NCOC. After consummation of the NCOC Acquisition, the Borrower shall fail to own, directly or indirectly, all the issued and outstanding capital stock of NCOC, except as a result of the merger or consolidation of NCOC with and into the Borrower. SECTION 9.1.11 Pledged Shares. On or before nine (9) days after the date of the initial Borrowing under the Credit Agreement, the Borrower shall fail to deliver or cause to be delivered to the Administrative Agent all shares of the capital stock of NCOC presently held by Rhode Island Corporation and Walton Corporation, together with appropriate stock powers executed in blank, so that after such delivery, 100% of the issued and outstanding shares of capital stock of NCOC shall be subject to the pledge and security interest created by the Pledge Agreement in favor of the Administrative Agent for the benefit of the Lender Parties (as such term is defined in the Pledge Agreement). SECTION 9.2 Action if Bankruptcy. If any Event of Default described in clauses (a) through (d) of Section 9.1.9 shall occur, the outstanding principal amount of all outstanding Loans and all other Obligations shall automatically be and become immediately due and payable, without notice or demand. SECTION 9.3 Action if Other Event of Default. If any Event of Default (other than any Event of Default described in clauses (a) through (d) of Section 9.1.9) shall occur for any reason, whether voluntary or involuntary, and be continuing, the Administrative Agent, upon the direction of the Required Lenders, shall by notice to the Borrower declare the outstanding principal amount of the Loans and other payment Obligations to be due and payable, whereupon the full unpaid amount of such Loans and other payment Obligations shall be and become immediately due and payable, without further notice, demand or presentment. 71 77 ARTICLE X THE AGENTS SECTION 10.1 Actions. Each Agent, Lender and Issuing Bank hereby appoints Bank of Montreal as Administrative Agent, Toronto Dominion (Texas), Inc. as Syndication Agent, BNP Paribas as Documentation Agent, Bank of America as a Managing Agent, and Fleet National Bank as a Managing Agent under and for purposes of this Agreement, the Notes and each other Loan Document. Each Lender authorizes each Agent to act on behalf of such Lender and to exercise such powers as are delegated to such Agent under this Agreement, the Notes and each other Loan Document and, in the absence of other written instructions from the Required Lenders received from time to time by the Agents (with respect to which each Agent agrees that it will comply, except as otherwise provided in this Section or as otherwise advised by counsel), to exercise such powers hereunder and thereunder as are specifically delegated to or required of such Agent by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto. Each Lender hereby indemnifies (which indemnity shall survive any termination of this Agreement) each of the Agents, pro rata according to such Lender's Percentage, from and against any and all liabilities, obligations, losses, damages, claims, costs or expenses of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against, the Agents in any way relating to or arising out of this Agreement, the Notes and any other Loan Document, including reasonable attorneys' fees, and as to which any Agent is not reimbursed by the Borrower; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, claims, costs or expenses which are determined by a court of competent jurisdiction in a final proceeding to have resulted solely from such Agent's gross negligence or wilful misconduct. No Agent shall be required to take any action hereunder, under the Notes or under any other Loan Document, or to prosecute or defend any suit in respect of this Agreement, the Notes or any other Loan Document, unless it is indemnified hereunder to its satisfaction. If any indemnity in favor of any Agent shall be or become, in such Agent's determination, inadequate, such Agent may call for additional indemnification from the Lenders and cease to do the acts indemnified against hereunder until such additional indemnity is given. SECTION 10.2 Funding Reliance, etc. Unless the Administrative Agent shall have been notified by telephone, confirmed in writing, by any Lender by 5:00 p.m., Houston Time, on the day prior to a Borrowing in the case of LIBOR Loans, or by 11:00 a.m., Houston Time, on the day of any Borrowing in the case of Prime Rate Loans, that such Lender will not make available the amount which would constitute its Percentage of such Borrowing on the date specified therefor, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent and, in reliance upon such assumption, make available to the Borrower a corresponding amount. If and to the extent that such Lender shall not have made such amount available to the Administrative Agent, such Lender and the Borrower severally agree to repay the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date the Administrative Agent made such amount available to the Borrower to the date such amount is repaid to the Administrative Agent, at the Federal Funds Rate at that time. 72 78 SECTION 10.3 Exculpation. No Agent nor any of its directors, officers, employees or agents shall be liable to any Lender for any action taken or omitted to be taken by it under this Agreement or any other Loan Document, or in connection herewith or therewith, except for its own wilful misconduct or gross negligence, nor responsible for any recitals or warranties herein or therein, nor for the effectiveness, enforceability, validity or due execution of this Agreement or any other Loan Document, nor for the creation, perfection or priority of any Liens which may be created in the future by the Pledge Agreement, or the validity, genuineness, enforceability, existence, value or sufficiency of any Collateral nor to make any inquiry respecting the performance by the Borrower of its obligations hereunder or under any other Loan Document. Each Agent shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement or writing which such Agent believes to be genuine and to have been presented by a proper Person. SECTION 10.4 Successor to Administrative Agent. The Administrative Agent may resign as such at any time upon at least 30 days' prior notice to the Borrower, the other Agents and all Lenders. If the Administrative Agent at any time shall resign, the Required Lenders, with the consent of the Borrower, may appoint another Lender or a commercial banking institution organized under the laws of the U.S. (or any state thereof) or a U.S. branch or agency of a commercial banking institution, and having a combined capital and surplus of at least $500,000,000 as a successor Administrative Agent which shall thereupon become the Administrative Agent hereunder. If no successor Administrative Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be one of the Lenders or a commercial banking institution organized under the laws of the U.S. (or any State thereof) or a U.S. branch or agency of a commercial banking institution, and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall be entitled to receive from the retiring Administrative Agent such documents of transfer and assignment as such successor Administrative Agent may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent's resignation hereunder as the Administrative Agent, the provisions of (a) this Article X shall inure to its benefit as to any actions taken or omitted to be taken by it while it was the Administrative Agent under this Agreement; and (b) Section 11.3 shall continue to inure to its benefit. SECTION 10.5 Loans by the Agents. Each of the Agents shall have the same rights and powers with respect to (x) the Loans made by it or any of its Affiliates, and (y) the Notes held by it or any of its Affiliates as any other Lender and may exercise the same as if it were not an Agent. 73 79 SECTION 10.6 Credit Decisions. Each Lender acknowledges that it has, independently of any Agent and each other Lender, and based on such Lender's review of the financial information of the Borrower and such other documents, information and investigations as such Lender has deemed appropriate, made its own credit decision to extend its Commitments. Each Lender also acknowledges that it will, independently of any Agent and each other Lender, and based on such other documents, information and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under this Agreement or any other Loan Document. SECTION 10.7 Copies, etc. The Administrative Agent shall give prompt notice to each Lender of each notice or request required or permitted to be given to the Administrative Agent by the Borrower pursuant to the terms of this Agreement (unless concurrently delivered to the Lenders by the Borrower). The Administrative Agent will distribute to each Lender each document or instrument received for its account and copies of all other communications received by the Administrative Agent from the Borrower for distribution to the Lenders by the Administrative Agent. ARTICLE XI MISCELLANEOUS PROVISIONS SECTION 11.1 Waivers, Amendments, etc. The provisions of this Agreement and of each other Loan Document may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to by the Borrower and the Required Lenders; provided, however, that no such amendment, modification or waiver which would: (a) modify any requirement hereunder that any particular action be taken by all the Lenders, the Required Lenders or the Required Borrowing Base Lenders shall be effective unless consented to by each Lender; (b) modify this Section 11.1, change the definition of "Required Lenders", "Required Borrowing Base Lenders" or "Restricted Subsidiary", eliminate the Borrowing Base, increase the Commitment Amount or the Percentage of any Lender, change the definition of "Prime Rate" or "LIBOR" to reduce interest or the Applicable Margin payable by the Borrower, reduce any fees described in Article III, release all or substantially all of the Collateral other than pursuant to the terms of the Pledge Agreement, or extend any Commitment Termination Date, without the consent of each Lender; (c) reduce the amount of any mandatory prepayment (whether pursuant to Section 3.1.2 or otherwise) or of any interest payment due to any Lender on any Loan (or reduce the principal amount of or rate of interest on any Loan) shall be made without the consent of the applicable Lender; or (d) affect adversely the interests, rights or obligations of the Administrative Agent without consent of the Administrative Agent. 74 80 No failure or delay on the part of any Agent or any Lender in exercising any power or right under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Borrower in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by any Agent or any Lender under this Agreement or any other Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 11.2 Notices. All notices and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing or by facsimile and addressed, delivered or transmitted to such party at its address or facsimile number set forth below its signature hereto or set forth in the Lender Assignment Agreement or at such other address or facsimile number as may be designated by such party in a notice to the other parties in accordance with this Section. Any notice, if mailed and properly addressed with postage prepaid, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when transmitted and, in the case of facsimiles, transmission confirmed. SECTION 11.3 Payment of Costs and Expenses. The Borrower agrees to promptly pay all reasonable expenses of the Administrative Agent (including the reasonable fees and out-of-pocket expenses of counsel to the Administrative Agent and of local counsel, if any, who may, following reasonable notice to the Borrower, be retained by counsel to the Administrative Agent) in connection with: (a) the negotiation, preparation, execution and delivery of this Agreement and of each other Loan Document, including schedules and exhibits, and any amendments, waivers, consents, supplements or other modifications to this Agreement or any other Loan Document as may from time to time hereafter be required, whether or not the transactions contemplated hereby are consummated, (b) any costs incurred pursuant to obtaining a security interest in the Collateral, including fees and disbursements to special counsel to the Administrative Agent and the Lenders and expenses of any filing, recording, refiling or re-recording of the Pledge Agreement and/or any Uniform Commercial Code financing statements relating to the Collateral and all amendments, supplements and modifications to any thereof and any and all other documents or instruments of further assurance which may be required to be filed or recorded or refiled or rerecorded pursuant to the terms of Section 7.8 or relating to any Lien for benefit of the Lenders, and (c) the preparation and review of the form of any document or instrument relevant to this Agreement or any other Loan Document. Without duplication of any payments made pursuant to Section 4.07(a), the Borrower further agrees to pay, and to save each Agent and the Lenders harmless from all liability for, Other Taxes which 75 81 may be payable in connection with the execution or delivery of this Agreement, the Borrowings, or the issuance of the Notes or any other Loan Documents. The Borrower also agrees to reimburse the Administrative Agent and each Lender upon demand for all reasonable out-of-pocket expenses (including the reasonable fees and out-of-pocket expenses of counsel to the Administrative Agent and of local counsel, if any, who may, following reasonable notice to the Borrower, be retained by counsel to the Administrative Agent) incurred by the Administrative Agent or such Lender in connection with the enforcement of any Obligations after the occurrence and during the continuation of an Event of Default. SECTION 11.4 Indemnification. In consideration of the execution and delivery of this Agreement by each Lender and the extension of the Commitments, the Borrower hereby indemnifies, exonerates and holds the Administrative Agent, each other Agent, each Lender and each of their respective officers, directors, employees and agents (collectively, the "Indemnified Parties") free and harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Loan or Letter of Credit; (b) the entering into and performance of this Agreement and any other Loan Document by any of the Indemnified Parties (including any action brought by or on behalf of the Borrower as the result of any determination by the Required Lenders pursuant to Article V not to fund any Borrowing); (c) any investigation, litigation or proceeding related to any acquisition or proposed acquisition by the Borrower or any of its Subsidiaries of any portion of the stock or assets of any Person, whether or not the Administrative Agent or such Lender is party thereto; (d) any investigation, litigation or proceeding related to any environmental cleanup, audit, compliance or other matter relating to the protection of the environment or the Release by the Borrower or any of its Subsidiaries of any Hazardous Material; or (e) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission or release from, any real property owned or operated by the Borrower or any Subsidiary thereof of any Hazardous Material (including any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any Environmental Law), regardless of whether caused by, or within the control of, the Borrower or such Subsidiary, except for any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the activities of the Indemnified Party on the property of the Borrower conducted 76 82 subsequent to a foreclosure on such property by the Lenders or by reason of the relevant Indemnified Party's gross negligence or wilful misconduct or breach of this Agreement, and if and to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. The Borrower shall be obligated to indemnify the Indemnified Parties for all Indemnified Liabilities subject to and pursuant to the foregoing provisions, regardless of whether the Borrower or any of its Subsidiaries had knowledge of the facts and circumstances giving rise to such Indemnified Liability. Promptly after the receipt by an Indemnified Party of notice of the commencement of any action, such Indemnified Party will, if a claim for indemnity in respect thereof is to be made against the Borrower, notify the Borrower of the commencement thereof. If the Borrower will have acknowledged in writing that this Section 11.4 will cover any Indemnified Liabilities in any such action, suit, proceeding or investigation, and, in the sole determination of the Indemnified Party, the Borrower has the financial ability to pay such Indemnified Liabilities, then the Borrower will have the right, on behalf of such Indemnified Party, but at the Borrower's expense, to defend such action, suit or proceeding, or participate in such investigation, with counsel selected by it, and will have sole discretion as to whether to litigate, appeal or settle. Notwithstanding the foregoing, nothing in this Section 11.4 is intended to expand upon the obligations of the Borrower under Article IV in respect of Additional Costs, funding losses, increased capital costs or Taxes, which obligations are created under and subject to the terms and conditions of the relevant Sections of that Article. SECTION 11.5 Survival. The obligations of the Borrower under Sections 4.3, 4.4, 4.5, 4.7, 11.3 and 11.4, and the obligations of the Lenders under Section 10.1 and of the Agents and the Lenders under Section 11.12, shall in each case survive any termination of this Agreement. The representations and warranties made by the Borrower in this Agreement and in each other Loan Document shall survive the execution and delivery of this Agreement and each such other Loan Document. SECTION 11.6 Severability. Any provision of this Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 11.7 Headings. The various headings of this Agreement and of each other Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or such other Loan Document or any provisions hereof or thereof. 77 83 SECTION 11.8 Execution in Counterparts, Effectiveness, etc. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. This Agreement shall become effective when counterparts hereof executed on behalf of the Borrower and each Lender (or notice thereof satisfactory to the Administrative Agent) shall have been received by the Administrative Agent (or Administrative Agent's counsel) and notice thereof shall have been given by the Administrative Agent to the Borrower and each Lender. SECTION 11.9 Governing Law; Entire Agreement. THIS AGREEMENT, THE NOTES AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER, GOVERNED BY, AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 11.10 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that: (a) the Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of the Administrative Agent and all Lenders (and any attempted assignment or transfer by the Borrower without such consent shall be null and void); and (b) the rights of sale, assignment and transfer of the Lenders are subject to Section 11.11. (c) Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Affiliates of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. SECTION 11.11 Assignments and Participations. (a) Any Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment, Loans and LC Exposure at the time owing to it); provided that (i) except in the case of an assignment of the entire remaining amount of the assigning Lender's Commitment, Loans and LC Exposure or in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund with respect to a Lender, the aggregate amount of the Commitment (which for this purpose includes Loans and LC Exposure outstanding thereunder) of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption Agreement with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 and increments of $1,000,000, unless each of the Administrative Agent and, so long as no Event of Default has 78 84 occurred and is continuing, the Borrower otherwise consent (each such consent not to be unreasonably withheld or delayed), (ii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement and (iii) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption Agreement, together with a processing and recordation fee of $3,500, and the Eligible Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire. Subject to acceptance and recording thereof by the Administrative Agent pursuant to paragraph (b) of this Section, from and after the effective date specified in each Assignment and Assumption Agreement, the Eligible Assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption Agreement, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption Agreement, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption Agreement covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 4.3, 4.4, 4.5, 4.7, 11.3 and 11.4). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section. (b) The Administrative Agent shall maintain at one of its offices in Chicago, Illinois a copy of each Assignment and Assumption Agreement delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amount of the Loans and LC Exposure owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, absent manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (c) Any Lender may, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans or LC Exposure owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any 79 85 amendment, modification or waiver with respect to Sections 11.1(b) or (c) that affects such Participant. Subject to paragraph (d) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 4.3, 4.4, 4.5 and 4.7 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. (d) A Participant shall not be entitled to receive any greater payment under Section 4.3, 4.4, 4.5 or 4.7 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 4.7 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 4.7 as though it were a Lender. (e) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. SECTION 11.12 Confidentiality. The Agents and the Lenders shall hold all non-public information obtained pursuant to the requirements of this Agreement as follows: (a) may not disclose or discuss such information with any other persons except that any Person may disclose such information (i) to any bank regulatory authority at the request of such authority or in connection with an examination of such Person by any such authority, (ii) pursuant to subpoena, other court process or as otherwise required by law, (iii) at the express direction of any other agency of any State of the United States, (iv) to such Person's independent auditors, counsel or independent petroleum engineers retained by such Person or (v) to any Assignee Lender or proposed Assignee Lender of all or any portion of any Lender's interests, rights and obligations under this Agreement and any participant or proposed participant in all or a portion of a Lender's obligations under the Agreement, in each case, only if such Assignee Lender or proposed Assignee Lender or participant or proposed participant shall execute and deliver to the Borrower prior to any disclosure of information or conclusions based on such information a confidentiality letter reasonably acceptable to the Borrower and the Administrative Agent; (b) the obligation of confidentiality shall not apply to such portions of the information which any such Person establishes (i) are in the public domain, (ii) hereafter become part of the public domain without breach of this Section 11.12 or any confidentiality letter, (iii) are previously known from some source other than the Borrower, (iv) are developed without using the Borrower's information or (v) are hereafter obtained from a third party who owes no obligation of confidence to the Borrower with respect to such information; 80 86 (c) unless prohibited by applicable law or court order, each such Person will promptly notify the Borrower (in advance, if practicable) if it is required to disclose any such information or conclusions pursuant to clause (a)(ii) above; (d) each such Person agrees that it will not use any information obtained, inspected or reviewed by it in connection with the Agreement for the purpose of bidding, or in any manner advising or assisting in the bidding (including advising or assisting in advising in the nomination of tracts to be leased), on future lease sales of tracts in offset tracts or in drainage tracts to the Borrower's interests or for the purpose of purchasing, selling, offering to purchase or offering to sell, directly or indirectly, any equity securities of the Borrower (or assisting or advising others in connection therewith); (e) all obligations of each such Person pursuant to this Section 11.12 shall terminate on the second anniversary of the date on which all Obligations of the Borrower to such Person under the Agreement and the Notes have been fulfilled; (f) each such Person agrees that it shall be responsible for the compliance with this Agreement by all its officers and employees to the same extent as if they were parties hereto; and (g) notwithstanding anything to the contrary in this Agreement, this Section 11.12 is in addition to and shall not supercede any existing confidentiality agreements between the Borrower and any other party to this Agreement, provided that such existing confidentiality agreements, if any, shall not be a part of this Agreement. SECTION 11.13 Other Transactions. Nothing contained herein shall preclude the Agents or any Lender from engaging in any transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower or any of its Subsidiaries or Affiliates in which the Borrower or such Subsidiary or Affiliate is not restricted hereby from engaging with any other Person. SECTION 11.14 NO ORAL AGREEMENTS. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. [SIGNATURES BEGIN ON FOLLOWING PAGE] 81 87 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. POGO PRODUCING COMPANY By /s/ JAMES P. ULM, II ---------------------------------------- Name: James P. Ulm, II Title: Vice President and Chief Financial Officer Address: 5 Greenway Plaza, Suite 2700 Houston, Texas 77046-0504 Attention: James P. Ulm, II Telephone No.: (713) 297-5152 Telecopy No.: (713) 297-4954 S-1 88 BANK OF MONTREAL, acting through its U.S. branches and agencies, including initially its Chicago, Illinois branch, as Administrative Agent By: /s/ JOSEPH A. BLISS --------------------------------------- Name: Joseph A. Bliss Title: Director Address: 115 South LaSalle Street 11th Floor West Chicago, Illinois 60603 Attention: Terri Perez-Ford, Specialist Telephone No.: (312) 750-3827 Telecopy No.: (312) 750-3456 with copy to: Bank of Montreal 700 Louisiana Street, Suite 4400 Houston, Texas 77002 Attention: Joseph Bliss Telephone No.: (713) 546-9735 Telecopy No.: (713) 223-4007 S-2 89 TORONTO DOMINION (TEXAS), INC., as Syndication Agent By: /s/ CAROL A. BRANDT --------------------------------------- Name: Carol A. Brandt Title: Vice President Address: 909 Fannin Street Suite 1700 Houston, Texas 77002 Attention: Carol A. Brandt Telephone No.: (713) 653-8204 Telecopy No.: (713) 951-9921 S-3 90 BNP PARIBAS, acting through its Houston Agency, as Documentation Agent By /s/ DOUGLAS R. LIFTMAN -------------------------------------- Name: Douglas R. Liftman Title: Managing Director By /s/ LARRY ROBINSON -------------------------------------- Name: Larry Robinson Title: Vice President Address: 1200 Smith Street Suite 3100 Houston, Texas 77002 Attention: Doug Liftman Telephone No.: (713) 982-1154 Telecopy No.: (713) 659-6915 S-4 91 BANK OF AMERICA, N.A., as Managing Agent By: /s/ MARY LOUISE ALLEN ------------------------------------ Name: Mark Louise Allen Title: Vice President Address: 333 Clay Street Suite 4550 Houston, Texas 77002 Attention: Mary Lou Allen Telephone No.: (713) 651-4930 Telecopy No.: (713) 651-4808 with a copy to: Paul Squires 333 Clay Street Suite 4550 Houston, Texas 77002 Telephone No.: (713) 651-4812 Telecopy No.: (713) 651-4808 S-5 92 FLEET NATIONAL BANK, as Managing Agent By: /s/ STEPHEN J. HOFFMAN -------------------------------------- Name: Stephen J. Hoffman Title: Vice President Address: 100 Federal Street MAD10008A, 8th Floor Boston, Massachusetts 02110 Attention: Michael Brochetti Telephone No.: (617) 434-3017 Telecopy No.: (617) 434-3652 with a copy to: Terry Ronan 100 Federal Street MAD10008A, 8th Floor Boston, Massachusetts 02110 Telephone No.: (617) 434-5472 Telecopy No.: (617) 434-3652 S-6 93 PERCENTAGE LENDERS 11.650% BANK OF MONTREAL, as Lender By /s/ MELISSA A. BAUMAN --------------------------------------- Name: Melissa A. Bauman Title: Director Domestic Office: 115 South LaSalle Street 11th Floor West Chicago, Illinois 60603 Attention: Terri Perez-Ford, Specialist Facsimile: (312) 750-3456 LIBOR Office: 115 South LaSalle Street Chicago, Illinois 60603 Attention: Terri Perez-Ford, Specialist Facsimile: (312) 750-3456 with copy to: Bank of Montreal 700 Louisiana Street, Suite 4400 Houston, Texas 77002 Attention: Melissa Bauman Telephone No.: (713) 546-9723 Telecopy No.: (713) 223-4007 S-7 94 10.680% BNP PARIBAS, as Lender By: /s/ DOUGLAS R. LIFTMAN ------------------------------------- Name: Douglas R. Liftman Title: Managing Director By: /s/ LARRY ROBINSON ------------------------------------- Name: Larry Robinson Title: Vice President Domestic Office: 1200 Smith Street, Suite 3100 Houston, Texas 77002 Attention: Doug Liftman Telephone No.: (713) 982-1154 Telecopy No.: (713) 659-6915 LIBOR Office: 1200 Smith Street, Suite 3100 Houston, Texas 77002 Attention: Leah Evans Hughes Telephone No.: (713) ------------------- Telecopy No.: (713) 659-5305 S-8 95 10.680% FLEET NATIONAL BANK, as a Lender By /s/ STEPHEN J. HOFFMAN --------------------------------------- Name: Stephen J. Hoffman Title: Vice President Domestic Office: 100 Federal Street MAD10008A, 8th Floor Boston, Massachusetts 02110 Attention: Michael Brochetti Telephone No.: (617) 434-3017 Telecopy No.: (617) 434-3652 with a copy to: Terry Ronan Fleet National Bank 100 Federal Street MAD10008A, 8th Floor Boston, Massachusetts 02110 Telephone No.: (617) 434-5472 Telecopy No.: (617) 434-3652 LIBOR Office: 100 Federal Street Boston, Massachusetts 02110 Attention: ------------------------------ Telephone No.: ------------------------ Telecopy No.: ------------------------ S-9 96 10.680% BANK OF AMERICA, N.A., as a Lender By: /s/ MARY LOUISE ALLEN ------------------------------------- Name: Mary Louise Allen Title: Vice President Domestic Office: 333 Clay Street Suite 4550 Houston, Texas 77002 Attention: Mary Lou Allen Telephone No.: (713) 651-4930 Telecopy No.: (713) 651-4808 with a copy to: Paul Squires 333 Clay Street Suite 4550 Houston, Texas 77002 Telephone No.: (713) 651-4812 Telecopy No.: (713) 651-4808 LIBOR Office: Bank of America, N.A. ------------------------------------ ABA#111000012 ------------------------------------ Credit Account 1292000883 ------------------------------------ Attention: Corporate Loan Funds - Terrie Smith ------------------------------------ Telephone No.: (214) 209-2141 ------------------------------ Telecopy No.: (214) 290-8376 ------------------------------ S-10 97 10.680% TORONTO DOMINION (TEXAS), INC., as a Lender By: /s/ CAROL BRANDT --------------------------------------- Name: Carol A. Brandt Title: Vice President Domestic Office: 909 Fannin Street Suite 1700 Houston, Texas 77002 Attention: Carol A. Brandt Telephone No.: (713) 653-8204 Telecopy No.: (713) 951-9921 LIBOR Office: 909 Fannin Street Suite 1700 Houston, Texas 77002 Attention: Carol A. Brandt Telephone No.: (713) 653-8204 Telecopy No.: (713) 951-9921 S-11 98 4.854% THE BANK OF NEW YORK, as a Lender By: /s/ RAYMOND J. PALMER ------------------------------------- Name: Raymond J. Palmer Title: Vice President Domestic Office: One Wall Street 19th Floor New York, New York 10286 Attention: Raymond J. Palmer Telephone No.: (212) 635-7834 Telecopy No.: (212) 635-7923 LIBOR Office: One Wall Street 19th Floor New York, New York 10286 Attention: Lisa Williams Telephone No.: (212) 635-7535 Telecopy No.: (212) 635-7923 S-12 99 4.854% THE BANK OF NOVA SCOTIA, as a Lender By: /s/ [ILLEGIBLE] -------------------------------------- Name: [ILLEGIBLE] Title: [ILLEGIBLE] Domestic Office: 600 Peachtree Street, NE Suite 2700 Atlanta, Georgia 30308 Attention: Cleve Bushey Telephone No.: (404) 877-1500 Telecopy No.: (404) 888-8998 with a copy to: Greg Smith 1100 Louisiana, Suite 3000 Houston, Texas 77002 Telephone No.: (713) 759-3440 Telecopy No.: (713) 759-2425 LIBOR Office: 600 Peachtree Street, NE Suite 2700 Atlanta, Georgia 30308 Attention: Cleve Bushey Telephone No.: (404) 877-1500 Telecopy No.: (404) 888-8998 S-13 100 9.709% FIRST UNION NATIONAL BANK, as a Lender By:/s/ ROBERT R. WETTEROFF -------------------------------------- Name: Robert R. Wetteroff Title: Senior Vice President Domestic Office: First Union Capital Markets 1001 Fannin Street Suite 2255 Houston, Texas 77002 Attention: Paul Riddle Telephone No.: (713) 346-2703 Telecopy No.: (713) 650-6354 with a copy to: Philip Trinder 1001 Fannin, Suite 2244 Houston, Texas 77002 Telephone No.: (713) 346-2718 Telecopy No.: (713) 650-6354 LIBOR Office: 1001 Fannin Street Suite 2255 Houston, Texas 77002 Attention: ------------------------------ Telephone No.: (713) ------------------- Telecopy No.: (713) ------------------- S-14 101 4.854% THE FUJI BANK, LIMITED, as a Lender By: /s/ MASATOSHI ABE --------------------------------------- Name: Masatoshi Abe Title: Vice President and Manager Domestic Office: 1 Houston Center, Suite 4100 1221 McKinney Street Houston, Texas 77010 Attention: Tommy Watts Telephone No.: (713) 650-7868 Telecopy No.: (713)759-0717 with a copy to: James Liu Two World Trade Center 79th Floor New York, New York 10048 Telephone No.: (212) 898-2629 Telecopy No.: (212) 488-2172 LIBOR Office: Two World Trade Center 79th Floor New York, New York 10048 Attention: Tina Catapano Telephone No.: (212) 898-2099 Telecopy No.: (212) 488-8216 S-15 102 6.796% FORTIS CAPITAL CORP., as a Lender By: /s/ DEIRDRE SANBORN /s/ DARRELL W. HOLLEY ----------------------------------------- Name: Deirdre Sanborn Darrell W. Holley Title: Vice President Managing Director Domestic Office: 100 Cresent Court Suite 1777 Dallas, Texas 75201 Attention: Deirdre Sanborne Telephone No.: (214) 953-9304 Telecopy No.: (214) 754-5982 LIBOR Office: 100 Cresent Court Suite 1777 Dallas, Texas 75201 Attention: Yolanda Dittmar Telephone No.: (214) 953-9301 Telecopy No.: (214) 754-5981 S-16 103 4.854% NATEXIS BANQUES POPULAIRES, as a Lender /s/ RENAUD J. D'HERBES By: /s/ DONOVAN C. BROUSSARD Renaud J. d'Herbes --------------------------------------------- Senior Vice President Name: Donovan C. Broussard and Regional Manager Title: Vice President Domestic Office: Southwest Representative Office 333 Clay Street Suite 4340 Houston, Texas 77002 Attention: Donovan Broussard Telephone No.: (713) 759-0973 Telecopy No.: (713) 759-9908 LIBOR Office: Southwest Representative Office 333 Clay Street Suite 4340 Houston, Texas 77002 Attention: Tanya McAllister Telephone No.: (713) 759-9401 Telecopy No.: (713) 759-9908 S-17 104 4.854% THE SANWA BANK LIMITED, as a Lender By: /s/ C. LAWRENCE MURPHY ---------------------------------- Name: C. Lawrence Murphy Title: Senior Vice President Domestic Office: 55 East 52nd Street New York, New York 10055 Attention: C.L. Murphy Telephone No.: (212) 339-6380 Telecopy No.: (212) 754-2368 LIBOR Office: 55 East 52nd Street New York, New York 10055 Attention: Ryoichi Konishi Telephone No.: (212) 339-6172 Telecopy No.: (212) 754-2368 S-18 105 4.854% UNION BANK OF CALIFORNIA, N.A., as a Lender By: /s/ GARY SHEKERJIAN -------------------------------------- Name: Gary Shekerjian Title: Vice President Domestic Office: 500 N. Akard Suite 4200 Dallas, Texas 75201 Attention: Gary Shekerjian Telephone No.: (214) 922-4213 Telecopy No.: (214) 922-4209 with a copy to: Don Lovingfoss 445 S. Figueroa St. Mail Code G10-080 Los Angeles, California 90071 LIBOR Office: Energy Capital Services Monterey Park Office 601 Potrero Grande Dr., #4-957-161 Monterey Park, California 91754 Attention: Miriam Hooker Telephone No.: (323) 720-7397 Telecopy No.: (323) 278-6173 S-19 EX-23.1 6 h84916ex23-1.txt CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated February 16, 2001 included in this Annual Report on Form 10-K, into Pogo Producing Company's previously filed Registration Statement File Nos. 33-54969, 333-04233, 333-75105, 333-75105-01, 333-75105-02, 333-74861, 333-42426 and 333-42428. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Houston Texas March 26, 2001 EX-99.1 7 h84916ex99-1.txt CONSOLIDATED BALANCE SHEETS - NORTH CENTRAL OIL 1 EXHIBIT 99.1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders, North Central Oil Corporation: We have audited the accompanying consolidated balance sheets of North Central Oil Corporation (a Delaware corporation) and subsidiaries ("North Central") as of December 31, 2000 and 1999, and the related consolidated statements of operations, cash flows and stockholders' equity for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of North Central's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of North Central as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. As described in Note 2 of the Notes to the Consolidated Financial Statements, North Central restated its December 31, 1999 and 1998 financial statements to include the purchase cost attributable to the acquisition of the minority interests by its parent, NORIC Corporation. Houston, Texas February 16, 2001 2 NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, ----------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ REVENUE: Oil and gas sales ........................... $144,900,000 $ 88,000,000 $ 57,000,000 Interest and other income ................... 700,000 800,000 700,000 Gain (loss) on sale of assets ............... -- (900,000) 500,000 ------------ ------------ ------------ Total revenue .......................... 145,600,000 87,900,000 58,200,000 ------------ ------------ ------------ COSTS AND EXPENSES: Production expenses ......................... 16,200,000 14,400,000 11,900,000 Production and other taxes .................. 10,900,000 7,100,000 4,500,000 Depreciation, depletion and amortization .... 31,500,000 31,300,000 22,800,000 Exploration costs ........................... 7,400,000 6,900,000 11,800,000 General and administrative expenses ......... 4,600,000 4,800,000 4,900,000 Interest expense ............................ 10,300,000 9,300,000 4,600,000 Deferred compensation expense ............... 34,700,000 7,000,000 1,500,000 Other expense ............................... 700,000 400,000 -- ------------ ------------ ------------ Total costs and expenses ............... 116,300,000 81,200,000 62,000,000 ------------ ------------ ------------ NET INCOME (LOSS) BEFORE FEDERAL INCOME TAXES ........................... 29,300,000 6,700,000 (3,800,000) ------------ ------------ ------------ FEDERAL INCOME TAX PROVISION (BENEFIT) ...... 11,100,000 2,200,000 (1,400,000) ------------ ------------ ------------ NET INCOME (LOSS) ........................... $ 18,200,000 $ 4,500,000 $ (2,400,000) ============ ============ ============
See accompanying notes to consolidated financial statements. 2 3 NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
DECEMBER 31, -------------------------------- 2000 1999 ------------- ------------- CURRENT ASSETS: Cash and cash equivalents .................................... $ 10,800,000 $ 6,300,000 Accounts receivable .......................................... 17,300,000 11,000,000 Federal income taxes receivable - NORIC ...................... 2,100,000 -- Prepaid expenses and other current assets .................... 1,000,000 900,000 ------------- ------------- Total current assets .................................... 31,200,000 18,200,000 ------------- ------------- PROPERTY AND EQUIPMENT (AT COST): Oil and gas properties (successful-efforts method) ........... 445,200,000 383,300,000 Other fixed assets ........................................... 5,500,000 5,300,000 ------------- ------------- 450,700,000 388,600,000 Less accumulated depreciation, depletion and amortization .... (143,600,000) (112,500,000) ------------- ------------- 307,100,000 276,100,000 ------------- ------------- OTHER ASSETS: Deferred charges - commodity hedges .......................... 30,200,000 -- Gas imbalance receivable ..................................... 2,100,000 2,000,000 Other noncurrent assets ...................................... 1,400,000 1,100,000 ------------- ------------- 33,700,000 3,100,000 ------------- ------------- TOTAL ASSETS ................................................. $ 372,000,000 $ 297,400,000 ============= =============
See accompanying notes to consolidated financial statements. 3 4 NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, -------------------------------- 2000 1999 ------------- ------------- CURRENT LIABILITIES: Accounts payable and accrued liabilities .................. $ 28,500,000 $ 16,000,000 Royalties and revenue payable ............................. 12,600,000 7,500,000 Federal income taxes payable - NORIC ...................... -- 1,100,000 ------------- ------------- Total current liabilities ............................ 41,100,000 24,600,000 ------------- ------------- OTHER LIABILITIES: Long-term debt ............................................ 124,500,000 120,000,000 Deferred compensation payable ............................. 45,400,000 11,000,000 Deferred federal income taxes payable ..................... 25,700,000 26,900,000 Deferred income - interest rate hedges .................... 2,300,000 -- Other noncurrent liabilities .............................. 1,300,000 1,400,000 ------------- ------------- 199,200,000 159,300,000 ------------- ------------- COMMITMENTS AND CONTINGENCIES (SEE NOTE 9): STOCKHOLDERS' EQUITY: Common stock, $1 par value, 750,000 shares authorized, 184,937 shares issued ................................ 200,000 200,000 Additional paid-in capital ................................ 48,100,000 48,100,000 Retained earnings ......................................... 106,000,000 87,800,000 ------------- ------------- 154,300,000 136,100,000 Less 121,009 shares treasury stock, at cost ............... (22,600,000) (22,600,000) ------------- ------------- 131,700,000 113,500,000 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................ $ 372,000,000 $ 297,400,000 ============= =============
See accompanying notes to consolidated financial statements. 4 5 NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, --------------------------------------------------- 2000 1999 1998 ------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ........................................... $ 18,200,000 $ 4,500,000 $ (2,400,000) ------------- ------------- ------------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: (Gain)loss on sale of assets ........................ -- 900,000 (500,000) Depreciation, depletion and amortization ............ 31,500,000 31,300,000 22,800,000 Exploration costs ................................... 7,400,000 6,900,000 11,800,000 Deferred federal income tax provision (benefit) ..... (1,200,000) 100,000 (1,300,000) Deferred compensation expense ....................... 34,700,000 7,000,000 1,500,000 Changes in other assets and liabilities: Accounts receivable .............................. (6,000,000) (2,400,000) (900,000) Federal income taxes receivable/payable .......... (3,200,000) 1,600,000 (100,000) Prepaid expenses and other current assets ........ (300,000) 200,000 (800,000) Deferred charges - commodity hedges .............. (30,200,000) -- -- Gas imbalance receivable ......................... (100,000) 500,000 800,000 Accounts payable and accrued liabilities ......... 12,500,000 2,500,000 6,200,000 Royalties and revenue payable .................... 5,100,000 4,300,000 (2,100,000) Deferred compensation payable .................... (300,000) -- -- Deferred income - interest rate hedges ........... 2,300,000 -- -- Other noncurrent liabilities ..................... (100,000) -- -- ------------- ------------- ------------- Total adjustments ............................ 52,100,000 52,900,000 37,400,000 ------------- ------------- ------------- Net cash provided by operating activities .... 70,300,000 57,400,000 35,000,000 ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from the sale of assets ............................ 200,000 4,900,000 3,500,000 Acquisition, exploration and development of oil and gas properties ..................................... (69,500,000) (57,700,000) (120,500,000) Advances to operators ....................................... -- 200,000 (100,000) Net change in other fixed and noncurrent assets ............. (1,000,000) (400,000) (500,000) ------------- ------------- ------------- Net cash used by investing activities ........ (70,300,000) (53,000,000) (117,600,000) ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt ................................ 41,500,000 139,000,000 167,600,000 Repayment of long-term debt ................................. (37,000,000) (142,000,000) (82,500,000) Proceeds from issuance of stock ............................. -- -- 200,000 ------------- ------------- ------------- Net cash provided (used) by financing activities ..................... 4,500,000 (3,000,000) 85,300,000 ------------- ------------- ------------- NET INCREASE IN CASH AND CASH EQUIVALENTS ................... 4,500,000 1,400,000 2,700,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................................................ 6,300,000 4,900,000 2,200,000 ------------- ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF YEAR .................... $ 10,800,000 $ 6,300,000 $ 4,900,000 ============= ============= ============= Supplemental cash flow disclosure: Interest paid .......................................... $ 9,100,000 $ 9,700,000 $ 4,700,000 ============= ============= ============= Income taxes paid ...................................... $ 15,500,000 $ 1,000,000 $ -- ============= ============= =============
See accompanying notes to consolidated financial statements. 5 6 NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TREASURY STOCK, COMMON STOCK ADDITIONAL AT COST -------------------------- PAID-IN RETAINED ---------------------------- SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT ----------- ------------- ------------- ------------- ------------- ------------- BALANCE, DECEMBER 31, 1997 .................. 179,267 $ 200,000 $ 1,900,000 $ 85,700,000 121,009 $ 22,600,000 Stock issued in connection with reorganization of affiliated entities (See Note 3) ............................. 5,670 -- 19,200,000 -- -- -- Acquisition of minority interests by NORIC (See Note 3) ....................... -- -- 27,000,000 -- -- -- Net income (loss) ........................... -- -- -- (2,400,000) -- -- ----------- ------------- ------------- ------------- ------------- ------------- BALANCE, DECEMBER 31, 1998 .................. 184,937 200,000 48,100,000 83,300,000 121,009 22,600,000 Net income .................................. -- -- -- 4,500,000 -- -- ----------- ------------- ------------- ------------- ------------- ------------- BALANCE, DECEMBER 31, 1999 .................. 184,937 $ 200,000 48,100,000 87,800,000 121,009 22,600,000 Net income .................................. -- -- -- 18,200,000 -- -- ----------- ------------- ------------- ------------- ------------- ------------- BALANCE, DECEMBER 31, 2000 .................. 184,937 $ 200,000 $ 48,100,000 $ 106,000,000 121,009 $ 22,600,000 =========== ============= ============= ============= ============= =============
See accompanying notes to consolidated financial statements. 6 7 NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION North Central Oil Corporation, together with its wholly-owned subsidiaries ("North Central"), is a privately held independent oil and gas company incorporated under the laws of the state of Delaware in 1955. North Central is wholly-owned directly and indirectly by a single entity, NORIC Corporation ("NORIC"). North Central is in the business of acquiring, exploring, developing and producing oil and gas reserves. In addition, North Central is the manager of certain joint venture programs and affiliated entities (collectively, the "Affiliates"). In November 2000, NORIC's board of directors approved a definitive merger agreement whereby NORIC would be acquired by Pogo Producing Company. The transaction is conditioned upon, among other things, the approval of the stockholders of both companies and customary regulatory approvals. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of North Central, its wholly-owned subsidiaries and its proportionate share of the assets, liabilities, revenue and expenses of the Affiliates. These financial statements have been prepared in accordance with generally accepted accounting principles and all significant intercompany accounts and transactions have been eliminated. Additionally, certain reclassifications have been made to conform the prior year data to the current format. RESTATEMENT As discussed in Note 3, effective May 1, 1998, NORIC acquired the minority interests in North Central. North Central's financial statements for 1998 and 1999 were originally issued without including the purchase cost attributable to the acquisition of the minority interests by NORIC. The accompanying financial statements for 1998 and 1999 have been restated to record the purchase cost attributable to the acquisition of the minority interests in North Central's separate financial statements. This restatement resulted in a reduction of net income before federal income taxes of $4,700,000 and $5,600,000 and a reduction of net income of $3,100,000 and $3,700,000 for the years ended December 31, 1999 and 1998, respectively. CASH AND CASH EQUIVALENTS Cash in excess of North Central's daily requirements is generally invested in short-term, highly liquid investments with maturities of three months or less. Such investments are carried at cost, which approximates market, and are considered to be cash equivalents. PROPERTY AND EQUIPMENT Oil and gas properties are accounted for on the successful-efforts method whereby costs, including lease acquisition costs, lease and well equipment and intangible drilling costs associated with exploration efforts which result in the discovery of proved reserves and costs associated with development efforts, whether or not successful, are capitalized. If an exploratory well is determined to be dry, the capitalized exploratory costs are charged to expense. All other exploratory costs are charged to expense as incurred. Capitalized costs of oil and gas properties are amortized on a property-by-property basis using the unit-of-production method based on units of proved reserves. In the event that the net capitalized costs of an oil and gas property were to exceed its undiscounted future net cash flows, the carrying value of such property would be reduced to its fair value through a charge to current operations. 7 8 NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Costs of acquiring unevaluated oil and gas properties to be explored by North Central are capitalized and subsequently are transferred to producing oil and gas properties when a lease or other mineral interest becomes productive or are charged to expense at such time as the lease or other mineral interest is surrendered or determined to be unproductive. When assets are sold, the difference between the proceeds and the net book value is credited or charged to income as gain or loss. GAS IMBALANCES Gas imbalances result when joint owners of an oil and gas property take more or less production from the property than they are entitled to based on their ownership percentages in the property. North Central accounts for its share of such imbalances under the entitlements method whereby it records revenue for its share of production whether or not the gas is actually taken. Differences between the amounts taken and the amounts to which North Central is entitled are reflected as gas imbalance receivables or payables. STOCK-BASED COMPENSATION North Central measures the liability for its phantom share incentive compensation plan based on the change in the fair value of phantom shares granted over their respective grant price and recognizes compensation expense in the period in which the changes in value occur. The amounts accrued for this plan are reported as deferred compensation in the accompanying financial statements. INCOME TAXES Deferred federal income taxes are provided under the liability method on differences between the reported amount of an asset or liability in the financial statements and its tax reporting basis. Such differences arise primarily from the deduction for tax purposes of certain oil and gas exploration and development costs which are capitalized for financial reporting purposes. USE OF ESTIMATES The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, if any, at the date of the consolidated financial statements and reported amounts of revenue, costs and expenses during the reporting period. 3. REORGANIZATION OF AFFILIATED ENTITIES Effective May 1, 1998, North Central merged several affiliated entities into North Central, exchanged stock in North Central for assets, and NORIC acquired the minority interests in North Central. These transactions were consummated simultaneously as part of a tax-free reorganization in accordance with Internal Revenue Code Section 351. The following discusses each of the transactions separately and the impact on the financial statements. MERGER OF AFFILIATED ENTITIES The shareholders of several affiliated entities exchanged 100% of their common stock for common stock of NORIC. The assets and liabilities of these affiliated entities were then contributed to North Central in exchange for shares of North Central's common stock. These transactions represented a reorganization of entities under common control and were accounted for similar to a pooling-of-interests effective as of the closing date. The financial reporting basis of the assets and liabilities that were combined with North Central's accounts as of May 1, 1998 are as follows: 8 9 NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNT AMOUNT - ------------------------------------------------------------ ---------- Total current assets ....................................... $ 800,000 Net oil and gas properties, at cost, successful-efforts method of accounting .................................. 6,600,000 Other noncurrent assets .................................... 500,000 ---------- Total assets ..................................... $7,900,000 ========== Accounts payable and accrued liabilities -- current ........ $ 300,000 Other noncurrent liabilities ............................... 600,000 Deferred federal income taxes .............................. 1,200,000 ---------- Total liabilities ................................ $2,100,000 ========== Net book value ............................................. $5,800,000 ==========
North Central issued 2,050 shares of its $1.00 par value common stock to the affiliated entities in connection with these mergers and recorded additional paid-in-capital for the excess of the net book value of the assets acquired over the par value of the common stock issued. EXCHANGE OF COMMON STOCK FOR ASSETS NORIC acquired certain oil and gas assets and liabilities from a Subchapter S corporation owned by one of North Central's stockholders in exchange for stock in NORIC. This transaction represented a purchase where the assets and liabilities acquired were recorded at their fair market values. NORIC then contributed the acquired assets and liabilities to North Central in exchange for shares of North Central's common stock. The financial reporting basis of the assets and liabilities contributed to North Central as of May 1, 1998 are as follows:
ACCOUNT AMOUNT - ------------------------------------------------------- ----------- Total current assets .................................. $ 900,000 Net oil and gas properties ............................ 16,000,000 Other noncurrent assets ............................... 900,000 ----------- Total assets ................................ $17,800,000 =========== Accounts payable and accrued liabilities -- current ... $ 700,000 Other noncurrent liabilities .......................... 1,000,000 Deferred federal income taxes ......................... 2,700,000 ----------- Total liabilities ........................... $ 4,400,000 =========== Fair market value of net assets acquired .............. $13,400,000 ===========
North Central issued 3,620 shares of its $1.00 par value common stock to NORIC for the net assets listed above and recorded additional paid-in-capital for the excess of the fair market value of the net assets acquired over the par value of the common stock issued. ACQUISITION OF MINORITY INTERESTS NORIC exchanged 10,499 shares of its common stock for 10,499 shares of common stock of North Central owned by the minority interests. This transaction represented a purchase where the assets and liabilities acquired were recorded at their fair market values. The accompanying financial statements for 1998 and 1999 have been restated to record the purchase cost attributable to this acquisition in North Central's separate financial statements. The fair market value in excess of the net book value for the assets and liabilities acquired from the minority interests as of May 1, 1998 is as follows: 9 10 NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNT AMOUNT - -------------------------------------------------- ---------- Oil and gas properties ........................... $40,900,000 ----------- Total assets ........................... $40,900,000 =========== Deferred federal income taxes .................... $13,900,000 ----------- Total liabilities ...................... $13,900,000 =========== Net fair market value in excess of book value .... $27,000,000 ===========
4. TRANSACTIONS WITH RELATED PARTIES In the ordinary course of business, North Central incurs receivable and payable balances resulting from the payment of costs and expenses and collection of revenue on behalf of the Affiliates. North Central is reimbursed for certain costs incurred in managing its Affiliates. For the years ended December 31, 2000, 1999 and 1998, general and administrative expenses have been reduced by reimbursements of $15,000, $30,000 and $200,000, respectively. North Central retains the services of a law firm of which certain directors and former stockholders of North Central are partners. During the years ended December 31, 2000, 1999 and 1998, North Central recorded $300,000, $100,000 and $200,000, respectively, for legal services performed by such firm. 5. FINANCIAL INSTRUMENTS HEDGES North Central enters into various oil and gas hedging contracts with major financial institutions and purchasers of oil and gas products in managing its exposure to product price volatility. Under such contracts, North Central receives or makes payments based on the differential between fixed and variable prices for crude oil and natural gas, which amounts are recorded as oil and gas sales. North Central also utilizes financial instruments to sell a portion of its natural gas production at New York Mercantile Exchange prices less a basis differential rather than the local area index prices. Amounts received or paid under such hedging and financial instrument contracts reduced oil and gas sales by $29,200,000 in 2000, reduced oil and gas sales by $1,500,000 in 1999 and increased oil and gas sales by $1,500,000 in 1998. The contracts in place as of December 31, 1999 and 1998, had market values of $6,700,000 and $3,500,000, respectively. As discussed below, all hedging and financial instrument contracts were terminated during 2000. The production volumes and fixed prices received for 2000, 1999 and 1998 under North Central's various oil and gas swap contracts are summarized in the table below:
2000 1999 1998 -------------- -------------- -------------- Gas: Production sold, MMBtu ........ 17,800,000 17,200,000 8,400,000 Average gas price per unit .... $2.27 $2.27 $2.38
During 2000, North Central terminated its fixed price swap contracts for January 2001 through December 2003 at a cost of $30,100,000. North Central also terminated its basis contracts for September 2000 through December 2001 for proceeds of $49,000. The net cost paid to terminate these commodity hedges were recorded as deferred charges. These deferred charges are amortized over the remaining terms of the original contracts. 10 11 NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS North Central has also entered into interest rate swap contracts in order to mitigate the impact of changes in interest rates on its long-term debt. The notional principal amounts under such contracts prior to their termination discussed below, totaled approximately $80,000,000 in 2000, and were $81,300,000 and $58,000,000 at December 31, 1999 and 1998, respectively, with an effective interest rate of approximately 7%. Amounts received or paid under such contracts are recorded as interest expense and decreased such expense in 2000 by $200,000 and increased such expense in 1999 and 1998 by $300,000 and $200,000, respectively. In August 2000, North Central terminated all of its interest rate swap contracts resulting in the receipt of $2,600,000. North Central recorded deferred income which is being amortized over the remaining terms of the original contracts. Interest rate swap contracts in place as of December 31, 1999 and 1998 had market values of $3,100,000 and ($1,400,000), respectively. As North Central has terminated its commodity hedges and interest rate swaps as discussed above, North Central does not anticipate that the adoption of Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" will have a material impact on its financial statements. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject North Central to concentrations of credit risk consist primarily of cash and short-term investments, accounts receivable and financial instruments used in hedging activities. North Central generally places its cash and short-term investments with a single high-quality financial institution and enters into hedging contracts with high-quality financial institutions and major purchasers of oil and gas products. North Central does not believe that there are significant risks of nonperformance by any of these counterparties. Since North Central's joint interest partners and purchasers of North Central's oil and gas production are concentrated within the energy industry, credit risk exists with respect to accounts receivable. North Central controls its credit risk through credit approvals, credit limits and monitoring procedures. Additionally, North Central requires letters of credit and advance payments, if deemed necessary. The largest purchaser of North Central's oil and gas production (Enron Capital and Trade Resources Corporation) accounted for $51,400,000, $28,200,000, and $20,500,000 of total oil and gas sales for the years ended December 31, 2000, 1999 and 1998, respectively. The second largest purchaser of North Central's oil and gas production (Conoco, Inc. in 2000 and NGC Oil Trading and Transportation in 1999 and 1998) accounted for $26,800,000, $15,600,000 and $11,700,000 of total oil and gas sales for the years ended December 31, 2000, 1999 and 1998, respectively. North Central's third largest purchaser of oil and gas production (NGC Oil Trading and Transportation in 2000 and Conoco, Inc. in 1999) accounted for $20,300,000 and $13,600,000 of total oil and gas sales for the years ended December 31, 2000 and 1999, respectively. 6. FEDERAL INCOME TAXES As a result of the reorganization of affiliated entities, North Central became a member of a consolidated tax group with NORIC for federal income tax reporting purposes effective May 1, 1998. This required North Central to file a final income tax return for the four months ended April 30, 1998 resulting in a tax refund of $200,000 received in 1999. North Central generated a tax net operating loss of $2,500,000 and a percentage depletion carryforward of $300,000 for the period from May 1, 1998 to December 31, 1998. This tax loss and depletion carryforward were utilized in 1999 to offset federal taxable income generated in 1999. The carryforwards utilized in 1999 were recognized in the financial statements as a reduction of the deferred income tax provision for 1998 and a corresponding increase in the deferred income tax provision in 1999. 11 12 NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Also in 1999, North Central filed amended federal income tax returns for the 1995 and 1996 tax years. The amendments were filed claiming additional allowable depletion deductions which resulted in a $300,000 tax refund received in 1999. At December 31, 1999, North Central had alternative minimum tax credits of $1,200,000 from prior years whose utilization is governed by the separate return limitation year rules of the Internal Revenue Code. These alternative minimum tax credits were utilized in 2000 to reduce North Central's current federal income tax provision. The difference between the effective rate of the provision for income taxes and the amount which would be determined by applying the statutory federal income tax rate to income before the provision for income taxes is as follows:
2000 1999 1998 ------------ ------------ ------------ Federal income taxes computed at statutory rate................... $ 10,300,000 $ 2,400,000 $ (1,300,000) Increases (decreases) resulting from - Increase in tax bracket ......................................... 900,000 -- -- Statutory depletion in excess of tax basis ...................... (400,000) (200,000) (100,000) Other ........................................................... 300,000 -- -- ------------ ------------ ------------ Federal income tax provision (benefit) ............................ $ 11,100,000 $ 2,200,000 $ (1,400,000) ============ ============ ============
The components of the provision for federal income taxes are as follows:
2000 1999 1998 ------------ ------------ ------------ Current provision (benefit) ............... $ 12,300,000 $ 2,100,000 $ (100,000) Deferred provision (benefit) .............. (1,200,000) 100,000 (1,300,000) ------------ ------------ ------------ Federal income tax provision (benefit) .... $ 11,100,000 $ 2,200,000 $ (1,400,000) ============ ============ ============
7. LONG - TERM DEBT At December 31, 2000 and 1999, long-term debt consisted of borrowings of $124,500,000 and $120,000,000, respectively, under North Central's revolving credit facility. The carrying amounts for long-term debt approximate the fair value of such debt. In April 1999, North Central amended and restated its $140,000,000 credit facility increasing the available line of credit up to $175,000,000 and increasing the maximum margin charged over the Eurodollar rate from 1.25% to 1.50%. North Central used initial borrowings under the new facility to retire the amounts previously outstanding under its prior facility and finance the acquisition of producing oil and gas properties. North Central's $175,000,000 credit facility provides for revolving balances (subject to the borrowing base limitation) through November 2003, the maturity date, or to a later date if extended. As of December 31, 2000, North Central's borrowing base is $175,000,000. Pursuant to the credit agreement, borrowings are made using various interest rate options which include the Eurodollar rate plus a margin ranging from .875% to 1.50% or the current prime rate. At December 31, 2000 and 1999, advances totaling $124,500,000 and $120,000,000, respectively, were outstanding under the credit facility with various interest rates averaging 8.04% in 2000 and an interest rate of 7.8% in 1999. Subsequent to December 31, 2000, North Central decreased the amount of outstanding debt under its facility to $27,000,000, with proceeds received from Walton Corporation (a wholly-owned subsidiary of NORIC) under a $68,500,000 demand promissory note as discussed below and operating cash flows. The credit agreement discussed above contains various covenants that, among other things, set minimum net worth and interest coverage requirements, and limit the amount of additional indebtedness that can be incurred and the amount of annual dividends that can be paid. The agreement also provides for a semiannual borrowing base redetermination and the payment of various bank fees, including quarterly commitment fees. 12 13 NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The amount of available borrowing under the credit facility is reduced by the issuance of any letters of credit. At December 31, 2000, North Central had established one irrevocable standby letter of credit in the amount of $1,400,000 as security for the payment of certain abandonment costs. No amounts have been drawn under this letter of credit. In January 2001, North Central executed a $68,500,000 demand promissory note payable to Walton Corporation, a wholly-owned subsidiary of NORIC. The proceeds of the demand promissory note were used to retire existing advances on North Central's credit facility. North Central agreed to pay interest on the unpaid principal balance of the note at the rate of 5.75% per annum. 8. EMPLOYEE BENEFIT PLANS North Central sponsors a number of employee benefit and compensation plans, of which the principal ones are discussed below. The other plans do not have a significant impact on the financial statements, either individually or in the aggregate. MONEY PURCHASE PENSION PLAN North Central's pension plan is a defined contribution plan covering substantially all of its employees and the employees of its subsidiaries who have completed 60 days of service. North Central contributes seven percent of each covered employee's base salary to the plan, which amounts are funded on a current basis and invested at the direction of the employee in one or more mutual funds. Contributions vest to the employee over a five-year period of service. Contributions made by North Central and charged to expense in 2000, 1999 and 1998 were $300,000 each year. 401(k) PLAN North Central has a voluntary 401(k) savings plan covering substantially all of its employees and the employees of its subsidiaries who have completed 60 days of service. The plan allows eligible employees to make contributions of up to six percent of their salary before federal income taxes. North Central matches such contributions and both North Central and employee contributions are invested at the direction of the employee in one or more mutual funds. The employee vests in North Central's contributions over a five-year period of service. Contributions made by North Central and charged to expense in 2000, 1999 and 1998 were $300,000, $300,000 and $200,000, respectively. OTHER POSTRETIREMENT PLANS North Central sponsors unfunded postretirement benefit plans for all employees who retired prior to 1996. Such plans provide medical and life insurance benefits for retired employees on a contributory basis. The accrued postretirement benefit cost included in other noncurrent liabilities in North Central's balance sheet at December 31, 2000 and 1999 was $1,200,000 each year. Net periodic postretirement benefit cost for the years ended December 31, 2000, 1999 and 1998 was ($1,000), $6,000 and $29,000, respectively. PHANTOM SHARE PLAN Effective January 1, 1996, North Central instituted a phantom share plan to provide incentive compensation to certain officers and employees of North Central. Under this plan, the participants are entitled to receive the increase in value of granted phantom shares during vesting periods that run through December 31, 2001 to December 31, 2003. North Central has granted approximately 6,600 phantom shares as of December 31, 2000, resulting in a liability for future compensation of $45,100,000 that was accrued as of December 31, 2000. The pending merger with Pogo Producing Company will result in immediate vesting of phantom shares granted under North Central's phantom share plan. Based on the value of the merger consideration and 13 14 NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 100% vesting of granted phantom shares, North Central's liability for future compensation under the phantom share plan is currently estimated to be $51,000,000. The merger agreement provides that amounts payable under the phantom share plan shall be paid by North Central immediately prior to the closing of the merger. 9. COMMITMENTS AND CONTINGENCIES LEASE OBLIGATIONS North Central leases office space pursuant to a lease agreement that was set to terminate on December 31, 2000. In June 2000, North Central renewed its office lease agreement and extended the primary term of the lease until December 31, 2001, with an option to extend the term of the lease for an additional year. In August 2000, North Central leased additional space for a primary term of 11 months. Future noncancelable payments under the office lease are $400,000 for 2001. Rent expense for the years ended December 31, 2000, 1999 and 1998 was $400,000, $300,000 and $300,000, respectively. North Central leases compressors used in its oil and gas production operations. The terms of the leasing agreements provide for seven-year base terms, extension of the base term and purchase options available at the end of the leases. Future minimum rental payments are $1,000,000 each year for 2001 and 2002, $900,000 for 2003, $600,000 for 2004 and $400,000 for 2005. Amounts charged to expense for the years ended December 31, 2000, 1999 and 1998 were $1,000,000, $1,000,000 and $600,000, respectively. LITIGATION There are various lawsuits and claims against North Central, none of which, in the opinion of management, will individually or in the aggregate have a material adverse effect on North Central's financial position or results of operations. 10. SUPPLEMENTARY INFORMATION ON OIL AND GAS OPERATIONS The following supplementary information on North Central's oil and gas operations is presented in accordance with Statement of Financial Accounting Standards No. 69, "Disclosures About Oil and Gas Producing Activities." CAPITALIZED COSTS
DECEMBER 31, --------------------------------------------------- 2000 1999 1998 ------------- ------------- ------------- Proved properties ........................... $ 436,700,000 $ 375,300,000 $ 329,400,000 Unevaluated properties ...................... 8,500,000 8,000,000 10,600,000 ------------- ------------- ------------- Total capitalized costs ..................... 445,200,000 383,300,000 340,000,000 Less accumulated depreciation, depletion and amortization .......................... (139,300,000) (108,600,000) (84,300,000) ------------- ------------- ------------- Net capitalized costs ....................... $ 305,900,000 $ 274,700,000 $ 255,700,000 ============= ============= =============
COSTS INCURRED IN PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT ACTIVITIES
YEARS ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Acquisitions -- Proved properties ......... $ -- $ 25,700,000 $ 95,000,000 Minority interests ........ -- -- 40,900,000 Unevaluated properties .... 2,300,000 700,000 5,000,000 Exploration costs ........... 12,500,000 8,900,000 10,000,000 Development costs ........... 54,700,000 22,400,000 33,200,000 ------------ ------------ ------------ $ 69,500,000 $ 57,700,000 $184,100,000 ============ ============ ============
14 15 NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The amount shown for costs incurred related to the acquisition of the minority interests includes $13,900,000 recorded for deferred federal income taxes payable. RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES
YEARS ENDED DECEMBER 31, ---------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Revenue from oil and gas producing activities .... $144,900,000 $ 88,000,000 $ 57,000,000 ------------ ------------ ------------ Production costs ................................. 25,700,000 21,000,000 16,300,000 Exploration costs ................................ 7,400,000 6,900,000 11,800,000 Depreciation, depletion and amortization ......... 30,900,000 30,600,000 22,000,000 ------------ ------------ ------------ 64,000,000 58,500,000 50,100,000 ------------ ------------ ------------ Income from producing activities before federal income taxes ........................... 80,900,000 29,500,000 6,900,000 Federal income tax provision ..................... 30,600,000 9,700,000 2,500,000 ------------ ------------ ------------ Results of oil and gas producing activities ...... $ 50,300,000 $ 19,800,000 $ 4,400,000 ============ ============ ============
PER UNIT SALES PRICE AND COSTS (UNAUDITED)
YEARS ENDED DECEMBER 31, ---------------------------- 2000 1999 1998 ------ ------ ------ Average unit sales price: Oil (Bbl) ........................................... $28.29 $17.01 $12.57 ====== ====== ====== Gas (Mcf) ........................................... $ 3.05 $ 2.17 $ 2.23 ====== ====== ====== Net equivalent, thousand cubic feet of gas (6:1) .... $ 3.32 $ 2.30 $ 2.19 ====== ====== ====== Average unit production cost: Net equivalent, thousand cubic feet of gas (6:1) .... $ .59 $ .55 $ .62 ====== ====== ======
RESERVE QUANTITY INFORMATION (UNAUDITED) North Central's proved oil and gas reserves are located principally in the United States with an immaterial amount located in Canada. The quantities in the following table are based upon North Central's estimates as reviewed by independent petroleum engineers. Such estimates are inherently imprecise and may be subject to substantial revisions.
OIL (Bbl) GAS (Mcf) -------------------------------------------- ------------------------------------------ YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31, -------------------------------------------- ------------------------------------------ 2000 1999 1998 2000 1999 1998 ------------ ------------ ------------ ------------ ------------ ------------ Proved reserves at beginning of year ............. 9,100,000 9,500,000 10,300,000 377,700,000 332,200,000 185,700,000 Revisions of previous estimates ..................... 1,400,000 900,000 400,000 73,400,000 (4,900,000) (4,600,000) Extensions, discoveries and other additions ........... 800,000 100,000 200,000 61,800,000 39,100,000 10,800,000 Production ...................... (1,200,000) (1,300,000) (1,400,000) (36,500,000) (30,600,000) (18,000,000) Purchases of reserves in-place ...................... -- -- 300,000 -- 42,900,000 161,100,000 Sales of reserves in-place ...... -- (100,000) (300,000) -- (1,000,000) (2,800,000) ------------ ------------ ------------ ------------ ------------ ------------ Proved reserves at end of year .......................... 10,100,000 9,100,000 9,500,000 476,400,000 377,700,000 332,200,000 ============ ============ ============ ============ ============ ============ Proved developed reserves -- Beginning of year ............. 8,400,000 9,000,000 9,300,000 311,400,000 270,500,000 162,400,000 ============ ============ ============ ============ ============ ============ End of year ................... 9,100,000 8,400,000 9,000,000 366,600,000 311,400,000 270,500,000 ============ ============ ============ ============ ============ ============
15 16 NORTH CENTRAL OIL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STANDARDIZED MEASURE OF DISCOUNTED FUTURE CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES (UNAUDITED) The following presentation of the standardized measure of discounted future net cash flows is not intended to be a measure of the fair market value of North Central's oil and gas properties nor an estimate of the present value of actual future cash flows to be obtained as a result of their development and production. Instead, it is intended to provide a somewhat better means for comparing the value of North Central's proved reserves at a given time with those of other oil and gas producing companies than is provided by a simple comparison of raw proved reserve quantities.
YEARS ENDED DECEMBER 31, --------------------------------------------------------- 2000 1999 1998 --------------- --------------- --------------- Future cash inflows .................................... $ 5,002,100,000 $ 1,016,500,000 $ 747,400,000 Less future production costs ........................... (545,500,000) (321,700,000) (264,100,000) Less future development costs .......................... (104,400,000) (66,700,000) (44,800,000) --------------- --------------- --------------- Future net cash flows before income tax ................ 4,352,200,000 628,100,000 438,500,000 Future income taxes .................................... (1,470,100,000) (158,300,000) (98,000,000) --------------- --------------- --------------- Future net cash flows .................................. 2,882,100,000 469,800,000 340,500,000 10% discount factor .................................... (1,430,600,000) (201,000,000) (140,400,000) --------------- --------------- --------------- Standardized measure of discounted future net cash flows .................................................. $ 1,451,500,000 $ 268,800,000 $ 200,100,000 =============== =============== ===============
The principal sources of changes in the standardized measure of discounted future net cash flows are as follows:
YEARS ENDED DECEMBER 31, --------------------------------------------------------- 2000 1999 1998 --------------- --------------- --------------- Standardized measure -- beginning of year ........ $ 268,800,000 $ 200,100,000 $ 138,300,000 Sales, net of production costs ................... (119,200,000) (67,000,000) (40,700,000) Net change in prices, net of production costs .... 1,355,900,000 74,900,000 (25,700,000) Extensions, discoveries and other additions, net of future production and development costs .............................. 358,200,000 21,100,000 15,100,000 Changes in estimated future development costs .......................................... (4,400,000) 3,100,000 (7,100,000) Revisions of quantity estimates .................. 343,800,000 100,000 (1,300,000) Accretion of discount ............................ 32,300,000 22,500,000 17,500,000 Net change in income taxes ....................... (641,600,000) (28,900,000) 11,600,000 Purchases of reserves in-place ................... -- 43,400,000 93,400,000 Sales of reserves in-place ....................... -- (700,000) (5,600,000) Changes in production rates (timing) and other .......................................... (142,300,000) 200,000 4,600,000 --------------- --------------- --------------- Standardized measure -- end of year .............. $ 1,451,500,000 $ 268,800,000 $ 200,100,000 =============== =============== ===============
16 EX-99.2 8 h84916ex99-2.txt UNAUDITED PRO FORMA FINANCIAL STATEMENTS 1 EXHIBIT 99.2 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION The following unaudited pro forma condensed consolidated financial statements give effect to the merger of NORIC Corporation, a New York corporation ("NORIC"), the parent company of North Central Oil Corporation, a Delaware corporation ("North Central"), with and into Pogo Producing Company, a Delaware corporation ("Pogo"), with Pogo remaining as the surviving corporation. Since NORIC has disposed of all of its non-oil and gas assets and operations other than its investment in North Central and cash and cash equivalents generated from the disposition of the non-oil and gas assets, the following unaudited pro forma condensed consolidated financial statements are based on the historical financial statements for North Central adjusted to reflect approximately $18,300,000 of cash and cash equivalents of NORIC. The unaudited pro forma condensed consolidated statement of income presents the combined results of operations of Pogo and North Central as if the proposed merger had occurred on January 1, 2000. The unaudited pro forma condensed consolidated balance sheet presents the combined financial position of Pogo and North Central (including NORIC cash and cash equivalents) as if the proposed merger had occurred as of December 31, 2000. Based on the merger consideration guidelines, including subsequent purchase price adjustments, 12.6 million shares were issued to former NORIC shareholders at an assumed price for pro forma purposes of $28.88. Cash consideration paid, after the purchase price adjustment, consisted of $344.7 million. After the closing, former NORIC stockholders own approximately 24% of Pogo's outstanding common stock. The accompanying unaudited pro forma condensed consolidated financial statements reflect the acquisition of NORIC by Pogo under the purchase method of accounting. The final determination of the allocation of the purchase price to the assets acquired and liabilities assumed based on their respective fair values has not yet been made. Accordingly, the purchase accounting adjustments made in connection with the development of the unaudited pro forma condensed consolidated financial statements are preliminary and have been made solely for purposes of developing the pro forma financial information. The unaudited pro forma condensed consolidated financial statements are presented for illustration purposes only, and do not necessarily indicate the operating results or financial position that would have occurred if the merger had been completed as of December 31, 2000 or January 1, 2000. The unaudited pro forma condensed consolidated financial statements are not necessarily indicative of future operating results or of the financial position of the combined enterprise. These unaudited pro forma condensed consolidated financial statements should be read in conjunction with the historical consolidated financial statements, including the notes thereto, of Pogo and North Central filed previously with the Securities and Exchange Commission or included elsewhere in this current report on Form 8-K, including the information filed in the definitive proxy statement relating to the merger on February 6, 2001. The unaudited condensed consolidated financial statements do not reflect any cost savings or other synergies anticipated as a result of the merger, nor do they reflect any future merger-related expenses. 1 2 POGO PRODUCING COMPANY AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2000 (EXPRESSED IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NORTH PRO FORMA PRO FORMA POGO CENTRAL ADJUSTMENTS COMBINED -------- ------- ----------- --------- Revenues: Oil and gas sales.......................... $479,202 $144,900 $ (100)(a) $624,002 Pipeline sales and other................... 15,113 300 15,413 Gains (losses) on sales.................... 3,676 -- 3,676 -------- -------- --------- -------- Total.............................. 497,991 145,200 (100) 643,091 -------- -------- --------- -------- Operating Costs and Expenses: Lease operating............................ 93,640 27,100 120,740 Pipeline operating and natural gas purchases............................... 15,090 -- 15,090 General and administrative................. 34,568 40,000 (34,400)(b) 40,168 Exploration................................ 15,291 1,200 16,491 Dry hole and impairment.................... 28,608 6,200 34,808 (31,500)(c) Depreciation, depletion and amortization... 131,151 31,500 72,700 (d) 203,851 -------- -------- --------- -------- Total.............................. 318,348 106,000 6,800 431,148 -------- -------- --------- -------- Operating Income (Loss)...................... 179,643 39,200 (6,900) 211,943 Interest: Charges.................................... (34,064) (10,300) (20,200)(e) (64,564) Income..................................... 2,634 400 3,034 Capitalized................................ 20,918 -- 20,918 Minority Interest............................ (9,965) -- (9,965) Foreign Currency Transaction Gain............ (3,174) -- (3,174) -------- -------- --------- -------- Income (Loss) Before Taxes................... 155,992 29,300 (27,100) 158,192 Income Tax Benefit (Expense)................. (66,969) (11,100) 9,485 (f) (68,584) -------- -------- --------- -------- Net Income (Loss) Before Cumulative Effect of Change in Accounting Principle.......... $ 89,023 $ 18,200 $ (17,615) $ 89,608 ======== ======== ========= ======== EARNINGS (LOSS) PER COMMON SHARE Basic........................................ $ 2.20 $ 1.69(l) Diluted...................................... $ 1.99 $ 1.48(l) WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND POTENTIAL COMMON SHARES OUTSTANDING: Basic........................................ 40,445 12,616 (l) 53,061 Diluted...................................... 50,155 12,616 (l) 62,771
See accompanying notes to unaudited pro forma condensed combined financial statements. 2 3 POGO PRODUCING COMPANY AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2000 (EXPRESSED IN THOUSANDS)
NORTH PRO FORMA PRO FORMA POGO CENTRAL ADJUSTMENTS COMBINED ----------- --------- ----------- ----------- CURRENT ASSETS: Cash and cash equivalents............. $ 81,510 $ 10,800 $ 18,300 (i) $ 44,810 (65,800)(j) Other current assets.................. 133,162 20,400 153,562 ----------- --------- --------- ----------- Total current assets.......... 214,672 31,200 (47,500) 198,372 ----------- --------- --------- ----------- PROPERTY AND EQUIPMENT (AT COST): Oil and gas properties (successful efforts 883,800 (l) method)............................ 1,853,318 445,200 (143,600)(k) 3,038,718 Pipelines and other fixed assets...... 22,352 5,500 27,852 ----------- --------- --------- ----------- 1,875,670 450,700 740,200 3,066,570 Less -- Accumulated depreciation, depletion, and amortization........ (1,064,016) (143,600) 143,600 (k) (1,064,016) ----------- --------- --------- ----------- 811,654 307,100 883,800 2,002,554 ----------- --------- --------- ----------- OTHER ASSETS: Deferred charges -- commodity hedges............................. -- 30,200 (30,200)(g) -- Gas imbalance receivable.............. -- 2,100 (2,100)(a) -- Other noncurrent assets............... 57,196 1,400 58,596 ----------- --------- --------- ----------- 57,196 33,700 (32,300) 58,596 ----------- --------- --------- ----------- $ 1,083,522 $ 372,000 $ 804,000 $ 2,259,522 =========== ========= ========= =========== CURRENT LIABILITIES..................... $ 106,429 $ 41,100 $ 147,529 OTHER LIABILITIES: $ (65,800)(j) Long-term debt........................ 365,000 124,500 355,000 (l) 778,700 Deferred federal income taxes......... 95,453 25,700 330,455 (l) 451,608 Deferred compensation................. -- 45,400 (45,400)(b) -- Deferred income -- interest rate hedges............................. -- 2,300 (2,300)(g) -- Other noncurrent liabilities.......... 13,456 1,300 (600)(h) 14,156 ----------- --------- --------- ----------- 580,338 240,300 571,355 1,391,993 ----------- --------- --------- ----------- MINORITY INTEREST....................... 144,913 -- -- 144,913 ----------- --------- --------- ----------- SHAREHOLDERS' EQUITY.................... 358,271 131,700 232,645 (l) 722,616 ----------- --------- --------- ----------- $ 1,083,522 $ 372,000 $ 804,000 $ 2,259,522 =========== ========= ========= ===========
See accompanying notes to unaudited pro forma condensed combined financial statements. 3 4 POGO PRODUCING COMPANY AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS a. To conform North Central's method of accounting for natural gas production imbalances to be consistent with Pogo's method. Pogo follows the sales method of accounting for production imbalances whereby Pogo recognizes revenues on production it has taken and delivered to its purchasers notwithstanding its ownership percentage. North Central has historically followed the entitlements method whereby North Central recognized revenue for its share of production whether or not the gas is actually taken by North Central's purchasers. b. To eliminate the North Central deferred compensation liability and related expense pursuant to the terms of the merger agreement. The merger agreement required that the obligation related to North Central's phantom share plan be settled immediately prior to the merger. Pogo will not offer benefits to employees of North Central after the merger which are comparable to, or which would replace, the phantom share plan. c. To record the reversal of North Central's historical depreciation, depletion and amortization expense. d. To record depreciation, depletion and amortization expense based on the estimated fair value of North Central's properties and equipment. e. To record interest expense on the acquisition debt to be funded using Pogo's revolving bank credit agreement at Pogo's current interest rate of 7%. A 1/8% increase or decrease in the interest rate would change interest expense $400,000 for the year ended December 31, 2000. f. To record income tax effect on the pro forma adjustments based on the 35% statutory income tax rates. g. To reflect the elimination of North Central's deferred realized loss from commodity hedging activities and deferred realized gain from interest rate hedging activities in connection with the purchase price allocation in accordance with the purchase method of accounting. See footnote (l). h. To adjust North Central's accrued retirement obligation to estimated fair value in accordance with the purchase method of accounting. See footnote (l). i. To reflect the approximately $18,300,000 in cash and cash equivalents of NORIC that were acquired in the merger. See footnote (l). j. To reduce Pogo cash and acquisition debt for the amount of Pogo cash on hand used to satisfy a portion of the cash consideration in the merger. See footnote (l). k. To reverse historical North Central accumulated depreciation, depletion and amortization in connection with the purchase price allocation in accordance with the purchase method of accounting. See footnote (l). 4 5 l. To record purchase accounting adjustments related to the allocation of the purchase price of the acquisition of NORIC, including estimated merger costs, to assets acquired and liabilities assumed in accordance with the purchase method of accounting. The following is a calculation of the fair value of Pogo common stock issued to NORIC shareholders in connection with the merger (expressed in thousands, except per share amounts). FAIR VALUE OF COMMON STOCK: Number of shares of common stock issued in connection with the merger .......................................... 12,615,816 Pogo's common stock price (the average of the closing prices for March 9-13, 2001) ............................. $ 28.88 ----------- Fair value of common stock issued........................... $ 364,345 ===========
The following is an allocation of the purchase price to assets acquired, and liabilities incurred and assumed, based on their estimated fair values (expressed in thousands). ALLOCATION OF PURCHASE PRICE: NORIC cash and cash equivalents............................. $ 18,300 Other current assets........................................ 31,200 Properties and equipment.................................... 1,190,900 Other noncurrent assets..................................... 1,400 Current liabilities......................................... (41,100) North Central long-term debt................................ (124,500) Additional acquisition indebtedness (including $10,300 of estimated merger related costs)........................... (355,000) Deferred income taxes....................................... (356,155) Other non-current liabilities............................... (700) ----------- Shareholders' equity........................................ $ (364,345) ===========
The purchase accounting adjustments, including allocation, is subject to changes in the actual merger costs incurred. 5 -----END PRIVACY-ENHANCED MESSAGE-----