-----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, TlFopNEI79FVw1SyXkRG25PZerZfDBl29FK1WzmdRkezJpuen7HDyfMvEZ4mJRBS uynbffSwFyBwDc8R0AhXpg== 0001035704-97-000114.txt : 19970815 0001035704-97-000114.hdr.sgml : 19970815 ACCESSION NUMBER: 0001035704-97-000114 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GULF CANADA RESOURCES LTD CENTRAL INDEX KEY: 0000316456 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 980086499 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-01366 FILM NUMBER: 97663550 BUSINESS ADDRESS: STREET 1: ONE NORWEST CTR STREET 2: 1700 LINCOLN STE 5000 CITY: DENVER STATE: CO ZIP: 80203 BUSINESS PHONE: 3038133800 MAIL ADDRESS: STREET 1: ONE NORWEST CTR STREET 2: 1700 LINCOLN STE 5000 CITY: DENVER STATE: CO ZIP: 80203 10-Q 1 FORM 10-Q FOR QUARTER ENDED JUNE 30, 1997 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 -------------------------------------------- OR ( ) TRANSITION PERIOD REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to _____________ COMMISSION FILE NUMBER 316456 GULF CANADA RESOURCES LIMITED (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CANADA (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) 98-0086499 (I.R.S. EMPLOYER IDENTIFICATION NO.) ONE NORWEST CENTER 1700 LINCOLN STREET, SUITE 5000 DENVER, COLORADO 80203-4525 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) TELEPHONE (303) 813-3800 (REGISTRANT'S TELEPHONE CODE, INCLUDING AREA CODE) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. (X) YES ( ) NO ON AUGUST 11, 1997, THERE WERE 269,540,646 ORDINARY SHARES ISSUED AND OUTSTANDING. 2 GULF CANADA RESOURCES LIMITED INDEX PAGE NO. -------- PART I. FINANCIAL INFORMATION: Item 1. Unaudited Consolidated Financial Statements 3-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-10 PART II. OTHER INFORMATION 11-13 2 3 PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements GULF CANADA RESOURCES LIMITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
JUNE 30, 1997 Dec. 31, 1996 - -------------------------------------------------------------------------------------------------------------- (millions of Canadian dollars) (UNAUDITED) ============================================================================================================== ASSETS CURRENT Cash and short-term investments $ 44 $ 53 Accounts receivable 275 299 Other 108 82 - -------------------------------------------------------------------------------------------------------------- 427 434 INVESTMENTS, DEFERRED CHARGES AND OTHER ASSETS 363 375 PROPERTY, PLANT AND EQUIPMENT 5,725 3,413 - -------------------------------------------------------------------------------------------------------------- $ 6,515 $ 4,222 ============================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT Short-term loans $ 1,022 $ 223 Accounts payable 316 277 Current portion of other long-term liabilities 24 22 Other 121 90 - -------------------------------------------------------------------------------------------------------------- 1,483 612 LONG-TERM DEBT 2,036 1,398 OTHER LONG-TERM LIABILITIES 215 187 DEFERRED INCOME TAXES 1,298 763 MINORITY INTEREST 32 - -------------------------------------------------------------------------------------------------------------- 5,064 2,960 - -------------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Share capital Senior preference shares 577 577 Ordinary shares 846 599 Contributed surplus 73 80 Retained earnings (deficit) (67) (20) Foreign currency translation adjustment 22 26 - -------------------------------------------------------------------------------------------------------------- 1,451 1,262 - -------------------------------------------------------------------------------------------------------------- $ 6,515 $ 4,222 ==============================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of this statement. 3 4 GULF CANADA RESOURCES LIMITED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) AND RETAINED EARNINGS (DEFICIT)
Three months Six months ended June 30, ended June 30, 1997 1996 1997 1996 ========================================================================================================== (millions of Canadian dollars) (Unaudited) EARNINGS (LOSS) REVENUES Net oil and gas $ 290 $ 202 $ 548 $ 397 Net gain on asset disposals 41 5 48 5 Other 11 10 35 20 - ------------------------------------------------------------------------------------------------------------ 342 217 631 422 - ------------------------------------------------------------------------------------------------------------ EXPENSES Operating - production 101 75 182 140 - other 3 4 5 6 Exploration 30 11 51 39 General and administrative 16 13 29 26 Depreciation, depletion and amortization 127 52 226 141 Restructuring charges 4 0 5 0 Finance charges, net 56 33 111 21 Income tax expense 19 11 58 24 - ------------------------------------------------------------------------------------------------------------ 356 199 667 397 - ------------------------------------------------------------------------------------------------------------ EARNINGS (LOSS) FOR THE PERIOD $ (14) $ 18 $ (36) $ 25 ============================================================================================================ RETAINED EARNINGS (DEFICIT) BALANCE, BEGINNING OF PERIOD $ (48) $ 12 $ (20) $ 14 Earnings (loss) for the period (14) 18 (36) 25 Dividends declared on preference shares (5) (7) (11) (16) - ------------------------------------------------------------------------------------------------------------ BALANCE, END OF PERIOD $ (67) $ 23 $ (67) $ 23 ============================================================================================================ PER SHARE INFORMATION EARNINGS (LOSS) (dollars per share) $ (0.07) $ 0.05 $ (0.18) $ 0.04 ============================================================================================================
Earnings (loss) per share is after deduction of senior preference share dividends (but does not include the special dividends for payment of arrears which have been charged to contributed surplus). This per share amount was calculated based upon the following: Average number of ordinary share outstanding:
(millions) 268.8 241.8 266.7 232.5 ==========================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of this statement. 4 5 GULF CANADA RESOURCES LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1997 1996 ================================================================================================= (millions of Canadian dollars) (Unaudited) OPERATING ACTIVITIES EARNINGS (LOSS) FOR THE PERIOD $ (36) $ 25 NON-CASH ITEMS INCLUDED IN EARNINGS (LOSS): Depreciation, depletion and amortization 226 141 Net gain on asset disposals (48) (5) Exploration expense 51 39 Deferred income taxes 37 16 Other 16 0 - ------------------------------------------------------------------------------------------------- CASH GENERATED FROM OPERATIONS 246 216 Other long-term liabilities (7) (9) Changes in non-cash working capital 55 (12) Other, net 1 (2) - ------------------------------------------------------------------------------------------------- 295 193 - ------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Proceeds on asset disposals 73 35 Acquisitions (1,066) (4) Capital expenditures and exploration expenses (551) (338) Changes in non-cash working capital (15) (39) Other, net 72 (2) - ------------------------------------------------------------------------------------------------- (1,487) (348) - ------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Short-term loans 791 40 Proceeds from issue of long-term debt 429 167 Long-term debt repayments (260) (169) Issue of equity 240 133 Regular dividends declared on preference shares (11) (16) Special dividends declared on preference shares (7) (5) Changes in non-cash working capital 0 (1) Other 1 0 - ------------------------------------------------------------------------------------------------- 1,183 149 - ------------------------------------------------------------------------------------------------- DECREASE IN CASH AND CASH EQUIVALENTS (9) (6) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 53 14 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 44 $ 8 =================================================================================================
The accompanying Notes to Consolidated Financial Statements are an integral part of this statement. 5 6 GULF CANADA RESOURCES LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The interim financial information and notes thereto should be read in conjunction with the Company's latest annual report to the shareholders. The unaudited financial statements contained herein are prepared in accordance with U.S. generally accepted accounting principles; whereas the latest annual report was prepared in accordance with Canadian generally accepted accounting principles. As such, certain amounts in the financial statements contained herein may appear materially different from amounts contained in the latest annual report and the financial results for the six months ended June 30, 1997 prepared under Canadian generally accepted accounting principles. The results of operations for the three and six month periods ended June 30, 1997 are not necessarily indicative of results to be expected for the entire year. 2. ACQUISITION OF CLYDE PETROLEUM PLC In the first quarter of 1997 Gulf completed the acquisition of Clyde Petroleum plc (Clyde) for a net cash cost of $1,055 million and the assumption of $449 million of long-term debt ($308 million net of cash). The acquisition has been accounted for by the purchase method and, accordingly, the purchase price has been allocated to Clyde's assets and liabilities based on their fair values. A value of $1,592 million has been assigned to property, plant and equipment; $449 million of the difference has been allocated to long-term debt and the remainder to other assets and liabilities. The acquisition was financed with the issue of 23 million Gulf ordinary shares for net proceeds of $232 million (US$173 million) on January 15, 1997; and with US$225 million of 8.25 percent senior notes due 2017 issued on March 21, 1997 for net proceeds of $307 million. Gulf also drew $839 million on a borrowing facility to partially finance the acquisition, to repay $223 million of other short-term debt and for other operating requirements. As a result of the acquisition Gulf also acquired a US$200 million long-term bank facility within Clyde and repaid US$150 million of privately placed notes. The following presents the pro forma results of operations for the six months ended June 30, 1997 and the comparative six months ended June 30, 1996, as though the companies had combined as of January 1, 1997 and 1996, respectively.
Six months ended June 30, 1997 1996 =========================================================================================== (millions of Canadian dollars, except per share amounts) (unaudited) NET OIL AND GAS REVENUES $ 609 $ 558 EARNINGS (LOSS) (27) 49 EARNINGS (LOSS) PER ORDINARY SHARE $(0.14) $0.13
3. ACQUISITION AGREEMENT In July 1997, Gulf and Stampeder Exploration Ltd. entered into an agreement for Gulf to acquire all of the outstanding shares of Stampeder. Each Stampeder share will be exchanged for 0.69124 6 7 of an ordinary share of Gulf. The agreement has been approved by the Boards of Directors of Gulf and Stampeder and is subject to 66 2/3 percent of Stampeder shares being tendered to the offer. 4. CAPITALIZATION On July 18, Gulf restructured and syndicated the majority of the short-term portion of its debt into a $966 million (US$700 million) long-term bank facility. As a result of this restructuring, Gulf reduced its short-term debt maturities to $332 million (US$240 million). 5. CONTINGENCIES AND OTHER MATTERS As part of Gulf's upstream operations and as a result of certain discontinued downstream operations, Gulf has ongoing site restoration and remediation responsibilities. Site restoration costs within upstream operations involve the surface clean- up and reclamation of wellsites and field production facilities to ensure that they can be safely returned to appropriate alternative land uses. In addition, over the long-term, certain plant facilities will require decommissioning which will involve dismantling of facilities as well as the decontamination and reclamation of these lands. Total anticipated future costs, given Gulf's current inventory of wells and facilities, is in the order of $220 million over the next twenty years. Gulf has accrued $79 million ($11 million as current) for future upstream site restoration costs and continues to accrue these costs on a consistent basis. There have been no other significant subsequent developments relating to the downstream potential liabilities since year end, and as such the estimated costs and associated accrual have not changed materially since year end. Gulf is involved in various litigation, regulatory and other environmental matters in the ordinary course of business. In management's opinion, an adverse resolution of these matters would not have a material impact on operations or financial position. 6. ISSUANCE OF NEW STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS In February 1997 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128. "Earnings Per Share", which is effective for interim periods and annual financial statements ending after December 15, 1997. Early adoption of the statement is not permitted. The Company believes that adoption of the statement will not have a material effect on its earnings per share disclosures. 7 8 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations FORWARD LOOKING STATEMENTS This document includes "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934 ("Exchange Act"). All statements other than statements of historical facts included in this document, including without limitation, statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding Gulf's financial position, estimated quantities and net present values of reserves, business strategy, plans and objectives of management of Gulf for future operations and covenant compliance, are forward-looking statements. Although Gulf believes that the assumptions upon which such forward-looking statements are based are reasonable, it can give no assurances that such assumptions will prove to have been correct. Important factors that could cause actual results to differ materially from Gulf's expectations ("Cautionary Statements") are disclosed below and elsewhere in this document. All subsequent written and oral forward-looking statements attributable to Gulf or persons acting on its behalf are expressly qualified by the Cautionary Statements. FINANCIAL REVIEW The following discussion and analysis has been prepared based upon the financial results of operations as presented in this document, which were prepared in accordance with U.S. generally accepted accounting principles. A discussion and analysis of financial results of operations for the same period prepared in accordance with Canadian generally accepted accounting principles has been distributed to Gulf's shareholders. All dollar amounts set forth herein are in Canadian dollars, except where otherwise indicated. Gulf follows the successful efforts method of accounting for oil and gas exploration and development costs. The initial acquisition costs of oil and gas properties and the costs of drilling and equipping successful exploratory wells are capitalized. The costs of unsuccessful exploration wells are charged to earnings. All other exploration costs are charged to earnings as incurred. All development costs, including the costs of liquid injectants used in enhanced oil recovery projects, are capitalized. Maintenance and repairs are charged to earnings; renewals and betterments, which extend the economic life of the assets, are capitalized. Capitalized costs of proved oil and gas properties are amortized using the unit-of-production method based on estimated proved oil and gas reserves. Depreciation of plant and equipment is based on estimated remaining useful lives of the assets using either the straight-line method or the unit-of-production method based on estimated proved oil and gas reserves. Individually insignificant unproved properties are amortized on a group basis at rates determined after considering past experience and lease terms. As changes in circumstances warrant, the net carrying values of proved properties, plant and equipment are assessed to ensure that they do not exceed future cash flows from use. Capitalized costs of significant unproved properties are also assessed regularly to determine whether an impairment in value has occurred. Gulf's revenues, cash flow, profitability and future rate of growth are substantially dependent upon prevailing prices for oil and gas. Prices for oil and gas are subject to wide fluctuations in response to relatively minor changes in supply of and demand for oil and gas, market uncertainty and a variety of additional factors that are beyond the control of Gulf. CASH GENERATED FROM OPERATIONS & EARNINGS (LOSS) Net oil and gas revenues for the six months ended June 30, 1997 rose $151 million to $548 million, representing a 38 percent increase over revenues of $397 million for the first half of 1996. This increase was offset partially by Gulf's hedging program ($31 million) and by a rise in royalties of $27 million. For 8 9 the second quarter, Gulf realized an $88 million increase in net oil and gas revenues from $202 million in 1996 to $290 million in 1997. This increase was due primarily to higher volumes from the first-quarter acquisition of Clyde Petroleum plc (48,000 barrels of oil equivalent per day (boe/d)). The second-quarter increase was offset partly by volume declines of 9,000 boe/d in Western Canada. Revenues for the quarter were buoyed by higher average liquids and natural gas prices. After hedging, the Company realized an average price of $25.09 per barrel for its liquids in the second quarter of 1997 compared to $24.07 per barrel in the second quarter of 1996, and $1.96 per thousand cubic feet for gas compared to $1.67. Gulf's cash generation rose to $246 million for the first six months of 1997, representing a $30 million improvement over the same period last year. Higher cash generation from operations was offset partially by higher interest expenses, increased general and administrative expenses associated with the Clyde acquisition and the impact of corporate hedging activities. On a segmented basis, Western Canadian conventional oil and gas operations generated $237 million for the first six months of 1997 versus $230 million for the same period in 1996, while Gulf's Syncrude interest generated $33 million cash during the first six months of 1997, up from $27 million for the first half of 1996. In Indonesia, six-month cash generation increased by $21 million to $47 million in 1997, reflecting the additional assets acquired as part of the Clyde acquisition as well as new production from the Kakap block. Cash generated from Gulf's North Sea operations included $39 million from the United Kingdom and $30 million from the Netherlands. Cash generated from Australia was $8 million. For the majority of Gulf's international assets, there are no pre-1997 figures for comparison since, with the exception of Indonesia, Gulf's current international production is related to the Clyde acquisition. The Company had a loss of $36 million for the six-month period ended June 30, 1997, compared with earnings of $25 million during the first half of 1996. Earnings for the first half of 1996 included $39 million of interest income related to a tax refund. Same-period earnings (loss) this year included $48 million in gains on the sale of assets. As expected, asset sales, plant turnarounds and planned maintenance at Syncrude contributed to a net loss of $14 million in the second quarter of 1997 compared with earnings of $18 million in the second quarter of last year. The decrease in second-quarter earnings included the effect of a $75 million increase in depreciation, depletion and amortization, again reflecting the Clyde acquisition as well as the purchase of Western Canadian assets in mid-1996. Second-quarter earnings (loss) in 1997 were impacted as well by a $19 million rise in exploration expenses, increased interest expenses, higher general and administrative expenses and corporate hedging. Exploration expenses increased by $12 million to $51 million for the first half of 1997 due to increased exploration activity, largely in Western Canada. The increase was concentrated in the second quarter, as exploration expenses rose $19 million from the second quarter of 1996 to $30 million for the same period in 1997. Production costs for the first half of 1997 rose to $182 million from $140 million during the same period last year, reflecting increased workover and plant turnaround projects in Western Canada. On a unit of production basis, costs were $6.32 per boe during the first half of 1997 compared with $6.21 per boe for the first half of 1996. General and administrative expenses increased $3 million to $29 million, related primarily to Clyde's continuing operations. On a unit of production basis, G & A costs decreased to $ 1.02 per boe from $1.16 per boe for the same period a year ago. Restructuring charges of $5 million reflect organizational changes. Depreciation, depletion and amortization charges rose from $141 million in the first half of 1996 to $226 million in the first half of 1997. Of the $85 million increase for the first half of the year, $62 million, or 73 percent, was attributable to the acquisition of Clyde. The balance related primarily to an increase in conventional crude oil production and higher depletion rates in Western Canada. DD&A rose from $52 million in the second quarter of 1996 to $127 million in the second quarter of 1997. Finance charges for the first half of 1997 were $111 million, up $90 million from the first six months of 1996. On a quarterly basis, net finance charges rose to $56 million in 1997 versus $33 million in 1996, due 9 10 to higher debt levels. For the first half of 1997, the Company incurred short-term net interest expense of $13 million, compared with $39 million in interest earned during the first half of 1996 related to a tax refund. In addition, interest expenses on long-term debt rose from $22 million in the first half of 1996 to $72 million in the first half of 1997. Higher nondeductible charges under Canadian tax law and a relatively high international tax burden, which included the petroleum revenue tax in the United Kingdom, also increased the Company's overall effective tax rate. NET CASH FLOW AND FINANCIAL POSITION Gulf's acquisitions, totaling $1,066 million for the first half of 1997, were the most significant investing activity. Capital expenditures and exploration expenses were $551 million for the first half of 1997, representing a 63 percent increase over expenditures of $338 million for the same period in 1996. Western Canada accounted for $263 million, down $7 million over 1996. Additionally, Gulf spent $33 million on Syncrude, $146 million in Indonesia and $89 million on other international projects. For the first six months, the Company received $73 million in proceeds from asset sales compared with $35 million in 1996. Gulf continued to repay arrears dividends on its preferred shares, totaling $7 million for the first half of 1997, in addition to ongoing regular dividends. Total dividends for the first six months of 1997 were $18 million compared with $22 million for the same period in 1996, reflecting lower interest rates during the first half of this year. Gulf's financing activities for the Clyde acquisition increased short-term loans by $799 million (including an $8 million foreign translation loss) for the first six months of 1997, compared to an increase of $40 million over the same period in 1996. Proceeds from the issue of long-term debt were $429 million and debt repayments totaled $260 million versus $167 million and $169 million respectively during the first half of 1996. In addition, Gulf realized proceeds from the issue of equity totaling $240 million for the first half of 1997 compared with $133 million for the same period in 1996. On July 18, Gulf restructured and syndicated successfully the majority of the short-term portion of its debt maturities into a $966 million bank facility. As a result of this restructuring, Gulf reduced its short-term debt maturities to $332 million. The $32 million minority interest relates to the new SGS Limited Partnership established at the end of June. OUTLOOK The Company is preparing to take public approximately 20 percent of its Indonesian subsidiary. Projected proceeds from this offering, together with planned Western Canada asset sales, will be used to repay debt (target year-end net debt of approximately $2.2 billion). Gulf plans to issue new shares to finance the acquisition of Stampeder Exploration Ltd. In addition, Gulf has received an independent valuation of its assets in the Zama/Virgo area and intends to sell these assets, with proceeds from the sale targeted toward repayment of the debt acquired in the Stampeder acquisition. As part of its reorganization, Gulf is proceeding with several prominent companies to form new service organizations with greater competitive focus and improved profitability. Gulf's marketing group and IPL Energy Inc. have formed an independent venture that will be the largest crude oil and liquids marketer in Canada. Gulf's marketing group has also signed a letter of intent with MCN Investment Corporation to form Gulf-CoEnergy Services in order to provide full-service gas marketing to Gulf and other North American gas producers. 10 11 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS All holders of Ordinary Shares of the Corporation at the close of business on March 26, 1997 received a copy of the Management Proxy Circular regarding the following matters voted on at the annual and special meeting of shareholders held on April 30, 1997: 1. The election as director of all twelve nominees as listed below:
Name For Withheld - ---- --- -------- R.H. Allen 179,438,366 9,090 J.P. Bryan 179,438,074 9,382 M.G. DeGroote 179,431,803 15,653 S.H. Hartt 179,433,000 14,456 S.H. Hefner, Jr. 179,437,661 9,795 H.E. Joudrie 179,434,179 13,277 T. M. Long 179,432,675 14,781 D. F. Mazankowski 179,429,222 18,234 A.H. Michell 179,438,497 8,959 H. M. Neldner 179,438,537 8,919 W. O'Donoghue 179,438,338 9,118 R. N. Robertson 179,438,338 9,118
2. The appointment of Ernst & Young as auditors, with remuneration to be fixed by the directors. For: 178,777,486 Against: 669,451 Withheld: 519 3. The reservation of an additional 6,000,000 Ordinary Shares for issuance under the Incentive Stock Option Plan (1994): For: 159,245,319 Against: 20,201,794 Withheld: 343 No other matters were brought up at the meeting. 11 12 ITEM 5: OTHER INFORMATION None. ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits The following exhibits are filed with this Form 10-Q and they are identified by the number indicated. Exhibit (2) Plan of acquisition, reorganization, arrangement, liquidation or succession* (3) Articles of Incorporation and By-laws 3.1 Articles of Incorporation of the Registrant 3.2 By-laws of the Registrant (4) Instruments defining rights of security holders, including indentures 4.1 Indenture between the Registrant and Chase Manhattan Bank dated July 1, 1989 pertaining to the Registrant's 9% Debentures due 1999 (incorporated herein by reference to the Registrant's Registration Statement on Form F-10 (Reg. No. 33- 30138) 4.2 Indenture between the Registrant and The Bank of New York dated January 27, 1994 pertaining to the Registrant's 9- 1/4% Senior Subordinated Debentures due 2004 (incorporated herein by reference to the Registrant's Registration Statement on Form F-10 (Reg. No. 33- 73252) 4.3 Indenture between the Registrant and The Bank of New York dated July 5, 1995 pertaining to the Registrant's 9-5/8% Senior Subordinated Debentures due 2005 (incorporated herein by reference to the Registrant's Registration Statement on Form F-10 (Reg. No. 33-93452) 4.4 Indenture between the Registrant and The Bank of New York dated August 7, 1996 pertaining to the Registrant's 8.35% Senior Notes due 2006 (incorporated herein by reference to the Registrant's Registration Statement on Form F-10 (Reg. No. 333-5332) 4.5 Indenture between the Registrant and The Bank of New York dated March 21, 1997 pertaining to the Registrant's 8- 1/4% Senior Notes due 2017 (incorporated herein by reference to the Registrant's Registration Statement on Form F-10 (Reg. No. 333-6608) (10) Material Contracts 10.1 Pre-Merger Agreement dated July 27, 1997 between the Registrant and Stampeder Exploration Ltd. (incorporated herein by reference to the Registrant's Report on Form 6-K filed with the Commission on August 6, 1997) 10.2 Loan Agreement dated July 18, 1997 between the Registrant and the Lenders named in Schedule A thereto and the Bank of Montreal (as agent for the Lenders) 10.3 Incentive Stock Option Plan (1994) (11) Statement re computation of per share earnings* 12 13 (15) Letter re unaudited interim financial information* (18) Letter re change in accounting principals* (22) Published report regarding matters submitted to vote of security holders* (23) Consents of experts and counsel* (24) Power of attorney* (27) Financial Data Schedule* (99) Additional exhibits* _________________________________ *Inapplicable to this filing b. Reports on Form 8-K. None. The Registrant filed with the Commission a report on Form 6-K dated June 16 1997 describing its offer to purchase all of the outstanding common shares of CS Resources Limited, which offer has expired without being consummated. The Registrant filed with the Commission a report on Form 6-K dated August 5, 1997 describing a Pre-Merger Agreement dated July 27, 1997 pursuant to which the Registrant and Stampeder Exploration Ltd. ("Stampeder") agreed to a merger of the two companies by means of a formal take-over bid ("Offer") made by the Registrant for all of the outstanding shares of Stampeder on the basis of 0.69124 of an ordinary share of the Registrant for each common share of Stampeder, subject to 66 2/3 percent of Stampeder shares being tendered to the Offer. The Offer is scheduled to expire on August 28, 1997. 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. GULF CANADA RESOURCES LIMITED DATE: AUGUST 13, 1997 BY: /S/ CRAIG GLICK CRAIG GLICK SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY (DULY AUTHORIZED OFFICER AND PRINCIPLE FINANCIAL OFFICER) 13 14 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- (2) Plan of acquisition, reorganization, arrangement, liquidation or succession* (3) Articles of Incorporation and By-laws 3.1 Articles of Incorporation of the Registrant 3.2 By-laws of the Registrant (4) Instruments defining rights of security holders, including indentures 4.1 Indenture between the Registrant and Chase Manhattan Bank dated July 1, 1989 pertaining to the Registrant's 9% Debentures due 1999 (incorporated herein by reference to the Registrant's Registration Statement on Form F-10 (Reg. No. 33- 30138) 4.2 Indenture between the Registrant and The Bank of New York dated January 27, 1994 pertaining to the Registrant's 9- 1/4% Senior Subordinated Debentures due 2004 (incorporated herein by reference to the Registrant's Registration Statement on Form F-10 (Reg. No. 33- 73252) 4.3 Indenture between the Registrant and The Bank of New York dated July 5, 1995 pertaining to the Registrant's 9-5/8% Senior Subordinated Debentures due 2005 (incorporated herein by reference to the Registrant's Registration Statement on Form F-10 (Reg. No. 33-93452) 4.4 Indenture between the Registrant and The Bank of New York dated August 7, 1996 pertaining to the Registrant's 8.35% Senior Notes due 2006 (incorporated herein by reference to the Registrant's Registration Statement on Form F-10 (Reg. No. 333-5332) 4.5 Indenture between the Registrant and The Bank of New York dated March 21, 1997 pertaining to the Registrant's 8- 1/4% Senior Notes due 2017 (incorporated herein by reference to the Registrant's Registration Statement on Form F-10 (Reg. No. 333-6608) (10) Material Contracts 10.1 Pre-Merger Agreement dated July 27, 1997 between the Registrant and Stampeder Exploration Ltd. (incorporated herein by reference to the Registrant's Report on Form 6-K filed with the Commission on August 6, 1997) 10.2 Loan Agreement dated July 18, 1997 between the Registrant and the Lenders named in Schedule A thereto and the Bank of Montreal (as agent for the Lenders) 10.3 Incentive Stock Option Plan (1994) (11) Statement re computation of per share earnings* 15 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- (15) Letter re unaudited interim financial information* (18) Letter re change in accounting principals* (22) Published report regarding matters submitted to vote of security holders* (23) Consents of experts and counsel* (24) Power of attorney* (27) Financial Data Schedule* (99) Additional exhibits* _________________________________ *Inapplicable to this filing EX-3.1 2 ARTICLES OF INCORPORATION 1 Canada Business Loi regissant FORM 9 FORMULE 9 Corporations Act les societes ARTICLES OF AMALGAMATION STATUTS DE FUSION par actions de (SECTION 185) (ARTICLE 185) regime federal - ------------------------------------------------------------------------------------------------------------------------------------ 1. Name of amalgamated corporation. Gulf Canada Resources Limited - ------------------------------------------------------------------------------------------------------------------------------------ 2. The place in Canada where the registered office is to be Lieu au Canada ou doit etre situe le siege social situated Calgary, Alberta - ------------------------------------------------------------------------------------------------------------------------------------ 3. The Classes and any maximum number of shares that the Categories et tout nombre maximal d'actions que la societe corporation is authorized to issue est autorisse a emettre The annexed Schedule A is incorporated herein. - ------------------------------------------------------------------------------------------------------------------------------------ 4. Restrictions, if any, on share transfers Restrictions sur le transfert des actions, s'il y a lieu Not Applicable - ------------------------------------------------------------------------------------------------------------------------------------ 5. Number (or minimum and maximum number) of directors Nombre (ou nombre minimal et maximal) d'administrateurs A minimum of 7 and a maximum of 25. - ------------------------------------------------------------------------------------------------------------------------------------ 6. Restrictions, if any on business the corporation may Limites imposees l'activite commerciale de la societe, s'il y carry on a lieu Not Applicable - ------------------------------------------------------------------------------------------------------------------------------------ 7. Other provisions, if any Autres dispositions s'il ya lieu The annexed Schedule B is incorporated herein - ------------------------------------------------------------------------------------------------------------------------------------ 8. The amalgamation has been approved pursuant to La fusion a ete approuvee en accord avec l'articles ou le that section or subsection of the Act which is paragraph de la Loi indique ci-apres indicated [ ] 183 [X] 184(1) [ ] 183(2) - ------------------------------------------------------------------------------------------------------------------------------------ 9. Name of the amalgamating Corporation corporations No. Title No. de la Signature Date Titre societe - ------------------------------------------------------------------------------------------------------------------------------------ Gulf Canada Resources Limited 266753-3 /s/ C. S. GLICK Nov. 19, 1996 Senior Vice President - ------------------------------------------------------------------------------------------------------------------------------------ Gulf Canada Frontier Exploration 326508-1 /s/ R. H. AVCHINLECK Nov. 19, 1996 President Limited - ------------------------------------------------------------------------------------------------------------------------------------ FOR DEPARTMENTAL USE ONLY - A L'USAGE DU MINISTERE SEULEMENT - ------------------------------------------------------------------------------------------------------------------------------------ CORPORATION NO. - NO DE LA SOCIETE FILED - DEPOSEE 331675-1 November 26, 1996
2 EXHIBIT 3.1 THIS IS SCHEDULE A REFERRED TO IN THE FOREGOING ARTICLES OF AMALGAMATION THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE CORPORATION IS AUTHORIZED TO ISSUE The authorized share capital of Gulf Canada Resources Limited/Resources Gulf Canada Limitee (the "Corporation") shall consist of: (a) an unlimited number of preference shares designated as Senior Preference Shares, issuable in series ("Senior Preference Shares"); (b) an unlimited number of preference shares designated as Junior Preference Shares, issuable in series ("Junior Preference Shares"); and (c) an unlimited number of ordinary shares ("ordinary shares"); which shares shall have attached thereto the rights, privileges, restrictions and conditions set out below. The first series of Senior Preference Shares shall be designated as Fixed/Adjustable Rate Senior Preference Shares, Series 1 which, in addition to the rights, privileges, restrictions and conditions attaching to the Senior Preference Shares as a class, shall have attached thereto the rights, privileges, restrictions and conditions set out in Appendix A annexed hereto. The second series of Senior Preference Shares shall be designated as Cumulative Redeemable Auction Perpetual Senior Preference Shares, Series 2 which, in addition to the rights, privileges, restrictions and conditions attaching to the Senior 3 -2- Preference Shares as a class, shall have attached thereto the rights, privileges, restrictions and conditions set out in Appendix B annexed hereto. SENIOR PREFERENCE SHARES The rights, privileges, restrictions and conditions attaching to the Senior Preference Shares, as a class, are as follows: 1. DIRECTORS' AUTHORITY TO ISSUE IN ONE OR MORE SERIES. 1.1 The directors of the Corporation may issue the Senior Preference Shares at any time and from time to time in one or more series. Before any shares of a particular series are issued, the directors of the Corporation shall fix the number of shares that will form such series and shall determine, subject to the limitations set out in the articles, the designation, rights, privileges, restrictions and conditions to be attached to the Senior Preference Shares of such series, including, but without in any way limiting or restricting the generality of the foregoing, the rate or rates, amount or method or methods of calculation of preferential dividends thereon, whether cumulative, non-cumulative or partially cumulative, and whether such rate(s), amount or method of calculation shall be subject to change or adjustment in the future, the currency or currencies of payment, the date or dates and place or places of payment thereof and the date or dates from which such preferential dividends shall accrue, the pre-emptive rights attached thereto (if any), the consideration and the terms and conditions of any purchase for cancellation, retraction or redemption rights (if any), the conversion or exchange rights attached thereto (if any), the voting rights attached thereto (if any) and the terms and conditions of any share purchase plan or sinking fund or other provisions attaching 4 -3- thereto. Before the issue of the first shares of a series of Senior Preference Shares, the directors shall send to the Director (as defined in the Canada Business Corporations Act) articles of amendment in prescribed form containing a description of such series including the designation, rights, privileges, restrictions and conditions determined by the directors. 2. RANKING OF SENIOR PREFERENCE SHARES. 2.1 No rights, privileges, restrictions or conditions attaching to a series of Senior Preference Shares shall confer upon a series a priority in respect of dividends or return of capital over any other series of Senior Preference Shares then outstanding. 2.2 The Senior Preference Shares shall be entitled to priority over the Junior Preference Shares and the ordinary shares of the Corporation and over any other shares of any other class of the Corporation ranking junior to the Senior Preference Shares with respect to priority in the payment of dividends and the return of capital and the distribution of assets in the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or any other distribution of the assets of the Corporation among its shareholders for the purpose of winding-up its affairs. 2.3 If any amount of cumulative dividends, whether or not declared, or declared non-cumulative dividends or amounts payable on a return of capital in the event of the liquidation, dissolution or winding-up of the Corporation in respect of a series of Senior Preference Shares is not paid in full, the Senior Preference Shares of all series shall participate rateably in respect of all accumulated cumulative dividends, whether or not declared, and all declared non-cumulative dividends in accordance with the sums that would be payable on such shares if all such dividends were declared and paid in full, and in respect of amounts payable on return of capital in the event of liquidation, dissolution 5 -4- or winding-up of the Corporation in accordance with the sums that would be payable on such repayment of capital if all sums so payable were paid in full; provided, however, that in the event of there being insufficient assets to satisfy in full all such claims as aforesaid, the claims of the holders of the Senior Preference Shares with respect to amounts payable on return of capital shall first be paid and satisfied and any assets remaining thereafter shall be applied towards the payment and satisfaction of claims in respect of dividends. 2.4 The Senior Preference Shares of any series may also be given such other preferences not inconsistent with sections 2.1 to 2.3 hereof over the Junior Preference Shares and the ordinary shares and over any other shares ranking junior to the Senior Preference Shares as may be determined in the case of the rights of the Senior Preference Shares. 2.5 Subject to the rights, privileges, restrictions and conditions attached to any particular series of Senior Preference Shares, in the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or any other distribution of the assets of the Corporation among its shareholders for the purpose of winding-up its affairs, the holders of each series of Senior Preference Shares shall, before any amount shall be paid to or any property or assets of the Corporation shall be distributed among the holders of the Junior Preference Shares or the ordinary shares of the Corporation or any other shares of the Corporation ranking junior to the Senior Preference Shares, be entitled to receive (i) an amount equal to the stated capital attributable to each series of Senior Preference Shares, respectively, together with, in the case of 6 -5- a series of Senior Preference Shares entitled to cumulative dividends thereon, all unpaid accumulated cumulative dividends, whether or not declared, (which for such purposes shall be calculated as if such cumulative dividends were accruing from day to day for the period from the expiration of the last period for which such cumulative dividends were paid up to but excluding the date of distribution) and, in the case of a series of Senior Preference Shares entitled to non-cumulative dividends, all declared and unpaid non-cumulative dividends thereon, and (ii) if such liquidation, dissolution, winding-up or distribution shall be voluntary, an additional amount, if any, equal to any premium which would have been payable on the redemption of any series of Senior Preference Shares if such shares had been called for redemption by the Corporation effective the date of distribution and, if any series of Senior Preference Shares could not be redeemed on such date, then an additional amount equal to the greatest premium, if any, which would have been payable on the redemption of any other series of Senior Preference Shares. 3. RESTRICTIONS ON DIVIDENDS AND REDEMPTIONS, ETC. 3.1 Except with the approval of the holders of the Senior Preference Shares given in the manner described in section 6.1 below, no dividends shall at any time be declared and paid or set apart for payment on the Junior Preference Shares or the ordinary shares or any other shares of the Corporation ranking junior to the Senior 7 -6- Preference Shares unless and until all dividends up to and including the dividends payable for the last completed period for which such dividends shall be payable on each series of Senior Preference Shares then issued and outstanding shall have been declared and paid or set apart for payment; nor shall the Corporation call for redemption, redeem, purchase for cancellation, acquire for value or reduce or otherwise pay off any of the Senior Preference Shares (less than the total amount then outstanding) or any Junior Preference Shares or ordinary shares or any other shares of the Corporation ranking junior to the Senior Preference Shares unless and until all dividends up to and including the dividends payable for the last completed period for which such dividends shall be payable on each series of the Senior Preference Shares then issued and outstanding shall have been declared and paid or set apart for payment. 4. VOTING RIGHTS. 4.1 Except as herein referred to or as otherwise provided by law or in accordance with any voting rights which may from time to time be attached to any series of Senior Preference Shares, the holders of the Senior Preference Shares as a class shall not be entitled as such to receive notice of, to attend or to vote at any meeting of the shareholders of the Corporation. 5. SPECIFIC MATTERS REQUIRING OR NOT REQUIRING APPROVAL. 5.1 Except as otherwise provided by law, the holders of the Senior Preference Shares shall not be entitled to vote separately as a class in respect of a proposed amendment to the articles to: (a) increase or decrease any maximum number of authorized Senior Preference Shares, or increase any maximum number of authorized shares of a class 8 -7- having rights or privileges equal or superior to the Senior Preference Shares; (b) effect an exchange, reclassification or cancellation of all or part of the Senior Preference Shares; or (c) create a new class of shares equal or superior to the Senior Preference Shares. 5.2 The provisions of sections 1.1 to 6.1, inclusive, may be deleted, amended, modified or varied in whole or in part by a certificate of amendment issued by the Director appointed under the Canada Business Corporations Act, but only with the prior approval of the holders of the Senior Preference Shares given as hereinafter specified in addition to any other approval required by the Canada Business Corporations Act (as now enacted or from time to time amended, varied or replaced). 6. APPROVAL OF THE HOLDERS OF THE SENIOR PREFERENCE SHARES. 6.1 The approval of the holders of the Senior Preference Shares with respect to the matters referred to in sections 3.1 and 5.2 may be given by a majority of not less than two-thirds of the votes cast at a meeting of the holders of the Senior Preference Shares duly called for that purpose and held upon at least 21 days notice at which the holders of not less than 25 per cent of the outstanding Senior Preference Shares are present or represented by proxy. If at any such meeting the holders of a majority of the outstanding Senior Preference Shares are not present or represented by proxy within one-half hour after the time appointed for such meeting, then the meeting shall be 9 -8- adjourned to such date being not less than 30 days later and at such time and place as may be appointed by the chairman and not less than 21 days notice shall be given of such adjourned meeting. At such adjourned meeting the holders of the Senior Preference Shares present or represented by proxy may transact the business for which the meeting was originally called and a resolution passed thereat by a majority of not less than two-thirds of the votes cast at such adjourned meeting shall constitute the approval of the holders of the Senior Preference Shares referred to above. The formalities to be observed in respect of the giving of notice of any such meeting or any adjourned meeting and the conduct thereof shall be those from time to time prescribed by the Canada Business Corporations Act (as now enacted or from time to time amended, varied or replaced) and the by-laws of the Corporation with respect to meetings of shareholders. On every poll taken at a meeting of holders of Senior Preference Shares as a class, or at a joint meeting of the holders of two or more series of Senior Preference Shares, each holder of Senior Preference Shares entitled to vote thereat shall have one vote in respect of each $ 1.00 of the issue price of each Senior Preference Share held by him. JUNIOR PREFERENCE SHARES The rights, privileges, restrictions and conditions attaching to the Junior Preference Shares, as a class, are as follows: 1. DIRECTORS' AUTHORITY TO ISSUE IN ONE OR MORE SERIES. 1.1 The directors of the Corporation may issue the Junior Preference Shares at any time and from time to time in one or more series. Before any shares of a particular series are issued, the directors of the Corporation shall fix the number of 10 -9- shares that will form such series and shall determine, subject to the limitations set out in the articles, the designation, rights, privileges, restrictions and conditions to be attached to the Junior Preference Shares of such series, including, but without in any way limiting or restricting the generality of the foregoing, the rate or rates, amount or method or methods of calculation of preferential dividends thereon, whether cumulative, non-cumulative or partially cumulative, and whether such rate(s), amount or method of calculation shall be subject to change or adjustment in the future, the currency or currencies of payment, the date or dates and place or places of payment thereof and the date or dates from which such preferential dividends shall accrue, the pre-emptive rights attached thereto (if any), the consideration and the terms and conditions of any purchase for cancellation, retraction or redemption rights (if any), the conversion or exchange rights attached thereto (if any), the voting rights attached thereto (if any) and the terms and conditions of any share purchase plan or sinking fund or other provisions attaching thereto. Before the issue of the first shares of a series of Junior Preference Shares, the directors shall send to the Director (as defined in the Canada Business Corporations Act) articles of amendment in prescribed form containing a description of such series including the designation, rights, privileges, restrictions and conditions determined by the directors. 2. RANKING OF JUNIOR PREFERENCE SHARES. 2.1 No rights, privileges, restrictions or conditions attaching to a series of Junior Preference Shares shall confer upon a series a priority in respect of dividends or return of capital over any other series of Junior Preference Shares then outstanding. 2.2 The Junior Preference Shares shall be entitled to priority over the ordinary shares of the Corporation and over any other shares of any other class of the 11 -10- Corporation ranking junior to the Junior Preference Shares with respect to priority in the payment of dividends and the return of capital and the distribution of assets in the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or any other distribution of the assets of the Corporation among its shareholders for the purpose of winding-up its affairs. 2.3 If any amount of cumulative dividends, whether or not declared, or declared non-cumulative dividends or amounts payable on a return of capital in the event of the liquidation, dissolution or winding-up of the Corporation in respect of a series of Junior Preference Shares is not paid in full, the Junior Preference Shares of all series shall participate rateably in respect of all accumulated cumulative dividends, whether or not declared, and all declared non-cumulative dividends in accordance with the sums that would be payable on such shares if all such dividends were declared and paid in full, and in respect of amounts payable on return of capital in the event of liquidation, dissolution or winding-up of the Corporation in accordance with the sums that would be payable on such repayment of capital if all sums so payable were paid in full; provided, however, that in the event of there being insufficient assets to satisfy in full all such claims as aforesaid, the claims of the holders of the Junior Preference Shares with respect to amounts payable on return of capital shall first be paid and satisfied and any assets remaining thereafter shall be applied towards the payment and satisfaction of claims in respect of dividends. 2.4 The Junior Preference Shares of any series may also be given such other preferences not inconsistent with sections 2.1 to 2.3 hereof over the ordinary shares and 12 -11- over any other shares ranking junior to the Junior Preference Shares as may be determined in the case of the rights of the Junior Preference Shares. 2.5 In the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or any other distribution of the assets of the Corporation among its shareholders for the purpose of winding-up its affairs, the holders of each series of Junior Preference Shares shall, before any amount shall be paid to or any property or assets of the Corporation shall be distributed among the holders of the ordinary shares of the Corporation or any other shares of the Corporation ranking junior to the Junior Preference Shares, be entitled to receive (i) an amount equal to the stated capital attributable to each series of Junior Preference Shares, respectively, together with, in the case of a series of Junior Preference Shares entitled to cumulative dividends thereon, all unpaid accumulated cumulative dividends, whether or not declared, (which for such purposes shall be calculated as if such cumulative dividends were accruing from day to day for the period from the expiration of the last period for which such cumulative dividends were paid up to but excluding the date of distribution) and, in the case of a series of Junior Preference Shares entitled to non-cumulative dividends, all declared and unpaid non-cumulative dividends thereon, and (ii) if such liquidation, dissolution, winding-up or distribution shall be voluntary, an additional amount, if any, equal to any premium which would have been payable on the redemption of any series of Junior 13 -12- Preference Shares if such shares had been called for redemption by the Corporation effective the date of distribution and, if any series of Junior Preference Shares could not be redeemed on such date, then an additional amount equal to the greatest premium, if any, which would have been payable on the redemption of any other series of Junior Preference Shares. 3. RESTRICTIONS ON DIVIDENDS AND REDEMPTIONS, ETC. 3.1 Except with the approval of the holders of the Junior Preference Shares given in the manner described in section 6.1 below, no dividends shall at any time be declared and paid or set apart for payment on the ordinary shares or any other shares of the Corporation ranking junior to the Junior Preference Shares unless and until all dividends up to and including the dividends payable for the last completed period for which such dividends shall be payable on each series of Junior Preference Shares then issued and outstanding shall have been declared and paid or set apart for payment; nor shall the Corporation call for redemption, redeem, purchase for cancellation, acquire for value or reduce or otherwise pay off any of the Junior Preference Shares (less than the total amount then outstanding) or any ordinary shares or any other shares of the Corporation ranking junior to the Junior Preference Shares unless and until all dividends up to and including the dividends payable for the last completed period for which such dividends shall be payable on each series of the Junior Preference Shares then issued and outstanding shall have been declared and paid or set apart for payment. 14 -13- 4. VOTING RIGHTS. 4.1 Except as herein referred to or as otherwise provided by law or in accordance with any voting rights which may from time to time be attached to any series of Junior Preference Shares, the holders of the Junior Preference Shares as a class shall not be entitled as such to receive notice of, to attend or to vote at any meeting of the shareholders of the Corporation. 5. SPECIFIC MATTERS REQUIRING OR NOT REQUIRING APPROVAL. 5.1 Except as otherwise provided by law, the holders of the Junior Preference Shares shall not be entitled to vote separately as a class in respect of a proposed amendment to the articles to: (a) increase or decrease any maximum number of authorized Junior Preference Shares, or increase any maximum number of authorized shares of a class having rights or privileges equal or superior to the Junior Preference Shares; (b) effect an exchange, reclassification or cancellation of all or part of the Junior Preference Shares; or (c) create a new class of shares equal or superior to the Junior Preference Shares. 5.2 The provisions of sections 1.1 to 6.1, inclusive, may be deleted, amended, modified or varied in whole or in part by a certificate of amendment issued by the Director appointed under the Canada Business Corporations Act, but only with the prior approval of the holders of the Junior Preference Shares given as hereinafter specified in 15 -14- addition to any other approval required by the Canada Business Corporations Act (as now enacted or from time to time amended, varied or replaced). 6. APPROVAL OF THE HOLDERS OF THE JUNIOR PREFERENCE SHARES. 6.1 The approval of the holders of the Junior Preference Shares with respect to the matters referred to in sections 3.1 and 5.2 may be given by a majority of not less than two-thirds of the votes cast at a meeting of the holders of the Junior Preference Shares duly called for that purpose and held upon at least 21 days notice at which the holders of not less than 25 per cent of the outstanding Junior Preference Shares are present or represented by proxy. If at any such meeting the holders of a majority of the outstanding Junior Preference Shares are not present or represented by proxy within one-half hour after the time appointed for such meeting, then the meeting shall be adjourned to such date being not less than 30 days later and at such time and place as may be appointed by the chairman and not less than 21 days notice shall be given of such adjourned meeting. At such adjourned meeting the holders of the Junior Preference Shares present or represented by proxy may transact the business for which the meeting was originally called and a resolution passed thereat by a majority of not less than two-thirds of the votes cast at such adjourned meeting shall constitute the approval of the holders of the Junior Preference Shares referred to above. The formalities to be observed in respect of the giving of notice of any such meeting or any adjourned meeting and the conduct thereof shall be those from time to time prescribed by the Canada Business Corporations Act (as now enacted or from time to time amended, varied or replaced) and the by-laws of the Corporation with respect to meetings of shareholders. 16 -15- On every poll taken at a meeting of holders of Junior Preference Shares as a class, or at a joint meeting of the holders of two or more series of Junior Preference Shares, each holder of Junior Preference Shares entitled to vote thereat shall have one vote in respect of each $1.00 of the issue price of each Junior Preference Share held by him. ORDINARY SHARES The rights, privileges, restrictions and conditions' attaching to the ordinary shares are as follows: 1. DIVIDENDS. Subject to the prior rights of the holders of the Senior Preference Shares and the Junior Preference Shares and to any other shares ranking senior or on a parity to the ordinary shares with respect to the payment of dividends, the holders of ordinary shares shall be entitled to receive dividends and the Corporation shall pay dividends thereon as and when declared by the board of directors of the Corporation out of assets properly applicable to the payment of dividends, in such amount and in such form as the board of directors may from time to time determine and all dividends which the directors may declare on the ordinary shares shall be declared and paid in equal amounts per share on all ordinary shares at the time outstanding. 2. DISSOLUTION. 2.1 In the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or any other distribution of assets of the Corporation among its shareholders for the purpose of winding-up its affairs, subject to the prior rights of the holders of the Senior Preference Shares, the Junior Preference Shares or 17 -16- any other shares ranking senior to the ordinary shares with respect to the distribution of assets upon liquidation, dissolution, or winding-up, the holders of the ordinary shares shall be entitled to receive an amount of one-tenth of $0.01 per share and thereafter shall be entitled to share the remaining property and assets of the Corporation and to participate in any distribution thereof with the holders of shares of any other class ranking on a parity to the ordinary shares in any distribution thereof. 3. VOTING RIGHTS. 3.1 Except for meetings at which only holders of another specified class or series of shares of the Corporation are entitled to vote separately as a class or series, the holders of the ordinary shares shall be entitled to receive notice of and to attend all meetings of the shareholders of the Corporation and shall have one vote for each ordinary share held at all meetings of the shareholders of the Corporation. 18 THIS IS SCHEDULE B REFERRED TO IN THE FOREGOING ARTICLES OF AMALGAMATION. The board of directors of the Corporation may, without authorization of the shareholders of the Corporation, from time to time, in such amounts and on such terms as it deems expedient: (a) borrow money upon the credit of the Corporation; (b) issue, reissue, sell or pledge debt obligations of the Corporation; (c) give a guarantee on behalf of the Corporation to secure performance of an obligation of any person; and (d) charge, mortgage, hypothecate, pledge or otherwise create a security interest in all or any of the currently owned or subsequently acquired real and personal, movable and immovable, property of the Corporation, including book debts, rights, powers, franchise and undertaking, to secure any obligation of the Corporation. For greater certainty the foregoing powers conferred on the directors shall be deemed to include the powers conferred on a company by Division VII of the Special Corporate Powers Act, being Chapter P-16 of the Revised Statutes of Quebec, 1977 and every statutory provision that may be substituted therefor or for any provision therein. The board of directors may from time to time by resolution delegate to a committee of directors or to one or more of the directors or officers of the Corporation all or any of the powers hereby conferred upon the board to such extent and in such manner as the board shall determine at the time of each such delegation. Nothing in this section shall limit or restrict the borrowing of money by the Corporation on bills of exchange or promissory notes made, drawn, accepted or endorsed by or on behalf of the Corporation. 19 APPENDIX A GULF CANADA RESOURCES LIMITED/ RESSOURCES GULF CANADA LIMITEE SENIOR PREFERENCE SHARES SERIES 1 The first series of Senior Preference Shares shall be designated Fixed/Adjustable Rate Senior Preference Shares Series 1 (the "Series 1 Preference Shares"), shall consist of 171,007,335 Series I Preference Shares and shall have attached thereto, in addition to the rights, privileges, restrictions and conditions attached to the Senior Preference Shares as a class, the rights, privileges, restrictions and conditions (the "Series 1 Provisions"): ARTICLE 1 GENERAL 1.1 DEFINITIONS Where used in these Series 1 Provisions, the following words and phrases shall, unless there is something in the context otherwise inconsistent therewith, have the following meanings, respectively: (a) "Additional Preference Shares" has the meaning specified in section 5.1; (b) "Additional Preference Share Conversion Date" has the meaning specified in section 5.1; (c) "Additional Preference Share Conversion Notice" has the meaning specified in section 5.1; (d) "Adjustment Factor" for any Month means the percentage per annum, positive or negative, based on the Calculated Trading Price of the Series 20 -2- 1 Preference Shares for the preceding Month, determined in accordance with the following:
If such the Adjustment Calculated Trading Price is Factor shall be --------------------------- --------------- 101% of Redemption Price or more.............. -0.20% 100.75% of Redemption Price and less than 101% of Redemption Price......... -0.15% 100.50% of Redemption Price and less than 100.75% of Redemption Price...... -0.10% 100.25% of Redemption Price and less than 100.50% of Redemption Price...... -0.05% 99.75% of Redemption Price and less than 100.25% of Redemption Price...... Nil 99.50% of Redemption Price and less than 99.75% of Redemption Price............... +0.05% 99.25% of Redemption Price and less than 99.50% of Redemption Price............... +0.10% 99.00% of Redemption Price and less than 99.25% of Redemption Price............... +0.15% less than 99.00% of Redemption Price.......... +0.20%
provided that if the Series 1 Preference Shares do not trade on the Exchange during any Month, the Adjustment Factor for the following Month shall be nil; (e) "Adjustment Rate" for any Month (other than the Month ending March 31, 1988) means the percentage per annum which is the sum of the Adjustment Factor for such Month and the Adjustment Rate for the immediately 21 -3- preceding Month and, for the Month ending March 31, 1988, means the Adjustment Factor for such Month; (f) "Annual Dividend Rate" for any Month means the rate per annum (rounded to the nearest one-thousandth of one per cent) determined by adding 65% of Prime for such Month to the Adjustment Rate for such Month, provided that the Annual Dividend Rate for any Month shall in no event be greater than 80% of Prime for such Month or be less than 50% of Prime for such Month; (g) "board of directors" means the board of directors of the Corporation or, if duly constituted and empowered, the executive committee of the board of directors of the Corporation for the time being, and reference, without further elaboration, to action by the directors means either action by the directors of the Corporation as a board or action by the said executive committee as such committee; (h) "business day" means a day other than a Saturday, Sunday or any other day treated as a holiday in the municipality in Canada in which the Corporation's registered office is then situated; (i) "Calculated Trading Price" for any Month means: (i) the aggregate of the Daily Adjusted Trading Value for all Trading Days in such Month divided by (ii) the aggregate of the Daily Trading Volume for all Trading Days in such Month; 22 -4- (j) "CBCA" means the Canada Business Corporations Act S.C.1974-75, c.33, as amended, and as such statute may from time to time be amended, varied, replaced or re-enacted; (k) "Consolidation Date" has the meaning specified in section 4.1; (l) "Consolidation Factor" has the meaning specified in section 4.1; (m) "Daily Accrued Dividend Deduction" for any Trading Day means: (i) the product obtained by multiplying the dividend accrued on a Series 1 Preference Share in respect of the Month in which the Trading Day falls by the number of days elapsed from but excluding the day prior to the Ex-Dividend Date immediately preceding such Trading Day to and including such Trading Day (or if such Trading Day is an Ex-Dividend Date by one (1)) divided by (ii) the number of days from and including such Ex-Dividend Date to but excluding the following Ex- Dividend Date; (n) "Daily Adjusted Trading Value" for any Trading Day means: (i) the aggregate dollar value of all trades of Series 1 Preference Shares on the Exchange occurring during such Trading Day less (ii) the Daily Trading Volume for such Trading Day multiplied by the Daily Accrued Dividend Deduction for such Trading Day; 23 -5- (o) "Daily Trading Volume" for any Trading Day means the aggregate number of Series 1 Preference Shares traded in all transactions occurring during such Trading Day on the Exchange; (p) "Dividend Default" has the meaning specified in article 6; (q) "Exchange" means The Toronto Stock Exchange or, if the board of directors of the Corporation has determined that such exchange is not the principal trading market for the Series 1 Preference Shares, then such other stock exchange in Canada or the United States that the board of directors of the Corporation shall determine to be the principal trading market for the Series 1 Preference Shares and, should no alternative exchange be available, then such other trading market as the board of directors of the Corporation shall determine to be the principal trading market for the Series 1 Preference Shares; (r) "Ex-Dividend Date" means: (i) the Trading Day which, under the rules or normal practices of the Exchange, is designated or recognized as the ex-dividend date relative to any dividend record date for the Series 1 Preference Shares; or (ii) if the board of directors of the Corporation fails to declare a dividend in respect of a Month, the last Trading Day in such Month; (s) "herein", "hereto", "hereunder", "hereof", "hereby" and similar expressions mean or refer to these Series I Provisions and not to any particular Article, section, clause, subdivision or portion hereof, and the expressions "Article" 24 -6- and section followed by a number or a letter mean and refer to the specified Article or section hereof; (t) "holder of Series I Preference Shares" means a person or, in the case of joint holders, the persons, recorded on the securities register of the Corporation as being the registered holder or holders of one or more Series 1 Preference Shares; (u) "Initial Dividend Period" means the period from and including the date of issue of the Series 1 Preference Shares to and including March 1, 1988; (v) "Initial Dividend Rate" means 6% per annum; (w) "Month" means a calendar month; (x) "Prime" for a Month means the average (rounded to the nearest one-thousandth of one per cent) of the Prime Rates in effect on each day of such Month, provided that if "Prime" for any Month cannot be determined, then "Prime" for such Month shall be Prime for the immediately preceding Month that was determinable; (y) "Prime Rate" means the average of the prime commercial lending rates of interest established and announced from time to time by The Royal Bank of Canada and the Canadian Imperial Bank of Commerce, or their respective successors, as the reference rates of interest per annum to determine the interest rates they will charge on Canadian dollar loans to their most creditworthy customers in Canada, provided that if neither of such banks has a Prime Rate in effect on any day in a Month, the Prime Rate for that day will be 1.15% per annum plus the average during such 25 -7- Month of the average yields at weekly tender on 91-day Government of Canada Treasury Bills as reported by the Bank of Canada; (z) "Quarter" means during the period from and including June 2, 1986 to and including March 1, 1988, each of the four dividend periods in a twelve month period (A) commencing on June 2 and ending on September 1, (B) commencing on September 2 and ending on December 1, (C) commencing on December 2 and ending on March 1, and (D) commencing on March 2, and ending on June 1; (aa) "Redemption Price" means: (i) prior to the effective date of any consolidation of the Series 1 Preference Shares pursuant to Article 4 hereof, $5.00, and (ii) on or after the effective date of any such consolidation of the Series 1 Preference Shares, the product of $5.00 and the Consolidation Factor; (ab) "Series 1 Preference Shares" means the Senior Preference Shares Series 1 of the Corporation; (ac) "Trading Day" means a day on which the Exchange is open for trading; and (ad) "transfer agent and registrar" means a corporation from time to time appointed by the board of directors as the transfer agent and registrar or one of the transfer agents and registrars for the Series 1 Preference Shares and, in the event that no such person is appointed, "transfer agent and registrar" means the Corporation. 26 -8- 1.2 GENDER, ETC. Words importing only the singular number include the plural and vice versa and words importing any gender include all genders. 1.3 CURRENCY All monetary amounts referred, to herein shall be in lawful money of Canada. 1.4 HEADINGS The division of these Series 1 Provisions into Articles, sections, clauses or other subdivisions and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation hereof. 1.5 BUSINESS DAY In the event that any date upon which any dividends on the Series 1 Preference Shares are payable by the Corporation, or upon or by which any other action is required to be taken by the Corporation or any holder of Series 1 Preference Shares hereunder, is not a business day, then such dividend shall be payable or such other action shall be required to be taken on or by the next succeeding day which is a business day. 27 -9- 1.6 CANADA BUSINESS CORPORATIONS ACT These Series 1 Provisions shall be governed by and are subject to the applicable provisions of the CBCA and all other laws binding upon the Corporation and, except as otherwise expressly provided herein, all terms used herein which are defined in the CBCA shall have the respective meanings ascribed thereto in the said Act. ARTICLE 2 DIVIDENDS 2.1 PAYMENT OF DIVIDENDS The holders of Series 1 Preference Shares shall be entitled to receive, and the Corporation shall pay thereon, as and when declared by the board of directors out of monies of the Corporation properly applicable to the payment of dividends, cumulative preferential cash dividends payable in the manner hereafter provided. 2.2 DIVIDENDS FOR THE INITIAL DIVIDEND PERIOD (a) The dividends payable in respect of the Initial Dividend Period shall be an amount per share determined in accordance with clause 2.2(b) hereof and shall be payable quarterly on the first day of September, December, March and June in each year commencing June 1, 1986. The record date for the purposes of determining holders of Series 1 Preference Shares entitled to receive dividends for any Quarter shall be the last Trading Day of such Quarter. 28 -10- (b) The dividends payable in respect of the Initial Dividend Period shall be as follows: (a) during the period from and including the date of issue of the Series 1 Preference Shares to and including June 1, 1986, an amount per share equal to the quotient obtained (rounded to the nearest one-tenth of one cent) by dividing (i) the product obtained by multiplying the Initial Dividend Rate by the Redemption Price in effect on the record date for such dividend and by the number of days during such period, by, (ii) 365, and (b) during each Quarter in the Initial Dividend Period, an amount per share equal to one-quarter of the product obtained by multiplying the Initial Dividend Rate and the Redemption Price in effect on the record date for the dividend payable for such Quarter. 2.3 DIVIDENDS AFTER THE INITIAL DIVIDEND PERIOD The dividends payable after the expiration of the Initial Dividend Period shall be payable monthly in respect of each Month in an amount per share equal to the quotient obtained (rounded to the nearest one-tenth of one cent) by dividing (i) the product obtained by multiplying the Annual Dividend Rate in effect for such Month by the Redemption Price in effect on the record date for the payment of the dividend for such Month, by (ii) 12, and shall be payable in arrears on the 12th day (or if that day is not a Trading Day, on the next succeeding Trading Day) of the following Month. The record date for the purposes of determining holders of Series 1 Preference Shares entitled to receive the dividend for any Month after the expiration of the Initial Dividend Period shall be the last Trading Day of the Month. 29 -11- 2.4 CUMULATION OF DIVIDENDS If on any dividend payment date a dividend accrued to and payable on such date is not paid in full on the Series I Preference Shares then issued and outstanding, the dividend or the unpaid part thereof shall be paid on a subsequent dividend payment date or dividend payment dates determined by the board of directors on which the Corporation shall have sufficient monies properly applicable to the payment of the same. The holders of Series 1 Preference Shares shall not be entitled to any dividends other than or in excess of the preferential cumulative dividends provided for in this Article 2. 2.5 METHOD OF PAYMENT Any dividends declared on the Series 1 Preference Shares shall be paid by mailing by pre-paid first class mail, on or before the dividend payment date, addressed to each holder of Series 1 Preference Shares at his address as it appears on the books of the Corporation or, in the case of joint holders, to the address of that one of the joint holders whose name stands first in the books of the Corporation, a cheque for such dividends (less the amount of any tax or other amounts required to be deducted or withheld by the Corporation) payable to or to the order of such holder (or, in the case of joint holders, payable to, and in the name of, all such holders, failing written instructions from them to the contrary) in lawful money of Canada at par at any branch in Canada of the Corporation's bankers for the time being. Notwithstanding the foregoing, any dividend cheque may be delivered to a holder of Series 1 Preference Shares at his address as aforesaid. The mailing or delivery of any such cheque in the 30 -12- foregoing manner shall satisfy such dividends to the extent of the sum represented by such cheque (plus the amount of any tax or other amounts required to be deducted or withheld as aforesaid) unless such cheque is not paid on presentation. Dividends which are represented by cheques which have not been presented to the Corporation's bankers for payment or which otherwise remain unclaimed for a period of six years from the date on which they were declared to be payable shall be forfeited to the Corporation. 2.6 CALCULATION AND NOTICE OF DIVIDENDS AFTER THE INITIAL DIVIDEND PERIOD After the Initial Dividend Period, the Corporation shall as promptly as practicable calculate the Adjustment Rate for each Month and give notice thereof to all stock exchanges on which the Series I Preference Shares are listed for trading, or if the Series I Preference Shares are not listed on a stock exchange, to the Investment Dealers Association of Canada. The Corporation shall use its best efforts to ensure that, so long as any Series 1 Preference Shares are outstanding, the Series 1 Preference Shares will be listed and posted for trading on The Toronto Stock Exchange or, failing The Toronto Stock Exchange, on another stock exchange in Canada. 31 -13- ARTICLE 3 REDEMPTION AT THE OPTION OF THE CORPORATION; PURCHASE FOR CANCELLATION 3.1 REDEMPTION RIGHTS The Corporation may, subject as hereinafter provided and subject to any applicable restrictions imposed by law, upon giving notice as hereinafter provided, redeem at any time or from time to time the whole or any part of the then outstanding Series 1 Preference Shares on payment for each share to be redeemed of an amount (referred to in this Article 3 as the "Redemption Amount") equal to the Redemption Price in effect or to be in effect at the date fixed for redemption together with all accrued and unpaid dividends calculated to the date fixed for redemption (which for such purpose shall be calculated as if such dividends were accruing from day to day for the period from the expiration of the last period for which cumulative dividends have been paid up to but excluding the date of such redemption). 3.2 METHOD OF REDEMPTION In the case of redemption of Series 1 Preference Shares under the provisions of this Article 3, the Corporation shall, not less than 30 days before the date specified for redemption, send by pre-paid first class mail or deliver to each person who at the date of mailing is a holder of Series 1 Preference Shares to be redeemed a notice in writing of the intention of the Corporation to redeem such Series 1 Preference Shares. Such notice shall be addressed to each such holder at his address as it appears on the books of the Corporation or, in the event of the address of any such holder not so 32 -14- appearing then, to the last known address of such holder; provided, however, that accidental failure to give any such notice to one or more of such holders shall not affect the validity of such redemption, but, upon such failure or omission being discovered, notice shall be given forthwith to such holder or holders and such notice shall have the same force and effect as if given in due time. Such notice shall set out the Redemption Amount, the date specified for redemption, the place or places within Canada or the United States at which holders of Series 1 Preference Shares may present and surrender such shares for redemption and, if part only of the shares held by the person to whom it is addressed is to be redeemed, the number thereof so to be redeemed. 3.3 PAYMENT OF REDEMPTION AMOUNT On or after the date so specified for redemption, the Corporation shall pay or cause to be paid to or to the order of the holders of the Series 1 Preference Shares to be redeemed the Redemption Amount in respect thereof on presentation and surrender at the registered office of the Corporation or at any other place or places within Canada or the United States designated in such notice of redemption, of the certificate or certificates representing the Series 1 Preference Shares called for redemption. Payment in respect of the Series 1 Preference Shares being redeemed shall be made by cheque payable to the holder thereof in lawful money of Canada at par at any branch of the Corporation's bankers for the time being. Subject to the provisions of section 3.4, on and after the date specified for redemption in the notice referred to in section 3.2, the Series 1 Preference Shares called for redemption shall cease to be entitled to dividends or any other participation in the assets of the Corporation and the 33 -15- holders thereof shall not be entitled to exercise any other rights as shareholders in respect thereof unless payment of the Redemption Amount shall not be made upon presentation and surrender of certificates in accordance with the foregoing provisions, in which case the rights of the holders shall remain unaffected. 3.4 DEPOSIT OF REDEMPTION AMOUNT The Corporation shall have the right at any time on or after the mailing or delivery of notice of its intention to redeem any Series 1 Preference Shares as aforesaid to deposit the Redemption Amount of the Series 1 Preference Shares so called for redemption, or of such of the said shares represented by certificates which have not at the date of such deposit been surrendered by the holders thereof in connection with such redemption, to a special account in one or more specified Canadian chartered or United States banks or trust company in Canada or United States, named in such notice of redemption or in a subsequent notice to the holders of the Series 1 Preferences Shares in respect of which the deposit is made, to be paid without interest to or to the order of the respective holders of such Series 1 Preference Shares called for redemption upon presentation and surrender to such bank(s) or trust company(ies) of the certificates representing such shares. Upon such deposit being made or upon the date specified for redemption in such notice, whichever is the later, the Series 1 Preference Shares in respect of which such deposit shall have been made shall be deemed to have been redeemed and all rights of the holders thereof after such deposit or such redemption date, as the case may be, shall be limited to receiving without interest their proportionate part (less any tax required to be deducted or withheld therefrom) of the total 34 -16- Redemption Amount so deposited upon presentation and surrender of the certificate or certificates representing the Series 1 Preference Shares redeemed. Any interest allowed on any such deposit shall belong to the Corporation. 3.5 UNCLAIMED REDEMPTION MONIES Redemption monies that are represented by a cheque which has not been presented to the Corporation's bankers for payment or that otherwise remain unclaimed (including monies held on deposit in a special account as provided for in section 3.4) for a period of six years from the date specified for redemption shall be forfeited to the Corporation. 3.6 PARTIAL REDEMPTION In case a part only of the Series 1 Preference Shares is at any time to be redeemed, the shares so to be redeemed shall be selected by lot or in such other manner as the board of directors of the Corporation in its sole discretion may deem equitable. If a part only of the Series 1 Preference Shares represented by any certificate shall be redeemed, a new certificate representing the balance of such shares shall be issued to the holder thereof at the expense of the Corporation upon presentation and surrender of the first-mentioned certificate. 35 -17- 3.7 PURCHASE FOR CANCELLATION The Corporation may, subject to any restrictions imposed by law, purchase at any time all or from time to time any number of the outstanding Series 1 Preference Shares (a) by purchase through the facilities of any stock exchange on which the Series 1 Preference Shares are listed or otherwise in the open market (including purchases through or from an investment dealer or firm holding membership on a stock exchange) or pursuant to tenders received by the Corporation upon an invitation for tenders addressed to all holders of the Series 1 Preference Shares, in either case at any price per share or (b) in any other manner provided that the price does not exceed the Redemption Price in effect on the date of purchase, together with all accrued and unpaid dividends calculated to the date of purchase (which for such purpose shall be calculated as if such dividends were accruing from day to day for the period from the expiration of the last period for which cumulative dividends have been paid up to but excluding the date of purchase), and costs of purchase. If upon any invitation for tenders the Corporation receives tenders for Series 1 Preference Shares at the same price in an aggregate number greater than the number for which the Corporation is prepared to accept tenders, the Series 1 Preference Shares to be purchased shall be selected from the Series 1 Preference Shares offered at such price as nearly as may be pro rata (to the nearest 10 shares) according to the number of Series 1 Preference Shares offered in each such tender, or in such manner as the board of directors of the Corporation in its sole discretion shall by resolution determine. 36 -18- ARTICLE 4 CONSOLIDATION 4.1 RIGHT OF CONSOLIDATION The Corporation may, at any time on or before March 1, 1988, upon giving notice as hereinafter provided, consolidate the Series 1 Preference Shares on the basis that five (5) (or an integral multiple of five (5) not exceeding twenty (20)) Series 1 Preference Shares shall be consolidated into one (1) Series 1 Preference Share. The number of Series 1 Preference Shares that, as a result of any such consolidation, shall have been consolidated into one (1) Series 1 Preference Share is herein referred to as the "Consolidation Factor" and the Consolidation Factor shall initially be one (1). Subject to giving notice as hereinafter provided, the Corporation may effect any such consolidation by resolution of the board of directors, without any further or other authorization of the holders of the Series 1 Preference Shares or the holders of any other class of shares of the Corporation. The resolution of the board of directors shall provide, inter alia, for the redesignation, if required by a stock exchange on which the Series 1 Preference Shares are then listed, of the Series 1 Preference Shares, the Consolidation Factor, the date (the "Consolidation Date") upon which the consolidation shall become effective and the giving of notice to the holders of Series 1 Preference Shares as hereinafter provided. The consolidation of the Series 1 Preference Shares shall, subject to giving notice as hereinafter provided, become effective on the Consolidation Date without further formality. 37 -19- 4.2 METHOD OF CONSOLIDATION In the case of consolidation of Series 1 Preference Shares under the provisions of this Article 4, the Corporation shall, not less than thirty (30) days before the Consolidation Date, send by pre-paid first class mail or deliver to each person who at the date of mailing is a holder of Series 1 Preference Shares a notice in writing of the intention of the Corporation to consolidate the Series 1 Preference Shares. Such notice shall be addressed to each such holder at his address as it appears on the books of the Corporation or, in the event of the address of any such shareholder not so appearing then, to the last known address of such shareholder; provided, however, that accidental failure to give any such notice to one or more of such shareholders shall not affect the validity of such consolidation. Such notice shall set out the Consolidation Factor, as a result of such consolidation, the Consolidation Date, the place or places within Canada or the United States at which holders of Series 1 Preference Shares may present and surrender certificates representing such Series 1 Preference Shares for new certificates representing such shares on a post-consolidated basis and the new designation of such Series 1 Preference Shares on a post-consolidated basis. 4.3 EXCHANGE OF SHARE CERTIFICATES On or after the Consolidation Date, the holders of the Series 1 Preference Shares shall surrender the share certificates representing such shares at the place or places so specified and receive in exchange therefor new certificates representing such shares on a post-consolidated basis. On or after the Consolidation Date, the share certificates representing the Series 1 Preference Shares prior thereto shall cease to 38 -20- represent such shares and shall represent only the right of the holder thereof to receive new certificates in respect of such shares on a post-consolidated basis. 4.4 FRACTIONAL SHARES If a holder of Series 1 Preference Shares is entitled to less than a whole share on a post-consolidated basis, the Corporation shall issue to the transfer agent and registrar of the Series 1 Preference Shares, on behalf of such holder, a scrip certificate in bearer form which shall only entitle the holder thereof to receive a share certificate representing a whole share on a post-consolidated basis in exchange for scrip certificates aggregating a whole such share. A holder of such a scrip certificate will not be entitled to exercise any voting rights or to receive any dividends or distributions on or in respect of scrip certificates. The transfer agent and registrar for the Series 1 Preference Shares shall exchange such scrip certificates so issued to it for whole shares on a post-consolidated basis and shall make reasonable efforts to sell, on behalf of the holders of such scrip certificates, such whole shares on the Exchange or elsewhere in its discretion and shall distribute any proceeds realized from such sale rateably to the holders of such scrip certificates. 39 -21- ARTICLE 5 CONVERSION INTO ADDITIONAL PREFERENCE SHARES 5.1 CONVERSION PRIVILEGE Upon and subject to the terms and conditions hereinafter set forth, the holders of Series 1 Preference Shares shall have the right to convert all or any part of their Series 1 Preference Shares into fully paid and non-assessable shares of another class or series of preference shares of the Corporation ("Additional Preference Shares") if the Corporation elects on or after March 1, 1988 by giving notice (the "Additional Preference Share Conversion Notice") on a dividend payment date to each holder of the Series 1 Preference Shares and to each stock exchange on which the Series 1 Preference Shares are listed that it has created Additional Preference Shares into which any or all of such Series 1 Preference Shares may, at the option of the holder, be converted. The Corporation shall send the Additional Preference Share Conversion Notice by pre-paid first class mail or deliver the same to each person who at the date of mailing is a holder of Series 1 Preference Shares and shall specify in the Additional Preference Share Conversion Notice (i) that the holders of the Series 1 Preference Shares have the right to convert all or any part of their Series 1 Preference Shares on the next succeeding dividend payment date (the "Additional Preference Share Conversion Date") after the giving of the Additional Preference Share Conversion Notice on a share for share basis and (ii) a summary of the rights, privileges, restrictions and conditions of the Additional Preference Shares into which the Series 1 Preference Shares may be converted. 40 -22- 5.2 CONVERSION PROCEDURE The conversion privilege provided upon giving of the Additional Preference Share Conversion Notice may be exercised by a holder of Series 1 Preference Shares by notice in writing given on or prior to the Additional Preference Share Conversion Date to the transfer agent and registrar for the Series 1 Preference Shares, accompanied by the certificate or certificates representing Series 1 Preference Shares in respect of which the holder thereof desires to exercise such right of conversion. Such notice shall be signed by such holder or duly authorized attorney and shall specify the number of Series 1 Preference Shares which the holder desires to have converted. If less than all the Series 1 Preference Shares represented by a certificate or certificates accompanying any such notice are to be converted, the holder shall be entitled to receive, at the expense of the Corporation, a new certificate representing the Series 1 Preference Shares represented in the certificate or certificates surrendered as aforesaid which are not to be converted. Any such notice given by a holder of Series 1 Preference Shares exercising such conversion privilege shall be irrevocable. 5.3 SHARE CERTIFICATES ON CONVERSION On any conversion of Series 1 Preference Shares pursuant to this Article 5 the share certificates for Additional Preference Shares of the Corporation resulting therefrom shall be issued in the name of the holder or joint holders of the Series 1 Preference Shares converted as the same appears on the books of the Corporation, or in such name or names as such holder or joint holders may direct in writing (either in the notice referred to in section 5.2 or otherwise), provided that such holder or joint 41 -23- holders shall pay any applicable security transfer taxes; in any such case the transfer form on the back of the certificates in question shall be endorsed by the holder or joint holders of the Series 1 Preference Shares or his duly authorized attorney, with signature guaranteed in a manner satisfactory to the transfer agent. 5.4 DATE OF CONVERSION Subject as hereinafter provided in this section 5.4, the right of a holder of Series 1 Preference Shares to convert the same into Additional Preference Shares shall be deemed to have been exercised, and the holder or joint holders of Series 1 Preference Shares to be converted (or any person or persons in whose name or names any such holder or joint holders of Series 1 Preference Shares shall have directed certificates representing Additional Preference Shares to be issued as provided in section 5.3) shall be deemed to have become the holder or holders of Additional Preference Shares of record of the Corporation for all purposes on the Additional Preference Share Conversion Date, notwithstanding any delay in the delivery of certificates representing the Additional Preference Shares into which such Series 1 Preference Shares have been converted. 5.5 LEGAL OPINION The right of the Corporation to elect to create Additional Preference Shares into which any or all of such Series 1 Preference Shares may, at the option of the holder, be converted into Additional Preference Shares is subject to the Corporation receiving a legal opinion from its counsel dated the date of the Additional Preference Share Conversion Notice that the Additional Preference Shares into which the Series 1 42 -24- Preference Shares are to be converted will not be "term preferred shares" within the meaning of that expression as defined in the Income Tax Act (Canada) as the same may be amended from time to time. 5.6 RESTRICTION ON ISSUE OF ADDITIONAL PREFERENCE SHARES If the Corporation elects to create Additional Preference Shares, it may issue such shares only if the Corporation: (a) uses all reasonable efforts to qualify, if necessary, the Additional Preference Shares for distribution to the public in all provinces and territories of Canada and states in the United States in which there are then holders of Series 1 Preference Shares or in which there is then a stock exchange on which the Series 1 Preference Shares are listed; and (b) uses all reasonable efforts to list the Additional Preference Shares on each stock exchange on which the Series 1 Preference Shares are then listed. ARTICLE 6 VOTING RIGHTS Except as otherwise provided herein or in the provisions attaching to the Senior Preference Shares as a class, the holders of the Series 1 Preference Shares are not entitled as such to receive notice of, or to attend, or to vote at, any meeting of the shareholders of the Corporation unless the Corporation shall have failed to pay dividends 43 -25- on the Series 1 Preference Shares pursuant to section 2.2 and section 2.3 for a period of 24 months, whether or not consecutive ("Dividend Default"). In the event of a Dividend Default, and only for so long as any dividends on the Series 1 Preference Shares remain in arrears, the holders of the Series 1 Preference Shares will be entitled to receive notice of, and to attend, meetings of shareholders of the Corporation at which directors are to be elected and will be entitled, voting separately as a class together with the holders of any other series of Senior Preference Shares who have similar voting rights, to elect two directors of the Corporation. In connection with the foregoing, the holders of the Series 1 Preference Shares shall have one vote for each $1.00 of the Redemption Price of a Series 1 Preference Share. Nothing herein contained shall be deemed or construed to limit the ability of the Corporation from time to time to increase or decrease the number of its directors. In connection with any action to be taken by the Corporation which requires the approval of the holders of Series 1 Preference Shares voting as a series or as part of the class, each such share shall entitle the holder thereof to one vote for each $1.00 of the Redemption Price of a Series 1 Preference Share. ARTICLE 7 RESTRICTIONS ON DIVIDENDS AND RETIREMENT AND ISSUE OF SHARES Subject to any restrictions under applicable law, so long as any of the Series 1 Preference Shares are outstanding, unless all dividends on the Series 1 Preference Shares then outstanding and on all other shares of the Corporation ranking as to 44 -26- dividends prior to or on a parity with the Series 1 Preference Shares accrued up to and including the immediately preceding respective date or dates for the payment of dividends thereon have been declared and paid or set apart for payment, the Corporation will not, without the approval of the holders of the Series 1 Preference Shares given as specified below: (a) pay, declare or set apart for payment any dividends (other than stock dividends in shares of the Corporation ranking junior to the Series 1 Preference Shares) on shares ranking junior to the Series 1 Preference Shares; or (b) redeem, purchase or otherwise retire or make any capital distribution on or in respect of any shares ranking junior to the Series 1 Preference Shares (except out of the net cash proceeds of a substantially concurrent issue of shares ranking junior to the Series 1 Preference Shares); or (c) redeem, purchase or otherwise retire less than all the Series 1 Preference Shares; or (d) except pursuant to any purchase obligation, sinking fund, retraction privilege or mandatory redemption provisions attaching to any series of preferred shares from time to time issued, redeem, purchase or otherwise retire for value any shares ranking on a parity with or junior to the Series 1 Preference Shares; or (e) issue any additional Series 1 Preference Shares or any shares ranking prior to or on a parity with the Series 1 Preference Shares with respect to the payment of dividends or the distribution of assets in the event of the 45 -27- liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or in the event of any other distribution of assets of the Corporation amongst its shareholders for the purpose of winding up its affairs. Any approval of the holders of the Series 1 Preference Shares required hereunder may be given by the affirmative vote of at least a majority of the votes cast at a meeting, or adjourned meeting, of the holders of the Series 1 Preference Shares duly called and held for that purpose. ARTICLE 8 STATED CAPITAL The number of Series 1 Preference Shares which may be issued shall be limited to the number of Series 1 Preference Shares issuable pursuant to the Plan of Arrangement of the Corporation under section 185.1 of the CBCA effective as of February 10, 1986. The stated capital of the issued and outstanding Series 1 Preference Shares shall be 22% of the stated capital attributable to the issued and outstanding common shares of Gulf Canada Limited immediately prior to the Plan of Arrangement becoming effective under the CBCA, and the stated capital of each Series 1 Preference Share, prior to any consolidation thereof pursuant to Article 4 of these Series 1 Provisions, shall be the stated capital attributable to the Series 1 Preference Shares as a series, divided by the number of issued Series 1 Preference Shares. 46 -28- ARTICLE 9 RIGHTS ON LIQUIDATION In the event of the liquidation, dissolution or winding up of the Corporation or other distribution of the assets of the Corporation for the purpose of winding-up its affairs, the holders of the Series 1 Preference Shares shall be entitled to receive an amount equal to the Redemption Price in effect on the record date established for any such distribution together with all accrued and unpaid dividends calculated to the date of distribution (which for such purpose shall be calculated as if such dividends were accruing from day to day for the period from the expiration of the last period for which cumulative dividends have been paid up to but excluding the date of distribution), before any amount shall be paid to or any property and assets of the Corporation distributed among the holders of the Junior Preference Shares, the ordinary shares or any other shares of the Corporation ranking junior to the Series 1 Preference Shares and, after payment thereof, the Series 1 Preference Shares shall not be entitled to share in any further distribution of the assets of the Corporation. 47 -29- ARTICLE 10 MODIFICATION The Series 1 Provisions (including this Article 10) may be deleted, varied, modified, amended or amplified by articles of amendment but only with the prior approval of the holders of Series 1 Preference Shares given as hereinafter specified, in addition to any vote or authorization required by the CBCA. ARTICLE 11 APPROVAL OF MODIFICATION Except as otherwise expressly provided herein, the approval of the holders of the Series 1 Preference Shares with respect to any modification of the Series 1 Provisions pursuant to Article 10 or with respect to any and all other matters referred to herein (in addition to and distinct from any vote or authorization required by the CBCA and any authorization required by section 170 thereof (or any other statutory provision of like or similar effect, from time to time in force)) may be given by resolution passed by the affirmative vote of at least two-thirds of the votes cast by holders of Series 1 Preference Shares who voted in respect of that resolution at a meeting of holders of the Series 1 Preference Shares duly called for that purpose at which a majority of the outstanding Series 1 Preference Shares are present or represented by proxy. If at any such meeting the holders of a majority of the outstanding Series 1 Preference Shares are not present or represented by proxy within one-half hour after the 48 -30- time appointed for such meeting, then the meeting shall be adjourned to such date being not less than 30 days later and at such time and place as may be appointed by the chairman and not less than 21 days notice shall be given of such adjourned meeting. At such adjourned meeting the holders of the Series 1 Preference Shares present or represented by proxy may transact the business for which the meeting was originally called and a resolution passed thereat by not less than two-thirds of the votes cast at such adjourned meeting shall constitute the approval of the holders of the Series 1 Preference Shares referred to above. The formalities to be observed in respect of the giving of notice of any such meeting or any adjourned meeting and the conduct thereof shall be those from time to time prescribed by the CBCA and the by-laws of the Corporation with respect to meetings of shareholders. 49 APPENDIX B GULF CANADA RESOURCES LIMITED/ RESSOURCES GULF CANADA LIMITEE CUMULATIVE REDEEMABLE AUCTION PERPETUAL SENIOR PREFERENCE SHARES, SERIES 2 I N D E X
Page No. -------- PART I 1. Interpretation and Application................................. 1 2. Notices........................................................ 10 3. Amendment...................................................... 11 4. Approval of Holders of Series 2 Preference Shares.............. 11 5. Tax Election................................................... 12 PART II 1. Payment of Dividends........................................... 12 2. Amount of Dividends............................................ 13 3. Cumulative Dividends........................................... 15 4. Redemption at the Option of the Corporation.................... 15 5. Manner of Redemption........................................... 15 6. Purchase for Cancellation...................................... 16 7. Restriction on Dividends and Retirement and Issue of Shares.... 17 8. Liquidation, Dissolution or Winding-Up......................... 18 9. Information and Voting Rights.................................. 18 III. PART III CORPORATION DETERMINED RATE PROCEDURES 1. Determination of New Dividend Rate............................. 19 2. Acceptance of Corporation Determined Dividend Rate............. 20 3. Termination of Application..................................... 20 4. Miscellaneous.................................................. 21
50 - ii - IV. PART IV DEALER BIDS PROCEDURES 1. Bids by Dealers.............................................. 21 2. Termination of Application................................... 25 3. Miscellaneous................................................ 25 V. PART V AUCTION PROCEDURES 1. Orders by Existing Holders and Potential Holders............. 26 2. Submission of Orders by Dealers to the Auction Manager....... 28 3. Determination of Sufficient Clearing Bids, Winning Bid Rate and Current Dividend Rate................... 30 4. Acceptance and Rejection of Submitted Bids and Submitted Sell Orders and Allocation of Shares......................... 32 5. Miscellaneous................................................ 35
51 GULF CANADA RESOURCES LIMITED SENIOR PREFERENCE SHARES, SERIES 2 The second series of Senior Preference Shares shall consist of 300 shares designated "Cumulative Redeemable Auction Perpetual Senior Preference Shares, Series 2" (the "series 2 Preference Shares") and, in addition to the rights, privileges, restrictions and conditions attaching to the Senior Preference Shares as a class, shall have attached thereto the following rights, privileges, restrictions and conditions: I. PART I 1. INTERPRETATION AND APPLICATION (a) For the purposes hereof, including Parts II, III, IV and V hereof, the following expressions have the following meanings: "ACT" shall mean the Canada Business Corporations Act, as now enacted or from time to time amended, varied or replaced; "AUCTION" shall mean the periodic operation of the Auction Procedures; "AUCTION DATE" shall mean the second Tuesday of each calendar month of each Auction Dividend Period included within an Auction Term or, if such Tuesday is not a Business Day, the next preceding Business Day; "AUCTION DIVIDEND PAYMENT DATE" shall mean, in respect of each Auction Dividend Period, the second Business Day following the end of the Auction Dividend Period; "AUCTION DIVIDEND PERIOD" shall mean, with respect to the first Auction Dividend Period of any Auction Term, the period from and including the immediately preceding Dividend Payment Date to and including the first Auction Date and, with respect to any subsequent Auction Dividend Period of such Auction Term, shall mean the period from but excluding each Auction Date to and including the next succeeding Auction Date; for greater certainty, the first Auction Dividend Period of an Auction Term shall commence on the day immediately following the last day of the Initial Three Year Term and on the day immediately following the last day of each Corporation Determined Term and each Dealer Determined Term unless the provisions of Parts III or IV hereof shall have been implemented prior to such day so as to result in a Corporation Determined Term or Dealer Determined Term commencing on such day; "AUCTION MANAGER" shall mean the trust corporation duly appointed from time to time by the Corporation as Auction Manager in respect of the Series 2 Preference Shares pursuant to the Auction Manager Agreement; 52 - 2 - "AUCTION MANAGER AGREEMENT" shall mean an agreement made between the Auction Manager and the Corporation which provides, among other things, that the Auction Manager will follow the Auction Procedures for the purposes of determining the Current Dividend Rate for the Series 2 Preference Shares; "AUCTION PROCEDURES" shall mean the procedures set forth in Part V hereof for determining the applicable dividend rate for the Series 2 Preference Shares from time to time during an Auction Term; "AUCTION TERM" shall mean any term of not less than two consecutive Auction Dividend Periods with respect to which the Auction Procedures apply commencing on the first day of the first of such Auction Dividend Periods and terminating on the last day of any subsequent Auction Dividend Period which immediately precedes the beginning of a Corporation Determined Term or a Dealer Determined Term, as the case may be; "AVAILABLE SHARES" shall have the meaning specified in paragraph (i) of section V.3.(a) hereof; "AVERAGE DAILY PRIME RATE" shall mean, for any day, the arithmetic average, rounded to the nearest one-hundredth of one percent (0.01%), of the Daily Prime Rates of the Banks on such day; provided that if on such day there shall be no Daily Prime Rate for one or more of the Banks, the Average Daily Prime Rate for such day shall be the average of the Daily Prime Rates of the other Bank or Banks as the case may be; and further provided that if on such day there shall be no Daily Prime Rate for any of the Banks, the Average Daily Prime Rate for such day shall be 1.5% above the average yield per annum on 91-day Government of Canada Treasury bills as reported by the Bank of Canada for the most recent weekly tender preceding such day; "AVERAGE PRIME RATE" shall mean, for any period consisting, of more than one day, the arithmetic average, rounded to the nearest one-hundredth of one percent (0.01%), of the Average Daily Prime Rate for each day during such period; "BANKERS' ACCEPTANCE RATE", for any day, shall mean the average bid rate for one-month Canadian dollar bankers' acceptances which appears on the Reuters Screen as of 10:00 a.m., Toronto time, on that day; provided that if such rate does not appear on the Reuters Screen, the rate on that day shall be determined on the basis of the average quoted bid rates of the Banks for one-month Canadian dollar bankers' acceptances for settlement on that day quoted by the Banks as of 10:00 a.m., Toronto time, on that day; provided further that if the duration of a Dividend Period for which 53 - 3 - a Corporation Determined Dividend Rate or Dealer Determined Dividend Rate which is referenced to a Bankers' Acceptance Rate is two calendar months or longer, then the references in this definition to one-month Canadian dollar bankers' acceptances shall be read as references to Canadian dollar bankers' acceptances having a term substantially the same as the number of whole calendar months within such Dividend Period; "BANKS" shall mean Canadian Imperial Bank of Commerce, The Royal Bank of Canada, The Toronto-Dominion Bank, Bank of Montreal and The Bank of Nova Scotia and the term "BANK" shall mean one of the Banks and, for the purposes of this definition, "BANKS" shall include any bank with which one or more of such Banks may merge and any bank which may become a successor to the business of one of such Banks; "BID" and "BIDS" shall have the respective meanings specified in section V.1.(a) hereof; "BIDDER" and "BIDDERS" shall have the respective meanings specified in section V.1.(a) hereof; "BUSINESS DAY" shall mean a day on which the Banks are open for business in Toronto and which is not a Saturday or a Sunday and, for the purposes of Parts IV and V, a day on which The Toronto Stock Exchange or any successor stock exchange is open for business; "CORPORATION DETERMINED DIVIDEND RATE" shall mean the annual dividend rate specified by the Corporation in its notice pursuant to section III.1. hereof, which annual dividend rate shall be one of: (i) the Corporation Determined Percentage of the Average Prime Rate determined for each Dividend Payment Date immediately following the Dividend Period for which such determination is being made based on the Average Prime Rate for the calendar month ending on the last day of the calendar month prior to the calendar month during which the Dividend Payment Date for which the determination is being made falls; provided, however, that if the duration of the relevant Dividend Period is two calendar months or longer, then such determination shall be made based on the Average Prime Rate for that number of calendar months which is equal to the number of whole calendar months in such Dividend Period and ending on the last day of the calendar month prior to the calendar month during which the Dividend Payment Date for which the determination is being made falls; 54 - 4 - (ii) the Corporation Determined Percentage of the Bankers' Acceptance Rate determined on the first Business Day of the Dividend Period for which such determination is being made; or (iii) a fixed annual percentage rate; "CORPORATION DETERMINED PERCENTAGE" shall mean a percentage of the Average Prime Rate or of the Bankers' Acceptance Rate to be selected by the Corporation and set forth in the notice referred to in section III.1. hereof; "CORPORATION DETERMINED TERM" shall mean a term selected by the Corporation consisting of one or more consecutive Dividend Periods, commencing on or after April 30, 1992, the first day of which shall be either (i) a Dividend Payment Date, or (ii) in the case of a Corporation Determined Term which immediately follows an Auction Term, the day immediately following the last day of the Auction Dividend Period, and the last day of which shall be the last day of the last Dividend Period selected by the Corporation, to which the provisions of Part III hereof shall apply for the purpose of determining the dividend to be paid on each Dividend Payment Date relating to each Dividend Period within such term, provided that such term and the dividend rate applicable thereto have been approved by the holders of Series 2 Preference Shares in accordance with section III.2. hereof; "CURRENT DIVIDEND RATE" shall be the rate per annum which has been determined in accordance with section V.3.(b) hereof for the next succeeding Auction Dividend Period; "DAILY PRIME RATE" shall mean, for any Bank, on any day, the annual rate of interest quoted or published by such Bank as its prime rate in effect on such day; "DEALER" shall mean any registered investment dealer or other person permitted by law (i) for the purposes of Part IV, to perform the functions required of a Dealer in Part IV or (ii) for the purposes of Part V, to perform the functions required of a Dealer in Part V and who has entered into a Dealer Agreement with the Auction Manager that remains effective; "DEALER AGREEMENT" shall mean an agreement between the Auction Manager and a Dealer pursuant to which the Dealer agrees to participate in Auctions in compliance with the procedures set forth in Part V; 55 - 5 - "DEALER DETERMINED DIVIDEND RATE" shall mean the annual dividend rate specified by the Dealer in the Accepted Dealer Offer referred to in section IV.l. (c) hereof which shall be one of; (i) the Dealer Determined Percentage of the Average Prime Rate determined for each Dividend Payment Date immediately following the Dividend Period for which such determination is being made based on the Average Prime Rate for the calendar month ending on the last day of the calendar month prior to the calendar month during which the Dividend Payment Date for which the determination is being made falls; provided, however, that if the duration of the relevant Dividend Period is two calendar months or longer, then such determination shall be made based on the Average Prime Rate for that number of calendar months which is equal to the number of whole calendar months in such Dividend Period and ending on the last day of the calendar month prior to the calendar month during which the Dividend Payment Date for which the determination is being made falls; (ii) the Dealer Determined Percentage of the Bankers' Acceptance Rate determined on the first Business Day of the Dividend Period for which such determination is being made; or (iii) a fixed annual percentage rate; "DEALER DETERMINED PERCENTAGE" shall mean a percentage of the Average Prime Rate or the Bankers' Acceptance Rate to be selected by each Dealer and to be set forth in each Dealer Offer in accordance with section IV.1.(b) hereof; "DEALER DETERMINED TERM" shall mean a term selected by a Dealer consisting of one or more consecutive Dividend Periods, commencing on or after April 30, 1992, the first day of which shall be either (i) a Dividend Payment Date, or (ii) in the case of a Dealer Determined Term which immediately follows an Auction Term, the day immediately following the last day of the Auction Dividend Period, and the last day of which shall be the last day of the last Dividend Period selected by such Dealer, to which the provisions of Part IV hereof shall apply for the purpose of determining the dividend to be paid on each Dividend Payment Date relating to each Dividend Period within such term; "DEALER OFFER" shall mean a written irrevocable and unconditional offer from a Dealer in response to a Notice Requesting Bids to purchase all of the Series 2 Preference Shares outstanding on the last day of the Initial Three Year Term or the current Corporation Determined Term or Dealer Determined Term or on the Settlement Date immediately following the end 56 - 6 - of the current Auction Dividend Period, as the case may be, at a purchase price per Series 2 Preference Share equal to $500,000 and containing the information specified in section IV.1.(b) hereof; "DEALER RESPONSE DATE" shall have the meaning ascribed thereto in section IV.l. (a) hereof; "DIVIDEND PAYMENT DATE" shall mean the last day of each calendar month in each year commencing April 30, 1989; provided, however, that during a Corporation Determined Term or a Dealer Determined Term "DIVIDEND PAYMENT DATE" shall mean the last day of the last calendar month of each Dividend Period proposed by the Corporation pursuant to the provisions of section III.1. or specified in an Accepted Dealer Offer pursuant to the provisions of sections IV.1.(b) and (c); "DIVIDEND PERIOD" shall mean the period from and including the date of issue of the Series 2 Preference Shares to but excluding the first Dividend Payment Date and, thereafter, the period from and including each Dividend Payment Date to but excluding the next succeeding Dividend Payment Date except for the first Dividend Period following an Auction Term in which case "DIVIDEND PERIOD" shall mean the period from and including the day immediately following the end of the Auction Term to but excluding the next succeeding Dividend Payment Date which falls at least one calendar month after the said day; "EXISTING HOLDER" shall mean a holder of Series 2 Preference Shares (i) who has signed a Purchaser's Letter, (ii) who has delivered or caused to be delivered such Purchaser's Letter to the Auction Manager and to any Dealer to which such Existing Holder submits information pursuant to section V.1.(a) hereof, and (iii) who is registered in the ledger maintained by the Auction Manager in respect of holders of Series 2 Preference Shares; "HELD BY" with respect to any Series 2 Preference Shares registered in the name of the Auction Manager shall include such shares beneficially owned by an Existing Holder but does not include, with respect to such shares, the Auction Manager; "HEREOF" and similar expressions mean or refer to the provisions relating to the Series 2 Preference Shares; "HOLD ORDER" and "HOLD ORDERS" shall have the respective meanings specified in section V.1.(a) hereof; 57 - 7 - "INITIAL THREE YEAR TERM" shall mean the period from and including the date of issue of the Series 2 Preference Shares to but excluding April 30, 1992; "MAXIMUM RATE" with respect to any Auction Dividend Period shall mean the Bankers' Acceptance Rate determined on the Auction Date immediately preceding the beginning of such Auction Dividend Period plus 0.40%; "NOTICE REQUESTING BIDS" shall mean a notice from the Corporation to one or more Dealers requesting them to submit Dealer Offers as provided for in section IV.1.(a) hereof; "NOTIFICATION TO HOLDERS" shall mean the notification from the Corporation to holders of Series 2 Preference Shares of the acceptance of a Dealer Offer as provided for in section IV.l. (d) hereof; "ORDER" and "ORDERS" shall have the respective meanings specified in section V.l. (a) hereof; "POTENTIAL HOLDER" shall mean any person, including any Existing Holder, (i) who has executed a Purchaser's Letter, (ii) who has delivered or caused to be delivered such Purchaser's Letter to the Auction Manager and to any Dealer to which such Potential Holder submits information pursuant to section V.l. (a) hereof and (iii) who has submitted an order to acquire Series 2 Preference Shares in an Auction; "PURCHASER'S LETTER" shall mean a letter addressed to the Auction Manager and a Dealer in which a person agrees, among other things, to be bound by the Auction Procedures in the event such person participates in an Auction- "REDEMPTION DATE" shall have the meaning specified in section II.5 hereof.; "REDEMPTION PRICE" shall have the meaning specified in section II.4 hereof.; "REMAINING SHARES" shall have the meaning specified in paragraph (iv) of section V.4.(a) hereof; "REUTERS SCREEN" means the display designated as page "CDOR" on the Reuter Monitor Money Rates Service (or such other page as may replace the CDOR page on that service) for the purpose of displaying Canadian dollar bankers' acceptance rates and Government of Canada Treasury bill rates; 58 - 8 - "SELL ORDER" and "SELL ORDERS" shall have the respective meanings specified in section V.1.(a) hereof; "SETTLEMENT DATE" shall mean the first Business Day following an Auction Date; "SUBMISSION DEADLINE" shall mean 11:00 a.m., Toronto time, on any Auction Date or such later time on any Auction Date, as specified by the Auction Manager from time to time, by which Dealers are required to submit Orders to the Auction Manager; "SUBMITTED BID" and "SUBMITTED BIDS" shall have the respective meanings specified in section V.3.(a) hereof; "SUBMITTED HOLD ORDER" and "SUBMITTED HOLD ORDERS" shall have the respective meanings specified in section V.3.(a) hereof; "SUBMITTED ORDER" and "SUBMITTED ORDERS" shall have the respective meanings specified in section V.3.(a) hereof; "SUBMITTED SELL ORDER" and "SUBMITTED SELL ORDERS" shall have the respective meanings specified in section V.3.(a) hereof; "SUFFICIENT CLEARING BIDS" shall have the meaning specified in section V.3.(a) hereof; and "WINNING BID RATE" shall mean the dividend rate per annum determined in accordance with section V.3.(a) hereof. (b) In the event that any date on which any dividend on the Series 2 Preference Shares is payable, or on or by which any other action is required to be taken hereunder or in connection herewith, is not a Business Day, then such dividend shall be payable, or such other action shall be required to be taken, on or by the next succeeding day that is a Business Day. (c) In the event of the non-receipt of a cheque by a holder of Series 2 Preference Shares entitled to such cheque, or the loss or destruction thereof, the Corporation, upon being furnished with reasonable evidence of such non-receipt, loss or destruction, and an indemnity reasonably satisfactory to the Corporation, shall issue to such holder a replacement cheque for the amount of such cheque. (d) The provisions of Part III hereof with respect to the fixing of a Corporation Determined Dividend Rate for a Corporation Determined Term may be initiated by the Corporation no earlier than 60 days and no later than 45 59 - 9 - days prior to the end of the Initial Three Year Term and, thereafter, may be used by the Corporation from time to time during any Corporation Determined Term, Dealer Determined Term or Auction Dividend Period (other than during the first Auction Dividend Period within an Auction Term), as the case may be, provided that in such circumstances such provisions are initiated no earlier than 25 days and no later than 20 days prior to the end of the current Corporation Determined Term or Dealer Determined Term or Auction Dividend Period, as the case may be. (e) The provisions of Part IV hereof with respect to the solicitation of Dealer Offers for the purpose of fixing a Dealer Determined Dividend Rate for a Dealer Determined Term may be initiated by the Corporation no earlier than 30 days and no later than 25 days prior to the end of the Initial Three Year Term and, thereafter, may be used by the Corporation from time to time during any Corporation Determined Term, Dealer Determined Term or Auction Dividend Period (other than during the first Auction Dividend Period within an Auction Term), as the case may be, provided that in such circumstances such provisions are initiated no earlier than 13 days and no later than 10 days prior to the expiry of the current Corporation Determined Term or Dealer Determined Term or Auction Dividend Period, as the case may be. (f) The provisions of Part V hereof shall apply following the end of the Initial Three Year Term and following the end of any Corporation Determined Term, Dealer Determined Term or Auction Dividend Period, as the case may be, unless at any such time a Corporation Determined Dividend Rate is in effect in accordance with the provisions of Part III hereof or a Dealer Determined Dividend Rate is in effect in accordance with the provisions of Part IV hereof. (g) For the purposes hereof, including Parts II, III, IV and V hereof, "accrued and unpaid dividends" means the aggregate of (i) all unpaid dividends on the Series 2 Preference Shares in respect of any Dividend Payment Date for any completed Dividend Period and in respect of any Auction Dividend Payment Date for any completed Auction Dividend Period and (ii) the amount calculated as though dividends on each Series 2 Preference Share had been accruing on a day to day basis in a manner consistent with section II.2. hereof from and including the day immediately following the last day of the most recently completed Dividend Period or Auction Dividend Period, as the case may be, to but excluding the date on which the computation of accrued dividends is to be made; provided that, for the purpose of calculating accrued and unpaid dividends payable on (x) the Redemption Date in the event notice of redemption of the Series 2 Preference Shares has been given pursuant to the provisions of section II.5., (y) the purchase date in the case of any purchase of Series 2 Preference Shares made under section II.6. or (z) the relevant date for the 60 - 10 - purposes of section II.8., the Average Prime Rate, if applicable to the calculation of the Corporation Determined Dividend Rate for a Corporation Determined Term or to the calculation of the Dealer Determined Dividend Rate for a Dealer Determined Term, shall be determined based on the period of 30 days ending on a day not more than 15 days prior to the Redemption Date or purchase date and set out in the applicable notice of redemption or invitation for tenders (as the case may be) or ending on the relevant date for the purposes of section II.8., as the case may be. (h) The index and the headings of the various sections hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof. 2. NOTICES (a) Any notice or other communication from the Corporation provided for herein, including without limitation any notice of redemption, shall be in writing and shall be sufficiently given if delivered or if sent by ordinary unregistered first class prepaid mail to the holders of Series 2 Preference Shares at their respective addresses appearing on the securities register of the Corporation or, in the event of the address of any such holder not so appearing, then at the last address of such holder known to the Corporation, or if given to such holders by telex, telecopier or other electronic means of communication. Notwithstanding the foregoing, any notice given under Parts III, IV or V hereof shall be given by telex, telecopier or other electronic means of communication, if possible. Accidental failure to give any notices or other communications to one or more holders of Series 2 Preference Shares shall not affect the validity of the notices or other communications properly given or any action, including the redemption of all or any part of the Series 2 Preference Shares, taken pursuant to such properly given notices or other communications but, upon such failure being discovered, the notice or other communication, as the case may be, shall be sent forthwith to such holder or holders and shall have the same force and effect as if given in due time. (b) If the Corporation determines that mail service is or is threatened to be interrupted at the time when the Corporation is required or elects to give any notice hereunder, or is required to send any cheque or any share certificate to the holder of any Series 2 Preference Share, whether in connection with the redemption of such share or otherwise, the Corporation may, notwithstanding the provisions hereof: (i) give such notice by means of publication once in each of two successive weeks in newspapers of general circulation published or distributed in Toronto and Montreal; and 61 - 11 - (ii) fulfill the requirement to send such cheque or such share certificate by arranging for the delivery thereof to such holder by the transfer agent for the Series 2 Preference Shares at its principal office in Toronto, and such cheque and/or certificate shall be deemed to have been sent on the date on which notice of such arrangement shall have been given as provided in (i) above, provided that as soon as the Corporation determines that mail service is no longer interrupted or threatened to be interrupted such cheque or share certificate, if not theretofore delivered to such holder, shall be sent by mail as herein provided. (c) Notice given by the Corporation by mail shall be deemed to be given on the day upon which it is mailed unless on the day of such mailing an actual disruption of mail services has occurred in the province in or to which such notice is mailed. Notice given by the Corporation by publication shall be deemed to be given on the day on which the first publication is completed in each city in which notice is required to be published and notice given by the Corporation by telex, telecopier or other electronic means of communication shall be deemed to be given on the day on which it is sent (or, if such day is not a Business Day, on the next following Business Day). Notice given to the Corporation pursuant to the provisions hereof shall be deemed to be given on the date of actual receipt thereof by the Corporation. 3. AMENDMENT The provisions hereof may be repealed, altered, modified or amended but only with the prior approval of the holders of Series 2 Preference Shares given in accordance with section I.4. in addition to any vote, authorization, confirmation or approval required by the Act. 4. APPROVAL OF HOLDERS OF SERIES 2 PREFERENCE SHARES The approval of the holders of Series 2 Preference Shares required as to any and all matters referred to herein (in addition to or as distinct from any vote, authorization, confirmation or approval required by the Act) may be given by an instrument or instruments in writing signed by the holders of all of the issued and outstanding Series 2 Preference Shares or by a resolution passed by at least 66 2/3% of the votes cast at a meeting of the holders of Series 2 Preference Shares duly called for that purpose and held in accordance with section 6.1 of the provisions attaching to the Senior Preference Shares as a class, mutatis mutandis. 62 - 12 - 5. TAX ELECTION The Corporation shall elect, in the manner and within the time provided under section 191.2 of the Income Tax Act (Canada) or any successor or replacement provision of similar effect, to pay tax at a rate such that and shall take all other necessary action under such Act such that no holder of Series 2 Preference Shares shall be required to pay tax on dividends received on the Series 2 Preference Shares under section 187.2 of Part IV.1. of such Act or any successor or replacement provision of similar effect. II. PART II 1. PAYMENT OF DIVIDENDS (a) For the Initial Three Year Term, the holders of Series 2 Preference Shares shall be entitled to receive and the Corporation shall pay thereon, as and when declared by the board of directors of the Corporation, out of the monies of the Corporation properly applicable to the payment of dividends, monthly cumulative preferential cash dividends in an amount determined in accordance with section II.2.(a) hereof payable on the Dividend Payment Dates in each year, the first of which dividends shall be paid on April 30, 1989 and the last of which dividends shall be paid on April 30, 1992. (b) After the expiry of the Initial Three Year Term for each Dividend Period falling within a Corporation Determined Term, the holders of Series 2 Preference Shares shall be entitled to receive and the Corporation shall pay thereon, as and when declared by the board of directors of the Corporation, out of the monies of the Corporation properly applicable to the payment of dividends, cumulative preferential cash dividends in an amount determined in accordance with section II.2.(b) hereof payable, with respect to each such Dividend Period, on the Dividend Payment Date immediately following the end of such Dividend Period. (c) "After the expiry of the Initial Three Year Term, for each Dividend Period falling within a Dealer Determined Term, the holders of Series 2 Preference Shares shall be entitled to receive and the Corporation shall pay thereon, as and when declared by the board of directors of the Corporation, out of the monies of the Corporation properly applicable to the payment of dividends, cumulative preferential cash dividends in an amount determined in accordance with section II.2.(c) hereof payable, with respect to each such Dividend Period, on the Dividend Payment Date immediately following the end of such Dividend Period. (d) After the expiry of the Initial Three Year Term, for each Auction Dividend Period falling within an Auction Term, the holders of Series 2 Preference 63 - 13 - Shares shall be entitled to receive and the Corporation shall pay thereon, as and when declared by the board of directors of the Corporation, out of the monies of the Corporation properly applicable to the payment of dividends, monthly cumulative preferential cash dividends in an amount determined in accordance with section II.2.(d) hereof payable, with respect to each such Auction Dividend Period, on the Auction Dividend Payment Date immediately following the end of such Auction Dividend Period. (e) The Corporation shall pay such dividends on the Series 2 Preference Shares to the holders of record thereof at the close of business on the sixth Business Day immediately preceding the relevant Dividend Payment Date or Auction Dividend Payment Date (as applicable) by mailing by prepaid first class mail, on or before the relevant Dividend Payment Date or Auction Dividend Payment Date, as the case may be, addressed to each holder of Series 2 Preference Shares at his address as it appears on the books of the Corporation or, in the case of joint holders, to the address of that one of the joint holders whose name stands first in the books of the Corporation, a cheque for such dividend (less the amount of any tax or other amounts required to be deducted or withheld by the Corporation) drawn in lawful money of Canada on a Canadian chartered bank and payable at par at any branch of such bank in Canada. Notwithstanding the foregoing, any dividend cheque may be delivered to a holder of Series 2 Preference Shares at his address as aforesaid. The delivery or mailing of any such cheque in the foregoing manner shall satisfy such dividends to the extent of the sum represented by such cheque (plus the amount of any tax or other amounts required to be deducted or withheld as aforesaid) and shall be a full and complete discharge of the Corporation's obligation to pay the dividends unless, in the case of payment by cheque, the cheque is not honoured when presented for payment. Dividends which are represented by a cheque which has not been presented to the Corporation's bankers for payment or which otherwise remain unclaimed for a period of six years from the date on which they were declared to be payable shall be forfeited to the Corporation. 2. AMOUNT OF DIVIDENDS (a) The dividend to be paid on each Series 2 Preference Share for each Dividend Period during the Initial Three Year Term shall be the amount which is the product of (1) $500,000, (2) 72% of the Bankers' Acceptance Rate determined on the first Business Day of the relevant Dividend Period and (3) the number of days in such Dividend Period divided by 365. (b) After the expiry of the Initial Three Year Term, for each Dividend Period falling within a Corporation Determined Term, the dividend to be paid on each Series 2 Preference Share on the Dividend Payment Date immediately 64 - 14 - following the end of such Dividend Period shall be the amount which is the product of (1) $500,000, (2) the Corporation Determined Dividend Rate for such Dividend Period and (3) the number of days in such Dividend Period divided by 365. (c) After the expiry of the Initial Three Year Term, for each Dividend Period falling within a Dealer Determined Term, the dividend to be paid on each Series 2 Preference Share on the Dividend Payment Date immediately following the end of such Dividend Period shall be the amount which is the product of (1) $500,000, (2) the Dealer Determined Dividend Rate for such Dividend Period and (3) the number of days in such Dividend Period divided by 365. (d) After the expiry of the Initial Three Year Term, for each Auction Dividend Period included within an Auction Term, the dividend to be paid on each Series 2 Preference Share on the Auction Dividend Payment Date immediately following the end of such Auction Dividend Period shall be .determined as follows: (i) on the Auction Dividend Payment Date immediately following the end of the first Auction Dividend Period during any Auction Term, the dividend to be paid on each Series 2 Preference Share shall be the amount which is the product of (1) $500,000, (2) 72% of the Bankers' Acceptance Rate determined as of the first Business Day of such Auction Dividend Period and (3) the number of days in the first Auction Dividend Period divided by 365; and (ii) on the Auction Dividend Payment Dates immediately following the end of the second and subsequent Auction Dividend Periods during any Auction Term, the dividend to be paid on each Series 2 Preference Share shall be the amount which is the product of (1) $500,000, (2) the Current Dividend Rate for each such Auction Dividend Period as determined on the Auction Date immediately prior to the beginning of such Auction Dividend Period and (3) the number of days in such Auction Dividend Period divided by 365. (e) If, for any reason, the dividend rate applicable hereunder is, in respect of any particular day, not determined or not determinable in accordance with the provisions hereof, the rate applicable in respect of such day shall be the Bankers' Acceptance Rate on such day plus 0.40%. 65 - 15 - 3. CUMULATIVE DIVIDENDS If on any Dividend Payment Date or Auction Dividend Payment Date the dividends accrued to such date are not paid in full on all Series 2 Preference Shares then outstanding, such dividends, or the unpaid part thereof, shall be paid on a subsequent date or dates determined by the board of directors of the Corporation on which the Corporation shall have sufficient monies properly applicable to the payment of such dividends. The holders of Series 2 Preference Shares shall not be entitled to any dividends other than or in excess of the cumulative preferential cash dividends herein provided for. 4. REDEMPTION AT THE OPTION OF THE CORPORATION Subject to the provisions of the Act and other laws governing the Corporation and the articles of the Corporation, the Corporation at any time, upon giving notice as hereinafter provided, may redeem the whole or from time to time any part of the then outstanding Series 2 Preference Shares on payment for each share to be redeemed of a price of $500,000 together, in each case, with an amount equal to all accrued and unpaid dividends thereon to but excluding the date fixed for redemption (the whole constituting and being herein referred to as the "Redemption Price"). If the Corporation desires to redeem only part of the Series 2 Preference Shares, the Series 2 Preference Shares to be redeemed shall be redeemed as nearly as may be pro rata (disregarding fractions) from each of the holders of Series 2 Preference Shares. Any Series 2 Preference Shares which are so redeemed shall be cancelled and not reissued. 5. MANNER OF REDEMPTION In the case of any redemption of Series 2 Preference Shares pursuant to section II.4. hereof, the Corporation shall, not less than 30 days before the date specified for redemption if such date falls within the Initial Three Year Term and thereafter not less than 10 days before the date specified for redemption, give notice in writing to each person who at the date of the giving of such notice is the registered holder of Series 2 Preference Shares to be redeemed of the intention of the Corporation to redeem such Series 2 Preference Shares. Such notice shall set out the date (the "Redemption Date") on which the redemption is to take place, the Redemption Price and, unless all the Series 2 Preference Shares held by the holder to whom it is addressed are to be redeemed, the number of Series 2 Preference Shares so held which are to be redeemed. The Redemption Date shall be a day which is (i) a Settlement Date immediately following an Auction Dividend Period or (ii) a Dividend Payment Date immediately following the end of a Dividend Period. On and after the Redemption Date, the Corporation shall pay or cause to be paid to the holders of the Series 2 Preference Shares so called for redemption the Redemption Price therefor on presentation and delivery, at the registered office of the Corporation or at such other place or places within Canada designated in such notice, of the certificate or certificates representing the 66 - 16 - Series 2 Preference Shares so called for redemption. Payment of the Redemption Price shall be made by cheque of the Corporation or its paying agent drawn in lawful money of Canada on a Canadian chartered bank and payable at par at any branch of such bank in Canada, and such payment shall be a full and complete discharge of the Corporation's obligation to pay the Redemption Price owed to the holders of Series 2 Preference Shares so called for redemption unless the cheque is not honoured when presented for payment. From and after the Redemption Date, the holders of Series 2 Preference Shares called for redemption shall not be entitled to exercise any of the rights of holders of Series 2 Preference Shares in respect of such shares except the right to receive the Redemption Price therefor, provided that if payment of such Redemption Price is not duly made by or on behalf of the Corporation in accordance with the provisions hereof, then the rights of such holders shall remain unaffected. If part only of the Series 2 Preference Shares represented by any certificate shall be redeemed, a new certificate for the balance of such shares shall be issued at the expense of the Corporation. The Corporation shall have the right, at any time after giving notice of its intention to redeem any Series 2 Preference Shares, to deposit the aggregate Redemption Price of the Series 2 Preference Shares so called for redemption, or of such of the Series 2 Preference Shares represented by certificates as have not at the date of such deposit been delivered by the holders thereof in connection with such redemption, in a special account in any chartered bank or any trust company in Canada to be paid without interest to or to the order of the respective holders of the Series 2 Preference Shares called for redemption, upon presentation and delivery to such bank or trust company of the certificates representing such Series 2 Preference Shares. Upon such deposit being made or upon the Redemption Date, whichever is the later, the Series 2 Preference Shares in respect whereof such deposit shall have been made shall be and shall be deemed to be redeemed and the rights of the holders thereof after such deposit or the Redemption Date, as the case may be, shall be limited to receiving without interest their proportionate part of the total Redemption Price so deposited upon presentation and delivery of the certificates representing the Series 2 Preference Shares held by them respectively. Any interest allowed on any such deposit shall belong to the Corporation. Redemption monies that are represented by a cheque which has not been presented to the Corporation's bankers for payment or that otherwise remain unclaimed (including monies held on deposit in a special account as provided for in this section above) for a period of six years from the date specified for redemption shall be forfeited to the Corporation. 6. PURCHASE FOR CANCELLATION Subject to the provisions of the Act, any restrictions imposed by law, and the articles of the Corporation, the Corporation may, at any time or from time to time, purchase (if obtainable) the whole or any part of the outstanding Series 2 Preference Shares by invitation for tenders to all the holders of record of Series 2 Preference Shares outstanding at any price per share not exceeding $500,000 per share together with 67 - 17 - an amount equal to all accrued and unpaid dividends thereon up to but excluding the date of purchase, and the costs of purchase. The Corporation shall give notice of its intention to invite tenders to all holders of Series 2 Preference Shares by giving notice of such invitation to each holder of Series 2 Preference Shares in accordance with the provisions from time to time of the by-laws of the Corporation respecting notice to shareholders. If, upon any invitation for tenders under the provisions of this section II.6., the Corporation shall receive tenders of Series 2 Preference Shares at the same price, which shares when added to any Series 2 Preference Shares tendered at a lower price or prices aggregate a number greater than the number for which the Corporation is prepared to accept tenders, the Series 2 Preference Shares so tendered at the same price which the Corporation determines to purchase shall be purchased as nearly as may be pro rata (disregarding fractions) in proportion to the total number of Series 2 Preference Shares so tendered by each of the holders of Series 2 Preference Shares who submitted tenders at such price. Any Series 2 Preference Shares so purchased shall be cancelled and not reissued. If part only of the Series 2 Preference Shares represented by any certificate shall be purchased, a new certificate for the balance of such shares shall be issued at the expense of the Corporation. 7. RESTRICTION ON DIVIDENDS AND RETIREMENT AND ISSUE OF SHARES Subject to the provisions of the Act and any restrictions under applicable law, so long as any Series 2 Preference Shares are outstanding, unless all dividends on the Series 2 Preference Shares then outstanding and on all other shares of the Corporation ranking as to dividends prior to or on a parity with the Series 2 Preference Shares accrued up to and including the immediately preceding respective date or dates for the payment of dividends thereon have been declared and paid or set apart for payment, the Corporation will not, without the approval of the holders of the Series 2 Preference Shares given as specified below: (i) pay, declare or set apart for payment any dividends (other than stock dividends in shares of the Corporation ranking junior to the Series 2 Preference Shares) on shares ranking junior to the Series 2 Preference Shares; or (ii) redeem, purchase or otherwise retire or make any capital distribution on or in respect of any shares ranking junior to the Series 2 Preference Shares (except out of the net cash proceeds of a substantially concurrent issue of shares ranking junior to the Series 2 Preference Shares); or (iii) redeem, purchase or otherwise retire less than all the Series 2 Preference Shares; or 68 - 18 - (iv) except pursuant to any purchase obligation, sinking fund, retraction privilege or mandatory redemption provisions attaching to any series of preferred shares from time to time issued, redeem, purchase or otherwise retire for value any shares ranking on a parity with or junior to the Series 2 Preference Shares; or (v) issue any additional Series 2 Preference Shares or any shares ranking prior to or on a parity with the Series 2 Preference Shares with respect to the payment of dividends or the distribution of assets in the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or in the event of any other distribution of assets of the Corporation amongst its shareholders for the purpose of winding up its affairs. Any approval of the holders of the Series 2 Preference Shares required under this section I.7. may be given by the affirmative vote of at least a majority of the votes cast at a meeting, or adjourned meeting, of the holders of the Series 2 Preference Shares duly called and held for that purpose. 8. LIQUIDATION, DISSOLUTION OR WINDING-UP In the event of the liquidation, dissolution or winding-up of the Corporation or other distribution of assets of the Corporation for the purpose of winding-up its affairs the holders of the Series 2 Preference Shares shall be entitled to receive $500,000 per share plus an amount equal to all accrued and unpaid dividends thereon calculated to the date of distribution before any amount shall be paid to or any property and assets of the Corporation shall be distributed to the holders of the Junior Preference Shares, the ordinary shares or any other shares of the Corporation ranking junior to the Series 2 Preference Shares and, after payment thereof, the Series 2 Preference Shares shall not be entitled to share in any further distribution of the assets of the Corporation. 9. INFORMATION AND VOTING RIGHTS The holders of Series 2 Preference Shares shall be entitled to receive all financial statements and other information sent by the Corporation to the holders of its ordinary shares but they shall not, as such, except as expressly provided herein, have the right to receive notice of, or to attend or to vote at, any meetings of shareholders of the Corporation unless the Corporation shall have failed to pay in the aggregate dividends with respect to Dividend Periods, whether or not consecutive, aggregating at least 24 months on the Series 2 Preference Shares in which case, and only for so long thereafter as any dividends on the Series 2 Preference Shares remain in arrears, the holders of Series 2 Preference Shares shall be entitled to receive notice of, and to attend, meetings of shareholders of the Corporation at which directors are to be elected and shall be entitled, voting separately as a class together with all other holders of any 69 - 19 - other series of Senior Preference Shares having similar voting rights, to elect two directors of the Corporation. In connection with the foregoing, the holders of the Series 2 Preference Shares shall have 500,000 votes for each Series 2 Preference Share held. Nothing herein contained shall be deemed or construed to limit the ability of the Corporation from time to time to increase or decrease the number of its directors. In connection with any action to be taken by the Corporation which requires the approval of the holders of Series 2 Preference Shares voting as a series or as part of the class, each such share shall entitle the holder thereof to 500,000 votes for each Series 2 Preference Share. III. PART III CORPORATION DETERMINED RATE PROCEDURES 1. DETERMINATION OF NEW DIVIDEND RATE No earlier than 60 days and no later than 45 days prior to the end of the Initial Three Year Term or no earlier than 25 days and no later than 20 days prior to the end of the current Corporation Determined Term or Dealer Determined Term or Auction Dividend Period (and provided such Auction Dividend Period is not the first Auction Dividend Period within an Auction Term), as the case may be, the Corporation may notify the holders of Series 2 Preference Shares of a proposed Corporation Determined Dividend Rate to apply with respect to a proposed Dividend Period or Dividend Periods having a duration of one calendar month or whole multiples thereof within a proposed Corporation Determined Term. Such notification to such holders shall also: (i) specify a date by which each holder must notify the Corporation in writing of its acceptance of the proposed Corporation Determined Dividend Rate, the proposed Dividend Period duration and the proposed Corporation Determined Term, if such holder intends to accept such rate, period duration and term, which date shall be at least 35 days prior to the end of the Initial Three Year Term or at least 15 days prior to the end of the current Corporation Determined Term or Dealer Determined Term or Auction Dividend Period, as the case may be; and (ii) specify that the proposed Corporation Determined Dividend Rate, the proposed Dividend Period duration and the proposed Corporation Determined Term shall become effective for the purposes of determining the dividends to be paid on the Dividend Payment Dates for Dividend Periods during such proposed 70 - 20 - Corporation Determined Term only if all of the holders of Series 2 Preference Shares accept such rate, period duration and term. 2. ACCEPTANCE OF CORPORATION DETERMINED DIVIDEND RATE If, (i) by the time prescribed in paragraph (i) of section III.2. hereof, all of the holders of Series 2 Preference Shares have accepted the proposed Corporation Determined Dividend Rate, the proposed Dividend Period duration and the proposed Corporation Determined Term as evidenced by notice in writing to the Corporation, and (ii) at least 30 days prior to the end of the Initial Three Year Term or at least 12 days prior to the end of the current Corporation Determined Term or Dealer Determined Term or Auction Dividend Period, as the case may be, the Corporation has notified all of such holders that each of them has agreed with the Corporation on such rate and term; such Corporation Determined Dividend Rate, Dividend Period duration and Corporation Determined Term shall apply for the purposes of determining the dividend to be paid on the Series 2 Preference Shares on each Dividend Payment Date in respect of Dividend Periods during such Corporation Determined Term. 3. TERMINATION OF APPLICATION Notwithstanding the acceptance of a Corporation Determined Dividend Rate, Dividend Period duration and a Corporation Determined Term as provided for in this Part III, the Corporation may notify the holders of Series 2 Preference Shares that the Corporation does not intend to implement application of the Corporation Determined Dividend Rate, Dividend Period duration and Corporation Determined Term as set forth in the notification to holders provided that such notification is given by the Corporation prior to the end of the Initial Three Year Term or the current Corporation Determined Term, Dealer Determined Term or Auction Dividend Period, as the case may be. In such circumstances, the provisions of Part IV hereof may be applied in accordance with such Part, failing which the provisions of Part V hereof shall be applied in accordance with such Part. Any such notification shall not limit or restrict the right of the Corporation, prior to the expiry of any subsequent Corporation Determined Term, Dealer Determined Term or Auction Dividend Period, as the case may be, to implement the provisions of this Part III by forwarding a notification to the holders of Series 2 Preference Shares. 71 - 21 - 4. MISCELLANEOUS In the event that there is any inconsistency, ambiguity or uncertainty in the interpretation or application of the procedures set forth in this Part III, the board of directors of the Corporation (or any person or persons designated by the board of directors) may, in such manner as it shall determine in its sole discretion, interpret such procedures in order to deal with such inconsistency, ambiguity or uncertainty and any such determination evidenced by a certificate of the Secretary of the Corporation (which shall be provided to holders of Series 2 Preference Shares) shall be conclusive. IV. PART IV DEALER BIDS PROCEDURES 1. BIDS BY DEALERS (a) No earlier than 30 days and no later than 25 days prior to the end of the Initial Three Year Term or no earlier than 13 days and no later than 10 days prior to the end of the current Corporation Determined Term or Dealer Determined Term or Auction Dividend Period (and provided such Auction Dividend Period is not the first Auction Dividend Period within an Auction Term), as the case may be, the Corporation may solicit bids from one or more Dealers for the purchase of all of the Series 2 Preference Shares. Such solicitation shall be contained in a Notice Requesting Bids to be sent by the Corporation to such Dealers which notice shall: (i) invite each Dealer to submit to the Corporation a Dealer Offer; and (ii) specify a date, which date shall not be more than 5 days after the giving of such notice, by which any such offer must be received (the "Dealer Response Date") by the Corporation. (b) Each Dealer receiving a Notice Requesting Bids may submit a Dealer Offer provided such Dealer does so by the Dealer Response Date and provided that such Dealer Offer specifies: (i) for the purpose of determining the Dealer Determined Dividend Rate in the event such Dealer's Dealer Offer is accepted under section IV.1.(c): (A) the Dealer Determined Percentage of the Average Prime Rate (to be determined as described in paragraph (i) of the definition herein of "Dealer Determined Dividend Rate"); 72 - 22 - (B) the Dealer Determined Percentage of the Bankers' Acceptance Rate (to be determined as described in paragraph (ii) of the definition herein of "Dealer Determined Dividend Rate"); or (C) a fixed annual percentage rate; (ii) a Dealer Determined Term for which the rate referred to in paragraph (i) of this section IV.1.(b) shall apply; (iii) the amount of any fees to be paid by the Corporation to the Dealer in respect of the Series 2 Preference Shares in the event such Dealer's Dealer Offer is accepted by the Corporation; and (iv) the duration of the Dividend Period, which shall be a period of one calendar month or a whole multiple thereof, to be applicable during the Dealer Determined Term specified pursuant to paragraph (ii) of this section IV.1.(b). (c) If the Corporation wishes to accept a Dealer Offer, it shall signify such acceptance on or before 15 days prior to the end of the Initial Three Year Period or on or before five days prior to the end of the current Corporation Determined Term or Dealer Determined Term or Auction Dividend Period, as the case may be, by notice to the Dealer whose Dealer Offer it accepts (an "Accepted Dealer Offer"). The Dealer Determined Dividend Rate, the duration of the Dividend Period and Dealer Determined Term specified in the Accepted Dealer Offer shall apply for the purposes of determining the dividends to be paid on the Series 2 Preference Shares on each Dividend Payment Date in respect of each Dividend Period during such Dealer Determined Term. The Dealer whose Dealer Offer is accepted will be required to purchase all of the Series 2 Preference Shares not retained by the existing holders on the last day of the Initial Three Year Term or the current Corporation Determined Term or Dealer Determined Term or on the Settlement Date immediately following the current Auction Dividend Period, as the case may be, on the terms contained in the Accepted Dealer Offer. (d) Concurrently with its acceptance of a Dealer Offer, and in any event not later than 15 days prior to the end of the Initial Three Year Term or not later than five days prior to the end of the current Corporation Determined Term or Dealer Determined Term or Auction Dividend Period, as the case may be, the Corporation shall notify (a "Notification to Holders") each existing holder of Series 2 Preference Shares that the Corporation has accepted a Dealer Offer. Such notification shall: (i) specify the Dealer Determined Dividend Rate to apply to the Series 2 Preference Shares; 73 - 23 - (ii) specify the Dealer Determined Term for which the Dealer Determined Dividend Rate referred to in paragraph (i) of this section IV.1.(d) shall apply and the duration of the Dividend Period within such Dealer Determined Term; (iii) notify such holders of the right of each holder either to sell all or some of the Series 2 Preference Shares it holds to such Dealer or to continue to hold all or some of the Series 2 Preference Shares it holds; (iv) notify such holders of the date (which shall be not more than 10 days and not less than six days prior to the end of the Initial Three Year Term or not more than three days and not less than two days prior to the end of the current Corporation Determined Term or Dealer Determined Term or Auction Dividend Period, as the case may be) by which the Corporation must have received written notice from such holder of its decision to sell all or some of the Series 2 Preference Shares it holds as provided for in section IV.1.(e) hereof; (v) notify such holders that any holder of Series 2 Preference Shares that fails to respond to the Notification to Holders by the date specified for response therein will be deemed to have elected to continue to hold all of the Series 2 Preference Shares then held by it subject to the terms and conditions as to the Dealer Determined Dividend Rate and the Dealer Determined Term which are set forth in the Notification to Holders; and (vi) identify the Dealer whose Dealer Offer has been accepted. (e) Upon receipt of the Notification to Holders, an existing holder of Series 2 Preference Shares may elect to sell Series 2 Preference Shares in accordance with the terms specified in such Notification to Holders by notifying the Corporation in writing of such decision and of the number of shares to be sold. Each holder of Series 2 Preference Shares who elects to sell all or some of its Series 2 Preference Shares shall, together with such notice, deposit the certificate or certificates representing the Series 2 Preference Shares which such holder desires to sell (with the transfer panel on such certificate duly completed and signed or, in the alternative, with a duly completed stock transfer power of attorney accompanying such certificate or certificates) at the registered office of the Corporation, or at any place where the Series 2 Preference Shares may be transferred or any other place or places in Canada specified by the Corporation to holders of Series 2 Preference Shares in the Notification to Holders. If a holder of 74 - 24 - Series 2 Preference Shares wishes to sell only some of the Series 2 Preference Shares represented by any share certificate or certificates, the holder may deposit the certificate or certificates, as aforementioned, and the Corporation shall issue and deliver to such holder, at the expense of the Corporation, a new share certificate representing the Series 2 Preference Shares which are not being delivered for sale. Any holder of Series 2 Preference Shares that fails to respond to the Notification to Holders by the date specified for response therein will be deemed to have elected to continue to hold all of the Series 2 Preference Shares then held by it subject to the terms and conditions as to the Dealer Determined Dividend Rate, Dividend Period duration and the Dealer Determined Term which are set forth in the Notification to Holders. The Corporation shall have all such powers and authority as may be necessary to determine finally the adequacy of all transfer instruments and related matters with respect to the sale of shares by an existing holder to a Dealer hereunder. Any determination by the Corporation to the effect that any instrument of transfer is incomplete or ineffective shall bind the holder intending to sell any of its Series 2 Preference Shares pursuant to the provisions of this Part IV and shall also bind the Dealer in question. (f) At least one Business Day prior to the end of the Initial Three Year Term or the current Corporation Determined Term, Dealer Determined Term or Auction Dividend Period, as the case may be, the Corporation shall notify the Dealer submitting the Accepted Dealer Offer of the number of shares to be purchased by such Dealer in accordance with section IV.1. (g) hereof and of the identity of the vendor or vendors thereof. (g) On the last day of the Initial Three Year Term or the current Corporation" Determined Term or Dealer Determined Term or on the Settlement Date immediately following the end of the current Auction Dividend Period, as the case may be, the Dealer submitting the Accepted Dealer Offer shall purchase the Series 2 Preference Shares from the holders specified in section IV.1. (f) hereof at the purchase price of $500,000 per Series 2 Preference Share. For the purposes of completing such purchase, the Dealer submitting the Accepted Dealer Offer shall deposit with the Corporation, at its registered office, on or prior to noon (Toronto time) on such date, a certified cheque payable to the Corporation, as agent for the vendor or vendors referred to in section IV.1. (f) hereof, representing the aggregate purchase price for the Series 2 Preference Shares to be purchased pursuant to this section IV.1. (g) together with a direction as to registration particulars with respect to such Series 2 Preference Shares to be purchased. Upon receipt of such certified cheque as aforesaid, the Corporation shall deliver to the vendor or vendors at the registered office of the Corporation cheques payable to the vendor or vendors in payment of the purchase price for such Series 2 Preference Shares (less any tax 75 - 25 - required to be deducted and withheld therefrom) against delivery of the certificates therefor duly completed in accordance with section IV.1. (e), and delivery of such cheques by the Corporation shall be deemed to be payment and shall satisfy and discharge all liability for such purchase price to the extent Of the amount represented by such cheques (plus any tax required to be and in fact deducted and withheld therefrom and remitted to the proper tax authority), unless such cheques are not paid on due presentation. 2. TERMINATION OF APPLICATION Notwithstanding the acceptance of a Dealer Offer as provided for in this Part IV, the Corporation may notify the holders of Series 2 Preference Shares that the Corporation does not intend to implement application of the Dealer Determined Dividend Rate, Dividend Period duration and Dealer Determined Term as set forth in the Notification to Holders provided that such notification is given by the Corporation prior to the end of the Initial Three Year Term or the current Corporation Determined Term, Dealer Determined Term or Auction Dividend Period, as the case may be. In such circumstances, the provisions of Part V hereof shall be applied in accordance with such Part and, for greater certainty, the Dealer whose Dealer Offer has been accepted shall not be obliged to purchase any Series 2 Preference Shares pursuant to such Dealer Offer. Any such notification shall not limit or restrict the right of the Corporation, prior to the end of any subsequent Corporation Determined Term, Dealer Determined Term or Auction Dividend Period, as the case may be, to implement the provisions of this Part IV by forwarding a Notice Requesting Bids to one or more Dealers. 3. MISCELLANEOUS In the event that there is any inconsistency, ambiguity or uncertainty in the interpretation of application of the procedures set forth in this Part IV, the board of directors of the Corporation (or any person or persons designated by the board of directors) may, in such manner as it shall determine in its sole discretion, interpret such procedures in order to deal with such inconsistency, ambiguity or uncertainty and any such determination evidenced by a certificate of the Secretary of the Corporation (which shall be provided to holders of Series 2 Preference Shares) shall be conclusive. 76 - 26 - V. PART V AUCTION PROCEDURES 1. ORDERS BY EXISTING HOLDERS AND POTENTIAL HOLDERS (a) Prior to the Submission Deadline on each Auction Date: (i) each Existing Holder may submit to a Dealer information as to the number of Series 2 Preference Shares, if any, held by such Existing Holder which such Existing Holder: each Existing Holder may submit to a Dealer information as to the number of Series 2 Preference Shares, if any, held by such Existing Holder which such Existing Holder: (A) desires to continue to hold without regard to the Current Dividend Rate; and/or (B) desires to continue to hold, provided that the Current Dividend Rate shall not be less than the dividend rate per annum specified by such Existing Holder; and/or (C) offers to sell without regard to the Current Dividend Rate; and (ii) Potential Holders may submit to a Dealer offers to purchase Series 2 Preference Shares, provided that any such offer shall be effective only if the Current Dividend Rate shall not be less than the dividend rate per annum specified by such Potential Holder. The communication to a Dealer of the information referred to in this section V.1.(a) is an "Order" and, collectively, are "Orders", and each Existing Holder and each Potential Holder placing an Order is a "Bidder" and, collectively, are "Bidders"; an Order containing the information referred to in subparagraph (i) (A) of this section V.l. (a) is a "Hold Order" and, collectively, are "Hold Orders"; an Order containing the information referred to in subparagraph (i) (B) or paragraph (ii) of this section V.l. (a) is a "Bid" and, collectively, are "Bids"; and an Order containing the information referred to in subparagraph (i) (C) of this section V.1.(a) is a "Sell Order" and, collectively, are "Sell Orders". (b) (i) A Bid by an Existing Holder shall constitute an irrevocable offer to sell at a price per Series 2 Preference Share equal to $500,000: (A) the number of Series 2 Preference Shares specified in such Bid if the Winning Bid Rate determined on the applicable Auction Date is less than the rate specified in such Bid; 77 - 27 - (B) the number of Series 2 Preference Shares specified in such Bid or a lesser number to be determined as set forth in paragraph (iv) of section V.4.(a) hereof if the Winning Bid Rate determined on such Auction Date is equal to the rate specified in such Bid; or (C) a number of Series 2 Preference Shares which is less than the number thereof specified in such Bid to be determined as set forth in paragraph (iii) of section V.4.(b) hereof if the rate specified in such Bid is higher than the Maximum Rate and Sufficient Clearing Bids do not exist. (ii) A Sell Order by an Existing Holder shall constitute an irrevocable offer to sell at a price per Series 2 Preference Share equal to $500,000: (A) the number of Series 2 Preference Shares specified in such Sell Order if Sufficient Clearing Bids do exist; or (B) a lesser number of Series 2 Preference Shares to be determined as set forth in paragraph (iii) of section V.4.(b) hereof if Sufficient Clearing Bids do not exist. (iii) A Bid by a Potential Holder shall constitute an irrevocable offer to purchase at a price per Series 2 Preference Share equal to $500,000: (A) the number of Series 2 Preference Shares specified in such Bid if the Winning Bid Rate determined on the applicable Auction Date is higher than the rate specified in such Bid; (B) the specified number or a lesser number of Series 2 Preference Shares to be determined as set forth in paragraph (v) of section V.4.(a) hereof if the Winning Bid Rate determined on such Auction Date is equal to the rate specified in such Bid; or (C) the specified number of Series 2 Preference Shares if the rate specified in such Bid is equal to or lower than the Maximum Rate and Sufficient Clearing Bids do not exist. (c) A rate specified by an Existing Holder or Potential Holder in any Bid shall be a fixed annual percentage rate or a specified percentage of the Bankers' Acceptance Rate determined on the relevant Auction Date. (d) If none of the holders of Series 2 Preference Shares is an Existing Holder for the purposes of this Part V on any date which would be an Auction 78 - 28 - Date hereunder, the Current Dividend Date for the next succeeding Auction Dividend Period shall be equal to 50% of the Bankers' Acceptance Rate determined on the Auction Date. 2. SUBMISSION OF ORDERS BY DEALERS TO THE AUCTION MANAGER (a) Each Dealer shall submit to the Auction Manager in writing in accordance with its Dealer Agreement prior to the Submission Deadline on each Auction Date all Orders obtained by such Dealer and specifying with respect to each Order: (i) the name of the Bidder placing such Order; (ii) the aggregate number of Series 2 Preference Shares that are the subject of the Order; (iii) to the extent that the Bidder is an Existing Holder, the number of Series 2 Preference Shares, if any, subject to any: (A) Hold Order placed by such Existing Holder; (B) Bid placed by such Existing Holder and the rate specified in such Bid; and/or (C) Sell Order placed by such Existing Holder; and (iv) to the extent that the Bidder is a Potential Holder, the rate specified in the Bid of such Potential Holder. (b) If any rate specified in any Bid contains more than three figures to the right of the decimal point, the Auction Manager shall round such rate up to the next highest one-thousandth of one percent (0.001%). (c) If for any reason an Order or Orders covering in the aggregate all the Series 2 Preference Shares held by an Existing Holder is not submitted to the Auction Manager prior to the Submission Deadline, the Auction Manager shall deem a Hold Order to have been submitted on behalf of such Existing Holder covering the number of Series 2 Preference Shares held by such Existing Holder and not subject to Orders submitted to the Auction Manager. (d) If one or more Orders covering in the aggregate more than the number of Series 2 Preference Shares held by any Existing Holder are submitted to the Auction Manager, such Orders shall be considered valid as follows and in the following order of priority: 79 - 29 - (i) all Hold Orders shall be considered valid, but only up to and including, in the aggregate, the number of Series 2 Preference Shares held by such Existing Holder, and, solely for purposes of allocating compensation among the Dealers submitting Hold Orders, if the number of Series 2 Preference Shares subject to such Hold Orders exceeds the number of Series 2 Preference Shares held by such Existing Holder, the number of Series 2 Preference Shares subject to each such Hold Order shall be reduced pro rata to cover the number of Series 2 Preference Shares held by such Existing Holder; (ii) (A) any Bid shall be considered valid up to and including the excess of the number of Series 2 Preference Shares held by such Existing Holder over the number of Series 2 Preference Shares subject to any Hold Order referred to in paragraph (i) of this section V.2.(d); (B) subject to subparagraph (ii) (A) of this section V.2.(d), if more than one Bid with the same rate is submitted on behalf of such Existing Holder and the number of Series 2 Preference Shares subject to such Bids is greater than such excess, such Bids shall be considered valid up to the amount of such excess, and, solely for purposes of allocating compensation among the Dealers submitting Bids with the same rate, the number of Series 2 Preference Shares subject to each Bid with the same rate shall be reduced pro rata to cover the number of Series 2 Preference Shares equal to such excess; (C) subject to subparagraph (ii) (A) of this section V.2.(d), if more than one Bid with different rates is submitted on behalf of such Existing Holder, such Bids shall be considered valid in the ascending order of their respective rates up to the amount of such excess; and (D) in any event, the number, if any, of such Series 2 Preference Shares subject to Bids not valid under this paragraph (ii) shall be treated as the subject of a Bid by a Potential Holder; and (iii) all Sell Orders shall be considered valid but only up to and including in the aggregate the excess of the number of Series 2 Preference Shares held by such Existing Holder over the sum of the Series 2 Preference Shares subject to Hold Orders referred to in paragraph (i) of this section V.2.(d) and valid Bids by Existing Holders referred to in paragraph (ii) of this section V.2.(d). 80 - 30 - (e) If more than one Bid is submitted on behalf of any Potential Holder, each Bid submitted shall be a separate Bid. 3. DETERMINATION OF SUFFICIENT CLEARING BIDS, WINNING BID RATE AND CURRENT DIVIDEND RATE (a) On the Submission Deadline on each Auction Date, the Auction Manager shall assemble all Orders submitted or deemed submitted to it by the Dealers (each such Order as submitted or deemed submitted by a Dealer being individually a "Submitted Hold Order", a "Submitted Bid" or a "Submitted Sell Order", as the case may be, or a "Submitted Order" and, collectively, "Submitted Hold Orders", "Submitted Bids" or "Submitted Sell Orders", as the case may be, or "Submitted Orders") and shall determine: (i) the excess of (A) the total number of Series 2 Preference Shares held by Existing Holders issued and outstanding over (B) the number of Series 2 Preference Shares that are the subject of Submitted Hold Orders (such excess being the "Available Shares"); (ii) from the Submitted Orders, whether: (A) the number of Series 2 Preference Shares that are the subject of Submitted Bids by Potential Holders specifying one or more rates equal to or lower than the Maximum Rate; exceeds or is equal to the sum of: (B) (I) the number of Series 2 Preference Shares that are the subject of Submitted Bids by Existing Holders specifying one or more rates higher than the Maximum Rate; and (II) the number of Series 2 Preference Shares that are the subject of Submitted Sell Orders; and if such excess or equality exists (other than because all of the Series 2 Preference Shares are the subject of Submitted Hold Orders), then such Submitted Bids in subparagraph (A) hereof shall be "Sufficient Clearing Bids"; and (iii) if Sufficient Clearing Bids exist, the lowest rate specified in the Submitted Bids which if the Auction Manager accepted: 81 - 31 - (A) (I) each Submitted Bid from Existing Holders specifying that lowest rate, and (II) all other Submitted Bids from Existing Holders specifying lower rates, thus entitling those Existing Holders to continue to hold the aggregate number of Series 2 Preference Shares that are specified in those Submitted Bids; and (B) (I) each Submitted Bid from Potential Holders specifying that lowest rate, and (II) all other Submitted Bids from Potential Holders specifying lower rates, thus entitling those Potential Holders to purchase the aggregate number of Series 2 Preference Shares that are specified in those Submitted Bids; would result in such Existing Holders described in subparagraph (A) hereof continuing to hold an aggregate number of Series 2 Preference Shares which, when added to the aggregate number of Series 2 Preference Shares to be purchased by such Potential Holders described in subparagraph (B) hereof, would equal not less than the number of Available Shares. This lowest rate is the "Winning Bid Rate". (b) Promptly after the Auction Manager has made the determinations pursuant to section V.3.(a) hereof, the Auction Manager shall advise the Corporation of the Bankers' Acceptance Rate and, based on such determinations, of the dividend rate applicable to the Series 2 Preference Shares for the next succeeding Auction Dividend Period (the "Current Dividend Rate") as follows: (i) if Sufficient Clearing Bids exist, that the Current Dividend Rate for the next succeeding Auction Dividend Period shall be equal to the Winning Bid Rate so determined; (ii) if Sufficient Clearing Bids do not exist (other than because all of the Series 2 Preference Shares are the subject of Submitted Hold Orders), that the Current Dividend Rate for the next succeeding Auction Dividend Period shall be equal to the Maximum Rate; or (iii) if all of the Series 2 Preference Shares are the subject of Submitted Hold Orders, that the Current Dividend Rate for the next succeeding 82 - 32 - Auction Dividend Period shall be equal to 50% of the Bankers' Acceptance Rate determined on the Auction Date. 4. ACCEPTANCE AND REJECTION OF SUBMITTED BIDS AND SUBMITTED SELL ORDERS AND ALLOCATION OF SHARES Based on the determinations made pursuant to section V.3.(a) hereof, the Submitted Bids and Submitted Sell Orders shall be accepted or rejected and the Auction Manager shall take such other action as set forth below: (a) If Sufficient Clearing Bids have been made, subject to the provisions of sections V.4.(c) and V.4.(d) hereof, Submitted Bids and Submitted Sell Orders shall be accepted and rejected in the following order of priority and all other Submitted Bids shall be rejected: (i) (A) the Submitted Sell Order of each Existing Holder shall be accepted and (B) the Submitted Bid of each Existing Holder specifying any rate that is higher than the Winning Bid Rate shall be rejected, thus requiring each such Existing Holder to sell the Series 2 Preference Shares that are the subject of such Submitted Sell Order and such Submitted Bid; (ii) the Submitted Bid of each Existing Holder specifying any rate that is lower than the Winning Bid Rate shall be accepted, thus entitling each such Existing Holder to continue to hold the Series 2 Preference Shares that are the subject of such Submitted Bid; (iii) the Submitted Bid of each Potential Holder specifying any rate that is lower than the Winning Bid Rate shall be accepted, thus requiring each such Potential Holder to purchase the number of Series 2 Preference Shares specified in such Submitted Bid; (iv) the Submitted Bid for each Existing Holder specifying a rate that is equal to the Winning Bid Rate shall be accepted, thus entitling each such Existing Holder to continue to hold the Series 2 Preference Shares that are the subject of such Submitted Bid, unless the number of Series 2 Preference Shares subject to all such Submitted Bids is greater than the total number of Available Shares minus the number of Series 2 Preference Shares subject to Submitted Bids described in paragraphs (ii) and (iii) of this section V.4.(a) (the "Remaining Shares"). In this event, the Submitted Bids of each such Existing Holder described in this paragraph (iv) shall be rejected, and each such Existing Holder shall be required to sell Series 2 Preference Shares, but only in an amount equal to the difference between (A) the number of Series 2 Preference Shares then held by such Existing 83 - 33 - Holder subject to such Submitted Bid, and (B) the number of Series 2 Preference Shares obtained by multiplying (x) the number of Remaining Shares by (y) a fraction, the numerator of which shall be the number of Series 2 Preference Shares held by such Existing Holder subject to such Submitted Bid and the denominator of which shall be the sum of the number of Series 2 Preference Shares subject to such Submitted Bids made by all such Existing Holders who specified a rate equal to the Winning Bid Rate; and (v) the Submitted Bid of each Potential Holder specifying a rate that is equal to the Winning Bid Rate shall be accepted but only in an amount equal to the number of Series 2 Preference Shares obtained by multiplying (A) the excess, if any, of the total number of Available Shares over the number of Series 2 Preference Shares subject to accepted Submitted Bids described in clauses (ii), (iii) and (iv) of this section V.4.(a) by (B) a fraction, the numerator of which shall be the number of Series 2 Preference Shares specified in such Submitted Bid and the denominator of which shall be the sum of the number of Series 2 Preference Shares subject to Submitted Bids made by all Potential Holders who specified a rate equal to the Winning Bid Rate. (b) If Sufficient Clearing Bids have not been made (other than because all of the Series 2 Preference Shares are subject to Submitted Hold Orders), subject to the provisions of sections V.4.(c) and V.4.(d) hereof, Submitted Bids and Submitted Sell Orders shall be accepted or rejected in the following order of priority and all other Submitted Bids shall be rejected: (i) the Submitted Bid of each Existing Holder specifying any rate that is equal to or lower than the Maximum Rate shall be accepted, thus entitling that Existing Holder to continue to hold the Series 2 Preference Shares that are the subject of such Submitted Bid; (ii) the Submitted Bid of each Potential Holder specifying any rate that is equal to or lower than the Maximum Rate shall be accepted, thus requiring such Potential Holder to purchase the number of Series 2 Preference Shares specified in such Submitted Bid; and (iii) the Submitted Bid of each Existing Holder specifying any rate that is higher than the Maximum Rate shall be rejected and the Submitted Sell Order of each Existing Holder shall be accepted, thus requiring each such Existing Holder to sell Series 2 Preference Shares but only in an amount equal to the number of Series 2 Preference Shares obtained by multiplying the aggregate number of Series 2 Preference Shares subject to Submitted Bids described in paragraph (ii) of this section V.4.(b) by a fraction, the numerator of 84 - 34 - which shall be the number of Series 2 Preference Shares held by such Existing Holder subject to such Submitted Bid or Submitted Sell Order and the denominator of which shall be the number of Series 2 Preference Shares subject to all such Submitted Bids and Submitted Sell Orders. (c) If, as a result of the procedures described in section V.4.(a) or V.4.(b) hereof, any Existing Holder would be entitled or required to sell, or any Potential Holder would be entitled or required to purchase, a fraction of a Series 2 Preference Share on any Settlement Date, the Auction Manager shall, in such manner as it shall determine in its sole discretion, round up or down the number of Series 2 Preference Shares to be purchased or sold by any Existing Holder or Potential Holder on such Settlement Date so that the number of shares purchased or sold by each Existing Holder or Potential Holder shall be whole Series 2 Preference Shares. (d) If, as a result of the procedures described in section V.4.(a) hereof, any Potential Holder would be entitled or required to purchase a fraction of a Series 2 Preference Share on any Settlement Date, the Auction Manager shall, in such manner as it shall determine in its sole discretion, allocate shares for purchase among Potential Holders so that only whole Series 2 Preference Shares are purchased on such Settlement Date by any Potential Holder, even if such allocation results in one or more of such Potential Holders not purchasing Series 2 Preference Shares on such Settlement Date. (e) Based on the results of each Auction, the Auction Manager shall determine to which Potential Holder or Potential Holders purchasing Series 2 Preference Shares an Existing Holder or Existing Holders shall sell Series 2 Preference Shares being sold by such Existing Holder or Existing Holders. Such purchases and sales of Series 2 Preference Shares shall be completed in accordance with the procedures specified in the Purchaser's Letter on the Settlement Date by payment by each Potential Holder purchasing Series 2 Preference Shares of the aggregate purchase price of the Series 2 Preference Shares to be purchased from a relevant Existing Holder equal to $500,000 per Series 2 Preference Share against delivery by such Existing Holder selling Series 2 Preference Shares to such Potential Holder of a certificate or certificates representing the number of Series 2 Preference Shares being sold, duly endorsed for transfer. 85 - 35 - 5. MISCELLANEOUS Notwithstanding the provisions of Part V hereof, the Auction Manager shall not follow the Auction Procedures on the Auction Date immediately preceding: (i) the Redemption Date in the event that written notice of redemption of all the outstanding Series 2 Preference Shares has been given pursuant to the provisions of section II.5. hereof or (ii) the first day of a Corporation Determined Term or Dealer Determined Term. In the event that there is any inconsistency, ambiguity or uncertainty in the interpretation or application of the procedures set forth in this Part, the board of directors of the Corporation (or any person or persons designated by the board of directors) may, in such manner as it shall determine in its sole discretion, interpret such procedures in order to deal with any such inconsistency, ambiguity or uncertainty and any such determination evidenced by a certificate of the Secretary of the Corporation (which shall be provided to holders of Series 2 Preference Shares) shall be conclusive. EX-3.2 3 BY-LAWS 1 EXHIBIT 3.2 BY-LAW NO. 1 A BY-LAW RELATING GENERALLY TO THE TRANSACTION OF THE BUSINESS AND AFFAIRS OF GULF CANADA RESOURCES LIMITED (hereinafter referred to as the "Corporation") BE IT ENACTED as a by-law of the Corporation as follows: DIRECTORS 1. QUORUM A majority of directors shall constitute a quorum for the transaction of business at any meeting of directors. 2. MEETINGS OF DIRECTORS Directors' meetings may be called by the Chairman of the Board (if any), the President, a Vice-President who is a member of the board, any two directors, or by the Secretary on the direction of any of the foregoing. Notices of meetings shall be delivered, mailed, telephoned or telegraphed to each director not less than 48 hours before the date of the meeting provided that meetings of the board may be held at any time without notice if all the directors are present or if all the absent directors have waived notice. Notice of any meeting of directors or any irregularity in any meeting or in the notice thereof may be waived by any director either before or after the meeting. No notice of the first meeting of directors to be held following the election of directors at a meeting of the shareholders need be given in order for the meeting to be duly constituted, provided a quorum of the directors is present. 3. VOTES TO GOVERN At all meetings of the board, every question shall be decided by a majority of the votes cast on the question; and in case of an equality of votes, the chairman of the meeting in addition to his original vote shall be entitled to a second or casting vote. 4. INTEREST OF DIRECTORS AND OFFICERS GENERALLY IN CONTRACTS No director or officer shall be disqualified by his office from contracting with the Corporation nor shall any contract or arrangement entered into by or on behalf of the Corporation with any director or officer or in which any director or officer is in any way interested be liable to be voided nor shall any director or officer so contracting or being so interested be Iiable to account to the Corporation for any profit realized by any such contract or arrangement by reason of such director or officer holding that office or of the fiduciary relationship thereby established; provided that the director or officer shall have complied with the provisions of the Act. 2 INDEMNIFICATION 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Corporation shall indemnify a director or officer of the Corporation, a former director or officer of the Corporation or a person who acts or acted at the Corporation's request as a director or officer of a body corporate of which the Corporation is or was a shareholder or creditor, and his heirs and legal representatives to the extent permitted by the Act and by law. The Corporation is authorized to enter into any agreements evidencing its indemnity in favour of the foregoing persons to the full extent permitted by law. 6. INDEMNITY OF OTHERS Except as otherwise required by the Act and subject to paragraph 5, the Corporation may from time to time indemnify and save harmless any person who was or is, a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, agent of or participant in another corporation, partnership, joint venture, trust or other enterprise against expenses (including legal fees), judgments, fines and any amount actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted honestly and in good faith with a view to the best interests of the Corporation, and with respect to any criminal or administrative action or proceeding that is enforced by a monetary penalty, had reasonable grounds for believing that his conduct was lawful. The termination of any action, suit or proceeding by judgment, order, settlement, or conviction, shall not, of itself, create a presumption that the person did not act honestly and in good faith with a view to the best interests of the Corporation, and, with respect to any criminal or administrative action or proceeding that is enforced by a monetary penalty, had no reasonable grounds for believing that his conduct was lawful. 7. RIGHT OF INDEMNITY NOT EXCLUSIVE The provisions for indemnification contained in the by-laws of the Corporation shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall enure to the benefit of the heirs, executors and administrators of such a person. 8. NO LIABILITY OF DIRECTORS OR OFFICERS FOR CERTAIN ACTS, ETC. To the extent permitted by law, no director or officer for the time being of the Corporation shall be liable for the acts, receipts, neglects or defaults of any other director or officer or employee or for joining in any receipt or act for conformity or for any loss, damage or expense happening to the Corporation through the insufficiency or deficiency of title to any property acquired by the Corporation or for or on behalf of the Corporation or for the insufficiency or deficiency of any security in or upon which any of the moneys of or belonging to 3 the Corporation shall be placed out or invested or for any loss or damage arising from the bankruptcy, insolvency or tortious act of any person, firm or corporation with whom or which any moneys, securities or effects shall be lodged or deposited or for any loss, conversion, misapplication or misappropriation of or any damage resulting from any dealings with any moneys, securities or other assets belonging to the Corporation or for any other loss, damage or misfortune whatever which may happen in the execution of the duties of his respective office or trust or in relation thereto unless the same shall happen by or through his failure to act honestly and in good faith with a view to the best interests of the Corporation and in connection therewith to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. If any director or officer of the Corporation shall be employed by or shall perform services for the Corporation otherwise than as a director or officer or shall be a member of a firm or a shareholder, director or officer of a corporation which is employed by or performs services for the Corporation, the fact of his being a director or officer of the Corporation shall not disentitIe such director or officer or such firm or corporation as the case may be, from receiving proper remuneration for such services. OFFICERS 9. APPOINTMENT OF OFFICERS The directors shall annually or as often as may be required appoint a President and a Secretary and may designate such other officers of the Corporation and appoint such other officers as they may consider advisable. None of such officers need be a director of the Corporation. 10. DUTIES OF OFFICERS The officers shall perform such duties as may be specified by the directors. 11 REMOVAL OF OFFICERS All officers shall be subject to removal by the directors at any time, with or without cause. SHAREHOLDERS 12. PLACE OF MEETINGS Meetings of shareholders of the Corporation may be held at such place or places within Canada that the directors may from time to time determine. 13. VOTES Every question submitted to any meeting of shareholders shall be decided in the first instance on a show of hands and in case of an equality of votes the chairman of the meeting shall both on a show of hands and at a poll have a second or casting vote in addition to the vote or votes to which he may be entitled as a shareholder or proxy nominee. 4 14. QUORUM A quorum for any meeting of shareholders shall be persons present not being less than 2 in number and holding or representing by proxy not less than 501 per cent of the total number of the issued shares of the Corporation for the time being enjoying voting rights at such meeting. BANKING ARRANGEMENTS, CONTRACTS, ETC. 15. BANKING ARRANGEMENTS The banking business of the Corporation, or any part thereof, shall be transacted with such banks, trust companies or other financial institutions as the board may designate, appoint or authorize from time to time by resolution and all such banking business, or any part thereof, shall be transacted on the Corporation's behalf by such one or more officers and/or other persons as the board may designate, direct or authorize from time to time by resolution and to the extent therein provided. 16. EXECUTION OF INSTRUMENTS Contracts, documents or instruments in writing requiring execution by the Corporation may be signed by any two directors or by any two of the Chairman of the Board, the President, a Vice-President and the Treasurer or by any one of the foregoing together with the Secretary or an Assistant Secretary. The Secretary or an Assistant Secretary shall affix the corporate seal to such instruments as require the same. The board is authorized from time to time by resolution to appoint any officer or officers or any other person or persons on behalf of the Corporation to sign and deliver either contracts, documents or instruments in writing generally or to sign either manually or by facsimile signature and deliver specific contracts, documents or instruments in writing. The term "contracts, documents or instruments in writing" as used in this by-law shall include deeds, mortgages, charges, conveyances, transfers and assignments of property of all kinds including specifically, but without limitation, transfers and assignments of shares, warrants, bonds, debentures or other securities and all paper writings. MISCELLANEOUS 17. VOTING SECURITIES IN OTHER ISSUERS All securities of any other body corporate or issuer of securities held from time to time by the Corporation may be voted at all meetings of shareholders, bondholders, debenture holders or holders of such securities, as the case may be, of such other body corporate or issuer and in such manner and by such person or persons as the directors of the Corporation shall from time to time determine. 18. INVALIDITY OF ANY PROVISIONS OF THIS BY-LAW The invalidity or unenforceability of any provision of this by-law shall not affect the validity or enforceability of the remaining provisions of this by-law. __________________________________ 1 amended in 1996 to 5 per cent 5 19. FINANCIAL YEAR The financial year of the Corporation shall terminate on such date in each year as the board may from time to time by resolution determine. INTERPRETATION 20. In this by-law and all other by-laws of the Corporation, words importing the singular number only shall include the pIural and vice versa; wording importing the masculine gender shall include the feminine and oneuter genders; words importing persons shall include an individual, partnership, association, body corporate, executor, administrator or legal representative and any number or aggregate of persons; "articles" include the original or restated articles of incorporation, articles of amendment, articles of amalgamation, articles of continuance, articles of arrangement, articles of reorganization and articles of revival; "board" shall mean the board of directors of the Corporation; "Act" shall mean the Canada Business Corporations Act, S.C. 1974-75, Chapter 33 as amended from time to time or any act that may hereafter be substituted therefor; and "meeting of shareholders" shall mean and include an annual meeting of shareholders and a special general meeting of shareholders. Passed by the Board of Directors on December 12,1985. 6 BY-LAW NO. 2 A BY-LAW RESPECTING THE BORROWING OF MONEY, THE ISSUING OF SECURITIES AND THE SECURING OF LIABILITIES BY GULF CANADA RESOURCES LIMITED (hereinafter referred to as the "Corporation") BE IT ENACTED as a by-law of the Corporation as follows: 1. Without limiting the borrowing powers of the Corporation as set forth in the Act, the board may from time to time: (a) borrow money upon the credit of the Corporation; (b) issue, reissue, sell or pledge bonds, debentures, notes or other evidence of indebtedness or guarantee of the Corporation, whether secured or unsecured; and (c) mortgage, hypothecate, pledge or otherwise create an interest in or charge upon all or any property (including the undertaking and rights) of the Corporation, owned or subsequently acquired to secure payment of any such evidence of indebtedness or guarantee of the Corporation. Nothing in this section limits or restricts the borrowing of money by the Corporation on bills of exchange or promissory notes made, drawn, accepted or endorsed by or on behalf of the Corporation. 2. The Board may from time to time delegate to such one or more of the directors and officers of the Corporation as may be designated by the board all or any of the powers conferred on the board by section 1 of this by-law or by the Act to such extent and in such manner as the board shall determine at the time of each such delegation. Passed by the Board of Directors on December 12,1985 EX-10.2 4 LOAN AGREEMENT 1 EXHIBIT 10.2 GULF CANADA RESOURCES LIMITED - and - THE LENDERS NAMED HEREIN - and - BANK OF MONTREAL (AS AGENT FOR THE LENDERS) - -------------------------------------------------------------------------------- LOAN AGREEMENT - -------------------------------------------------------------------------------- JULY 18, 1997 2 TABLE OF CONTENTS
PAGE NO. ARTICLE I DEFINITIONS AND PRINCIPLES OF INTERPRETATION 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2 Certain Rules of Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 1.3 Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 1.4 Cross-References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 1.5 Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 1.6 Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 1.7 Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 ARTICLE II THE FACILITY 2.1 The Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.2 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 2.3 Availment of Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 2.4 Drawdown Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 2.5 Notice of Drawdown to Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.6 Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.7 Funding Reliance; Lender's Failure to Fund . . . . . . . . . . . . . . . . . . . . . . . . 30 2.8 Several Funding Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 2.9 Pro-Rata Treatment of Drawdowns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 2.10 Restrictions on Drawdowns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 2.11 Conversion Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 2.12 Rollovers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 2.13 Evidence of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 2.14 Netting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 ARTICLE III FURTHER PROVISIONS RELATING TOLIBOR DRAWDOWNS, BANKERS' ACCEPTANCES AND LETTERS OF CREDIT 3.1 Effects of Change of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 3.2 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 3.3 Bankers' Acceptances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 3.4 Issuance of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
-i- 3 ARTICLE IV PAYMENT OF INTEREST AND OTHER FEES 4.1 Interest on Prime Rate Drawdowns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 4.2 Interest on Base Rate Drawdowns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 4.3 Interest on Libor Drawdowns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 4.4 Stamping Fees on Bankers' Acceptances . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 4.5 Fees for Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 4.6 Incremental Interest and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 4.7 Interest on Unpaid Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 4.8 Annual Rates of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 4.9 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 4.10 Limitation on Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 4.11 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 4.12 Waiver of Judgment Interest Act (Alberta) . . . . . . . . . . . . . . . . . . . . . . . . . 43 ARTICLE V REPAYMENTS AND PREPAYMENTS 5.1 Amounts Under Facility May be Reborrowed . . . . . . . . . . . . . . . . . . . . . . . . . 44 5.2 Mandatory Facility Reductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 5.3 Repayment under the Facility after Term Out Date . . . . . . . . . . . . . . . . . . . . . 45 5.4 Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 5.5 Currency Fluctuations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 5.6 Voluntary Reduction of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 ARTICLE VI CONDITIONS PRECEDENT TO DRAWDOWNS 6.1 Conditions Precedent to First Drawdown . . . . . . . . . . . . . . . . . . . . . . . . . . 48 6.2 Conditions Precedent to All Drawdowns . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 6.3 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE VII BORROWER'S REPRESENTATIONS AND WARRANTIES 7.1 Borrower's Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE VIII COVENANTS 8.1 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 8.2 Environmental Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 8.3 Restricted/Unrestricted Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
-ii- 4 8.4 Certain Requirements in Respect of Mergers, etc. . . . . . . . . . . . . . . . . . . . . . 63 ARTICLE IX EVENTS OF DEFAULT 9.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 9.2 Termination and Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 9.3 Remedies Cumulative and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 9.4 Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 ARTICLE X THE AGENT AND THE LENDERS 10.1 The Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 10.2 The Agent's Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 10.3 The Agent's Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 10.4 Protection of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 10.5 Indemnification of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 10.6 Termination or Resignation of an Agent . . . . . . . . . . . . . . . . . . . . . . . . . . 72 10.7 Rights of the Agent as Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 10.8 Financial Information Concerning Gulf . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 10.9 Knowledge of Financial Situation of the Borrower . . . . . . . . . . . . . . . . . . . . . 73 10.10 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 10.11 Capacity as Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 ARTICLE XI PAYMENT 11.1 Payments to Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 11.2 Payments by Lenders to Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 11.3 Payments by Agent to Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 11.4 No Set-Off or Counterclaim by Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . 75 11.5 Non-Receipt by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 11.6 When Due Date Not Specified . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 11.7 Agent's Authority to Debit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 ARTICLE XII GENERAL 12.1 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 12.2 Indemnifications by the Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 12.3 Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 12.4 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 12.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
-iii- 5 12.6 Judgment Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 12.7 Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 12.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 12.9 Whole Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 12.10 Binding Effect; Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 12.11 Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 12.12 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 12.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Schedule A - Schedule of Lenders Schedule B - Compliance Certificate Schedule C - Drawdown Notice Schedule D - Bankers' Acceptance Undertaking Schedule E - Extension Agreement Schedule F - Extension Request Schedule G - Bank Transfer Agreement Schedule H - Borrower's Counsel's Opinion Schedule I - Lenders' Counsel's Opinion Schedule J - Notice of Amendment of Unrestricted Subsidiaries Schedule K - Letter of Credit Documentation Schedule L - List of Unrestricted Subsidiaries
-iv- 6 LOAN AGREEMENT THIS AGREEMENT, made as of the 18th day of July, 1997, B E T W E E N: GULF CANADA RESOURCES LIMITED, a corporation governed by the laws of Canada (hereinafter called the "Borrower") - and - THE LENDERS NAMED IN SCHEDULE A to this Agreement as amended from time to time (hereinafter called the "Lenders") - and - BANK OF MONTREAL, a bank existing under the laws of Canada, as the Agent on behalf of the Lenders (hereinafter, in such capacity, called the "Agent") WITNESSES THAT WHEREAS the Borrower has requested the Facility (as hereinafter defined) for general corporate purposes and the Lenders have agreed to provide the Facility to the Borrower on the terms and conditions herein set forth; NOW THEREFORE in consideration of the premises and mutual agreements and covenants contained in this Agreement and other good and valuable consideration (the receipt and adequacy of which are hereby mutually acknowledged), the Parties hereby agree as follows: 7 - 2 - ARTICLE I DEFINITIONS AND PRINCIPLES OF INTERPRETATION 1.1 Definitions - Whenever used in this Agreement, unless there is something inconsistent in the subject matter or context, the following words and terms shall have the meaning set out below: "ADVANCE" means a utilization of the Facility by the Borrower by way of a Prime Rate Drawdown, Base Rate Drawdown, Libor Drawdown, Bankers' Acceptance Drawdown or L/C Drawdown from a Lender, in each case, in accordance herewith; "AGENT" means Bank of Montreal or such other Person as shall have been appointed as a successor agent pursuant to Section 10.6; "AGREEMENT" means this agreement, including all schedules and all instruments supplementing or amending this Agreement, "HEREOF", "HERETO" and "HEREUNDER" and similar expressions mean and refer to this Agreement and not any particular article or section of this Agreement; "APPLICABLE LAW" means, with respect to any Person, property, transaction or event, and whether or not having the force of law, all applicable laws, statutes, regulations, rules, guidelines, by-laws, treaties, orders, policies, judgments, decrees and official directives of Government Authorities or Persons acting under the authority of any Government Authority including, for greater certainty, the proposals for international convergence of capital measurement and capital standards developed by the Bank for International Settlements subject to the implementation measures to be adopted in Canada in respect thereto as referred to in a bulletin of the Office of the Superintendent of Financial Institutions Canada dated August 19, 1988; "APPLICABLE SPREAD" means, at any time, the number of Basis Points, if any, by which the number of incremental Basis Points, at such time, applicable in respect of Bankers' Acceptances exceeds the number of incremental Basis Points, at such time, applicable in respect of Prime Rate Drawdowns; "AUDITORS" means the present auditors of the Borrower or such other national firm of chartered accountants who from time to time may become the auditors of the Borrower; "AVAILABLE FACILITY AMOUNT" means at any time U.S. $700,000,000 (as reduced or cancelled from time to time in accordance herewith) less the aggregate Outstanding Amount at such time; "BANKERS' ACCEPTANCE" means a non-interest bearing bill of exchange in Canadian Dollars, having a term of not less than 10 nor more than 183 days and maturing on a Business Day, 8 - 3 - drawn by the Borrower and accepted by the Lender as evidenced by the Lender's endorsement thereof at the direction of the Borrower; "BANKERS' ACCEPTANCE DRAWDOWN" means a Drawdown in Canadian Dollars effected by the sale or purchase of a Bankers' Acceptance pursuant to the terms of this Agreement; "BANKERS' ACCEPTANCE LOAN" means, at any time, the aggregate face amount of all Bankers' Acceptances then outstanding as a result of all Bankers' Acceptance Drawdowns; "BANKERS' ACCEPTANCE PROCEEDS" means, in respect of each Bankers' Acceptance Drawdown, funds in an amount which is equal to: Face Amount ----------------- 1 + (Rate x Term) ------------- 365 (where "Face Amount" is the principal amount of the Bankers' Acceptance being purchased, "Rate" is the Reference BA Discount Rate divided by 100 and "Term" is the number of days in the term of the Bankers' Acceptance), less the applicable stamping fees in respect thereof; "BANKERS' ACCEPTANCE UNDERTAKING" means an agreement substantially in the form set forth in Schedule D; "BASE RATE" means, at any time, the rate of interest, expressed as an annual rate on the basis of a year of 365 days, or 366 days in the case of a leap year, established by the Agent from time to time as the reference rate of interest it will charge for loans made in Canada in U.S. Dollars to Canadian customers; "BASE RATE DRAWDOWN" means a Drawdown in U.S. Dollars with respect to which the Borrower has elected or is deemed to have elected to have interest calculated by reference to the Base Rate or to which, in accordance with the provisions of this Agreement, the Base Rate is deemed or stated to apply; "BASE RATE LOAN" means, at any time, the aggregate of the principal amounts of all Base Rate Drawdowns then outstanding; "BASIS POINTS" OR "BP" means one one-hundredth (0.01) of one percent; "BLOCK A PROJECT" means the project for the commercial development of gas reserves located in the Block "A" Production Sharing Contract area in Aceh province, Sumatra, Indonesia; "BUSINESS DAY" means a day on which banks are open for business in Calgary and Toronto which is not a Saturday or a Sunday and, additionally, in respect of any Libor Drawdown or 9 - 4 - Libor Loan, a day on which dealings in United States Dollar deposits are transacted in the London eurodollar interbank market; "CANADIAN DOLLARS" and the symbol "CDN. $" mean the lawful currency of Canada; "CBRS " means C.B.R.S. Inc. carrying on business as "Canadian Bond Rating Service" and its successors; "CHANGE OF CONTROL" means the acquisition, directly or indirectly, of more than 50% of the Voting Securities of the Borrower by any Person (or group of Persons acting in concert with respect to the ownership or voting of such Voting Securities), provided that any such acquisition by The Torch Group (being those parties other than the Borrower and A&G Resources Corporation to the Shareholders Agreement dated January 25, 1995) shall not be considered to be a Change of Control; "COMMITMENT" means, with respect to each Lender, such Lender's obligation to make Advances hereunder pursuant to Section 2.1; "COMMITMENT AMOUNT" has the meaning ascribed to it in Section 2.1; "COMMODITY SWAP" means an agreement entered into between the Borrower and a counterparty on a case by case basis, the purpose and effect of which is to mitigate or eliminate the Borrower's exposure to fluctuations in commodity prices; "COMPLIANCE CERTIFICATE" means a certificate of the Borrower substantially in the form set out in Schedule B and signed by a senior officer (including the President, any Vice-President, the Treasurer or any Assistant Treasurer) of the Borrower; "CONFLICTED LENDER" means, with respect to any Potentially Hostile Acquisition, a Revolving Lender that is the lead bank, lead agent or sole lender to the Person who is the target of such Potentially Hostile Acquisition; "CONVERSION" means a conversion of a Drawdown pursuant to Section 2.11; "CORRIDOR PROJECT" means the project for the commercial development of gas reserves from the Corridor Block Production Sharing Contract area of South Sumatra, Indonesia and associated lands; "CORRIDOR SUPPORT AGREEMENT" means the Sponsor Support Agreement dated February 26, 1997 between the Borrower and The Sumitomo Bank, Limited, as agent for the lenders for the Corridor Project, a copy of which has been provided by the Borrower to the Agent; 10 - 5 - "CURRENCY SWAP" means a contract entered into between the Borrower and a counterparty on a case by case basis in connection with forward rate, currency swap or currency exchange and other similar currency related transactions, the purpose and effect of which is to mitigate or eliminate the Borrower's exposure to fluctuations in exchange rates; "DATE OF CONFIRMATION" means, in the case of any extension of the Term Out Date in accordance with Section 2.1, the earliest of: (i) the date the Agent gives notice to the Borrower that each of the Revolving Lenders has executed and delivered to the Agent the Extension Agreement; (ii) the date the Borrower (provided the Borrower is entitled to do so) provides the notice to the Agent of its election pursuant to paragraph 2.1(c)(i) or 2.1(c)(ii) to extend the Term Out Date with respect to the Commitments of the Extending Lenders; and (iii) the Term Out Date as the same was determined prior to the Extension Request to which the Extension Agreement relates; "DBRS" means Dominion Bond Rating Service Limited and its successors; "DESIGNATED PROJECT GUARANTEES" means, collectively, all Financial Guarantees in respect of the Corridor Project and the Block A Project, including the Corridor Support Agreement (and any other project of Gulf that the Borrower requests, and the Majority Lenders agree, be included in this paragraph) in respect of which any Person has or may have recourse to any member of the Restricted Group; "DRAWDOWN" means an Advance, a Conversion or a Rollover, as the context requires; "DRAWDOWN DATE" means the date proposed for a Drawdown requested by the Borrower pursuant to the provisions of this Agreement; "DRAWDOWN NOTICE" means a notice by the Borrower to the Agent in respect of a Drawdown, given either in writing or by fax (in the case of fax notice with prompt original written confirmation thereof pursuant to the provisions of Section 2.4) substantially in the form set forth in Schedule C; "EBITDA" means with respect to any period, the earnings (loss) from continuing operations in the ordinary course of business (which for certainty shall not include gains or losses from sales of assets and sales of securities other than sales described in subsection 5.2(a)(i), (ii) and (iii) and shall not include dividends and other earnings distributed to the Restricted Group by Unrestricted Subsidiaries) before income taxes of the Borrower and the Restricted Group (determined on a consolidated basis for such entities in accordance with GAAP) plus, to the extent deducted in the determination of the foregoing, without duplication, the sum of: (i) interest expense, (ii) depreciation and depletion expense, (iii) amortization expense, (iv) expensed exploration (in accordance with the successful efforts method of accounting), and (v) any other non-cash charges; "EFFECTIVE DATE" means the date of this Agreement; 11 - 6 - "ELIGIBLE LENDER" means, any of the Lenders and/or any other financial institution(s) resident in Canada for purposes of the Income Tax Act (Canada) and listed in Schedule I or Schedule II to the Bank Act (Canada) acceptable to the Borrower and the Agent, each acting reasonably; "ELIGIBLE PARTNERSHIP" means a partnership formed pursuant to the laws of the Province of Alberta, all the interests of which from and after the transfer of assets hereinafter mentioned are owned by the Borrower and Restricted Subsidiaries and to which all or substantially all of the assets of the Borrower have been transferred in accordance with Section 8.4; "ENVIRONMENTAL APPROVALS" means all applicable permits, licences, authorizations, consents, directions or approvals required by Government Authorities pursuant to the Environmental Laws with respect to the operation of Gulf's business; "ENVIRONMENTAL LAWS" means in respect of any jurisdiction, Canadian or foreign, all laws, by-laws, rules, regulations, orders, codes and judgments of any Government Authority relating to the protection of the environment and public health and safety and, without restricting the generality of the foregoing, includes without limitation those Environmental Laws relating to the storage, transportation, treatment and disposal of Hazardous Substances, product safety, and the emission, discharge, release or threatened release of Hazardous Substances into the air, surface water, ground water, land surface, subsurface strata or any building or structure and, in each such case, as such Environmental Laws may be amended or supplemented from time to time; "EQUITY" means, in respect of any body corporate, the aggregate of: (i) the share capital attributable to the issued shares, or any right to acquire shares, outstanding on the date of determination, (excluding, in the case of the Borrower, any share capital attributable to securities, or any right to acquire securities, in each case, other than Equity Shares); (ii) (without duplication) any surplus (whether contributed or capital); (iii) any retained earnings (or deficit); and (iv) any cumulative foreign currency translation adjustment; in each case, of the body corporate and as determined in accordance with GAAP; "EQUITY SHARES" means the ordinary shares and Preferred Shares of the Borrower as constituted on the Effective Date and shares, issued after the Effective Date, of any class or series of shares of the Borrower provided that the rights, privileges, terms and conditions of or attaching to such shares (whether as set forth in the constating documents of the Borrower or in any agreement or understanding with the Borrower, any Subsidiary or any Person not acting at arm's length with the Borrower) do not entitle the holder thereof to redeem, retract or otherwise have the shares repurchased or retired in whole or in part other than by the issuance of securities that are, themselves, Equity Shares as otherwise defined herein; "EQUIVALENT AMOUNT" means, on any date, the amount of Canadian Dollars or United States Dollars, as the case may be, which can be purchased with the specified amount of United 12 - 7 - States Dollars or Canadian Dollars, as the case may be, at the applicable Exchange Rate on that date; "EVENT OF DEFAULT" means any of the events described in Section 9.1; "EXCHANGE RATE" means, on any date, for any conversion of United States Dollars into Canadian Dollars, or vice versa, the applicable spot buying rate for Canadian Dollars or United States Dollars, as the case may be, reported by the Bank of Canada as its daily official noon (Toronto time) rate of exchange on such date if it is a Business Day or on the immediately preceding Business Day if such date is not a Business Day; "EXISTING ACQUISITION FACILITY" means the facilities provided pursuant to the amended and restated loan agreement made as of December 17, 1996, between the Borrower, Bank of Montreal, as agent and underwriter, and the lenders named therein, and amended and restated as of January 24, 1997; "EXTENDING LENDERS" has the meaning ascribed to it in Section 2.1; "EXTENSION AGREEMENT" means an agreement substantially in the form set forth in Schedule E; "EXTENSION REQUEST" means a document substantially in the form set forth in Schedule F, accompanied by an Extension Agreement duly completed and executed by the Borrower; "FACILITY" has the meaning ascribed to it in Section 2.1; "FACILITY AMOUNT" means the aggregate of the Outstanding Amount and the Available Facility Amount; "FAIR MARKET VALUE" means the highest price available in an open and unrestricted market between informed, prudent parties, acting at arm's length and under no compulsion to act, expressed in terms of money or money's worth; "FINANCIAL GUARANTEE" means, without duplication, any Guarantee and any undertaking to assume, guarantee, endorse, contingently agree to purchase or to provide funds for the payment of, or otherwise become liable in respect of, any indebtedness, liability or obligation of any Person provided in connection with, or as a condition of, the availability or provision of Funded Debt to any other Person (including the Corridor Support Agreement, but excluding any Guarantee or undertaking that: (A) would otherwise be a Financial Guarantee but in respect of which recourse is limited to securities of an Unrestricted Subsidiary; or (B) which is provided by a member of the Restricted Group in respect of any indebtedness, liabilities or obligations of a member of the Restricted Group); provided, at any particular time, that the amount of each Financial Guarantee shall be deemed to be the amount guaranteed thereby determined as at such time, unless the Financial Guarantee is limited to 13 - 8 - a specified amount or to realization on specified assets, in which case the amount of such Financial Guarantee shall be deemed to be the lesser of (i) such specified amount or the Fair Market Value of such specified assets, as the case may be, and (ii) the amount guaranteed thereby; "FINANCIAL STATEMENTS" means the financial statements of Gulf for the fiscal year ended December 31, 1996, consisting of the balance sheet and the statements of income, retained earnings and changes in financial position and all notes to such financial statements as reported upon by Ernst & Young, together with the unaudited financial statements of Gulf for the Fiscal Quarter ended March 31, 1997; "FISCAL QUARTER" means a three month period ending on the last day of March, June, September or December in each year; "FUNDED DEBT" means, without duplication, (i) the amount of any indebtedness, liabilities and obligations in respect of monies borrowed; (ii) the book value of any capital leases or other leases classified as debt under GAAP or for Canadian income tax purposes; (iii) amounts constituting any Prepaid Obligation; (iv) amounts owing as deferred consideration for the acquisition of assets or receipt of services or both unless the same are payable on normal trade terms in less than six months from the date such assets are acquired or such services are received and are not the subject of any renewal or extension provisions or arrangements (together with any Funded Debt thereof assumed or acquired therewith); and (v) any Guarantee in respect of Funded Debt as hereinbefore defined, but for greater certainty, shall, in respect of the Borrower, exclude the Preferred Shares; "GAAP" has the meaning ascribed to it in Section 1.3; "GOVERNMENT AUTHORITIES" means any nation or government, any province, state, city or other political subdivision and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including without limitation, all applicable federal, provincial and municipal agencies, ministries, departments, inspectors and officials; "GUARANTEE" means any undertaking to assume, guarantee, endorse, contingently agree to purchase or to provide funds for the payment of, or otherwise become liable in respect of, any Funded Debt of any Person (other than an undertaking that, at any particular time, would otherwise constitute a Guarantee but in respect of which recourse is limited to securities of an Unrestricted Subsidiary); provided that at any particular time, the amount of each Guarantee shall be deemed to be the amount of the Funded Debt guaranteed thereby determined as at such time, unless the Guarantee is limited to a specified amount or to realization on specified assets, in which case the amount of such guarantee shall be deemed to be the lesser of (i) such specified amount or the Fair Market Value of such specified assets, as the case may be, and (ii) the amount of such Funded Debt; 14 - 9 - "GULF" means the Borrower and all of its Subsidiaries; "HAZARDOUS SUBSTANCE" means any contaminant, pollutant or hazardous substance that is likely to cause harm or degradation to the environment or risk to human health or safety, and without restricting the generality of the foregoing, includes without limitation, any pollutant, contaminant, waste, hazardous waste, toxic substance or dangerous good which is defined or identified in any Environmental Law or industry standard, or which is present in the environment in such quantity or state that it contravenes any Environmental Law; "INTER-RESTRICTED GROUP FUNDED DEBT" means Funded Debt of one or more members of the Restricted Group owed solely to one or more other members of the Restricted Group in respect of which Funded Debt no Person, other than a member of the Restricted Group, has or may have recourse to the assets of the member of the Restricted Group who has the Funded Debt; "INTEREST PAYMENT DATE" means, (i) with respect to a Prime Rate Drawdown and a Base Rate Drawdown, the first Business Day of each calendar month; and (ii) with respect to a Libor Drawdown, the last day of the Libor Interest Period applicable thereto and also, if the Libor Interest Period is longer than 93 days, the last day of each 90 day period during such Libor Interest Period or, if any such day is not a Business Day, the Business Day next following; "INTEREST SWAP" means a contract entered into between the Borrower and a counterparty on a case by case basis, in connection with interest rate swap transactions, interest rate options, cap transactions, floor transactions, collar transactions and other similar interest rate related transactions, including forward rate agreements, the purpose and effect of which is to mitigate or eliminate the Borrower's exposure to fluctuations in interest rates; "LENDERS" means the Lenders listed in Schedule A hereof, as amended from time to time in accordance herewith; "LENDING OFFICE" with respect to any Lender, means the office of such Lender specified as its "Lending Office" opposite its name on Schedule A or such other office of such Lender in Canada as such Lender may from time to time specify to the Borrower and the Agent; "L/C DRAWDOWN" means a Drawdown by way of Letter of Credit; "LETTER OF CREDIT" means an irrevocable letter of credit or letter of guarantee, in each case, in Canadian Dollars or U.S. Dollars issued or that may be issued from time to time by the Lenders at the request of the Borrower; 15 - 10 - "LETTER OF CREDIT DOCUMENTATION" means the documentation substantially in the form set forth in Schedule K; "LETTERS OF CREDIT LOANS" means, at any time, the aggregate of the maximum liability undertaken by the Lenders as a result of all L/C Drawdowns then outstanding; "LIABILITIES" means, without duplication, all obligations, contingent and otherwise, which are classified as liabilities in accordance with GAAP; "LIBOR DRAWDOWN" means a Drawdown in U.S. Dollars with respect to which the Borrower has elected to have interest calculated by reference to the Libor Rate or to which, in accordance with the provisions of this Agreement, the Libor Rate is stated to apply; "LIBOR INTEREST PERIOD" means, for any Libor Drawdown, the period of 1, 2, 3, 6 months, or such other period as may be agreed to by all Lenders, as may be selected by the Borrower pursuant to the relevant Drawdown Notice, commencing on the Drawdown Date of such Libor Loan, provided that: (i) if such Interest Period would otherwise end on a day which is not a Business Day, such Libor Interest Period shall end on the next following Business Day (unless such next following Business Day is the first Business Day of a calendar month, in which case such Libor Interest Period shall end on the Business Day immediately preceding the day on which such Libor Interest Period would otherwise end); and (ii) Libor Interest Periods shall terminate on such dates as will permit the repayment of the Facility on the dates and in the manner provided for herein; "LIBOR LOAN" means, at any time, the aggregate of the principal amounts of all Libor Drawdowns then outstanding; "LIBOR RATE" means, for the Libor Interest Period applicable to a Libor Drawdown, the average interest rate per annum (expressed on the basis of a 360 day year) for a period equal to the number of days in such Libor Interest Period at which U.S. Dollar deposits are offered for deposit in the London eurodollar interbank market at approximately 11:00 a.m. (London, England time) on the second Business Day preceding the first day of such Libor Interest Period as published on the Reuters Service Page LIBOR (or such other page as may, from time to time, replace such page on that service for the purpose of displaying the rates at which U.S. Dollar deposits are offered for deposit in the London eurodollar interbank market) or, failing the availability of such service, as published on page 3750 of the Telerate screen (or such other page as may, from time to time, replace such page on that service for the purpose of displaying the rates at which U.S. Dollar deposits are offered for deposit in the London eurodollar interbank market); 16 - 11 - "LOANS" means, at any time, the aggregate of all Bankers' Acceptance Loans, Prime Rate Loans, Base Rate Loans, Libor Loans and Letters of Credit Loans then outstanding; "MAJORITY LENDERS" means one or more Lenders who, in the aggregate, have outstanding more than 66 2/3% of the principal amount of the Loans or, if no such principal amount is then outstanding, Lenders who have more than 66 2/3% of the Commitments and except in respect of the matters requiring approval by all Lenders as set forth in Section 12.7, any reference to Lenders in the context of a requirement for any approval, consent or waiver shall be deemed to be a reference to Majority Lenders; "MATERIALLY ADVERSE" means any state of fact, change, event or occurrence which would: (i) materially adversely affect the Borrower's ability to perform its obligations under, or the validity or enforceability of, this Agreement; or (ii) be materially adverse to the financial condition of the Restricted Group; "MATURITY DATE" means the date which is the fourth anniversary of the Term Out Date; "MINIMUM TANGIBLE NET WORTH" means Cdn. $1,300,000,000 plus 70% of Gulf's net income (loss) determined in accordance with GAAP, for the period commencing on March 31, 1997 and ending on the last day of the most recently completed Fiscal Quarter on a cumulative basis, provided that in no circumstance shall Minimum Tangible Net Worth be less than Cdn. $1,300,000,000; "MOODY'S" means Moody's Investors Service, Inc. and its successors; "NET PROCEEDS" means all cash proceeds paid to the Borrower or any of its Restricted Subsidiaries or any Unrestricted Subsidiary to the extent distributed to the Restricted Group in respect of (i) the sale of an asset after repayment of any debt secured by the asset or required to be paid to complete such sale, (ii) the issuance of securities, (iii) the secondary distribution of securities; and (iv) such other transactions as may be approved as provided in Section 5.2, in each case after deduction of reasonable legal and other fees, Taxes, commissions, usual adjustments and other usual expenses, and such other amounts as may be agreed to by the Majority Lenders; "NON-MATERIAL RESTRICTED SUBSIDIARY" means a Restricted Subsidiary having a gross asset value (as shown on the latest financial statements of the Subsidiary) of less than Cdn. $1,000,000 and having no indebtedness, liabilities or obligations in respect of which any Person may have recourse to the Borrower or any other Restricted Subsidiary in excess of Cdn. $1,000,000; "NONEXTENDING LENDERS" has the meaning ascribed to it in Section 2.1; 17 - 12 - "NONREVOLVING LENDERS" means the Lenders whose Loans are in the Term Period; "NOTICE OF AMENDMENT OF UNRESTRICTED SUBSIDIARIES" means a notice substantially in the form set forth in Schedule J; "OUTSTANDING AMOUNT", with respect to any Loan or Loans outstanding hereunder, means the aggregate amount of indebtedness of the Borrower outstanding thereunder, excluding interest, fees and any other amounts which have accrued but are not yet due in respect of such Loan(s); "PARTIES" means the Borrower, the Lenders and the Agent and "PARTY" refers to any one of them; "PAYMENT OFFICE" means the office that is designated by the Agent to the Borrower and Lenders from time to time as the office where payments to be made to the Agent pursuant to this Agreement shall be made; "PERMITTED DESIGNATED PROJECT GUARANTEE AMOUNT" means the amount equal to: (i) U.S. $150,000,000; and (ii) the amount, if any, by which: (A) 5% of the Equity of Gulf exceeds (B) the aggregate amount of Financial Guarantees excluding Designated Project Guarantees; "PERMITTED ENCUMBRANCES" means: (i) liens or privileges imposed by law such as carriers', warehousemens', mechanics' and materialmens' liens and privileges; or liens and privileges arising out of judgments or awards in respect of which an appeal or proceedings for review are being prosecuted in good faith and with respect to which a stay of execution shall have been secured pending such appeal or proceedings for review or security or other appropriate protection of its properties and assets (excluding such security) from seizure shall have been provided; or liens for taxes, assessments or governmental charges or levies not at the time due or delinquent or the validity of which is being contested at the time in good faith in proceedings before a court or other Government Authority and in each case, in respect of which any appropriate reserves have been taken; or liens in favour of operators and non-operators pursuant to oil and gas operating agreements and oil and gas facility or pipeline operating agreements and other similar operating agreements; undetermined or inchoate liens, privileges and charges incidental to current operations which have not at such time been filed 18 - 13 - pursuant to law or which relate to obligations not due or delinquent; or the deposit of cash or securities in connection with any lien or privilege hereinbefore in this paragraph referred to; (ii) minor encumbrances, including, without limitation, easements, rights of way, servitudes or other similar rights in land granted to or reserved by other Persons, rights of way for sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property, which encumbrances, easements, servitudes, rights of way, other similar rights and restrictions do not in the aggregate either materially detract from the value of the property and assets of the Restricted Group or materially impair its use, in each case, in the operation of Gulf's business; (iii) the right reserved to or vested in any municipality or governmental or other public authority by the terms of any lease, licence, franchise, grant or permit or by any statutory provision, to terminate any such lease, licence, franchise, grant or permit, or to require annual or other periodic payments as a condition of the continuance thereof; (iv) security given to a public utility or any municipality or governmental or other public authority when required by such utility or municipality or other authority in connection with the operation of Gulf's business, all in the ordinary course of its business; (v) the reservations, limitations, provisos and conditions, if any, expressed in any original grants from the Crown; (vi) security given in respect of any Interest Swaps, Currency Swaps or Commodity Swaps in the ordinary course of its business provided that such security is cash, marketable securities, a letter of credit (in respect of which the liability is included in Total Senior Debt) or a Financial Guarantee; (vii) purchase money security interests as defined in the Personal Property Security Act (Alberta) as such Act may be amended from time to time, in the aggregate for such security interests up to a maximum of 5% of the Equity of Gulf at the date the security is created, incurred or assumed; (viii) security created, incurred or assumed in the ordinary course of business in the aggregate for such types of security up to a maximum of 5% of the Equity of Gulf at the date the security is created, incurred or assumed; (ix) security created, incurred or assumed in respect of Funded Debt of the Restricted Group in the aggregate for such types of security up to a maximum 19 - 14 - (excluding Inter-Restricted Group Funded Debt) of 5% of the Equity of Gulf at the date the security is created, incurred or assumed; (x) security in respect of obligations of an Unrestricted Subsidiary over shares of Unrestricted Subsidiaries held by the Restricted Group; (xi) security in respect of accounts receivable for sales under the Receivables Purchase and Sale Agreement dated November 29, 1994, as amended, among the Borrower, Corporate Receivables Trust and Toronto Dominion Securities Inc., or any replacement of such arrangement, provided that in no event shall proceeds thereunder exceed Cdn. $125,000,000; (xii) security in respect of Funded Debt of acquired entities provided the same complies with subsection 8.3(b); (xiii) security given by a Restricted Subsidiary that is a Restricted Subsidiary pursuant to subsection 8.3(b) if such security was given prior to the Restricted Subsidiary becoming a Restricted Subsidiary pursuant to such paragraph; (xiv) security given by a Restricted Subsidiary to the Borrower or to a Restricted Subsidiary in respect of Inter-Restricted Group Funded Debt; and (xv) security granted by Crusader Limited (now Gulf Australia Resources Limited) for the benefit of the holders of certain notes issued by Crusader Limited creating a security interest in shares of Triton Energy Corporation and property exchanged for such shares, which notes are exchangeable for shares of Triton Energy Corporation; "PERSON" means any individual, sole proprietorship, partnership, limited partnership, unincorporated association, unincorporated syndicate, unincorporated organization, trust, body corporate, and a natural person in his or her capacity as trustee, executor, administrator or other legal representative or Government Authority; "POTENTIALLY HOSTILE ACQUISITION" means the acquisition of more than 9.5% of the Voting Securities of, amalgamation or merger with, a Person any of the securities of which are publicly traded unless the acquisition, amalgamation or merger is approved by the board of directors, board of trustees or other individuals in a similar capacity of such Person; "PREFERRED SHARES" means the Fixed/Adjustable Rate Senior Preference Shares Series 1 and the Cumulative Redeemable Auction Perpetual Senior Preference Shares, Series 2 of the Borrower as constituted on the Effective Date; "PREPAID OBLIGATIONS" means "take-or-pay" or similar prepaid Liabilities of a Person whereby such Person is obligated to settle, at some future date more than 60 days from the 20 - 15 - date the obligation is incurred, payment in respect of petroleum substances, whether by deliveries (accelerated or otherwise) of petroleum substances, payment of money or otherwise howsoever; "PREVIOUS FOUR FISCAL QUARTERS" means, at the time of any determination, the four consecutive completed Fiscal Quarters ending on, or last preceding, the date of such determination; "PRIME RATE" means, at any time, the greater of: (i) the floating annual rate of interest publicly announced from time to time by the Agent as its prime rate, being a reference rate in effect on the date of such announcement, based on a year of 365, or 366 days in the case of a leap year, for Canadian dollar loans to commercial customers in Canada; and (ii) the Agent's Reference BA Discount Rate in respect of bankers' acceptances having a term of 30 days plus the Applicable Spread; "PRIME RATE DRAWDOWN" means a loan in Canadian Dollars by the Lenders to the Borrower with respect to which the Borrower has elected, or is deemed to have elected, to have interest calculated by reference to the Prime Rate or to which, in accordance with the provisions of this Agreement, the Prime Rate is deemed or stated to apply; "PRIME RATE LOAN" means, at any time, the aggregate of the principal amounts of all Prime Rate Drawdowns then outstanding; "PROJECT SUBSIDIARY" means: (i) a Subsidiary that holds the production sharing contract(s) for the Corridor Project or the Block A Project, being, at the Effective Date, Gulf Resources (Grissik) Ltd. (formerly Asamera (Overseas) Limited) or Gulf Resources Aceh Ltd. (formerly Asamera Oil Indonesia Ltd.); (ii) a Subsidiary that directly incurs indebtedness for borrowed money that is solely for the purpose of funding, directly or indirectly, the investment in the Corridor Project or the Block A Project, or any other project of Gulf that the Borrower requests and the Majority Lenders approve; (iii) any Subsidiary of a Subsidiary described in paragraph (i) or (ii) or of which a Subsidiary described in paragraph (i) or (ii) is a Subsidiary; and (iv) any Subsidiary of a Subsidiary described in paragraph (iii) or of which a Subsidiary described in paragraph (iii) is a Subsidiary; that has no material assets (other than the securities or debt of another Project Subsidiary), liabilities or operations other than in relation to such Project; 21 - 16 - "REFERENCE BA DISCOUNT RATE" means, in respect of a Bankers' Acceptance being accepted by a Lender on a Drawdown Date, (i) for a Lender that is listed in Schedule I to the Bank Act (Canada), the average bankers' acceptance rate as quoted on Reuters CDOR page (or such other page as may, from time to time, replace such page on that service for the purpose of displaying quotations for bankers' acceptances accepted by leading Canadian financial institutions) at approximately 10:00 a.m. (Toronto time) on such Drawdown Date for bankers' acceptances having a comparable maturity date as the maturity date of such bankers' acceptance (the "CDOR Rate"); or, if such rate is not available at or about such time, the average of the bankers' acceptance rates (expressed to five decimal places) as quoted to the Agent by the Schedule I BA Reference Banks as of 10:00 a.m. (Toronto time) on such Drawdown Date for bankers' acceptances having a comparable maturity date as the maturity date of such Bankers' Acceptance ; and (ii) for a Lender that is listed in Schedule II to the Bank Act (Canada), the rate established by the Agent to be the lesser of (A) the CDOR Rate plus 10 Basis Points; and (B) the average of the bankers' acceptance rates (expressed to five decimal places) as quoted to the Agent by the Schedule II BA Reference Banks as of 10:00 a.m. (Toronto time) on such Drawdown Date for bankers' acceptances having a comparable maturity date as the maturity date of such Bankers' Acceptance; "REMEDIAL ORDER" means any control order, stop order or other administrative complaint, direction, order or sanction issued, filed or imposed by a Government Authority pursuant to the Environmental Laws requiring any remediation or clean-up, or requiring that any on-going activity be reduced, modified or eliminated, in each case as a result of any release or threatened release of any Hazardous Substance into the environment or any violation of Environmental Law; "RESTRICTED GROUP" means, collectively, the Borrower and the Restricted Subsidiaries; "RESTRICTED SUBSIDIARIES" means all Subsidiaries that are not Unrestricted Subsidiaries; "REVOLVING LENDERS" means the Lenders the Loans of which are in the Revolving Period; "REVOLVING PERIOD" means, the period commencing on the Effective Date and ending on the Term Out Date; "ROLLOVER" means a rollover of a Drawdown pursuant to subsection 2.12(a); "SCHEDULE I BA REFERENCE BANKS" means the Lenders listed in Schedule I to the Bank Act (Canada) as are, at such time, designated by the Agent, with the prior consent of the Borrower (acting reasonably), as the Schedule I BA Reference Banks; "SCHEDULE II BA REFERENCE BANKS" means the Lenders listed in Schedule II to the Bank Act (Canada) as are, at such time, designated by the Agent, with the prior consent of the Borrower (acting reasonably), as the Schedule II BA Reference Banks; 22 - 17 - "SENIOR DEBT" means all Funded Debt of the Borrower, on an unconsolidated basis, ranking at least pari passu with the Loans and includes, without limitation, the 9% Debentures due 1999, the 8.35% Senior Notes due 2006, and the 8.25% Debentures due 2017; "STANDARD & POOR'S" means Standard & Poor's Corporation and its successors; "SUBSIDIARY" means any body corporate in respect of which such Person owns, directly or indirectly, more than 50% of the Voting Securities (provided that such Person shall be deemed (for the purposes of determining whether any body corporate is a Subsidiary) to own, directly or indirectly, all of the Voting Securities of any Subsidiary owned by any other Subsidiary if such Person, directly or indirectly owns more than 50% of the Voting Securities of the second mentioned Subsidiary), together with any other body corporate with which such Person is consolidated in such Person's consolidated financial statements; "TANGIBLE NET WORTH" means the Equity of Gulf less the book value of the intangible assets of Gulf determined in accordance with GAAP; "TAXES" means all domestic federal or provincial taxes, imposts, rates, levies, assessments and governmental charges including, without limitation, all income taxes, capital gains, sales, excise, use, property, capital, payroll, GST, business, transfer and value added taxes and all customs and import duties, together with all interest, fines and penalties with respect thereto; "TERM OUT DATE" means, in respect of each Lender, the 364th day following the Effective Date or, in respect of each Extending Lender, in the case of any extension of such date in accordance with Section 2.1, the 364th day (or such lesser period as may be set forth in the Extension Agreement relating to such extension) following the Date of Confirmation; "TERM PERIOD" means the period from the Term Out Date to the Maturity Date; "TOTAL SENIOR DEBT" shall include, without duplication: (i) all Funded Debt of the Restricted Group; and (ii) for greater certainty, the aggregate amount of Designated Project Guarantees (other than those subordinate to the Loans) in excess of the Permitted Designated Project Guarantees Amount, but shall exclude: (iii) the aggregate amount of Designated Project Guarantees up to but not exceeding the Permitted Designated Project Guarantees Amount; (iv) any Inter-Restricted Group Funded Debt; and (v) the principal amount of the Subordinated Debentures of Gulf outstanding as at December 31, 1996 which was U.S. $500,000,000 and any replacement subordinated debt; "TRANSACTION PRICE" means, in respect of any acquisition, merger, purchase or sale, the aggregate of: (i) in the case of an acquisition, merger or purchase, the sum of: (A) the aggregate Fair Market Value, as of the date of the acquisition, merger or purchase, 23 - 18 - of the consideration paid or delivered by Gulf, directly or indirectly, for the assets acquired pursuant to such acquisition, merger or purchase; and (B) the aggregate amount of all Liabilities assumed by Gulf, directly or indirectly, in respect of the assets acquired pursuant to such acquisition, merger or purchase; and (ii) in the case of a sale, the sum of: (A) the aggregate Fair Market Value, as of the date of the sale, of the consideration paid or delivered to Gulf, directly or indirectly, for the assets sold; and (B) the aggregate amount of all Liabilities assumed by the purchaser of the assets from Gulf, directly or indirectly, in respect of the assets sold; "UNITED STATES DOLLARS", "U.S. DOLLARS" and the symbol "U.S.$" mean the lawful currency of the United States of America; "UNRESTRICTED SUBSIDIARIES" means all of the following Subsidiaries: (i) each body corporate of which the Restricted Group beneficially owns, directly or indirectly, less than 100% of the Voting Securities; (ii) any other Subsidiary that has Funded Debt unless any one or more of the following exceptions apply: (A) such Funded Debt is non recourse to the Borrower or any such Restricted Subsidiary (other than such representations, warranties and covenants as are customary in non recourse financing not pertaining to the payment of principal or interest); (B) the Funded Debt is owed to a member of the Restricted Group; (C) the Senior Debt of the Borrower is assigned a rating of at least BB+ by Standard and Poor's and Ba1 by Moody's and the Funded Debt of that Subsidiary consolidated with the Funded Debt of its direct and indirect wholly owned Subsidiaries (other than those Subsidiaries designated as Unrestricted Subsidiaries in accordance with subsection 8.3(d)) does not exceed 2.5 times the aggregate EBITDA of that Subsidiary consolidated with the EBITDA of such direct and indirect wholly owned Subsidiaries, and each such Subsidiary shall also be a Restricted Subsidiary (whether or not it individually meets the foregoing test) unless the Borrower designates such Subsidiary as an Unrestricted Subsidiary in accordance with subsection 8.3(d); (D) the Senior Debt of the Borrower is assigned a rating of at least BBB- by Standard and Poor's and Baa3 by Moody's and the Borrower is in compliance with subsection 8.1(l); 24 - 19 - (E) the Subsidiary has delivered to the Agent a guarantee in form and substance acceptable to the Agent, acting reasonably, pursuant to which such Subsidiary guarantees all present and future indebtedness and liabilities to the Lenders under this Agreement together with an opinion in form and substance acceptable to the Agent, acting reasonably, including without limitation such matters as the enforceability of such guarantee and the absence of any conflict, breach or contravention with or of any material agreement relating to Funded Debt, provided however that the Agent, on behalf of the Lenders, shall release and cancel such guarantee upon the request of the Borrower if the Borrower subsequently designates such Subsidiary as an Unrestricted Subsidiary pursuant to subsection 8.3(d) or if such Subsidiary is then qualified to be a Restricted Subsidiary under another exception in this paragraph (ii); or (F) the aggregate of the Funded Debt of all such Subsidiaries qualifying as a Restricted Subsidiary pursuant to this paragraph (F) (excluding Subsidiaries that are otherwise qualified to be Unrestricted Subsidiaries pursuant to this definition or subsection 8.3(e)) does not exceed U.S. $10,000,000; (iii) any other Subsidiary designated by the Borrower as an Unrestricted Subsidiary pursuant to subsection 8.3(d); (iv) any Subsidiary (which does not otherwise qualify as an Unrestricted Subsidiary pursuant to the foregoing paragraphs or paragraph (v)) the designation of which as an Unrestricted Subsidiary is requested by the Borrower and approved by the Majority Lenders; and (v) any Subsidiary of a Subsidiary that is an Unrestricted Subsidiary, but shall not include: (vi) any Subsidiary that would otherwise qualify as an Unrestricted Subsidiary pursuant to paragraph (ii) if the Subsidiary has irrevocably deposited with a trustee as trust funds money in the respective currency in which the Funded Debt is payable in an amount sufficient to pay and discharge the entire indebtedness, liabilities and obligations in respect of such Funded Debt (including interest on amounts in default, if any) for the purpose of, specifically pledged as security for and dedicated solely to the retirement of all of such Funded Debt; (vii) any Subsidiary that would otherwise qualify as an Unrestricted Subsidiary pursuant to paragraphs (i), (ii), (iii) or (v), the designation of which as a Restricted Subsidiary is requested by the Borrower and approved by the Majority Lenders; and 25 - 20 - (viii) any Unrestricted Subsidiary in respect of which the Borrower exercises the option in accordance with subsection 8.3(b) to treat such Subsidiary as a Restricted Subsidiary; and, as at the Effective Date, all of such Unrestricted Subsidiaries are set forth in Schedule L; and "VOTING SECURITIES" means securities to which are attached votes that may be cast to elect the directors, trustees or other individuals in a similar capacity of the issuer either under all circumstances or under some circumstances that have occurred and are continuing. 1.2 Certain Rules of Interpretation - In this Agreement: (a) time is of the essence in the performance of the Parties' respective obligations; (b) the headings of Articles and Sections are inserted solely for convenience of reference and are not intended as complete or accurate descriptions of content; (c) the use of words in the singular or plural, or with a particular gender, shall not limit the scope or exclude the application of any provision of this Agreement to such Person or Persons or circumstances as the context otherwise permits; (d) whenever a provision of this Agreement requires an approval or consent by a Party to this Agreement and notification of such approval or consent is not delivered within the applicable time limit, then, unless otherwise specified, the Party whose consent or approval is required shall be conclusively deemed to have withheld its consent or approval; (e) unless otherwise specified, time periods within or following which any payment is to be made or act is to be done shall be calculated by excluding the day on which the period commences and including the day which ends the period and by extending the period to the next Business Day following if the last day of the period is not a Business Day; and (f) whenever any payment is to be made or action to be taken under this Agreement is required to be made or taken on a day other than a Business Day, such payment shall be made or action taken on the next Business Day following. 1.3 Accounting Principles - Wherever in this Agreement reference is made to generally accepted accounting principles ("GAAP"), such reference shall be deemed to be to consistently applied generally accepted accounting principles in effect in Canada, from time to time, provided that, for greater certainty, any change thereto shall not be applied retroactively to any circumstance prior to such change. 1.4 Cross-References - Unless otherwise specified, references in this Agreement to any Article, Section, subsection, paragraph or Schedule are references to such Article, Section, 26 - 21 - subsection, paragraph or Schedule of this Agreement and, unless otherwise specified, references in any Article, Section, subsection, paragraph or Schedule to any clause are references to such clause of such Article, Section, subsection, paragraph or Schedule. 1.5 Ratings - A rating, whether public or private, by DBRS, CBRS, Standard & Poor's or Moody's shall be deemed to be in effect: (i) in respect of any determination of interest in respect of Prime Rate Drawdowns, Base Rate Drawdowns and Libor Drawdowns on the next Interest Payment Date after receipt by the Agent of an announcement or publication by DBRS, CBRS, Standard & Poor's or Moody's, as the case may be, of such rating or, in the absence of such announcement or publication, of a written statement of the rating agency and will remain in effect until the next Interest Payment Date after the date when any change in such rating is deemed to be in effect; and (ii) otherwise, on the receipt by the Agent of an announcement or publication by DBRS, CBRS, Standard & Poor's or Moody's, as the case may be, of such rating or, in the absence of such announcement or publication, of a written statement of the rating agency and will remain in effect until such date as any change in such rating is deemed to be in effect. 1.6 Currency - Unless otherwise denoted or the context otherwise requires, any references to dollars, currency or $ herein are references to U.S. Dollars. 1.7 Schedules - The following are the Schedules to this Agreement and are incorporated by reference and deemed to be part of this Agreement: Schedule A - Schedule of Lenders Schedule B - Compliance Certificate Schedule C - Drawdown Notice Schedule D - Bankers' Acceptance Undertaking Schedule E - Extension Agreement Schedule F - Extension Request Schedule G - Bank Transfer Agreement Schedule H - Borrower's Counsel's Opinion Schedule I - Lenders' Counsel's Opinion Schedule J - Notice of Amendment of Unrestricted Subsidiaries Schedule K - Letter of Credit Documentation Schedule L - List of Unrestricted Subsidiaries
ARTICLE II THE FACILITY 2.1 The Facility - (a) Commitment - Upon the terms and subject to the conditions herein set forth, the Lenders severally agree to establish in favour of the Borrower a revolving/term credit facility 27 - 22 - of up to a maximum of U.S. $700,000,000 (the "Facility") to be available to the Borrower in either U.S. Dollars or the Equivalent Amount of Canadian Dollars, or any combination thereof and otherwise in accordance with the provisions of this Agreement from time to time on any Business Day during the Revolving Period in an aggregate amount not to exceed at any time the amount set forth opposite such Lender's name on Schedule A, as reduced in accordance with this Agreement, (being such Lender's "Commitment Amount"). Each Drawdown shall be, for each Revolving Lender, in an aggregate amount not greater than such Revolving Lender's Commitment Amount less the Loans owed to it and shall consist of Advances made by it, rateably (subject to decrease in accordance with subsections 2.6(b) and 2.6(e) and Section 5.2, increase in accordance with subsection 2.6(c) and modification in accordance with Section 2.9) according to the proportion of the aggregate of all Revolving Lender's Commitment Amounts constituted by such Revolving Lender's Commitment Amount. Within the limits of each Lender's Commitment and subject to Section 2.7, the Borrower may borrow, repay and reborrow under this Section during the Revolving Period. Prior to the Term Out Date, any prepayments or repayments made by the Borrower in respect of Loans in the Revolving Period shall not reduce the Revolving Lender's Commitment Amounts. (b) Extension - Not more than 120 nor less than 60 days before the Term Out Date, the Borrower may, by delivery to the Agent of an Extension Request, request that the Revolving Lenders extend the Term Out Date with respect to the Commitment of such Lenders as the same was determined prior to giving effect to such Extension Request. Upon receipt of such Extension Request, the Agent shall distribute such Extension Request to each Revolving Lender. If the Agent receives confirmation from each of the Revolving Lenders of their execution of the Extension Agreement to which such Extension Notice relates within 30 days of receipt by such Lenders of the aforesaid Extension Request from the Agent, the Term Out Date with respect to the Commitments of such Revolving Lenders shall be extended from the date the Agent gives notice to the Borrower that each Revolving Lender has executed and delivered to the Agent the Extension Agreement and for the period (not exceeding 364 days) set forth in the Extension Agreement. Anything herein contained to the contrary notwithstanding, no Lender shall have any obligation to extend the Term Out Date hereunder and its decision to extend the Term Out Date shall be in its absolute discretion. (c) Extension Options - If one or more Revolving Lenders do not confirm their execution of the Extension Agreement to which such Extension Notice relates within the aforesaid 30 days (such Revolving Lenders being hereinafter referred to as "Nonextending Lenders"), the Borrower shall be entitled to: (i) extend the Term Out Date with respect to the Commitments of the Revolving Lenders who have so confirmed their execution of the Extension Agreement (such Revolving Lenders being hereinafter referred to as the "Extending Lenders") from the date the Borrower notifies the Agent of the Borrower's exercise of this entitlement and for the period (not exceeding 364 days) set forth in the Extension Agreement and to terminate the Commitment(s) of the Nonextending Lender(s) 28 - 23 - unutilized as of the Term Out Date as the same was determined prior to giving effect to such Extension Request; or (ii) extend the Term Out Date with respect to the Commitments of the Extending Lenders from the date the Borrower notifies the Agent of the Borrower's exercise of this entitlement and for the period (not exceeding 364 days) set forth in the Extension Agreement; prior to the fifth Business Day preceding the Term Out Date as the same was determined prior to giving effect to such Extension Report, replace one or more of the Nonextending Lenders with one or more Eligible Lenders (in respect of whom, the Term Out Date shall be the same date as the Term Out Date with respect to the Commitments of the Extending Lenders); and terminate the Commitment(s) of the Nonextending Lender(s), to the extent not so replaced, unutilized as of the Term Out Date as the same was determined prior to the Extension Request; or (iii) elect to revoke such Extension Request; provided that: (i) if the Borrower does not notify the Agent of its election hereunder prior to the fifth Business Day preceding the Term Out Date as the same was determined prior to giving effect to such Extension Request with respect to the Commitments of such Revolving Lenders, the Borrower shall be deemed to have elected to revoke such Extension Request; and (ii) if the Commitments of the Nonextending Lenders constitutes 25% or more of the Facility, all of the unutilized Commitments of all Revolving Lenders shall be terminated on the Term Out Date as the same was determined prior to giving effect to such Extension Request and the Term Out Date shall not be extended. (d) Cancellation of Unutilized Commitments - The unutilized portion of the Commitment of any Nonextending Lender and of all Revolving Lenders, if the Borrower determines or is deemed to have elected to revoke the Extension Request, shall terminate on the Term Out Date. 2.2 Purpose - The Facility shall be available to the Borrower for its general corporate purposes. Advances shall be used by the Borrower (i) for the repayment in full of the Existing Acquisition Facility and (ii) thereafter for lawful general corporate purposes of the Borrower and its Subsidiaries including, without limitation, the financing of oil and gas acquisitions and exploration and development activities. 2.3 Availment of Facility - Upon the terms and subject to the conditions herein set forth, the Borrower may borrow under the Facility by way of: (i) Prime Rate Drawdowns; (ii) Base Rate Drawdowns; 29 - 24 - (iii) Libor Drawdowns; (iv) Bankers' Acceptance Drawdowns; and (v) L/C Drawdowns; or any combination or combinations of the foregoing at the discretion of the Borrower. 2.4 Drawdown Notices - A Drawdown Notice shall be substantially in the form set forth in Schedule C and shall state the type of Drawdown being requested, the proposed Drawdown Date, together with any other information required by such Schedule or this Section 2.4. If a Drawdown Notice is given by fax, the Borrower shall send to the Agent written confirmation bearing an original signature of an authorized signatory of the Borrower of such notice within two Business Days of the giving of such notice. Any notice on which the Agent has acted, whether made by fax or otherwise in writing shall be irrevocable and binding on the Borrower. The following notice periods shall apply to each type of Drawdown: (a) Prime Rate Drawdowns and Base Rate Drawdowns - Subject to the terms and conditions of this Agreement, the Borrower shall be entitled to Prime Rate Drawdowns or Base Rate Drawdowns by giving a Drawdown Notice to the Agent by 10:00 a.m. (Calgary time) on no less than the number of Business Days prior to the proposed Drawdown Date set forth below:
Amount of Drawdown (U.S.) Number of Business Days $0 - $10,000,000 one $10,000,001 - $50,000,000 two Greater than $50,000,000 three
where the Amount of Drawdown shall be based upon the currency of the Advance proposed in the Drawdown Notice (or, where a Prime Rate Drawdown is requested, on the Equivalent Amount in U.S. Dollars) and more than one Drawdown Notice in respect of the same Drawdown Date shall for the purposes of this subsection be considered one Drawdown Notice. (b) Libor Drawdowns - Subject to the terms and conditions of this Agreement, the Borrower shall be entitled to Libor Drawdowns under the Facility by delivering a Drawdown Notice to the Agent by 10:00 a.m. (Calgary time) no less than three Business Days prior to the proposed Drawdown Date, which notice shall also specify the principal amount of the Drawdown and the Libor Interest Period selected in respect of such Drawdown; 30 - 25 - (c) Bankers' Acceptance Drawdowns - Subject to the terms and conditions of this Agreement, the Borrower shall be entitled to Bankers' Acceptance Drawdowns under the Facility, by delivering a Drawdown Notice to the Agent, by 10:00 a.m. (Calgary time) no less than one Business Day prior to the proposed Drawdown Date, which notice shall also specify the term and the aggregate face amount of the Bankers' Acceptances to be accepted by the Lenders; and (d) L/C Drawdowns - Subject to the terms and conditions of this Agreement, the Borrower shall be entitled to require the Lenders to issue Letters of Credit under the Facility by delivering a Drawdown Notice to the Agent with respect to the Letters of Credit being requested, by 10:00 a.m. (Calgary time) no less than five Business Days prior to the proposed Drawdown Date; provided that if the Drawdown is an Advance to be used in whole or in part for any Potentially Hostile Acquisition, the Borrower shall deliver the Drawdown Notice relating to such Drawdown an additional two Business Days prior to the proposed Drawdown Date and the Drawdown Notice shall provide the name of the entity subject to the Potentially Hostile Acquisition. If the Borrower intends to use the Facility, in whole or in part, for any Potentially Hostile Acquisition in respect of which the Transaction Price may be in excess of U.S. $50,000,000, the Borrower shall provide written notice of its intention to so use the Facility to the Agent within one Business Day after its public announcement of the Potentially Hostile Acquisition and the Agent shall forthwith and, in any event, within one Business Day of receipt of such notice from the Borrower provide such notice to the Lenders. Each Drawdown Notice shall be irrevocable and binding on the Borrower. 2.5 Notice of Drawdown to Lenders - Promptly upon receipt of any Drawdown Notice or upon a drawing under any Letter of Credit, the Agent shall notify each Lender by facsimile of the proposed Drawdown or the drawing, as applicable, of such Lender's proportionate share thereof and of the other matters covered by the Drawdown Notice. In the case of a proposed Bankers' Acceptance Drawdown, the Agent shall also, on the Drawdown Date, notify each Lender and the Borrower of the applicable Reference BA Discount Rate. In the case of a proposed Drawdown by way of L/C Drawdown, the Agent shall also notify each Lender of the other relevant particulars of the Drawdown. Any such notice in respect of a drawing under a Letter of Credit shall be deemed to be a request for a Prime Rate Drawdown if the Letter of Credit is denominated in Canadian Dollars or a Base Rate Drawdown if the Letter of Credit is denominated in U.S. Dollars, in the amount of such drawing with a Drawdown Date on the next Business Day. 2.6 Funding (a) Each Lender shall, before 11:00 a.m. (Calgary time) on the Drawdown Date (other than in respect of Bankers' Acceptance Drawdowns which are addressed in subsection 2.6(d)) or the date a drawing by a beneficiary is to be made under a Letter of Credit, make available (for the account of such Lender's Lending Office) to the Agent at its Payment Office, in same day funds, such Lender's rateable portion (subject to subsection 2.6(e)) of any such Drawdown (other than an L/C Drawdown) or of such drawing under a Letter of 31 - 26 - Credit, as the case may be. In the case of a Drawdown (other than an L/C Drawdown), upon fulfilment of the applicable conditions precedent set forth in Article VI, the Agent will make such funds available to the Borrower at the Payment Office. Subject to subsections 2.6(e) and (f) in the case of an L/C Drawdown, upon fulfilment of the applicable conditions precedent set forth in Article VI, each Lender shall issue a Letter of Credit in the amount of such Lender's rateable portion of the amount of the L/C Drawdown based upon such Lender's Commitment and deliver the same to the Borrower at the Payment Office or at such other office of the Agent as the Borrower may reasonably request, and upon such issuance, each Lender shall be deemed to have made an Advance to the Borrower in such amount. In the case of a drawing by a beneficiary under a Letter of Credit, the Agent shall pay such funds to the beneficiary thereof and the Borrower shall be deemed to have converted such portion of the Advance which was deemed to occur on the issuance of the Letter of Credit into a Prime Rate Drawdown if the Letter of Credit is denominated in Canadian Dollars or a Base Rate Drawdown if the Letter of Credit is denominated in U.S. Dollars, in the amount of such payment on the date of such payment by the Agent; (b) At the option of the Borrower to be exercised by delivery of notice to that effect to the Agent at least five Business Days prior to the date of any proposed L/C Drawdown, the Borrower may obtain from up to five Lenders (which shall include the Agent as Lender) designated by the Borrower in such notice a quotation of the fees which such Lender would charge to act as issuer of the relevant Letter of Credit to be issued in connection with the L/C Drawdown. Upon the giving of such notice to such designated Lenders, any such Lender (including the Agent as Lender) may provide such a quotation to the Borrower not less than three Business Days prior to the date of the proposed L/C Drawdown. The Borrower shall accept the tender which is the lowest quotation tendered unless there are no quotations tendered that are less than 0.125% per annum, or there are quotations tendered that are equal to but no quotations less than 0.125% per annum, in which cases the Agent shall be deemed to have tendered a quotation of 0.125% per annum and the Agent shall be chosen to issue the relevant Letter of Credit on behalf of all Lenders (and for so doing, as set out below, shall be entitled to such fee of 0.125%). Forthwith following the tendering of the quotations, the Borrower shall notify the Agent of the identity of the issuing Lender and the face amount of the Letter of Credit to be issued. The Lender whose tender was so selected, shall, upon the request of the Borrower, issue the relevant Letter of Credit on behalf of all Lenders as provided in subsection 2.6(c) below, and shall be entitled to retain the full amount of the fee quoted or deemed to have been quoted by it. All fees under this paragraph shall be based on the face amount of the relevant Letter of Credit and payable quarterly in arrears in the same manner as described in Section 4.5; and (c) In the event that pursuant to subsection 2.6(b), the Agent or any other Lender acts as issuer of a Letter of Credit, the provisions of this Agreement with respect to L/C Drawdowns and drawings under a Letter of Credit shall apply mutatis mutandis and, without limiting the generality of the foregoing, upon issuance of the relevant Letter of Credit, each Lender shall be deemed to have made available the relevant L/C Drawdown and shall be liable to, and hereby indemnifies, the issuing Lender in respect of such Letter of Credit to the extent of 32 - 27 - such Lender's ratable portion of the face amount of such Letter of Credit, based on such Lender's Commitment. The Borrower shall provide to the issuing Lender of such Letter of Credit such documentation (not inconsistent with the provisions of Schedule K) as such issuing Lender may reasonably require in connection with such Letter of Credit and the Agent, acting reasonably, shall be entitled to determine any procedures to be followed in connection with the issuance of such Letter of Credit and any drawings thereunder. (d) Each Lender shall, before 11:00 a.m. (Calgary time) on the Drawdown Date in the case of a Bankers' Acceptance Drawdown, make available the Bankers' Acceptance Proceeds in respect of such Bankers' Acceptances. After the Agent's receipt of such funds and upon fulfilment of the applicable conditions precedent set forth in Article VI, the Agent will make such funds available to the Borrower at the Payment Office. (e) Notwithstanding subsection (a) and anything else to the contrary set forth herein, a Revolving Lender shall not be required to make available any portion of any Drawdown that will be used directly and indirectly in, or result, directly or indirectly, in a Potentially Hostile Acquisition, if the Revolving Lender is a Conflicted Lender provided that a Lender will be deemed not to be a Conflicted Lender in respect of any Drawdown unless the Lender gives notice to the Agent of the Lender's status as a Conflicted Lender within one Business Day of the notice to the Lender by the Agent of such Drawdown, provided further that a Conflicted Lender that does not make available a Drawdown that will be used directly or indirectly in, or result, directly or indirectly, in a Potentially Hostile Acquisition shall (notwithstanding any other provision of this Agreement) not be entitled to vote in respect of any determination required by Majority Lenders in connection with such Drawdown and the principal amount of the Loans or the amount of the Commitment of such Conflicted Lender shall be excluded in the determination of the Majority Lenders in such connection. In respect of any Subsequent Drawdown(s) in respect of which a previously Conflicted Lender is not a Conflicted Lender, the portion of such Drawdown(s) to be made available by such Conflicted Lender shall be allocated by the Agent so as to result, to the extent possible, in the outstanding Loans of the Revolving Lenders, including such Conflicted Lender, being in the same proportion as the aggregate of all Revolving Lenders' Commitments constituted by such Revolving Lender's Commitment. (f) If the Agent receives notice from a Conflicted Lender prior to the date of any Drawdown that such Lender's rateable portion of such Drawdown will not be made available in reliance upon subsection 2.6(e), the portion of the Drawdown to be provided by each other Revolving Lender shall be increased so as to equal the proportion of the aggregate of all Revolving Lender's Commitments, excluding the Commitment of the Conflicted Lender, constituted by such other Revolving Lender's Commitment provided that, after giving effect to the Drawdown, such Revolving Lender's Outstanding Amount does not exceed such Revolving Lender's Commitment Amount. 2.7 Funding Reliance; Lender's Failure to Fund - Unless the Agent shall have received notice from a Lender prior to any Drawdown Date that such Lender's rateable portion of such 33 - 28 - Drawdown will not be made available as provided for in subsection 2.6(e), the Agent may assume that each Lender will make available to the Agent its ratable portion of any Drawdown requested in a Drawdown Notice on the date of such Drawdown in accordance (other than an L/C Drawdown) with Section 2.6 and the Agent may, in reliance upon such assumption, but shall not be obligated to, make available to the Borrower on such date a corresponding amount. If and to the extent any such Lender shall not have so made such rateable portion available to the Agent and the Agent shall have so made such corresponding amount available to the Borrower, such Lender and the Borrower severally agree to pay or repay to the Agent (on the next Business Day following notice thereof by the Agent to the Borrower) such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to Drawdowns hereunder and (ii) in the case of such Lender, the Prime Rate and, on demand, to indemnify the Agent against any cost or loss it may suffer or incur in connection with or related to the Agent having made such amount available to the Borrower prior to having received the corresponding amount. If such Lender shall pay to the Agent such corresponding amount, such amount so paid shall constitute such Lender's Advance as part of such Drawdown for purposes of this Agreement. 2.8 Several Funding Obligations - The failure of any Lender to make an Advance to be made by it as part of any Drawdown shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the Drawdown Date, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the Drawdown Date. 2.9 Pro-Rata Treatment of Drawdowns - (a) Each Drawdown shall be made available by each Lender and all repayments and reductions in respect thereof shall be made and applied in a manner so that the Drawdowns outstanding hereunder to each Lender will, to the extent possible, thereafter be pro rata to the respective Commitments of the Lenders. Subject to subsections 2.6(e) and (f), the Agent is authorized by the Borrower and each Lender to determine, in its sole and unfettered discretion, the portion of each Drawdown and each type of Drawdown to be made available by each Lender and the application of repayments and reductions of Loans to give effect to the provisions of this Section provided that, no Lender shall, as a result of any such determination, have Loans outstanding in an amount which is in excess of the amount of its Commitment. (b) In the event it is not practicable to allocate Bankers' Acceptances to each Lender such that the aggregate amount of Bankers' Acceptances required to be purchased by such Lender hereunder is in a whole multiple of Cdn. $100,000, the Agent is authorized by the Borrower and each Lender to make such allocation as the Agent determines in its sole and unfettered discretion may be equitable in the circumstances and, if the aggregate amount of such Bankers' Acceptances is not a whole multiple of Cdn. $100,000, then the Agent may allocate (on a basis considered by it to be equitable) the excess of such Drawdown over the next lowest whole multiple of Cdn. $100,000 to one Lender, which shall purchase a Bankers' 34 - 29 - Acceptance with a face amount equal to the excess and having the same term as the corresponding Bankers' Acceptances. In no event shall the portion of the outstanding Loans of a Lender exceed the proportion of the aggregate of all Lender's Commitments constituted by such Lenders' Commitment by more than Cdn. $100,000 as a result of such exercise of discretion by the Agent. 2.10 Restrictions on Drawdowns - Each Drawdown under the Facility shall be subject to the following restrictions, as applicable: (a) all Drawdowns shall be made on a Business Day; (b) after giving effect to a Drawdown, the Outstanding Amount shall not exceed the aggregate of the Commitment Amounts; (c) no Drawdowns will be permitted if an Event of Default has occurred and is continuing or (other than in the case of a Conversion or Rollover, provided that, in the case of a Conversion or Rollover into a Bankers' Acceptance Drawdown or Libor Drawdown, the maturity date or the applicable Libor Interest Period shall not extend beyond the earliest date upon which the event would constitute an Event of Default) if an event has occurred and is continuing which with the giving of notice, the passing of time, or both, would constitute an Event of Default; (d) Drawdowns shall be in Canadian Dollars or United States Dollars as stipulated and at such time stipulated in the Drawdown Notice duly provided by the Borrower to the Agent in respect thereof, subject to the restrictions and limitations of this Agreement and upon fulfilment of all conditions precedent to such Drawdown; (e) each Drawdown by way of a Bankers' Acceptance Drawdown shall be in a minimum principal amount of Cdn. $10,000,000 and additional increments of integral multiples of Cdn. $1,000,000; (f) each Drawdown by way of a Libor Drawdown shall be in a minimum principal amount of U.S. $10,000,000 and additional increments of integral multiples of U.S. $1,000,000; (g) each Letter of Credit shall be in a minimum amount of Cdn. $5,000,000 or U.S. $5,000,000, as the case may be; (h) no Libor Drawdown, Bankers' Acceptance or Letter of Credit issued pursuant to an L/C Drawdown shall have a maturity or expiry date later than the Maturity Date or that is inconsistent with any other obligation to repay the whole or any part of the principal amount of Loans under this Agreement; 35 - 30 - (i) the obligation of any Lender to make any Libor Drawdown for any period exceeding 6 months (including the Conversion of any other Drawdown into a Libor Drawdown) is contingent upon its favourable determination that sufficient U.S. Dollars are available to it to fund such Libor Drawdown for such period; (j) the amount of Letters of Credit Loans at any time shall not exceed U.S. $100,000,000; and (k) no Letter of Credit shall have an expiry date of more than one year from the date of issuance of such Letter of Credit. 2.11 Conversion Option - Subject to the provisions of this Agreement, the Borrower may, by giving to the Agent a Drawdown Notice in accordance with Section 2.4: (a) convert all or any portion of a Prime Rate Drawdown into a Base Rate Drawdown, Libor Drawdown or Bankers' Acceptance Drawdown; (b) convert all or any portion of a Base Rate Drawdown into a Prime Rate Drawdown, Libor Drawdown or Bankers' Acceptance Drawdown; (c) on the last day of the Libor Interest Period, convert all or any portion of such Libor Drawdown into a Prime Rate Drawdown, Base Rate Drawdown or Bankers' Acceptance Drawdown; or (d) on the maturity date of a Bankers' Acceptance Drawdown, convert all or any portion of such Bankers' Acceptance Drawdown into a Prime Rate Drawdown, Base Rate Drawdown or Libor Drawdown. In respect of any Conversion which effects a change in the currency of such Drawdown from Canadian Dollars to U.S. Dollars, or vice versa, repayment shall be made in the currency of the Drawdown being converted and the Conversion shall be made at the Exchange Rate on the date of such Conversion provided that for the purposes of determining compliance with subsection 2.10(b) in respect of any Conversion which effects a change in the currency of such Drawdown from Canadian Dollars to U.S. Dollars or vice versa, the Equivalent Amount of Canadian Dollars shall be determined as of the date of the Drawdown Notice. In the case of a Conversion of a Prime Rate Drawdown, Base Rate Drawdown or Libor Drawdown into a Bankers' Acceptance Drawdown, the Bankers' Acceptance Proceeds shall be retained by the Agent to be applied to the principal amount of the converted Drawdown and the Borrower shall pay to the Agent on the date of such Conversion an amount equal to the difference between the principal amount at maturity of the Bankers' Acceptance and the Bankers' Acceptance Proceeds therefrom. 36 - 31 - 2.12 Rollovers - (a) The Borrower may roll over any Libor Drawdown (on the last day of the applicable Libor Interest Period) into another Libor Drawdown or Bankers' Acceptance Drawdown (on the maturity of the applicable Bankers' Acceptance) into another Bankers' Acceptance Drawdown, by giving the Agent the appropriate Drawdown Notice pursuant to Section 2.4. (b) The Bankers' Acceptance Proceeds of the new Bankers' Acceptance shall be retained by the Agent to be applied by it to the principal amount of the maturing Bankers' Acceptance and the Borrower shall pay to the Agent, on the maturity date of the maturing Bankers' Acceptance an amount equal to the difference between the principal amount at maturity of the maturing Bankers' Acceptance and the Bankers' Acceptance Proceeds of the replacement Bankers' Acceptance. (c) Notwithstanding any other provision of this Agreement, if the Borrower fails to deliver such a Drawdown Notice to the Agent in respect of a Libor Drawdown (or pay to the Agent an amount equal to such Libor Drawdown on or before the expiration of such Libor Interest Period as applicable) or in any case, during the continuance of an Event of Default, then the relevant amount of the Libor Drawdown shall, at the expiration of such Libor Interest Period, be deemed to be converted into a Base Rate Drawdown, in an amount equal to the principal amount of such Libor Drawdown. (d) Notwithstanding any other provision of this Agreement, if the Borrower fails to deliver such a Drawdown Notice to the Agent in respect of a Bankers' Acceptance Drawdown (or pay to the Agent an amount equal to the principal amount of the maturing Bankers' Acceptance on or before the maturity date thereof), then the maturing Bankers' Acceptance paid by the Agent shall be deemed, upon such payment, to be converted into a Prime Rate Drawdown in an amount equal to the face amount of such maturing Bankers' Acceptance. 2.13 Evidence of Indebtedness - The Agent shall open and maintain on its books at the Payment Office, accounts in respect of the Facility to evidence the Loans under the Facility and all other amounts owing by the Borrower to the Lenders or the Agent hereunder. The Agent shall enter in the foregoing accounts details of all amounts from time to time owing, paid or repaid by the Borrower hereunder. The information entered in the foregoing accounts shall constitute prima facie evidence of the obligations of the Borrower to the Lenders and the Agent hereunder with respect to the Loans and all other amounts owing by the Borrower to the Lenders or the Agent hereunder. The Borrower shall, on reasonable notice to the Agent, be entitled to obtain from the Agent extracts of all entries made in such accounts. 2.14 Netting - On any transaction date, the Agent shall be entitled to net amounts payable on such date by the Agent to a Lender against amounts payable on such date by such Lender to the Agent, in connection with transactions conducted under this Agreement in the same type of Advance, for the account of the Borrower. Similarly, on any transaction date, the Borrower hereby 37 - 32 - authorizes each Lender to net amounts payable on such date by such Lender to the Agent, for the account of the Borrower, against amounts payable on such date by the Borrower to such Lender under this Agreement in accordance with the Agent's calculations. ARTICLE III FURTHER PROVISIONS RELATING TO LIBOR DRAWDOWNS, BANKERS' ACCEPTANCES AND LETTERS OF CREDIT 3.1 Effects of Change of Law - If, at any time, a Lender determines in good faith, which determination shall be final, conclusive and binding upon the Borrower, absent manifest error, that: (a) by reason of circumstances affecting financial markets inside or outside the United States, deposits of U.S. Dollars are unavailable to such Lender in London; (b) adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided in the definition of Libor Rate; (c) the making or continuation of any Libor Drawdown has been made impracticable: (i) by the occurrence of a contingency which materially and adversely affects the funding, in the London interbank market generally, of Libor Loans at any interest rate computed on the basis of the Libor Rate; or (ii) by reason of a change since the date of this Agreement in any Applicable Law by any Government Authorities charged with the administration thereof affecting such Lender or any relevant financial market, the Libor Rate shall no longer represent the effective cost to such Lender of deposits to fund Libor Drawdowns; or (d) any change to present Law or the enactment of any future Law or any change therein or in the interpretation or application thereof by any Government Authorities charged with the administration thereof or by any court, has made it unlawful for such Lender to make or maintain or to give effect to its obligations in respect of Libor Drawdowns as contemplated hereby, then: (a) the right of the Borrower to request Libor Drawdowns from such Lender shall be suspended until such Lender determines that the circumstances causing such suspension no longer exist; (b) if any affected Libor Drawdown from such Lender is not yet outstanding, any applicable outstanding Advance Notice shall be deemed to be an Advance Notice for a Base Rate Advance in the same amount; (c) if any Libor Drawdown from such Lender is outstanding at any time when the right of the Borrower to request Libor Drawdowns from such Lender is suspended, it and all other Libor Drawdowns from such Lender shall become, on the last day of the then current Libor Interest Period applicable thereto (or on such earlier date as may be required to comply with any Applicable Law), a Base Rate Drawdown and shall remain outstanding as a Base Rate Drawdown, until such time as such Lender determines that the circumstances causing such suspension no longer exist; and 38 - 33 - (d) upon a determination by such Lender that the circumstances causing the suspension of Libor Loans no longer exist, each Base Rate Drawdown outstanding as a result of subsection 3.1(c) may be converted, subject to availability, by the Borrower in accordance herewith to a Libor Drawdown maturing on the last day of any Libor Interest Period for any outstanding Libor Drawdowns or, if no Libor Drawdowns are then outstanding, at any time by giving the Agent the appropriate Drawdown Notice pursuant to Section 2.4. 3.2 Illegality (a) If after the date of this Agreement any change occurs in any Applicable Law, or in the interpretation or application thereof by any court or by any Government Authority or other authority or entity charged with the administration thereof, which makes it unlawful for any Lender (in its opinion, acting reasonably and in good faith) to make, fund or maintain any part of the Facility or to give effect to its obligations in respect of any Drawdowns thereunder, the Lender may, by written notice thereof to the Borrower and the Agent, declare its obligations under this Agreement to be terminated with respect to such affected part of the Facility (which notice shall be final, conclusive and binding upon the Borrower, absent manifest error), whereupon the same shall forthwith terminate. (b) Any such notice shall be accompanied by a certificate of an officer of the Lender identifying in reasonable detail the event or condition which makes it unlawful for the Lender to lend or allow to remain outstanding such portions of the Facility or any Drawdowns thereunder (such notice to be final, conclusive and binding upon the Borrower, absent manifest error). (c) The Borrower shall: (i) prepay to the Lender within the greater of: (A) ten Business Days after such notice; and (B) the time required by such law, (or at the end of such longer period as the Lender at its discretion has agreed) the principal amount of all Drawdowns so affected together with accrued interest and such other amounts which may be payable hereunder as a result of such prepayment (excluding any cost associated with the repayment by the Borrower of a Libor Drawdown other than at the expiration of the applicable Libor Interest Period); or (ii) prior to the date of such required repayment, replace such Lender with one or more Eligible Lenders (in respect of whom the Term Out Date shall be the same date as the Term Out Date with respect to the Commitment of the Lender being replaced). (d) If any such change shall only affect a portion of the Lender's obligations under this Agreement which is, in the reasonable opinion of the Lender, severable from the remainder of this Agreement so that the remainder of this Agreement may be continued in full force and effect without otherwise affecting any of the obligations of the Lender or the Borrower hereunder in respect of such Lender or under any of the other documents contemplated hereby, the Lender shall only declare its obligations under the affected portion so terminated. (e) In the event that the provisions of this Section 3.2 are, or threaten to become applicable in respect of any Lender, such Lender shall use its reasonable efforts (at the 39 - 34 - expense of the Borrower) to change its Lending Office or take such other action as may be reasonable in the circumstances to eliminate the applicability of this Section 3.2 to such Lender. 3.3 Bankers' Acceptances (a) Delivery of Blank Drafts - To facilitate the acceptance of Bankers' Acceptances pursuant to this Agreement the Borrower shall, upon the execution of this Agreement and from time to time as required by the Lenders, provide to the Lenders drafts duly endorsed in blank by the Borrower in quantities sufficient for the Lenders to fulfil their obligations hereunder. None of the Agent and the Lenders shall be responsible or liable for any failure to issue a Bankers' Acceptance as required hereunder if the cause of such failure is, in whole or in part, due to the failure of the Borrower to provide requested drafts to the Lender on a timely basis, nor shall any of the Agent and the Lenders be liable for any damage, loss or other claim arising by reason of any loss or improper use of any such draft except a loss or improper use arising by reason of the failure of the Agent or the Lender, as the case may be, to exercise the same degree of care with respect to such draft as it exercises for its own securities. (b) Documentation - Prior to any Bankers' Acceptance Drawdown being made available, the Borrower shall have executed and delivered to the Agent the Bankers' Acceptance Undertaking. (c) Maturing Bankers' Acceptances - In anticipation of the maturity of each Bankers' Acceptance issued hereunder, the Borrower may either: (i) deliver to the Agent a Drawdown Notice requesting the Conversion or Rollover of such Bankers' Acceptance pursuant to the provisions of Section 2.11 or 2.12, respectively; or (ii) not later than 10:00 a.m. (Calgary time) on the maturity date of the relevant Bankers' Acceptance, pay to the Agent an amount equal to the principal amount of the maturing Bankers' Acceptance. In the event the Borrower shall fail to so notify the Agent of a Rollover or Conversion or shall fail to make such payment, as the case may be, the face amount of the maturing Bankers' Acceptance shall be converted into a Prime Rate Drawdown on the relevant maturity date. (d) Discount Rate - The Agent shall advise the Borrower, as soon as practicable but in any event prior to 10:30 a.m. (Calgary time) on the date of any Bankers' Acceptance Drawdown, of the Reference BA Discount Rate applicable to each Bankers' Acceptance thereunder. 40 - 35 - 3.4 Issuance of Letters of Credit (a) Form of Letters of Credit - Any Letter of Credit to be issued by the Lenders under the Facility shall be in such form as may be agreed upon by the Borrower and the relevant issuing Lender, each acting reasonably. (b) Documentation - Prior to any L/C Drawdowns, the Borrower shall have executed and delivered the Letter of Credit Documentation to the issuer of the relevant Letter of Credit. (c) Prepayment - The Borrower may, at any time, and shall, if the repayment or required repayment of any of the Loans would require the reduction of L/C Drawdowns, surrender to the Agent any Letter(s) of Credit having an aggregate remaining face amount at least equal to the required reduction to the Agent or, deposit cash with the Agent for the account of each of the Lenders rateably in accordance with the Letters of Credit Loans outstanding to such Lender, in an interest-bearing collateral cash account of the Borrower with the Agent, with interest at the Agent's prevailing rate for similar deposits, in an amount equal to the required reduction. Upon such surrender or receipt of such cash, the L/C Drawdowns outstanding under the Facility shall be deemed to have been reduced by the aggregate remaining face amount of the Letters of Credit so surrendered or the amount of such cash so deposited together with interest thereon as applicable. ARTICLE IV PAYMENT OF INTEREST AND OTHER FEES 4.1 Interest on Prime Rate Drawdowns - The Borrower shall pay interest in Canadian Dollars on the principal amount of each Prime Rate Drawdown (with, subject to Section 4.7, interest on overdue interest at the same rate) at a nominal rate per annum equal to the Prime Rate in effect from time to time plus the incremental number of Basis Points set forth in respect of Prime Rate Drawdowns in Section 4.6. Interest on each Prime Rate Drawdown shall accrue daily on the outstanding principal balance thereof and shall be calculated and payable in arrears: (a) on each successive Interest Payment Date, for the period then ending; (b) in the case of a prepayment of part or all of a Prime Rate Drawdown, on the date of such prepayment, with respect to interest accrued on the amount of principal being prepaid; (c) in the case of amounts repaid pursuant to Section 5.2, 5.3 or 5.5, on the date of such repayment, with respect to interest accrued on the amount of principal of any Prime Rate Drawdown being repaid; and 41 - 36 - (d) on the date that all amounts owing hereunder are repaid in full, whether on demand, by reason of acceleration or otherwise; on the basis of the actual number of days for which a particular principal amount is outstanding computed on the basis of a year of 365 days, or 366 days in the case of a leap year. Interest on overdue interest on Prime Rate Drawdowns shall be payable on demand. Changes in the Prime Rate shall cause an immediate and automatic adjustment of the interest rate applicable to each Prime Rate Drawdown as and from the effective date of such change without the necessity of any notice to the Borrower, such notice being hereby expressly waived by the Borrower. Interest on the Prime Rate Drawdowns shall be payable in accordance with the foregoing after as well as before demand, default, maturity and judgment. 4.2 Interest on Base Rate Drawdowns - The Borrower shall pay interest in United States Dollars to the Agent on the principal amount of each Base Rate Drawdown (with, subject to Section 4.7, interest on overdue interest at the same rate) at a nominal rate per annum equal to the Base Rate in effect from time to time plus the incremental number of Basis Points set forth in respect of Base Rate Drawdowns in Section 4.6. Interest on each Base Rate Drawdown shall accrue daily on the outstanding principal balance thereof and shall be calculated and payable in arrears: (a) on each successive Interest Payment Date, for the period then ending; (b) in the case of a prepayment of part or all of a Base Rate Drawdown, on the date of such prepayment, with respect to interest accrued on the amount of principal being prepaid; (c) in the case of amounts repaid pursuant to Section 5.2, 5.3 or 5.5, on the date of such repayment with respect to interest accrued on the amount of the principal of any Base Rate Drawdown being repaid; and (d) on the date that all amounts owing hereunder are repaid in full, whether on demand, by reason of acceleration or otherwise; on the basis of the actual number of days for which a particular principal amount is outstanding, computed on the basis of a year of 365 days or 366 days in the case of a leap year. Interest on overdue interest on Base Rate Drawdowns shall be payable on demand. Changes in the Base Rate shall cause an immediate and automatic adjustment of the interest rate applicable to each Base Rate Drawdown as and from the effective date of such change without the necessity of any notice to the Borrower, such notice being hereby expressly waived by the Borrower. Interest on the Base Rate Drawdowns shall be payable in accordance with the foregoing after as well as before demand, default, maturity and judgment. 4.3 Interest on Libor Drawdowns - The Borrower shall pay interest in United States Dollars on the principal amount of each Libor Drawdown for the Libor Interest Period applicable 42 - 37 - thereto at a nominal rate per annum equal to the Libor Rate applicable to such Libor Drawdown plus the incremental number of Basis Points set forth in respect of Libor Drawdowns in Section 4.6. Interest on each Libor Drawdown shall accrue daily on the amount of such Libor Drawdown and shall be calculated and payable in arrears on each successive Interest Payment Date applicable to a Libor Drawdown, on the basis of the actual number of days for which such Libor Drawdown is outstanding, computed on the basis of a year of 360 days. Interest on each Libor Drawdown shall be payable in accordance with the foregoing after as well as before demand, default, maturity and judgment. 4.4 Stamping Fees on Bankers' Acceptances - The Borrower shall pay, in respect of each draft accepted by the Lenders as a Bankers' Acceptance, a stamping fee equal to a nominal rate per annum equal to the number of Basis Points set forth in respect of Bankers' Acceptances in Section 4.6, in each case, of the face amount of such Bankers' Acceptance and calculated over the term of such Bankers' Acceptance, such stamping fee to be payable on the date of issuance of the Bankers' Acceptance. 4.5 Fees for Letters of Credit - The Borrower shall pay with respect to each Letter of Credit issued hereunder, in addition to any fee payable under Section 2.6, a fee equal to a nominal rate per annum equal to the number of Basis Points set forth in respect of Letters of Credit in Section 4.6, calculated on the face amount of the relevant Letter of Credit over the term of the Letter of Credit, such fee to be payable at the time of issuance. If any Letter of Credit is cancelled or drawndown prior to expiration of its term, the fee applicable to the remaining term thereof shall be refunded to the Borrower. 4.6 Incremental Interest and Fees - Until, pursuant to Section 5.2, the aggregate of the Lenders' Commitment Amounts and principal amount of the Loans made by the Lenders under the Facility has been reduced to U.S. $500,000,000, the applicable Basis Points or incremental Basis Points payable in respect of Loans shall be as set forth below: Prime Rate Drawdowns 0 bp (Prime Rate plus) Base Rate Drawdowns 0 bp (Base Rate plus) Bankers' Acceptances 87.5 bp (Stamping Fee) LIBOR Drawdowns 87.5 bp (Libor Rate plus) Letters of Credit 87.5 bp Commitment Fee 37.5 bp
Thereafter, the applicable Basis Points or incremental Basis Points payable in respect of Loans shall be as set forth below in the column setting forth the lowest of the two highest ratings 43 - 38 - assigned the Borrower by Standard and Poor's, Moody's, DBRS and CBRS provided that one of the two ratings has been assigned by Standard and Poor's or Moody's. Standard and Poor's BBB+ or BBB BBB- BB+ BB or Higher Lower Moody's Baa1 or Baa2 Baa3 Ba1 Ba2 or Higher Lower DBRS BBB (high) or BBB BBB(low) BB (high) BB or Higher Lower CBRS B++ (high) or B++ B++ (low) B+ (high) B+ or Higher Lower Interest Rates and Fees Prime Rate Drawdowns (Prime Rate plus) 0 bp 0 bp 0 bp 0 bp 0 bp Base Rate Drawdowns (Base Rate plus) 0 bp 0 bp 0 bp 0 bp 0 bp Bankers' Acceptances (Stamping Fee) 30 bp 40 bp 50 bp 65 bp 75 bp LIBOR Drawdowns (Libor Rate plus) 30 bp 40 bp 50 bp 65 bp 75 bp Letters of Credit 30 bp 40 bp 50 bp 65 bp 75 bp Commitment Fee 8 bp 9 bp 10 bp 12.5 bp 25 bp
4.7 Interest on Unpaid Costs and Expenses - Unless the payment of interest is otherwise specifically provided for herein, where the Borrower fails to pay to the Agent any amount required to be paid by it to the Agent hereunder (including unpaid interest), the Borrower shall pay interest on such unpaid amount from the time such amount is due until such amount is paid in full at a nominal rate per annum, equal to the Prime Rate in effect from time to time plus 2% with respect to amounts required to be paid by the Borrower in Canadian Dollars, and at a nominal rate per annum, equal to the Base Rate in effect from time to time plus 2% with respect to amounts required to be paid by the Borrower in U.S. Dollars, such interest to be computed on the basis of a year of 365 days or 366 days in the case of a leap year and to be calculated and (to the maximum extent permitted by Applicable Law) compounded monthly on each Interest Payment Date and to be payable on demand as well after as before default, maturity and judgment, with interest on any unpaid interest at the same rate. 4.8 Annual Rates of Interest - For the purposes of the Interest Act (Canada), whenever interest payable pursuant to this Agreement is calculated on the basis of a period other than a calendar year (the "Interest Period"), each rate of interest determined pursuant to such calculation expressed as an annual rate is equivalent to such rate as so determined multiplied by the actual number of days in the calendar year in which the same is to be ascertained and divided by the number of days in the Interest Period. 44 - 39 - 4.9 Commitment Fee (a) Calculation and Payment - Commencing on the Effective Date, the Borrower shall pay to the Agent a commitment fee in U.S. Dollars equal to a nominal rate per annum set forth in respect of the Commitment Fee in Section 4.6 (based on a 365 day year, or 366 days in the case of a leap year) on the undrawn portion of the Facility, such fee to be calculated quarterly in arrears on the daily undrawn portion of the Facility, to accrue to and including the last day of each Fiscal Quarter to be invoiced by the Agent to the Borrower and to be paid quarterly on or before the third Business Day of the next succeeding Fiscal Quarter following receipt of such invoice. (b) Calculation of Undrawn Portion - The undrawn portion of the Facility shall be calculated by deducting the Outstanding Amount from the aggregate of the Commitment Amounts. 4.10 Limitation on Interest - Notwithstanding any other provisions of this Agreement or any other document entered into in connection with this Agreement, the Borrower shall not be obliged to make any payments of interest or other amounts payable to the Agent hereunder or under any other document entered into in connection with this Agreement in an amount or rate equal to or in excess of that which would be prohibited by law or would result in the receipt by the Lenders of interest at a criminal rate (as the terms "interest" and "criminal rate" are defined under the Criminal Code (Canada)) or which would contravene any local usury laws which may be applicable to any obligations of the Borrower to the Lenders or the Agent under or in connection with this Agreement. 4.11 Increased Costs - If, after the Effective Date, there is adopted any Applicable Law, any change therein or any change in the interpretation or application thereof by any court or by any Government Authority or other authority or entity charged with the administration thereof, whether or not having the force of law, which: (a) subjects any Lender to any Taxes or changes the basis of taxation, or increases any existing Taxes, on payments of principal, interest or other amounts payable by the Borrower to the Lender under this Agreement (except for Taxes on the overall net income or capital of the Lender); (b) imposes, modifies or deems applicable any reserve, cash margin, special deposit or similar requirements against assets held by, or deposits in or for the account of or loans by or any other acquisition of funds by the relevant funding office of any Lender; or (c) imposes on any Lender or any Person controlling such Lender a requirement to maintain or allocate additional capital in relation to the Facility; (other than as a result of a change in the credit rating of the Borrower) in a manner uniform with other financial institutions listed in the same Schedule to the Bank Act (Canada) as the Lender if such other financial institutions were substituted for the Lender hereunder and the result of any of the 45 - 40 - foregoing is, in the opinion of such Lender (acting reasonably and in good faith), to increase the cost to such Lender of making or maintaining any Drawdown or reduce the income receivable by such Lender in respect of any Drawdown by an amount which is material, then upon such Lender giving written notice thereof, from time to time, to the Agent and the Borrower (such notice to set out in reasonable detail the facts giving rise to and a summary calculation of, such increased cost or reduced income and to be final, conclusive and binding upon the Borrower, absent manifest error), the Borrower shall pay to such Lender, not later than five Business Days after such notice, that amount which shall compensate such Lender for such additional cost or reduction in income (arising to or incurred by the Lender not more than 90 days prior to the date of such notice) and thereafter on each issuance of a Bankers' Acceptance and date for payment of fees in respect of Letters of Credit and Interest Payment Date, in all other cases. For greater certainty, the Borrower shall not be required to compensate any Lender for any withholding taxes which the Borrower is required to withhold and remit in respect of any principal, interest or other amount paid or payable by the Borrower to any Lender in accordance with the terms of this Agreement unless such obligation arises as a result of an action by the Borrower. 4.12 Waiver of Judgment Interest Act (Alberta) - To the extent permitted by Applicable Law, the provisions of the Judgment Interest Act (Alberta) shall not apply to this Agreement and are hereby expressly waived by the Borrower. ARTICLE V REPAYMENTS AND PREPAYMENTS 5.1 Amounts Under Facility May be Reborrowed - Subject to Section 5.2 and to the other terms and conditions of this Agreement and as long as there shall not have occurred and be continuing an Event of Default or any event which with the giving of notice, the passing of time, or both, would constitute an Event of Default, any amounts borrowed under the Facility and repaid from time to time may be reborrowed during the Revolving Period. 5.2 Mandatory Facility Reductions (a) Until such time as the aggregate of the Available Facility Amount and the Outstanding Amount has been permanently reduced to U.S. $500,000,000, the Borrower shall make repayments and permanent reductions in the Available Facility Amount and shall repay to each of the Lenders, rateably according to the proportion of the aggregate of all Revolving Lenders' Commitment Amounts constituted by such Revolving Lender's Commitment Amount, the aggregate of all of the following amounts received on or prior to April 30, 1998: (A) the Net Proceeds from the issuance of securities by the Borrower (other than for proceeds received by the Borrower from the issuance of shares pursuant to the exercise of options under the existing employee and director stock option plans of the Borrower, except to the extent that the proceeds of such exercises aggregate at least Cdn. $5,000,000 in any seven day period, and proceeds from the issuance of senior and 46 - 41 - subordinated debt securities); and (B) 50% of the sum of the Net Proceeds from asset sales by the Borrower and the Restricted Subsidiaries (except to the extent such Restricted Subsidiaries do not make such payments because they are precluded from doing so pursuant to the terms of their Funded Debt) and from secondary distributions of securities by the Borrower or its Subsidiaries, including without limitation the shares in the capital of Gulf Indonesia Resources Limited held directly or indirectly by the Borrower. For greater certainty, no prepayments will be required to be made by the Borrower in respect of Net Proceeds attributable to (i) the sale of accounts receivable under the Receivables Purchase and Sale Agreement dated November 29, 1994, as amended, among the Borrower, Corporate Receivables Trust and Toronto Dominion Securities Inc., or any replacement of such arrangement; (ii) the surrender, exchange, lease, sublease or farmout of any property or assets in the ordinary course of business; (iii) the sale of production of hydrocarbons or by-products in the ordinary course of business; (iv) the sale or other disposition of property or assets not exceeding U.S. $1,000,000 in respect of any single transaction or related series of transactions and in an aggregate amount not exceeding U.S. $5,000,000 in any fiscal year; and (v) sales or other dispositions of assets or property from one member of the Restricted Group to another member of the Restricted Group. Such prepayments shall be made within five Business Days of completion of each such transaction (except to the extent that prepayments in respect of Libor Loans could not be made at such time in accordance with the provisions of this Agreement, in which case such prepayment or the balance thereof as applicable shall be made at the expiration of the applicable LIBOR Interest Period). In addition to the foregoing, Net Proceeds which are required to be applied to make prepayments and permanent reductions in the Facility Amount, the Borrower may apply such other Acceptable Proceeds (as hereinafter defined) as the Borrower may elect to make prepayments and permanent reductions in the Facility Amount. The Net Proceeds required to be used and any other Acceptable Proceeds for repayments and permanent reductions under this subsection 5.2(a) shall permanently reduce the aggregate of all Revolving Lenders' Commitment Amounts by the amount of such Net Proceeds or other Acceptable Proceeds, as the case may be, and the Commitment Amount for each Revolving Lender shall be permanently reduced by the repayment required, or permitted, to be made by the Borrower to each Lender pursuant to the terms of this subsection 5.2(a); (b) If, pursuant to subsection 5.2(a), the Available Facility Amount together with the aggregate Outstanding Amount has not been reduced to U.S. $500,000,000 by April 30, 1998, the Borrower shall make a prepayment and permanent reduction in the Facility Amount and shall repay with Acceptable Proceeds (as hereinafter defined), to each of the Lenders, rateably according to the proportion of the aggregate of all Revolving Lenders' Outstanding Amounts constituted by such Revolving Lender's Outstanding Amount, the principal amount of the Loans made by such Lenders under the Facility by payment on April 30, 1998, of that amount or amounts as will reduce the aggregate amount of such Loans on April 30, 1998 to U.S. $500,000,000 and on such date the aggregate of all Revolving Lenders' Commitment Amounts shall be permanently reduced to U.S. $500,000,000 and the Commitment Amount for each Revolving Lender shall be permanently reduced by the 47 - 42 - repayment required to be made by the Borrower to each Lender pursuant to the terms of this subsection 5.2(b). For the purpose of this Section 5.2, "Acceptable Proceeds" means up to 100% of the proceeds from the issuance of securities by the Borrower (other than senior or subordinated Funded Debt unless Lenders who have at least 80% of the Commitments otherwise agree), from asset sales by the Borrower and its Subsidiaries, from secondary distributions of securities by the Borrower and its Subsidiaries and from such other proceeds as Lenders who have at least 80% of the Commitments may agree. 5.3 Repayment under the Facility after Term Out Date - The Borrower shall repay to each of the Lenders the principal amount of the Loans made by such Lender under the Facility by payment, on each of the dates set forth below, of that amount (in U.S. Dollars) as will reduce the principal amount of such Loans outstanding on the date of such payment (denominated in U.S. Dollars) to that proportion of the principal amount of such Loans outstanding on the Term Out Date set forth opposite the date of such payment:
Proportion of the principal amount of such Loans outstanding Payment Date on the Term Out Date ------------------------------------------------------------------------- - 6 month anniversary of the 7/8 Term Out Date - 12 month anniversary of the 6/8 Term Out Date - 18 month anniversary of the 5/8 Term Out Date - 24 month anniversary of the 4/8 Term Out Date - 30 month anniversary of the 3/8 Term Out Date - 36 month anniversary of the 2/8 Term Out Date - 42 month anniversary of the 1/8 Term Out Date - Maturity Date 0
together with any accrued and unpaid interest at the Maturity Date payable on the Maturity Date. On and after the Term Out Date, any repayment made by the Borrower in respect of Loans in the Term Period shall reduce each Lender's Commitment Amount. 48 - 43 - 5.4 Voluntary Prepayments - (a) The Borrower may at any time during the Term Period upon not less than three Business Days prior notice but without premium or penalty, prepay to the Nonrevolving Lenders in whole or in part, any Prime Rate Drawdown or Base Rate Drawdown together with accrued interest thereon to the date of such prepayment. Any such prepayment of the Facility shall be applied to scheduled repayments thereof in the order requested by the Borrower. (b) If any Libor Drawdown or Bankers' Acceptance Drawdown is repaid on other than the expiration of the applicable Libor Interest Period or the maturity of the Bankers' Acceptance, respectively, the Borrower shall, within three Business Days after notice from the Agent, pay to the Agent for the account of each Lender rateably in accordance with the portion of the Libor Drawdown or Bankers' Acceptance Drawdown outstanding to such Lender: (i) in the case of the prepayment of any Libor Drawdown, all reasonable loss (excluding loss of profit) or expense incurred as a result of such prepayment including, without limitation, any cost or expense incurred by reason of the liquidation or re-employment in whole or in part of deposits or other funds required by the Lenders to fund any Libor Drawdown; and (ii) in the case of the prepayment of any Bankers' Acceptance Drawdown, the amount determined by the Agent acting reasonably, to be the amount required to be paid on the date of such prepayment to yield to the Lenders the face amount of the Bankers' Acceptance to be prepaid on the maturity thereof. (c) On and after the Term Out Date, any prepayment made by the Borrower in respect of the Loans in the Term Period shall rateably reduce each Lender's Commitment Amount. 5.5 Currency Fluctuations - Notwithstanding any other provision of this Agreement, if any Loan outstanding is denominated in Cdn. Dollars the Agent shall have the right to calculate the Outstanding Amount for all purposes including making a determination from time to time of the available undrawn portion of the Facility. If following such calculation, the Agent determines that the Outstanding Amount is greater than 105% of the Loans permitted hereby to be outstanding at such time, then the Agent shall so advise the Borrower and the Borrower shall repay, on the later of three Business Days after such advice and the next applicable Interest Payment Date immediately following such date of calculation, an amount sufficient to eliminate the excess over and above the aggregate amount of the Loans permitted hereby to be outstanding at such time, together with all accrued interest on the amount so paid. 5.6 Voluntary Reduction of Commitments - The Borrower may at any time, without penalty, upon that number of Business Days prior notice to the Agent as would be applicable to a Prime Rate Drawdown of like amount, terminate in whole or reduce rateably (in accordance with 49 - 44 - the Lenders' respective Commitments) in part the unutilized portions of the respective Commitments of the Lenders provided that each partial reduction shall be in the aggregate amount of U.S. $10,000,000 (or such other amounts as the Agent may approve) and additional increments of integral multiples of U.S. $1,000,000. All accrued Commitment Fees on the aggregate amount by which such Commitments are terminated or reduced shall be due and payable by the Borrower on the effective date of such termination or reduction. All terminations or reductions of the Commitments shall be rateable among the Lenders in proportion to their respective Commitment Amounts and shall be permanent. ARTICLE VI CONDITIONS PRECEDENT TO DRAWDOWNS 6.1 Conditions Precedent to First Drawdown - The obligation of the Lenders to advance the first Drawdown of the Facility is subject to the condition precedent that the Agent shall have received on or before the Drawdown Date of the proposed first Drawdown all of the following in form and substance satisfactory to the Agent and the Agent's counsel (in each case, acting reasonably): (a) a certified copy of all documentation with respect to the authority of the Borrower to execute, deliver and perform this Agreement; (b) the opinion of legal counsel to the Borrower, substantially in the form attached hereto as Schedule H; (c) the opinion of legal counsel to the Agent and the Lenders substantially in the form attached hereto as Schedule I; (d) a certificate of a senior officer of the Borrower stating that as of such date, all of the representations and warranties made by the Borrower herein are true and correct and that no event has occurred which constitutes or would constitute, with the giving of notice, the passing of time, or both, an Event of Default; and (e) a Drawdown Notice for an Advance of the amount to fully repay, upon the first Drawdown Date, all amounts owing by the Borrower under the Existing Acquisition Facility together with: (i) an irrevocable direction to apply such Advance to the repayment of the amounts owing by the Borrower under the Existing Acquisition Facility; and (ii) an irrevocable notice from the Borrower terminating in whole the Existing Acquisition Facility effective on such first Drawdown Date. 50 - 45 - 6.2 Conditions Precedent to All Drawdowns - The obligations of the Lenders to advance any Drawdown of the Facility shall, in addition to any other requirements of this Agreement, be subject to the following conditions precedent: (a) the Agent shall have received, if applicable, a proper and timely Drawdown Notice; (b) there shall not have occurred and be continuing any event which constitutes or (other than in the case of a Conversion or Rollover, provided, that in the case of a Conversion or Rollover into a Bankers' Acceptance Drawdown or Libor Drawdown, the maturity date or period shall not extend beyond the earliest date upon which such event would constitute an Event of Default) would constitute, with the giving of notice, the passing of time, or both, an Event of Default; (c) each of the representations and warranties made in subsections 7.1(a), (c), (d), (e), (g) and (p) shall be true and correct (and the acceptance by the Borrower of such Drawdown shall be deemed to constitute a further representation and warranty by the Borrower that such statements are true and correct) as if given on, and with effect as of, the Drawdown Date other than with respect to a Conversion or Roll-over; and (d) such other documentation as the Agent may reasonably request in respect of any Letter of Credit. 6.3 Waiver - The conditions set forth in Sections 6.1 and 6.2 are provided for the sole benefit of the Lenders and may, with the prior consent of Majority Lenders, be waived by the Agent, in whole or in part (with or without terms or conditions) in respect of any Drawdown without prejudicing the right of the Lenders at any time to assert such conditions in respect of any subsequent Drawdown. ARTICLE VII BORROWER'S REPRESENTATIONS AND WARRANTIES 7.1 Borrower's Representations and Warranties - To induce the Lenders to make available the Facility, the Borrower represents and warrants to and in favour of the Lenders as follows, which representations and warranties of the Borrower shall survive the execution and delivery of this Agreement and the making of each Drawdown, notwithstanding any investigations or examinations which may be made by the Agent, the Lenders or the Agent's counsel: (a) Existence of Borrower - Each of the Borrower and the Restricted Subsidiaries (excluding Non-Material Restricted Subsidiaries) is a corporation duly incorporated or continued, organized, and validly subsisting under the jurisdiction of its incorporation and has all necessary corporate power and authority to own its properties and carry on its business as presently carried on; 51 - 46 - (b) Qualification - Each of the Borrower and the Restricted Subsidiaries is duly licensed and qualified to carry on business in each jurisdiction in which the location of its respective property or assets or the conduct of its business require such licence or qualification save and except, in the aggregate, where such failure would not be Materially Adverse; (c) Corporate Authority - The Borrower has all necessary corporate power, authority and capacity to enter into this Agreement and to do all such acts and things as are required hereunder to be done, observed or performed by it, in accordance with the terms of this Agreement; (d) Valid Authorization of Agreement - The Borrower has taken all necessary action to authorize the execution, delivery and performance of this Agreement in accordance with its terms; (e) Enforceability - This Agreement constitutes a valid and legally binding obligation enforceable against the Borrower in accordance with its terms, subject, however, to limitations with respect to enforcement imposed by law in connection with bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally and to the extent that equitable remedies such as specific performance and injunction are in the discretion of the court from which they are sought; (f) Title - Each member of the Restricted Group has good and marketable title to its properties and assets, free and clear of all liens, claims, restrictions or encumbrances other than Permitted Encumbrances except where the absence of such title would not, in the aggregate, be Materially Adverse; (g) Validity of Agreement - Non-Conflict - None of the Borrower nor the Restricted Subsidiaries is a party to, bound or affected by or subject to any indenture, mortgage, lease, agreement, contractual obligation, instrument, charter or by-law provision, resolution of directors or shareholders of the Borrower or any of the Restricted Subsidiaries, order, rule, judgment, decree, licence, or permit which would be violated, contravened, breached by, or under which default would occur or a lien, claim, restriction or encumbrance would be created upon any of the properties or assets of any member of the Restricted Group as a result of the execution and delivery of this Agreement or the carrying out of the Borrower's obligations hereunder where such violation, contravention, breach, default, lien, claim, restriction or encumbrance, in the aggregate, would be Materially Adverse; (h) Government Approval, Regulation, etc. - No authorization or approval or other action by, and no notice to or filing with, any Government Authority or regulatory body or other Person is required for the due execution, delivery or performance by the Borrower of this Agreement except for authorizations, approvals, actions, notices or filings which have been duly obtained or made and are in full force and effect except where the violation or the absence of or lack of good standing under any such authorization would not, in the aggregate, be Materially Adverse; 52 - 47 - (i) Absence of Litigation - There is not now in progress, pending or, to the Borrower's knowledge, threatened against the Borrower or any Restricted Subsidiary, any litigation, action, suit, investigation, claim, complaint or other proceeding, including appeals and applications for review, by or before any court, tribunal, governmental agency, commission, board, bureau, agency or instrumentality, domestic or foreign which would, in the aggregate, be Materially Adverse; (j) Financial Statements - The Financial Statements and the notes to such Financial Statements have been prepared in accordance with GAAP applied on a basis consistent with that of the preceding periods and present fairly (i) all of the assets, liabilities and financial position of Gulf as at December 31, 1996 and as at March 31, 1997, and (ii) the results of operations and changes in financial position of Gulf for the fiscal year ended December 31, 1996 and for the first Fiscal Quarter ended March 31, 1997, all financial reports and financial statements delivered to the Agent or the Lenders pursuant to this Agreement, including without limitation any financial information on which any compliance certificates are based have been prepared in accordance with GAAP and present fairly the financial information set out therein; (k) No Event of Default - No Event of Default has occurred and is continuing and no event has occurred which, with the giving of notice, the passing of time, or both, would constitute an Event of Default; (l) Compliance with Laws - None of the Borrower nor any Restricted Subsidiary is in violation of any indenture, mortgage, lease, agreement, obligation, instrument, charter or by-law provision, judgment, decree, license, order, statute, rule, permit or regulation relating in any way to the Restricted Group, to the operation of its business or to its property or assets and each of the Borrower and the Restricted Subsidiaries has obtained all licences, franchises, permits, registrations and similar authorizations, all of which are in good standing, necessary for the conduct by it of its businesses, except where the violation or the absence of or lack of good standing under any such authorization would not, in the aggregate, be Materially Adverse; (m) Environmental Laws (i) Each of the Borrower and its Subsidiaries is in compliance with all Environmental Laws and material Environmental Approvals, except to the extent that failure to comply therewith would not, in the aggregate, be Materially Adverse; (ii) each of the Borrower and its Subsidiaries: A. possesses or has applied for all Environmental Approvals required in order to conduct its business operations; and 53 - 48 - B. all such Environmental Approvals are valid and in full force and effect; and C. is now in compliance in all respects with all such Environmental Approvals; and D. no consent or approval is required of the Borrower in connection with the transactions contemplated herein in order to maintain such Environmental Approvals in full force and effect; except to the extent that failure to apply for, obtain, comply with or maintain such Environmental Approvals would not, in the aggregate, be Materially Adverse; (iii) except to the extent that failure to so comply would not, in the aggregate, be Materially Adverse, each of the Borrower, and its Subsidiaries has complied with all reporting, notification and inspection requirements imposed by Environmental Laws, and all operating, monitoring and reporting records have been maintained in accordance with all Environmental Laws and Environmental Approvals; and (iv) except to the extent that failure to do so would not, in the aggregate, be Materially Adverse, each of the Borrower and its Subsidiaries has complied with all contracts and agreements entered into by the Borrower and its Subsidiaries with Government Authorities relating to environmental matters; (n) Insurance - Each of the Borrower and the Restricted Subsidiaries has insurance with respect to its properties, assets and business and against such casualties and contingencies and in such types and such amounts, as is in accordance with sound business practices for corporations of the size and type of business and operations thereof; (o) Taxes - Each of the Borrower and the Restricted Subsidiaries has: (i) duly and timely filed all tax returns and reports as required by law, has duly and correctly reported all income and other amounts required to be reported and has paid all Taxes, penalties, interest, fines and governmental charges in respect thereof, to the extent that such Taxes, penalties, interest, fines and other governmental charges have been assessed by the relevant taxation authority, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings for which adequate reserves in accordance with GAAP shall have been set aside on its books; and (ii) duly and timely paid all instalments of Taxes required to be paid by it and has made full provision on its books for all taxes and all penalties, interest and fines in respect thereof which relate to periods ending immediately prior to the date hereof, except such failures with respect to (i) and (ii) which would not, in the aggregate, be Materially Adverse. Other than actions, suits, proceedings, investigations, audits, claims and matters which would not, in the aggregate, be Materially Adverse, there are no actions, suits, proceedings, investigations, audits or claims now pending or, to the best of the knowledge, information and belief of the senior officers of the Borrower after due 54 - 49 - enquiry, threatened against the Borrower or any Restricted Subsidiary in respect of any Taxes or any penalties, interest and fines in respect thereof and there are no matters under discussion with any taxation or other Government Authority relating to any such matters not provided for in the Financial Statements; and (p) Accuracy of Information - All factual information furnished by or on behalf of Gulf in writing to the Agent or the Lenders for purposes of or in connection with this Agreement (including, without limitation, all engineering and other information with respect to the proved and probable reserves attributable to the petroleum and natural gas interests of Gulf and the interests of Gulf in the assets on which such information is based) or any transaction contemplated hereby provided on or before the Effective Date is, and all other such factual information provided pursuant to this Agreement to the Agent or the Lenders (excluding information provided pursuant to paragraph 8.1(d)(vi) other than pursuant to a written request) will be, true and accurate on the date as of which such information is dated or certified (subject to any corrections, amendments or additions to such information furnished to the Agent or the Lenders, as the case may be, prior to any reliance thereon thereby) except to the extent that any inaccuracies therein are not in the aggregate Materially Adverse and such information is not, or shall not be, as the case may be, incomplete by omitting to state any material fact necessary to make such information not misleading, save and except in such respects as are not, in the aggregate, Materially Adverse. ARTICLE VIII COVENANTS 8.1 Covenants - The Borrower covenants and agrees with the Agent and the Lenders that, unless the Lenders otherwise consent in writing, so long as any amount payable hereunder is outstanding: (a) Punctual Payment - The Borrower shall duly and punctually pay the principal amount of all Loans, all interest thereon, all fees and all other amounts required to be paid by the Borrower hereunder or pursuant to agreements with the Agent or Lenders respecting Letters of Credit or Bankers' Acceptances and other documents related to the Facility at the times and places and in the manner provided for herein or therein; (b) Conduct of Business - Save and except where the failure to do so would not, in the aggregate, be Materially Adverse, each of the Borrower and the Restricted Subsidiaries shall do all things necessary to maintain its legal existence in good standing under the laws of the jurisdiction of its incorporation and to maintain its qualification to carry on business in each jurisdiction in which the location of its respective property or assets or the conduct of its business requires such license or qualification and to maintain all franchises, licenses, rights, approvals, permits, consents, rights and privileges necessary for the conduct of its business and to perform its obligations under this Agreement; 55 - 50 - (c) Compliance with Laws - Each of the Borrower and the Restricted Subsidiaries shall comply with all Applicable Laws and all applicable statutory obligations, judgments, decrees, licences, orders, statutes, rules, permits and regulations, the non-compliance with which would be Materially Adverse; (d) Financial Statements and Other Information - The Borrower shall deliver to the Agent and the Lenders: (i) as soon as practicable and in any event within 120 days after the end of each of its fiscal years, the unaudited unconsolidated annual financial statements of the Restricted Group and the audited consolidated annual financial statements of Gulf consisting of balance sheets, statements of profit and loss and surplus, and statements of changes in financial position for such year, together with the notes thereto, and setting forth in comparative form the corresponding figures for the preceding year, all prepared in accordance with generally accepted accounting principles consistently applied throughout the period and prior periods, together with a report of the Auditors thereon; (ii) as soon as practicable and in any event within 60 days after the end of each of the first three Fiscal Quarters of each year, unaudited consolidated financial statements of Gulf similar to those required pursuant to paragraph 8.1(d)(i) as of the end of such period and for such period then ended and for the period from the beginning of the current fiscal year to the end of such period, setting forth, in the case of the consolidated financial statements, in comparative form, the corresponding figures for the comparable period in the preceding fiscal year, prepared in accordance with generally accepted accounting principles consistently applied and certified by the controller, treasurer or other duly authorized financial officer of the Borrower subject only to changes resulting from audit and normal year-end adjustments; (iii) as soon as practicable and in any event within 60 days after the end of each Fiscal Quarter, a Compliance Certificate and a Notice of Unrestricted Subsidiaries; (iv) as soon as practicable after any Extension Request, a report prepared by qualified engineers (which, for greater certainty need not be independent and may be employed by Gulf) reasonably estimating the proved and probable reserves attributable to the petroleum and natural gas interests of Gulf (excluding Unrestricted Subsidiaries) as of a date not earlier than the last day of the last financial year of the Borrower preceding the date of the Extension Request; (v) promptly, notice of any event or occurrence (including, without limitation, any event or occurrence which constitutes a breach of any Environmental Laws or Environmental Approvals) which may be Materially Adverse; 56 - 51 - (vi) from time to time, such additional available information regarding the financial position or business of Gulf as the Agent or the Lenders acting through the Agent may reasonably request; and (vii) promptly after the occurrence of any change in Unrestricted Subsidiaries, a Notice of Amendment of Unrestricted Subsidiaries; (e) Notice of Litigation - The Borrower shall give notice to the Agent of the occurrence of any litigation, action, suit, investigation, claim, complaint or other proceeding, if the result thereof, or in respect of such matters as in the aggregate, might be Materially Adverse or if any thereof in any manner draws into question the validity or enforceability of this Agreement, and from time to time shall provide the Agent with all reasonable non-privileged information requested by the Agent or any of the Lenders concerning the status of any such litigation, action, suit, investigation, claim, complaint or other proceeding. Such notice shall be given within 15 days of senior management becoming aware of such litigation, proceeding or dispute and shall be in form and detail satisfactory to the Agent, acting reasonably; (f) Notice of any Event of Default - The Borrower shall forthwith give notice to the Agent of any fact which, to the best of the Borrower's knowledge, would reasonably be construed as constituting an Event of Default or of any event which, to the best of the Borrower's knowledge, with the giving of notice, lapse of time or otherwise would constitute an Event of Default; (g) Books and Records - The books and records relating to the financial affairs of Gulf shall at all times be maintained in accordance with good and customary business practice, all financial statements provided for herein shall be prepared in accordance with GAAP (excepting, in the case of unconsolidated statements, GAAP with respect to the consolidation thereof) and present fairly the financial information set forth therein and at any reasonable time and from time to time upon reasonable prior notice, the Borrower shall permit the Agent or the Agent at the request of the Lenders, at the reasonable expense of the Borrower, access to examine such books and records; (h) Use of Proceeds - The Borrower shall use the proceeds of all Drawdowns for the purposes contemplated in Section 2.2; (i) Pari Passu Ranking - The Borrower shall ensure that Loans under the Facility rank pari passu with all other present and future senior unsecured indebtedness of the Borrower; (j) Environmental Compliance - The Borrower shall and shall cause each Restricted Subsidiary to comply with all, and shall advise the Lenders if it or any Subsidiary becomes aware that it is not in compliance with, any applicable Environmental Laws and Environmental Approvals, except to the extent that failure to comply would not, in the aggregate, be Materially Adverse. At the request of the Lenders, in their sole discretion, the 57 - 52 - Borrower shall undertake to have an environmental audit (by an independent environmental auditor to be chosen by the Agent with the prior consent of the Borrower, acting reasonably) of part or all of its operations conducted for the benefit of the Lenders at the cost of the Borrower, such cost to the Borrower not to exceed U.S. $100,000 for each audit requested. If such environmental audit establishes environmental liability to the Restricted Group in excess of: (A) U.S. $25,000,000 in the 5 years next following the date of such audit or during the remaining Term Period, whichever is shorter; and (B) provisions in the annual or quarterly financial statements of the Borrower last preceding the date of such environmental audit, provision for such amount shall be made in the next quarterly or annual financial statements of the Borrower or the amount of such liability during the remaining Term Period shall be added to Total Senior Debt for purposes of subsection 8.1(l) until such time as provision for such amount is made in the financial statements of the Borrower or the Majority Lenders are satisfied, in their sole discretion, acting reasonably, that the liability is no longer Materially Adverse. The Lenders may not request an environmental audit, at the cost of the Borrower, more than once every two financial years of Gulf provided that, at the request of the Lenders in their sole discretion, the Borrower shall undertake to have an environmental audit as aforesaid, at the cost of the Lenders at any time provided that the Lenders may not request an environmental audit, whether at the cost to the Borrower or at the cost to the Lenders, more than once every financial year of Gulf; (k) Negative Pledge - The Borrower shall not, and shall not permit any Restricted Subsidiary to, create, issue, incur, assume or permit to exist any security interest on its properties or assets in priority to the Lenders' rights in respect of the Facility, other than Permitted Encumbrances; (l) Financial Covenants - (i) At the end of each Fiscal Quarter the Tangible Net Worth of Gulf on a consolidated basis shall equal or exceed the Minimum Tangible Net Worth; (ii) At the end of each Fiscal Quarter: Total Senior Debt ---------------------------------------- less than 3.0 Cumulative Restricted + Acquisition - Disposition EBIDTA EBIDTA EBIDTA where: "CUMULATIVE RESTRICTED EBITDA" means the aggregate EBITDA of the Restricted Group for the Previous Four Fiscal Quarters; 58 - 53 - "ACQUISITION EBITDA" means EBITDA properly attributable to assets acquired by the Restricted Group within the Previous Four Fiscal Quarters which was generated in the Previous Four Fiscal Quarters when such assets were not owned by the Restricted Group and thus not included in the Cumulative Restricted EBITDA provided, however, that Acquisition EBITDA shall not include the EBITDA properly attributable to any such asset acquisition having a Transaction Price less than U.S. $5,000,000 as long as the aggregate of the Transaction Prices for assets acquired in the Previous Four Fiscal Quarters by the Restricted Group does not exceed U.S. $50,000,000 in which case the aggregate EBITDA relating to all such acquisitions shall be included; and "DISPOSITION EBITDA" means EBITDA properly attributable to assets disposed of by the Restricted Group within the Previous Four Fiscal Quarters which was generated in the Previous Four Fiscal Quarters when such assets were owned by the Restricted Group and thus included in the Cumulative Restricted EBITDA provided, however, that Disposition EBITDA shall not include the EBITDA properly attributable to any such asset disposition having a Transaction Price less than U.S. $5,000,000 as long as the aggregate of the Transaction Prices for assets disposed of in the Previous Four Fiscal Quarters by the Restricted Group does not exceed U.S. $50,000,000 in which case the aggregate EBITDA relating to all such dispositions shall be included; (m) Negative Covenants - The Borrower shall not, and shall not permit any Restricted Subsidiaries to, without the prior written consent of the Majority Lenders: (i) provide Financial Guarantees, excluding Designated Project Guarantees, in an aggregate amount in excess of 5% of the Equity of Gulf unless such Financial Guarantees or the Funded Debt guaranteed thereby is included in Total Senior Debt; (ii) sell, assign, transfer or otherwise dispose of properties or assets (excluding (A) the sale of accounts receivable under the Receivables Purchase and Sale Agreement dated November 29, 1994, as amended, among the Borrower, Corporate Receivables Trust and Toronto Dominion Securities Inc., or any replacement of such arrangement; (B) the surrender, exchange, lease, sublease or farmout of any property or assets in the ordinary course of business; (C) the sale of production of hydrocarbons or by-products in the ordinary course of business; and (D) sales or other dispositions of assets or property from one member of the Restricted Group to another member of the Restricted Group) in any four consecutive Fiscal Quarters pursuant to which the Restricted Group receives Net Proceeds in an amount which exceeds 5% of the Equity of Gulf (which Equity shall be calculated as of the first day of such four Fiscal Quarters) (the last day of any four Fiscal Quarters in which such excess occurs hereinafter referred to as the "Excess Date") unless, subject to 59 - 54 - compliance with Section 5.2, the proceeds from the sale or other disposition of such properties or assets are utilized for either investments in the normal course of Gulf's business or the repayment of Senior Debt (including the Loans), and any such proceeds not so utilized are repaid to the Lenders (except to the extent such Restricted Subsidiaries do not make such payments to the Borrower because they are precluded from doing so pursuant to the terms of their Funded Debt), on the next applicable Interest Payment Date following the end of the fourth Fiscal Quarter after the Excess Date. Any such repayment of the Facility shall be applied to scheduled repayments in inverse order of maturity; (iii) merge, amalgamate, consolidate, reorganize or enter into a plan of arrangement with any other Person or become a party to any other transaction whereby all or substantially all of the property or assets of the Restricted Group may become the property or assets of another Person, including, in the case of an amalgamation, of the continuing company resulting therefrom, unless such merger, amalgamation, consolidation, reorganization, plan of arrangement, partnership or other transaction: (A) involves at least one member of the Restricted Group; and (B) does not constitute an Event of Default and would not constitute with the giving of notice, the passing of time, or both, an Event of Default and, in the case of the Borrower, complies with subsection 8.4(a); (iv) make any material change in the nature of the Restricted Group's business, being the exploration and production of oil and gas, oil and gas pipelines, gas processing, oil refining, and any other ancillary industry related to the exploration and production of oil and gas, and not make any investments outside the normal course of such business, which are in the aggregate in excess of 5% of the book value of the assets of the Restricted Group at the end of the last completed Fiscal Quarter of the Borrower; or (v) continue the Borrower's existence under the laws of any jurisdiction other than the laws of Canada or any province thereof without the prior consent of the Majority Lenders in their sole discretion, acting reasonably; (n) Insurance - The Borrower will and will cause each of its Restricted Subsidiaries to maintain, with financially sound and reputable insurers, insurance with respect to its properties and business and against such casualties and contingencies and in such types and such amounts as shall be in accordance with sound business practices for corporations of the size and type of business and operations as Gulf; (o) Defend Title - The Borrower shall and shall cause each of the Restricted Subsidiaries to diligently maintain, protect and defend its right, title, estate and interest in, to and in respect of the property and assets (including proceeds thereof) of the Borrower and Restricted Subsidiaries against any claim or demand whatsoever and take all such acts and steps as are necessary or advisable at any time and from time to time to maintain ownership 60 - 55 - of and keep in good standing all of the Borrower's and Restricted Subsidiaries' property and assets, all in accordance with good oil and gas industry practice, except where the failure to so maintain, protect or defend would not, in the aggregate, be Materially Adverse; (p) Taxes - The Borrower will and will cause each of its Restricted Subsidiaries (excluding Non-Material Restricted Subsidiaries) to duly and timely file all returns in respect of all federal and provincial and other Taxes or other assessments or governmental charges or levies applicable thereto and to pay, or make provision for payment of, all such Taxes, assessments, charges or levies imposed upon it or upon its income or profits or upon property or assets belonging to it, unless, in any such case, the same is being contested in good faith by appropriate proceedings and an adequate reserve therefor has been established and is maintained in accordance with GAAP and except where the failure to so file a return or pay, or provide for, such taxes, assessments, charges or levies would not, in the aggregate, relate to a liability to the Restricted Group in excess of U.S. $500,000; (q) Obligation to Notify of a Credit Rating Change - At any time that a rating assigned by DBRS, CBRS, Standard and Poor's or Moody's changes as it relates to the Borrower, the Borrower shall, upon receiving notice of the public dissemination of notice of such change, immediately, and in any event within 5 Business Days following receipt thereof, notify the Agent of such new rating and the date of such change; (r) Maintain Property - The Borrower shall and shall cause each of the Restricted Subsidiaries to maintain all of its property and assets in good condition and repair in accordance with good oil and gas industry practice, except where the failure to do so would not, in the aggregate, be Materially Adverse; and (s) Ownership of Assets - At least 50% of the total assets of the Restricted Group, determined in accordance with GAAP, shall at all times be owned by the Borrower or by its Restricted Subsidiaries which do not have Funded Debt in excess of Cdn. $10,000,000, in the aggregate (other than Funded Debt owing to other Restricted Subsidiaries having Funded Debt not exceeding Cdn. $10,000,000 in the aggregate). 8.2 Environmental Indemnity - The Borrower hereby covenants and agrees to be responsible for, and to indemnify each of the Agent, the Lenders and each of their officers, directors, employees and agents (in this Section, collectively referred to as the "Indemnified Parties") and hold each of them harmless from and against all claims, demands, liabilities, losses, costs, damages and expenses (including, without limitation, reasonable legal fees and all costs incurred in the investigation, pursuing of any claim, proceeding with respect to, defense and settlement of any item or matter hereinafter set out) that the Indemnified Parties may incur or suffer, directly or indirectly, as a result of or in connection with: (i) the presence of any Hazardous Substance on, upon or within Gulf's properties or assets, or the escape, seepage, leakage, spillage, discharge, emission, release, disposal or transportation away from Gulf's properties or assets of any Hazardous 61 - 56 - Substance, whether or not there is compliance with all applicable Environmental Laws and Environmental Approvals; and (ii) the imposition of any Remedial Order affecting the Borrower's properties or assets, or any non- compliance with Environmental Laws or Environmental Approvals pertaining to Gulf's properties or assets by any Person, including Gulf, the Agent, the Lenders or any Person acting on behalf of the Agent or any of the Lenders; in any way arising in connection with or related to such Indemnified Party's participation in the Facility or this Agreement provided that any such claims, demands, liabilities, losses, costs, damages and expenses are not as a result of the act or omission of the Indemnified Party. 8.3 Restricted/Unrestricted Subsidiaries (a) The Borrower covenants and agrees that the Subsidiaries listed in Schedule L (as Schedule L may be amended by the Borrower pursuant to this Agreement from time to time after the Effective Date) as "Unrestricted Subsidiaries" shall be all of the Unrestricted Subsidiaries of the Borrower (excepting only Subsidiaries of Unrestricted Subsidiaries). (b) If an entity is purchased by the Borrower or any Restricted Subsidiary and such entity would not otherwise qualify as a Restricted Subsidiary and the Funded Debt (other than Inter-Restricted Group Funded Debt) of the entity remains non-recourse to the Borrower or any Restricted Subsidiary, the Borrower shall be permitted 12 months from the date of purchase to: (A) retire the Funded Debt of such entity with the proceeds of Funded Debt of the Borrower ranking no higher than pari passu with the Facility, or other funds to the extent necessary to qualify as a Restricted Subsidiary; or (B) assume the Funded Debt of such entity provided it ranks no higher than pari passu with the Facility; provided in either case that the additional Funded Debt of the Borrower does not result in subsection 8.1(l) being contravened. During the 12 months from the date of purchase and prior to such retirement, or assumption of the Funded Debt of such entity, the entity may be designated as a Restricted Subsidiary or Unrestricted Subsidiary, at the Borrower's option. If the entity does not qualify as a Restricted Subsidiary within the 12 month period, the entity (unless it would not otherwise be an Unrestricted Subsidiary as defined herein) shall be designated as an Unrestricted Subsidiary. (c) Neither the Borrower nor any Restricted Subsidiary may: (i) sell, assign, transfer or otherwise dispose of any properties or assets (other than the disposition of securities of Unrestricted Subsidiaries held thereby) to any one or more Unrestricted Subsidiaries unless: (x) it shall be for consideration not less than the Fair Market Value thereof at the date of such disposition; and (y) after taking into account the overall effect of any transaction giving rise to the change (including for certainty, accounting for any concurrent repayment of Senior Debt) subsection 62 - 57 - 8.1(l) would not have been contravened by the Borrower if such disposition had occurred prior to the end of the last Fiscal Quarter preceding the date of such disposition; or (ii) purchase or otherwise acquire any properties or assets from any one or more of the Unrestricted Subsidiaries unless: (x) it shall be for consideration not greater than the Fair Market Value of such properties or assets at the date of such acquisition; and (y) after taking into account the overall effect of any transaction giving rise to the change (including for certainty, accounting for any concurrent repayment of Senior Debt) subsection 8.1(l) would not have been contravened by the Borrower if such acquisition had occurred prior to the end of the last Fiscal Quarter preceding the date of such disposition. (d) The Borrower may from time to time deliver a Notice of Amendment of Unrestricted Subsidiaries to the Agent which, in respect of any change to Schedule L, shall be effective as of the date of the giving of such notice provided that, after taking into account the overall effect of any transaction giving rise to the change (including for certainty, accounting for any concurrent repayment of Senior Debt) subsection 8.1(l) would not have been contravened and no Event of Default shall occur as a result of such designation by the Borrower if such change had occurred prior to the end of the last Fiscal Quarter preceding the date of such change. (e) If, at the end of any Fiscal Quarter, any Subsidiary, which was qualified as a Restricted Subsidiary at the end of the immediately preceding Fiscal Quarter pursuant to the exceptions set forth in subparagraphs (ii)(C) and (D) of the definition of "Unrestricted Subsidiaries", no longer qualifies as a Restricted Subsidiary because of a reduction in the ratings assigned to the Senior Debt of the Borrower, then such Subsidiary shall continue to be treated as a Restricted Subsidiary unless it fails to qualify as a Restricted Subsidiary pursuant to the exceptions set forth in subparagraphs (ii)(C) and (D) of the definition of Unrestricted Subsidiaries at the end of the next Fiscal Quarter and shall thereafter cease to be treated as a Restricted Subsidiary. 8.4 Certain Requirements in Respect of Mergers, etc. (a) The Borrower shall not merge, amalgamate, consolidate, reorganize or enter into a plan of arrangement with any other Person or become a party to any other transaction whereby all or substantially all of the property or assets of the Restricted Group may become the property or assets of another Person, including, in the case of an amalgamation, of the continuing company resulting therefrom, or whereby the obligation of the Borrower to pay any amount hereunder would become subject to novation or assumed or undertaken by any other such Person or continuing company, unless but may do so if: (i) no Event of Default, and no event which with the giving of notice, the passage of time or both would constitute an Event of Default, exists, and no such 63 - 58 - event would arise as a result of such merger, amalgamation, consolidation, reorganization, plan of arrangement or transaction; (ii) such other Person or continuing company (herein referred to as a "Successor") is an incorporated company with limited liability and incorporated in Canada or a province thereof or an Eligible Partnership; (iii) the Successor shall execute, prior to or contemporaneously with the consummation of such transaction, an agreement supplemental hereto and such other instruments, if any, as are satisfactory to the Majority Lenders, acting reasonably, and in the opinion of counsel to the Borrower approved by the Agent are necessary or advisable to evidence: (A) the assumption by the Successor of liability for the due and punctual payment of the principal of and interest and fees on the Loans and all other amounts payable hereunder; (B) the covenant of the Successor to pay the same; and (C) the agreement of the Successor to observe and perform all the terms, conditions, covenants and obligations of the Borrower under this Agreement (subject to such changes, in the case of a Successor that is an Eligible Partnership, as are necessary to reflect that the Borrower is not a corporation); and (iv) such transaction shall, to the satisfaction of the Majority Lenders, acting reasonably, and in the opinion of counsel to the Borrower approved by the Agent, be upon such terms as substantially to preserve and not to impair any of the rights and powers of the Agent or of the Lenders and not to affect adversely the liability of the Lenders for any present or future Taxes, or other governmental assessments, charges or levies of whatsoever nature. (b) Whenever the conditions of subsection (a) have been duly observed and performed, the Agent shall execute and deliver the supplemental agreement provided for in paragraph 8.4(a)(iii) on behalf of each of the parties hereto (other than the Borrower) and thereupon: (i) the Successor shall possess and from time to time may exercise each and every right and power of the Borrower under this Agreement in the name of the Borrower or otherwise and any act or proceeding by any provision of this Agreement required to be done and performed with like force and effect by the like directors or officers of the Successor; and (ii) at the request of the Borrower (except, if applicable, as a partner of an Eligible Partnership), the Borrower shall be released from its liability and obligations under this Agreement and the Agent, at the request and at the expense of the Borrower, shall execute and deliver to the Borrower such instruments as shall be requisite to evidence such release. 64 - 59 - ARTICLE IX EVENTS OF DEFAULT 9.1 Events of Default - The occurrence of any one or more of the following events (each such event being herein referred to as an "Event of Default") shall constitute a default under this Agreement: (a) if the Borrower shall fail to pay any principal of, or interest or fees on, the Loans when the same shall become due and payable hereunder for a period of two Business Days after notice from the Agent that such amount is due and payable; (b) if the Borrower shall fail to perform or comply with any term, condition, covenant or obligation contained in this Agreement (other than those specified in subsection 9.1(a)) and, if capable of remedy, such failure to perform or comply is not remedied within 30 days of notice from the Agent so to remedy provided that, in the case of such a failure to comply with subsection 8.1(o) or any applicable Environmental Laws or Environmental Approvals which is capable of remedy, there shall not be an Event of Default if the Borrower shall have commenced the remedy thereof within 30 days of notice from the Agent so to remedy and shall actively and diligently pursue such remedy in good faith to completion; (c) if any representation or warranty made by the Borrower in this Agreement or in any certificate or other document at any time delivered hereunder to the Agent shall prove to have been incorrect in any material respect on and as of the date thereof and, if capable of remedy, such matter is not remedied within 30 days of notice from the Agent so to remedy; (d) if the Borrower shall cease to carry on business; (e) if proceedings are commenced for the dissolution, liquidation or winding up of the Borrower or any Restricted Subsidiary (other than a Non-Material Restricted Subsidiary and other than any dissolution, liquidation or winding up of a Restricted Subsidiary where substantially all of the assets of such Subsidiary are transferred to another Restricted Subsidiary in connection therewith), or for the suspension of the business or operations of the Borrower or any such Restricted Subsidiary (other than a Non-Material Restricted Subsidiary), unless such proceedings are actively and diligently contested in good faith on a timely basis; (f) if the Borrower or any Restricted Subsidiary (other than a Non-Material Restricted Subsidiary) makes any assignment in bankruptcy or makes any other assignment for the benefit of creditors, makes any proposal under the Bankruptcy and Insolvency Act (Canada) or any comparable law, files a petition or proposal to take advantage of any act of insolvency, consents to or acquiesces in the appointment of a trustee, receiver, receiver and manager, interim receiver, custodian, sequestrator, liquidator or other Person with similar powers of itself or of all or any substantial portion of its property or assets, or files a petition 65 - 60 - or otherwise commences any proceedings seeking any reorganization, arrangement, composition or readjustment under any applicable bankruptcy, insolvency, moratorium, reorganization or other similar law affecting creditors' rights or consents to, or acquiesces in, the filing of such a petition; (g) if a trustee, receiver, receiver and manager, interim receiver, custodian, sequestrator, liquidator or any other Person with similar powers shall be appointed of the Borrower or any Restricted Subsidiary (other than a Non-Material Restricted Subsidiary) or of all or any substantial portion of any of its property or assets, other than a portion of any of its property or assets where recourse is limited to such property or assets, a judgment or an order is made by a tribunal of competent jurisdiction restraining its ability to deal with all or any substantial portion of its property and assets or a judgment or order is made by a tribunal of competent jurisdiction approving any reorganization, arrangement, composition or readjustment under any applicable bankruptcy, insolvency, moratorium, reorganization or other similar law affecting creditors' rights or the Borrower or any Restricted Subsidiary is adjudged bankrupt and such appointment, judgment or order is not vacated, stayed or set aside within 30 days of the date thereof; (h) if a writ of execution, distress, attachment or similar process is issued or levied against all or a substantial portion of the property or assets of the Borrower or any Restricted Subsidiary in connection with any default by it in the payment of any amount in excess of U.S. $25,000,000, or the Equivalent Amount thereof in another currency as determined by the Agent, unless the writ is withdrawn, released, vacated or stayed within 30 days, or a judgment or order shall be rendered against the Borrower or any Restricted Subsidiary by a court of competent jurisdiction with respect to such default and such judgment or order shall not be satisfied (or adequate security provided therefor) in accordance with its terms and continue unstayed and in effect for 30 days; (i) if an event of default, under any indenture, agreement or instrument under which the Borrower or any Restricted Subsidiary has at the date of this Agreement or shall hereafter have Funded Debt (excluding indebtedness in respect of which recourse to the Borrower and Restricted Subsidiaries is limited to securities of an Unrestricted Subsidiary or specified assets of the Borrower and Restricted Subsidiaries held thereby) in excess of U.S. $25,000,000, or the Equivalent Amount thereof in another currency as determined by the Agent, shall occur and be continuing (and all grace periods have expired) and as a result thereof any such indebtedness shall have been lawfully accelerated or shall lawfully be or become due and payable prior to the date on which the same would otherwise have become due and payable; (j) any order by a Government Authority is issued, or a judgment or order rendered, against the Borrower or Restricted Subsidiary alleging or in respect of a violation of any Environmental Law or Environmental Approval for an amount in excess of U.S. $25,000,000, or the Equivalent Amount thereof in another currency as determined by the 66 - 61 - Agent, and such order or judgment shall not be satisfied (or adequate security provided therefor) in accordance with its terms and continue unstayed and in effect for 30 days; (k) if all or a substantial part of the property or assets of the Restricted Group shall be expropriated, whether for full or partial consideration; or (l) if a Change of Control occurs. 9.2 Termination and Acceleration - Upon the occurrence of an Event of Default, the Agent shall at the request, or may with the consent, of the Majority Lenders, by one or more notices to the Borrower do any or all of the following: (a) terminate the obligations of the Lenders including, without limitation, the obligation of the Lenders to advance or allow any further Drawdowns hereunder; (b) declare all or any part of the principal amount of the Loans, all interest accrued thereon and all fees and other amounts required to be paid by the Borrower hereunder, to be immediately due and payable without the necessity of presentment for payment, protest, notice of non-payment or notice of protest (all of which are hereby expressly waived); (c) require the Borrower to pay to the Lenders an amount equal to the aggregate face amount of all outstanding Bankers' Acceptances, which amount shall be held by the Lenders as cash collateral in an interest-bearing account, with interest at the Agent's prevailing rate for similar deposits, until such Bankers' Acceptances mature and shall be applied by the Lenders to satisfy such maturing Bankers' Acceptances; (d) require the Borrower to pay to the Agent an amount equal to the maximum amount payable by the Lenders under all outstanding Letters of Credit which amount shall be held by the Agent as cash collateral in an account bearing interest at the Agent's prevailing rate for similar deposits, to be applied by the Agent to satisfy any payments which the Lenders may have to make under Letters of Credit; and (e) proceed to exercise any and all rights hereunder or under any other document or instrument executed pursuant to this Agreement. 9.3 Remedies Cumulative and Waivers - For greater certainty, it is expressly understood and agreed that the respective rights and remedies of the Lenders hereunder or under any other document or instrument executed pursuant to this Agreement are cumulative and are in addition to and not in substitution for any rights or remedies provided by law or by equity; and any single or partial exercise by the Lenders of any right of remedy for a default or breach of any term, covenant, condition or agreement contained in this Agreement or other document or instrument executed pursuant to this Agreement shall not be deemed to be a waiver of or to alter, affect or prejudice any other right or remedy or other rights or remedies to which the Lenders may be lawfully entitled for such default or breach. Any waiver by the Lenders of the strict observance, performance or 67 - 62 - compliance with any term, covenant, condition or agreement herein contained and any indulgence granted either expressly or by course of conduct, by the Lenders shall be effective only in the specific instance and for the purpose for which it was given and shall be deemed not to be a waiver of any rights and remedies of the Lenders under this Agreement or other document or instrument executed pursuant to this Agreement as a result of any other default or breach hereunder or thereunder. 9.4 Setoff - Any deposits or other sums credited by or due from the Lenders to the Borrower and any securities or other property of the Borrower in the possession of the Lenders or Agent may be, unless otherwise agreed, applied to or set off against the payment of the obligations of the Borrower hereunder and any or all other Liabilities, direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, of the Borrower to the Lenders or Agent at any time after the occurrence and during the continuance of any Event of Default, in each case for the benefit of each of the Lenders rateably in accordance with the portion of the Loans outstanding to such Lender. ARTICLE X THE AGENT AND THE LENDERS 10.1 The Agent - Each Lender hereby irrevocably appoints the Agent to act as its agent in connection with this Agreement and any matter contemplated hereunder, and irrevocably authorizes the Agent to exercise such rights, powers and discretions as are delegated to the Agent pursuant to this Agreement together with all such rights, powers and discretions as are incidental hereto or thereto. The Agent shall have only those duties and responsibilities which are expressly specified in this Agreement, and it may perform such duties by or through its agents or employees. This Agreement shall not place the Agent under any fiduciary duties in respect of any Lender. As to any matters not expressly provided for by this Agreement, the Agent shall not be required by the Lenders to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected with respect to the Lenders in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders; provided, however, that the Agent shall not be required to take any action which exposes the Agent to liability or which is contrary to this Agreement or Applicable Law. 10.2 The Agent's Responsibility - (a) The Agent may assume that: (i) any representation, warranty or statement made by the Borrower in or in connection with any of this Agreement (including, without limitation, in any Drawdown Notice) is true and correct; 68 - 63 - (ii) no Event of Default has occurred; (iii) the Borrower is not in breach of or in default under, its obligations under this Agreement; and (iv) there has been no assignment or transfer by any means by any of the Lenders of their rights hereunder unless and until the Agent receives a Bank Transfer Agreement substantially in the form set forth in Schedule G whereby the assignee is bound hereby as it would have been if it had been an original Lender party hereto; and the Agent may also: (b) unless it has actual knowledge or actual notice to the contrary, assume that each Lender's address is that identified with its signature in Schedule A until the Agent has received from such Lender a notice designating some other office of such Lender as its address and act upon any such notice until the same is superseded by a further such notice; (c) engage and pay for the advice or services of any legal counsel, independent public accountants or other experts whose advice or services may to it seem necessary, expedient or desirable and rely upon any advice so obtained and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (d) unless it has actual knowledge or actual notice to the contrary, rely as to matters of fact which might reasonably be expected to be within the knowledge of any Person upon a statement signed by or on behalf of the such Person; (e) unless it has actual knowledge or actual notice to the contrary, rely upon any communication or document believed by it to be genuine; (f) refrain from exercising any right, power or discretion vested in it under this Agreement unless and until instructed by the Majority Lenders (or Lenders if instruction of the Lenders is specifically required by the terms of this Agreement) as to whether or not such right, power or discretion is to be exercised and, if it is to be exercised, as to the manner in which it should be exercised; (g) refrain from exercising any right, power or discretion vested in it which would or might in its opinion be contrary to any law of any jurisdiction or any directive or otherwise render it liable to any Person, and may do anything which is in its opinion necessary to comply with any such law or directive; (h) retain for its own benefit, and without liability to account for, any fee or other sum receivable by it for its own account; 69 - 64 - (i) accept deposits from, lend money to, provide any advisory or other services to or engage in any kind of banking or other business with any Party (including any Subsidiary thereof); and (j) refrain from acting in accordance with any instructions of the Majority Lenders to begin any legal action or proceeding arising out of or in connection with any of this Agreement or any Bankers' Acceptance or Letter of Credit, until it shall have received such security as it may require (whether by way of payment in advance or otherwise) against all costs, claims, expenses (including legal fees), obligations, losses, damages, penalties, actions, judgments, suits, disbursements and liabilities of any kind or nature whatsoever which it will or may expend or incur in complying with such instruction. 10.3 The Agent's Duties - The Agent shall: (a) promptly upon receipt thereof, inform each Lender of the contents of any notice, document, request or other information received by it in its capacity as Agent hereunder from the Borrower excepting therefrom information and notices relating solely to the role of Agent hereunder; (b) promptly notify each Lender of the occurrence of any Event of Default of which the Agent has written notice from the Borrower; (c) each time the Borrower requests the prior written consent of the Lenders or Majority Lenders, use its best efforts to obtain and communicate to the Borrower the response of the Lenders or Majority Lenders, as the case may be, in a reasonable and timely manner having due regard to the nature and circumstances of the request; (d) subject to the foregoing provisions of this Section and compliance with this Agreement, act in accordance with any instructions given to it by the Lenders or, where permitted, the Majority Lenders; and (e) if so instructed by the Lenders, or the Majority Lenders, as applicable, refrain from exercising any right, power or discretion vested in it under this Agreement or any document incidental hereto. 10.4 Protection of Agent - Notwithstanding anything to the contrary expressed or implied herein, the Agent shall not: (a) be bound to enquire as to: (i) whether any representation, warranty or statement made by the Borrower in or in connection with this Agreement or any document incidental hereto is true or correct; 70 - 65 - (ii) the occurrence or otherwise of any Event of Default; (iii) the performance or observance by the Borrower of its obligations under this Agreement or any document incidental hereto or to inspect the property or assets (including the books and records) of the Borrower or any of its Subsidiaries; (iv) any breach of or default by the Borrower of or under its obligations under this Agreement; or (v) the use or application by the Borrower of any of the proceeds of the Facility; (b) be bound to account to any Lender for any sum or the profit element of any sum received by it for its own account; (c) be bound to disclose to any Person any information relating to the Borrower if such disclosure would or might in its opinion constitute a breach of any law or regulation or be otherwise actionable at the suit of any Person; or (d) accept any responsibility for the accuracy and/or completeness of any information supplied by others in connection herewith or for the legality, validity, effectiveness, adequacy or enforceability of this Agreement, any Bankers' Acceptance, any Letter of Credit or any document incidental hereto or thereto and the Agent shall not be under any liability or responsibility as Agent to any Lender as a result of taking or omitting to take any action in relation to the Agreement, any Bankers' Acceptance, any Letter of Credit or any document incidental hereto or thereto save in the case of gross negligence or wilful misconduct, and each of the Lenders and the Borrower agree that it will not assert or seek to assert against any director, officer, employee or agent of the Agent any claim it might have against any of them in respect of the matters referred to in this Section. 10.5 Indemnification of Agent - Each of the Lenders agrees to indemnify the Agent (to the extent not reimbursed by the Borrower), ratably according to their respective Commitment Amounts, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Agent under this Agreement, or any of the transactions contemplated hereby, provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's own negligence or wilful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by such Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or any of the transactions contemplated hereby to the extent that the Agent is not reimbursed for the expenses by the Borrower. 71 - 66 - 10.6 Termination or Resignation of an Agent (a) Notwithstanding the irrevocable appointment of the Agent, the Majority Lenders may (with the consent of the Borrower, not to be unreasonably withheld), upon giving the Agent 90 days' prior written notice to such effect, terminate the Agent's appointment hereunder provided that a successor Agent has been appointed at or prior to the expiry of such notice. (b) The Agent may resign its appointment hereunder at any time without assigning any reason therefor upon giving 15 Business Day's prior written notice to such effect to each of the other parties hereto. Such resignation shall not be effective until a successor Agent has been appointed. (c) In the event of any such termination or resignation, the Majority Lenders shall appoint a successor Agent who shall be a Lender (who consents to such appointment) acceptable to the Borrower, acting reasonably. The retiring Agent shall deliver copies of the accounts to such successor and the retiring Agent shall be discharged from any further obligation hereunder accruing thereafter but shall remain entitled to the benefit of the provisions of this Section and the Agent's successor and each of the other parties hereto shall have the same rights and obligations among themselves as they would have had if such successor originally had been a Party hereto as Agent. (d) If no successor Agent has been appointed pursuant to the subsections above by the expiry of the required period of prior notice after the date such notice of resignation was given by the resigning Agent, the resigning Agent's resignation shall become effective and such of the Lenders as is designated by (and consents to such designation) the Borrower shall thereafter perform all the duties of the resigning Agent hereunder until such time, if any, as the Majority Lenders appoint a successor Agent as provided above. 10.7 Rights of the Agent as Lender - With respect to its Commitment, the Advances made by it, any Bankers' Acceptances accepted and purchased by it and any Letters of Credit issued by it, the Agent shall have the same rights, powers and obligations under this Agreement as any other Lender and may exercise the same as though it were not the Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include any Person serving as an Agent in its individual capacity. Any Person serving as an Agent and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower and any Person who may do business with or own securities of the Borrower, all as if such Person serving as the Agent were not the Agent and without any duty to account therefor to the Lenders. 10.8 Financial Information Concerning Gulf - Subject to subsection 10.3(a), the Agent shall not have any duty or responsibility either initially or on a continuing basis to provide any Lender with any credit or other information with respect to the financial condition and affairs of Gulf. 72 - 67 - 10.9 Knowledge of Financial Situation of the Borrower - Each Lender has itself been, and will continue to be, solely responsible for making its own independent appraisal of and investigations into the financial condition, creditworthiness, condition, affairs, status and nature of the Borrower. Accordingly, each Lender confirms with the Agent that it has not relied, and will not hereafter rely, on the Agent (i) to check or enquire on its behalf into the adequacy, accuracy or completeness of any information provided by the Borrower or any other Person under or in connection with this Agreement or the transactions hereby contemplated (whether or not such information has been or is hereafter distributed to such Lender by the Agent), or (ii) to assess to keep under review on its behalf the financial condition, creditworthiness, condition, affairs, status or nature of the Borrower. The Agent shall not be responsible to any Lender for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectability, priority or sufficiency of this Agreement or the financial condition of the Borrower or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement, or the financial condition of the Borrower or the existence or possible existence of any Event of Default or event of which would constitute an Event of Default with the giving of notice, the passing of time, or both. Each Lender acknowledges that a copy of this Agreement has been made available to it for review and each Lender acknowledges that it is satisfied with the form and substance of this Agreement. Each Lender hereby covenants and agrees that it will not make any arrangements with the Borrower for the satisfaction by the Borrower of any Advances without the consent of all the other Lenders. 10.10 Legal Proceedings (a) Each of the Lenders hereby acknowledges that, to the extent permitted by Applicable Law, the remedies provided hereunder to the Lenders are for the benefit of the Lenders collectively and acting together and not severally and further acknowledges that its rights hereunder are to be exercised not severally, but collectively by the Agent upon the decision of the Majority Lenders. Notwithstanding any of the provisions contained herein, each of the Lenders hereby covenants and agrees that it shall not be entitled to take any legal proceedings with respect to this Agreement, any Bankers' Acceptance or any Letter of Credit, but that any such legal proceeding shall be taken only by the Agent with the prior written agreement of the Majority Lenders provided that notwithstanding the foregoing, in the absence of instructions from the Lenders and where in the sole opinion of the Agent the exigencies of the situation warrant such action, the Agent may without notice to or consent of the Lenders take such action on behalf of the Lenders as it deems appropriate or desirable in the interests of the Lenders and provided that the Agent shall not be obligated to take any legal proceedings against the Borrower or any other Person for the recovery of any amount due under this Agreement or under any of the Bankers' Acceptances or Letters of Credit. Upon any such written consent being given by the Majority Lenders, each Lender shall cooperate fully with the Agent to the extent requested by the Agent in the collective realization. Each Lender shall do all acts and things to make, execute and deliver all agreements and other instrument, including, without limitation, any instruments necessary to effect any registrations, so as to fully carry out the intent and purpose of this Section. 73 - 68 - (b) Each of the Lenders shall not seek, take, accept or receive any security for any of the obligations and liabilities of the Borrower hereunder or under any other document, instrument, writing or agreement ancillary hereto other than such security as is provided hereunder or thereunder and shall not enter into any agreement with any of the parties hereto or thereto relating in any manner whatsoever to this Agreement (including, without limitation, any Bankers' Acceptances issued and purchased hereunder or any Letters of Credit issued hereunder), unless all of the Lenders shall at the same time obtain the benefit of any such security or agreement. 10.11 Capacity as Agent - In performing its functions and duties under this Agreement, the Agent shall act solely as the agent of the Lenders and shall not assume, and shall not be deemed to have assumed, any obligation as agent or trustee for the Borrower or any other Person. The Agent shall not be under any liability or responsibility of any kind to the Borrower, the Lenders or to any other Person arising out of or in relation to any failure or delay in performance or breach by any other Lender or Lenders or, as the case may be, the Borrower or any other Person pursuant to or in any way in connection with this Agreement. ARTICLE XI PAYMENT 11.1 Payments to Agent (a) All payments in Canadian Dollars to be made by the Borrower in connection with this Agreement or with a Bankers' Acceptance shall be made by the Borrower in funds having same day value to the Agent, for its own account or for the account of the Lenders, at its Toronto Main Branch, 1269 - 332, in the name of International Loan Operations (Central, Toronto) - the Gulf Agency Account, or at any other office or account in Toronto designated by the Agent. Any such payment shall be made on the date upon which such payment is due, in accordance with the terms hereof, no later than 11:00 a.m. (Calgary time). Any such payment shall be a good discharge, to the Borrower, for such payment and, if any such payment is for the account of the Lenders, the Agent shall hold the amount so paid "in trust" for the Lenders until distributed to them in accordance with this Agreement. (b) All payments in U.S. Dollars to be made by the Borrower in connection with this Agreement shall be made by the Borrower in immediately available funds to the Agent, for its own account or for the account of the Lenders, at the branch referred to in subsection 11.1(a), for Transit 2 Account No. 4637-654 in the name of International Loan Operations (Central, Toronto) - the Gulf Agency Account, or at any other office or account in Toronto designated by the Agent. Any such payment shall be made on the date upon which such payment is due, in accordance with the terms hereof, no later than 10:00 a.m. (Calgary time). Any such payment shall be a good discharge, to the Borrower for such payment and, if such 74 - 69 - payment is for the account of the Lenders, the Agent shall hold the amount so paid "in trust" for the Lenders until distributed to them in accordance with this Agreement. 11.2 Payments by Lenders to Agent (a) All payments in Canadian Dollars to be made by any Lender to the Agent in connection with Advances of the Borrower shall be made in immediately available funds to the Agent, for the Borrower's account (unless otherwise specified), at the branch, office or account mentioned in or designated under subsection 11.1(a) and no later than the time designated therein (unless another time is specified therefor elsewhere in this Agreement). (b) All payments in U.S. Dollars to be made by any Lender to the Agent in connection with Advances of the Borrower shall be made in immediately available funds to the Agent, for the Borrower's account (unless otherwise specified), at the branch, office or account mentioned in or designated under subsection 11.1(b) and no later than the time designated therein (unless another time is specified therefor elsewhere in this Agreement). 11.3 Payments by Agent to Borrower - Any payment received by the Agent for the account of the Borrower shall be paid in funds having same value to the Borrower by the Agent on the date of receipt, or if such date is not a Business Day, on the next Business Day, to such account(s) as the Borrower may designate. 11.4 No Set-Off or Counterclaim by Borrower - All payments by the Borrower shall be made free and clear of and without any deduction for or on account of any set-off or counterclaim. 11.5 Non-Receipt by Agent - Subject to Section 2.7, where a sum is to be paid hereunder to the Agent for the account of another Party hereto, the Agent shall not be obliged to make the same available to that other Party hereto until it has been able to establish that it has actually received such sum, but if it does pay out a sum and it proves to be the case that it had not actually received the sum it paid out, then the Party hereto to whom such sum was so made available shall, on request, ensure that the amount is refunded to the Agent and shall, on demand, indemnify the Agent against any cost or loss it may have suffered or incurred by reason of its having paid out such sum prior to its having received such sum. 11.6 When Due Date Not Specified - Whenever this Agreement does not provide a date when any amount payable hereunder shall be due and payable, such amount shall be due and payable on the third Business Day following written notice or demand for payment thereof by the Agent or any Lender, save that nothing hereinbefore provided shall in any way affect or alter the rights and remedies available to the Agent and any Lender under Article IX. 11.7 Agent's Authority to Debit - In respect of all amounts payable by the Borrower under this Agreement as interest, the Borrower hereby authorizes and instructs the Agent (provided that the Agent shall provide not less than 4 hours (occurring between 7:30 a.m. and 4:30 p.m. (Calgary time) on a Business Day) prior notice to the Borrower of the amount thereof) to debit, from time to 75 - 70 - time when such amounts are due and payable, the account or accounts designated pursuant to Section 11.1 or Section 11.3, as applicable, for the purpose of satisfying payment thereof. ARTICLE XII GENERAL 12.1 Costs and Expenses - The Borrower shall pay promptly all reasonable costs and expenses incurred by the Agent on its own behalf or on behalf of the Lenders in connection with preparation, printing, execution and delivery of each of this Agreement and the other documents to be delivered hereunder, whether or not any Drawdown has been made hereunder, including, without limitation, the fees and out-of-pocket expenses of Agent's counsel with respect thereto and with respect to advising each of the Agent on its own behalf or on behalf of the Lenders as to the rights and responsibilities hereunder and the other documents delivered hereunder. The Borrower further agrees to pay all costs and expenses incurred by the Agent on its own behalf or on behalf of the Lenders (including fees and expenses of counsel, accountants and other experts), in connection with any waiver or consent under, or amendment to, this Agreement, or the preservation or enforcement of rights of the Agent and the Lenders under this Agreement and other documents delivered hereunder including, without limitation, all reasonable costs and expenses sustained by each of the Agent and the Lenders as a result of any failure by the Borrower to perform or observe its obligations contained in any of such documents. 12.2 Indemnifications by the Borrower - (a) Failure to Complete Drawdown - In addition to any liability of the Borrower to the Agent or the Lenders under any other provision of this Agreement, the Borrower shall indemnify each of the Agent and the Lenders and hold each of them harmless against any reasonable loss (excluding loss of profit) or expense incurred thereby as a result of any failure by the Borrower to fulfil any of its obligations hereunder including, without limitation, any cost or expense incurred by reason of the liquidation or re-employment in whole or in part of deposits or other funds required by the Agent to fund any Drawdown as a result of: (i) the Borrower's failure to complete a Drawdown or to make any payment, repayment or prepayment on the date required hereunder or specified by it in any notice given hereunder; (ii) the Borrower's failure to pay any other amount, including without limitation any interest or fee, due hereunder on its due date; or (iii) the Borrower's failure to give any notice required to be given by it to the Agent or a Lender hereunder. 76 - 71 - (b) General Indemnity - In addition to any liability of the Borrower to the Agent or the Lenders under any other provisions of this Agreement, the Borrower shall, to the fullest extent permitted by Applicable Law, indemnify each of the Agent and the Lenders, and their respective officers, directors, employees, representatives, shareholders, agents and affiliates (as used in this Section each an "Indemnified Party") from, hold each of them harmless against and promptly upon written demand therefor pay or reimburse each of them for, any and all actions, suits, proceedings (including any investigations, litigation or inquiries), claims, demands, causes of action, costs, losses (excluding loss of profit), liabilities, damages or expense of any kind or nature whatsoever but excluding those based on gross negligence or wilful misconduct of such Indemnified Party (the "Indemnity Matters") which may be incurred by or asserted against or involve any of them (whether or not any of them is designated a party thereto) as a result of: (i) any actual or proposed use by the Borrower of the proceeds of any Advance; (ii) any transaction in which any proceeds of all or any part of a Drawdown is applied; or (iii) any Event of Default, including, without limitation, the reasonable fees and disbursements of counsel and all other expenses incurred in connection with investigating, defending or preparing to defend any such action, suit, proceeding (including any investigations, litigation or inquiries), claim, demand or cause of action; provided, that prior to the occurrence of an Event of Default, the Borrower shall only be obligated to pay the reasonable fees and disbursements of counsel engaged by the Agent to represent all of the Agent and the Lenders. Subject to the proviso in the preceding sentence, the Borrower shall be obligated to pay or reimburse each Indemnified Party for all out-of-pocket costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) incurred by such Indemnified Party in the defense of any claims arising out of any Indemnity Matter at the time such costs and expenses are incurred and such Indemnified Party has given the Borrower written notice thereof. (c) Contribution - If and to the extent that the foregoing indemnities 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 described which is permissible under Applicable Law. (d) Survival of Indemnity - The foregoing indemnities and the indemnity set forth in Section 8.2 shall survive the termination of this Agreement, the consummation of the transactions contemplated by this Agreement, the repayment of the Facility, the invalidity or unenforceability of any term or provision of this Agreement, or any other document, any investigation made on behalf of the Agents or the Lenders and the content or accuracy of any representation or warranty made by the Borrower or any Subsidiary under this Agreement. 12.3 Funds - Each amount advanced, made available, disbursed or paid hereunder shall be advanced, made available, disbursed or paid, as the case may be, in immediately available funds or, after notice from the Agent, in such other form of funds as may from time to time be customarily used in Toronto, Canada in the settlement of banking transactions similar to the banking transactions required to give effect to the provisions of this Agreement on the day such advance, disbursement or payment is to be made. 77 - 72 - 12.4 Notice - Any demand, notice or communication to be made or given hereunder shall be in writing, except as otherwise expressly permitted or required under this Agreement, and may be made or given by personal delivery or by facsimile machine addressed to the respective Parties as follows: to the Borrower: Gulf Canada Resources Limited 401 - 9th Avenue S.W. Calgary, Alberta T2P 2H7 Attention: Treasury Phone: (403) 233-4000 Fax: (403) 233-5500 with copy to: Gulf Canada Resources Limited One Norwest Center, 1700 Lincoln, Suite 5000 Denver, Colorado 80203-4525 Attention: Treasurer Phone: (303) 813-3820 Fax: (303) 813-3900 78 - 73 - to the Agent: Bank of Montreal Loan Agency Services After Sales 22nd Floor 1 First Canadian Place Toronto, Ontario M5X 1A1 Attention: Manager, Loan Agency Services Tel No. (416) 867-5612 Fax No. (416) 867-5718 to the Lenders as set forth in Schedule A or to such other delivery or facsimile machine address as any Party may from time to time notify the others in accordance with this Section. Any demand, notice or communication made or given by personal delivery shall be conclusively deemed to have been given on the day of actual delivery thereof, or, if given by facsimile transmission, on the first Business Day following the transmittal thereof. 12.5 Governing Law - This Agreement shall be conclusively deemed to be a contract made under, and shall for all purposes be governed by and construed in accordance with, the laws of the Province of Alberta, Canada, without prejudice to or limitation of any other rights or remedies available under the laws of any jurisdiction where property or assets of the Borrower may be situate. 12.6 Judgment Currency - If for the purposes of obtaining judgment in any court in any jurisdiction with respect to this Agreement it becomes necessary to convert into the currency of such jurisdiction (herein called the "Judgment Currency") any amount due hereunder in any currency other than the Judgment Currency, then such conversion shall be made at the exchange rate (which shall, in respect of any conversion of U.S. Dollars to Cdn. Dollars or vice versa, be the Exchange Rate) prevailing on the Business Day before the day on which judgment is given. In the event that there is a change in such exchange rate prevailing between the Business Day before the day on which the judgment is given and the date of payment of the amount due, the Borrower shall, on the date of payment, pay such additional or lesser amounts (if any) as may be necessary to ensure that the amount paid on such date is the amount in the Judgment Currency which when converted at such exchange rate prevailing on the date of payment is the amount then due under this Agreement in such other currency. Any additional amount due from the Borrower under this Section shall be due as a separate debt and shall not be affected by judgment being obtained for any other sums due under or in respect of this Agreement. 79 - 74 - 12.7 Amendments, Etc. - No amendment or waiver of any provision of this Agreement, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, do any of the following: (a) increase the Commitments or the Commitment Amounts of the Lenders or subject the Lenders to any obligations in addition to those set out in this Agreement; (b) reduce the principal of any outstanding Loans, or the rate of interest or fees on any of the Loans or any fees or other amounts payable hereunder; (c) postpone any date fixed for any payment of principal of, or interest or fees in respect of, any Loans or any fees or other amounts payable hereunder; (d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans which shall be required for the Lenders to take any action under this Agreement (including, without limitation, the definition of Majority Lenders); (e) change any currency or mode of calculation or computation of any payment required hereunder; (f) amend this Section 12.7 or subsection 8.1(l); or (g) amend, release or waive or consent to any departure from any matter stated to require approval or consent of all the Lenders. Except as otherwise specifically provided herein, the Lenders shall use reasonable good faith efforts to respond to any written request by the Borrower for permission to take any action which is or may be prohibited under this Section within 20 Business Days of receipt thereof. 12.8 Severability - Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall not invalidate the remaining provisions of this Agreement and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provisions in any other jurisdiction. 12.9 Whole Agreement - This Agreement constitutes the whole and entire agreement between the Parties relating to the subject matter of this Agreement, and cancels and supersedes any prior agreements, undertakings, declarations, commitments and representations, written or oral, in respect thereof including, without limitation, the commitment letter dated June 13, 1997 sent by the Agent and accepted by the Borrower on June 16, 1997. 12.10 Binding Effect; Assignments (a) Successors and Assigns - This Agreement shall become effective on the date hereof and thereafter shall be binding upon and inure to the benefit of and be enforceable by the Borrower, the Agent and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein except to a Successor pursuant to Section 8.4. No Lender may participate, assign or sell any of its rights or obligations hereunder except as required by operation of law in connection with the merger, consolidation or dissolution of any Lender or as provided in this Section. (b) Assignments - Each Lender may, at its own cost, in accordance with Applicable Law and with the consent of the Borrower and the Agent (which consent shall not be unreasonably withheld by either of them) assign to any Eligible Lender, all or any part of the 80 - 75 - Loans owing to such Lender and any such Lender's continuing obligations with respect to this Agreement (including any Bankers' Acceptances), and all or any part of such Lender's Commitment (which assignment shall be of a constant, and not of a varying, percentage of all of the assigning Lender's Advances and Commitment) and to the extent of any such assignment the assignee shall, to the fullest extent permitted by law, have the same rights and benefits hereunder and the same continuing obligations as it would have if it were such Lender hereunder; provided, however that (i) the Agent and the Borrower shall be entitled to continue to deal solely and directly with the assignor Lender in connection with the interests so assigned unless and until such assignee becomes a Lender pursuant to a Bank Transfer Agreement substantially in the form set forth in Schedule G; (ii) any transfer of less than all of any Lender's Advances and Commitment shall be in an aggregate amount not less than U.S. $10,000,000, and (iii) immediately after any transfer of less than all of a Lender's rights in respect of the Loans owing to such Lender and all of its Commitment such assignor Lender shall retain Loans and Commitment of not less than U.S. $10,000,000 and provided further that no assignee or transferee shall be entitled to receive pursuant to such assignment or transfer more than the amounts which would otherwise have been payable by the Borrower to such Lender, had such assignment or transfer not been made, in respect of the rights, benefits and/or obligations so assigned or transferred. For greater certainty, the Borrower shall not be obligated to pay to any such assignee or transferee any amount(s) pursuant to this Agreement which is (are) greater than the amount(s), if any, which the Borrower would otherwise have been obligated to pay to the Lender (whose rights, benefits and/or obligations have been so assigned to such assignee or transferee) had such assignment or transfer not have been made. Upon (1) such execution of such Bank Transfer Agreement, (2) delivery of an executed copy thereof to each of the Borrower and the Agent, (3) payment of a recording fee in the amount of U.S. $2,500 by such transferor Lender or assignee Lender to the Agent, and (4) payment by such assignee Lender to such transferor Lender of an amount equal to the purchase price agreed between such transferor Lender and such assignee Lender to the Agent, such transferor Lender shall be released from any further obligations hereunder accruing thereafter to the extent of such assignment and such assignee Lender shall for all purposes be a Lender party to this Agreement and shall have all the rights and obligations of a Lender under this Agreement to the same extent as if it were an original Party hereto, and no further consent or action by the Borrower, the Lenders or the Agent shall be required. Such Bank Transfer Agreement shall be deemed to amend this Agreement and the Agent shall amend Schedule A hereto, to the extent, and only to the extent, necessary to reflect the addition of such assignee Lender as a Lender and the resulting adjustment of the Commitments arising from the purchase by such assignee Lender of all or a portion of the Advances and Commitment of such transferor Lender. (c) No Lender may make any such assignment or transfer, or take any action or steps to attempt to do so, until after October 18, 1997. 12.11 Participations - With the approval of the Borrower, not to be unreasonably withheld, any Lender may at any time sell to one or more financial institutions (each, a "Participant") 81 - 76 - participating interests in any of the Loans, Commitments, or other interests of such Lender hereunder; provided, however, that: (a) no participation contemplated in this Section 12.11 shall relieve such Lender from its Commitments or its other obligations hereunder or under any other agreement or document contemplated herein; (b) such Lender shall remain solely responsible for the performance of its Commitments and such other obligations; (c) the Borrower and the Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and each of the other Loan Documents; (d) each Participant shall, for the purposes of Sections 9.4, 10.10, 12.1 and 12.2 hereof, be deemed to be a Lender hereunder and entitled to the benefit of the provisions of such Sections to the same extent as the relevant Lender; (e) no Participant shall be entitled to direct the voting of the relevant Lender in respect of any matter requiring the consent, waiver or approval of the Majority Lenders, but shall be entitled to vote in respect of any matter requiring the consent, waiver or approval of all Lenders; (f) such Participant is an Eligible Lender; and (g) no participating interest shall be in an aggregate amount of less than U.S. $10,000,000. 12.12 Further Assurances - Each of the Borrower, the Agent and the Lenders shall promptly cure any default or defect by it in the execution and delivery of this Agreement. The Borrower, at its expense, shall promptly execute and deliver to the Agent, upon request by the Agent, all such other and further documents, agreements, opinions, certificates and other instruments in compliance with, or accomplishment of its covenants and agreements hereunder or to more fully state its obligations as set out herein or to make any recording, filing or notice or obtain any consent, all as may be reasonably necessary or appropriate in connection therewith. 82 - 77 - 12.13 Counterparts - This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which taken together shall be deemed to constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. IN WITNESS WHEREOF the Parties have executed this Agreement as of the date first written above. GULF CANADA RESOURCES LIMITED By: -------------------------- Name: Title: By: -------------------------- Name: Title: BANK OF MONTREAL, AS AGENT By: -------------------------- Richard Miller Director 83 SCHEDULE A LENDERS
NAME AND LENDING OFFICE OF LENDER COMMITMENT AMOUNT EXECUTION - -------------------------- ----------------- --------- Bank of Montreal U.S. $91,000,000 Bank of Montreal First Canadian Centre 350 - 7th Avenue S.W. By: 24th Floor ------------------------------------- Calgary, Alberta Name: T2P 3N9 Title: By: ------------------------------------- Name: Title: ABN Amro Bank Canada U.S. $77,000,000 ABN Amro Bank Canada Suite 2500 650 West Georgia Street By: Vancouver, British Columbia ------------------------------------- V6B 4N8 Name: Title: By: ------------------------------------- Name: Title: Bank of America Canada U.S. $77,000,000 Bank of America Canada Suite 1900 855 Second Street, S.W. By: Calgary, Alberta ------------------------------------- T2P 4J7 Name: Title: By: ------------------------------------- Name: Title: The Chase Manhattan Bank of U.S. $77,000,000 The Chase Manhattan Bank of Canada Canada 1 First Canadian Place By: 100 King Street ------------------------------------- Suite 6900 Name: Toronto, Ontario Title: M5X 1A4 By: ------------------------------------- Name: Title:
84 -2-
NAME AND LENDING OFFICE OF LENDER COMMITMENT AMOUNT EXECUTION - -------------------------- ----------------- --------- Royal Bank of Canada U.S. $77,000,000 Royal Bank of Canada 23rd Floor 335 - 8th Avenue S.W. By: Calgary, Alberta ------------------------------------- T2P 1C9 Name: Title: By: ------------------------------------- Name: Title: The Toronto-Dominion Bank U.S. $77,000,000 The Toronto-Dominion Bank Suite 800 Home Oil Tower By: 324 8th Avenue S.W. ------------------------------------- Calgary, Alberta Name: T2P 2Z2 Title: By: ------------------------------------- Name: Title: Bank of Tokyo - Mitsubishi U.S. $42,000,000 Bank of Tokyo - Mitsubishi (Canada) (Canada) Suite 2410 By: 666 Burrard Street ------------------------------------- Vancouver, British Columbia Name: V6C 3L1 Title: By: ------------------------------------- Name: Title: Credit Lyonnais Canada U.S. $42,000,000 Credit Lyonnais Canada Suite 2050 300 5th Avenue, S.W. By: Calgary, Alberta ------------------------------------- T2P 3C4 Name: Title: By: ------------------------------------- Name: Title: Societe Generale (Canada) U.S. $42,000,000 Societe Generale (Canada) 100 Yonge Street Suite 1002 By: Toronto, Ontario ------------------------------------- M5C 2W1 Name: Title: By: ------------------------------------- Name: Title:
85 -3-
NAME AND LENDING OFFICE OF LENDER COMMITMENT AMOUNT EXECUTION - -------------------------- ----------------- --------- Hongkong Bank of Canada U.S. $24,500,000 Hongkong Bank of Canada 777 8th Avenue, S.W. Calgary, Alberta By: T2P 3R5 ------------------------------------- Name: Title: By: ------------------------------------- Name: Title: The Industrial Bank of Japan U.S. $24,500,000 The Industrial Bank of Japan (Canada) (Canada) Suite 1220 By: 666 Burrard Street ------------------------------------- Vancouver, British Columbia Name: V6C 2X8 Title: By: ------------------------------------- Name: Title: JP Morgan Canada U.S. $24,500,000 JP Morgan Canada South Tower, Royal Bank Plaza Suite 1800 By: Toronto, Ontario ------------------------------------- M5J 2J2 Name: Title: By: ------------------------------------- Name: Title: Paribas Bank of Canada U.S. $24,500,000 Paribas Bank of Canada Royal Trust Tower Suite 4100, P.O. Box 31 By: Toronto-Dominion Centre ------------------------------------- Toronto, Ontario Name: M5K 2N8 Title: By: ------------------------------------- Name: Title:
86 SCHEDULE B COMPLIANCE CERTIFICATE TO: [LIST LENDERS] and Bank of Montreal, as Agent - -------------------------------------------------------------------------------- This Certificate of Compliance is given pursuant to the terms of the loan agreement (the "Loan Agreement") dated July 18, 1997 between the Lenders named therein, the Agent and Gulf Canada Resources Limited with respect to the Fiscal Quarter ended ________________________. Unless otherwise defined herein or the context otherwise requires, all terms used in this Certificate of Compliance shall have the same meaning herein as in the Loan Agreement. The undersigned hereby certifies, on behalf of the Borrower, that: 1. the representations and warranties of the undersigned contained in subsections 7.1(a), (c), (d), (e), (g) and (p) of the Loan Agreement are true and correct on and as of the date hereof as though made on and as of the date hereof; 2. all of the covenants of the undersigned contained in the Loan Agreement together with all of the conditions precedent to a Drawdown (if applicable) and all other terms and conditions contained in the Loan Agreement have been fully complied with; 3. no Event of Default has occurred and remains outstanding and to the best of the knowledge, information and belief of the undersigned (after due enquiry), no event has occurred and is continuing which with the passing of time, the giving of notice or both, would constitute an Event of Default; 4. as of [INSERT DATE OF END OF FISCAL QUARTER]: (a) Equity of Gulf Cdn.$ ------------------------- (b) Tangible Net Worth of Gulf Cdn.$ ------------------------- (c) Minimum Tangible Net Worth Cdn.$ ------------------------- (d) Total Senior Debt Cdn.$ ------------------------- (e) Cumulative Restricted EBITDA Cdn.$ ------------------------- (f) Acquisition EBITDA Cdn.$ ------------------------- (g) Disposition EBITDA Cdn.$ ------------------------- 87 -2- (h) Total Senior Debt ---------------------------------------- (Cumulative ) (Restricted + Acquisition - Disposition) = ----------------- ( EDITDA EBITDA EBITDA ) (i) The Senior Debt rating assigned by: (i) Standard & Poor's ------------------------- (ii) Moody's ------------------------- (iii) DBRS ------------------------- (iv) CBRS ------------------------- The undersigned hereby certifies, on behalf of the Borrower, that: 1. set forth in Exhibit I hereto are the names of all of the Unrestricted Subsidiaries (excepting only Subsidiaries of Unrestricted Subsidiaries) as of [INSERT DATE OF END OF FISCAL QUARTER] together with, in parenthesis, the paragraph of the definition of "Unrestricted Subsidiaries" set forth in the Loan Agreement pursuant to which such Subsidiary constitutes an Unrestricted Subsidiary; 2. set forth in Exhibit II hereto are the names of all of the Restricted Subsidiaries as of [INSERT DATE OF END OF FISCAL QUARTER]; 3. the aggregate of the Transaction Prices for assets acquired from and including the first day of the Previous Four Fiscal Quarters was $_______________; 4. the aggregate of the Transaction Prices for assets disposed of from and including the first day of the Previous Four Fiscal Quarters was $_________________________. DATED the __ day of ___, 199_. GULF CANADA RESOURCES LIMITED By: ------------------------- Name: Title: 88 SCHEDULE C DRAWDOWN NOTICE TO: Bank of Montreal (the "Agent") FROM: Gulf Canada Resources Limited (the "Borrower") - -------------------------------------------------------------------------------- This Drawdown Notice is given pursuant to the terms of the loan agreement (the "Loan Agreement") dated July 18, 1997 between the Lenders named therein, the Agent and the Borrower. Unless otherwise defined herein or the context otherwise requires, all terms used in this Drawdown Notice shall have the same meaning herein as in the Loan Agreement. Notice is hereby given pursuant to the provisions of Section 2.4 of the Loan Agreement that the Borrower requests a Drawdown or Drawdowns as follows: Borrowing: - --------- First Drawdown: Date of Drawdown: Currency: ------------------------- Amount: ------------------------- Drawdown Type: ------------------------- Libor Interest Period (in months): [IF APPLICABLE] Bankers' Acceptance Term (in days): [IF APPLICABLE] Bankers' Acceptance Maturity Date: [IF APPLICABLE] Conversion: - ---------- Pursuant to subsection 2.11 ([DESIGNATE SUBSECTION]) to convert on [INSERT DATE OF CONVERSION] the amount of $ [SPECIFY CURRENCY] [SPECIFY AMOUNT] of a [SPECIFY TYPE] Drawdown into: ------------------------- Drawdown Type: ------------------------- Libor Interest Period (in months): [IF APPLICABLE] Bankers' Acceptance Term (in days): [IF APPLICABLE] Bankers' Acceptance Maturity Date: [IF APPLICABLE] 89 -2- Rollover: - -------- Pursuant to Section 2.12, to rollover on [INSERT DATE OF ROLLOVER] the [LIBOR DRAWDOWN/BANKERS' ACCEPTANCE] as follows: Amount ------------------------- Currency (if Bankers' Acceptance): ------------------------- Libor Interest Period (in months): [IF APPLICABLE] Bankers' Acceptance Term (in days): [IF APPLICABLE] Bankers' Acceptance Maturity Date: [IF APPLICABLE] into a [LIBOR DRAWDOWN/BANKERS' ACCEPTANCE] as follows: Amount: ------------------------- Currency (if Bankers' Acceptance): ------------------------- Libor Interest Period (in months): [IF APPLICABLE] Bankers' Acceptance Term (in days): [IF APPLICABLE] Bankers' Acceptance Maturity Date: [IF APPLICABLE] [ADDITIONAL DRAWDOWNS IN SAME FORM AS REQUIRED] The undersigned hereby certifies, on behalf of the Borrower, that: 1. the representations and warranties of the Borrower contained in subsections 7.1 (a), (c), (d), (e), (g) and (p) of the Loan Agreement are true and correct on and as of the date of this Drawdown Notice as though made on and as of the date of this Drawdown Notice; 2. all of the covenants of the Borrower contained in the Loan Agreement together with all of the conditions precedent to a Drawdown and all other terms and conditions contained in the Loan Agreement have been fully complied with [EXCEPT AS SET FORTH IN EXHIBIT I]; and 3. no Event of Default has occurred and remains outstanding and (other than in the case of a Conversion or Rollover, provided, that in the case of a Conversion or Rollover into a Bankers' Acceptance Drawdown or Libon Drawdown, the maturity date or period shall not extend beyond the earliest date upon which it would constitute an Event of Default) to the best of the knowledge, information and belief of the undersigned (after due enquiry), no event has occurred 90 -3- and is continuing which with the giving of notice, the passing of time or both, would constitute an Event of Default. DATED the ___ day of ___, 199___. GULF CANADA RESOURCES LIMITED By: ------------------------- Name: Title: 91 SCHEDULE D BANKERS' ACCEPTANCE UNDERTAKING To: [LIST LENDERS] (individually a "Lender" and collectively, the "Lenders") - -------------------------------------------------------------------------------- Dear Sirs: In consideration of ten dollars ($10) now paid by each Party to the other (the receipt and sufficiency of which are hereby acknowledged) and in consideration of the Lender delivering from time to time to the undersigned (the "Borrower") bankers' acceptance forms in blank or discount note forms in blank (collectively the "bankers' acceptance forms") to be signed by the Borrower and subsequently returned to the Lender to be completed by such Lender for such amounts as the Borrower may from time to time request pursuant to the terms of the loan agreement dated as of July 18, 1997 between the Borrower, the Lenders as named therein and Bank of Montreal, as the Agent, as amended from time to time (the "Loan Agreement"), the parties hereto hereby agree as follows: 1. The Borrower shall hold and use prudently the bankers' acceptance forms delivered to it in blank from time to time and shall return them from time to time to the Lender, properly pre-signed and pre-endorsed and in sufficient quantities to be dealt with by each Lender in conformity with the Loan Agreement and this Agreement. The Lender shall provide to the Borrower written acknowledgement of the receipt of such pre-signed and pre- endorsed bankers' acceptance forms. 2. The Lender shall deal prudently with any bankers' acceptance forms pre- signed and pre-endorsed by the Borrower and delivered from time to time by the Borrower and shall use them only in accordance with the instructions of the Borrower given to the Agent and in turn by the Agent to the Lender, in conformity with the Loan Agreement. 3. In accordance with the instructions given from time to time by the Borrower, the Lender is hereby authorized to complete the aforementioned bankers' acceptance forms and, in the case of any such bankers' acceptance form which, upon purchase by a Bank, constitutes a Bankers Acceptance, to provide its acceptance thereon, the whole as provided in and subject to the Loan Agreement. 4. Except as provided in paragraph 5 below, the Borrower shall pay on demand to the Agent for the account of each Lender at the Payment Office the face amount of any bankers' acceptance form subsequently presented to such Lender for payment and paid by such Lender or held by such Lender at maturity, that has been unlawfully issued or used or put into circulation fraudulently or without authority, and shall indemnify such Lender against any loss, cost, damage, expense or claim regardless of by whomsoever made, that such Lender may suffer or incur by reason of any fraudulent, unauthorized or unlawful issue or use of any such bankers' acceptance form. 92 -2- 5. The provisions of paragraph 4 shall not apply in respect of any fraudulent, unauthorized or unlawful issue or use of any such bankers' acceptance form which is caused by the negligence or wilful act or omission of the Agent or a Lender or any of their respective officers, employees, agents or representatives or which occurs as a result of the Agent or a Lender or any of their respective officers, employees, agents or representatives failing to use the same standard of care in the custody of such bankers' acceptance form as it uses in the custody of its own property of a similar nature. 6. Neither the Agent nor any Lender shall be responsible or liable for any failure to make credit available by way of Bankers' Acceptances under the terms of the Loan Agreement if such failure is due to the failure of the Borrower to return duly pre-signed and (in the case of bankers' acceptances) pre-endorsed bankers' acceptance forms to the Lender on a timely basis following a request by the Lender. 7. On request by the Agent on behalf of the Lenders, the Borrower shall return to the Lenders all bankers' acceptance forms then held by the Borrower, provided that all such bankers' acceptance forms which have been pre-signed or pre-endorsed by the Borrower may be cancelled prior to their return. 8. On request by the Borrower made to the Agent, a Lender shall return all pre-signed or pre-endorsed bankers' acceptance forms held by such Lender and not yet issued in accordance with the Borrower's instructions. 93 -3- Unless otherwise defined herein or the context otherwise requires, all terms used herein shall have the same meaning herein as in the Loan Agreement. This Agreement shall benefit not only the parties hereto but also all other Persons which may, from time to time, become Lenders in accordance with the provisions of the Loan Agreement and, as such, are to receive bankers' acceptance forms. Dated at Calgary, Alberta as of the __ day of ___, 1997. GULF CANADA RESOURCES LIMITED By: ------------------------- Name: Title: c/s By: ------------------------- Name: Title: Accepted at Calgary, Alberta as of the ___ day of ___, 1997. BANK OF MONTREAL By: ------------------------- Name: Title: (other signature pages depend on Lenders) 94 SCHEDULE E EXTENSION AGREEMENT THIS EXTENSION AGREEMENT (the "Agreement"), dated as of __, 199_, is among GULF CANADA RESOURCES LIMITED (the "Borrower"); each of the banks Party to the hereinafter referenced Loan Agreement who have executed this Agreement below (the "Lenders"); and BANK OF MONTREAL, as agent (in such capacity, together with its successors and assigns in such capacity, the "Agent"). RECITALS: A. The Borrower, the Agent and the Lenders have entered into that certain loan agreement dated July 18, 1997 (as such may be amended, supplemented, restated or otherwise modified from time to time, the "Loan Agreement"). Unless otherwise defined herein or the context otherwise requires, all terms used herein shall have the same meaning herein as in the Loan Agreement); B. The current Term Out Date in respect of the Lenders is _______ (the "Current Term Out Date"). Pursuant to Section 2.1 of the Loan Agreement, the Borrower has requested that the Lenders extend the Term Out Date until that certain date which is _______________ [INSERT DATE OR NUMBER OF DAYS, IN EITHER CASE, NOT IN EXCESS OF 364 DAYS FROM THE DATE OF CONFIRMATION]; C. Subject to the conditions set forth herein, the undersigned Lenders have agreed to such extension; NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. The Borrower hereby represents and warrants that the representations and warranties contained in subsections 7.1(a), (c), (d), (e), (g) and (p) of the Loan Agreement are true and correct on and as of the date hereof as though made on and as of the date hereof and no Event of Default has occurred and remains outstanding and to the best of the knowledge, information and belief of the undersigned (after due enquiry) on behalf of the Borrower, no event has occurred and is continuing which, with the giving of notice, the passing of time or both, would constitute an Event of Default. 2. Subject to the conditions that the representations and warranties set forth in Section 1 above are true and correct on the date hereof, the Term Out Date is hereby extended pursuant to Section 2.1 of the Loan Agreement with respect to the Commitments of the Lenders to the [INSERT DATE OR NUMBER OF DAYS, IN EITHER CASE, NOT IN EXCESS OF 364 DAYS FOLLOWING THE DATE OF CONFIRMATION]. 95 -2- 3. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original and all of which together shall constitute but one and the same agreement. EXECUTED as of the date first written above. BORROWER: GULF CANADA RESOURCES LIMITED By: ------------------------- Name: Title: By: ------------------------- Name: Title: AGENT AND LENDERS: BANK OF MONTREAL, individually as a Lender and as Agent By: ------------------------- Name: Title: By: ------------------------- Name: Title: [LENDERS EXECUTIONS TO BE ADDED] 96 SCHEDULE F EXTENSION REQUEST TO: [LIST LENDERS] and Bank of Montreal, as Agent - -------------------------------------------------------------------------------- This Extension Request is given pursuant to the terms of the loan agreement (the "Loan Agreement") dated July 18, 1997 between the Lenders named therein, the Agent and Gulf Canada Resources Limited. Unless otherwise defined herein or the context otherwise requires, all terms used in this Extension Request shall have the same meaning herein as in the Loan Agreement. The current Term Out Date in respect of the Lenders listed below is _____, 199_ (the "Current Term Out Date"). Pursuant to Section 2.1 of the Loan Agreement, the Borrower hereby requests that such Lenders (the "Revolving Lenders") extend the Term Out Date until that certain date which is ____ [INSERT DATE OR NUMBER OF DAYS, IN EITHER CASE, NOT IN EXCESS OF 364 DAYS FROM THE DATE OF CONFIRMATION IN RESPECT OF THIS EXTENSION REQUEST]. Attached hereto are three copies of an Extension Agreement relating to the subject matter hereof duly completed and executed by the Borrower and a report prepared by [DESIGNATE QUALIFIED ENGINEERS PROVIDING REPORT] with respect to the proved and probable reserves attributable to the petroleum and natural gas interests of Gulf (excluding Unrestricted Subsidiaries) as of [DATE TO BE NOT EARLIER THAN THE END OF THE LAST FINANCIAL YEAR OF THE BORROWER PRECEDING THE DATE HEREOF]. The undersigned hereby certifies, on behalf of the Borrower, that: (a) the representations and warranties contained in subsections 7.1(a), (c), (d), (e), (g) and (p) of the Loan Agreement are true and correct on and as of the date hereof as though made on and as of the date hereof; (b) all of the covenants of the undersigned contained in the Loan Agreement and all other terms and conditions contained in the Loan Agreement have been fully complied with, [EXCEPT AS SET FORTH IN EXHIBIT I]; and 97 -2- (c) no Event of Default has occurred and remains outstanding and to the best of the knowledge, information and belief of the undersigned, no event has occurred and is continuing which with the passing of time, the giving of notice or both, would constitute an Event of Default. DATED the __ day of ___, 199_. GULF CANADA RESOURCES LIMITED By: ------------------------- Name: Title: 98 SCHEDULE G BANK TRANSFER AGREEMENT To: Gulf Canada Resources Limited To: Bank of Montreal, as the Agent - -------------------------------------------------------------------------------- This Agreement is entered into pursuant to Section 12.10 of the loan agreement dated as of July 18, 1997 (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Loan Agreement") among Gulf Canada Resources Limited (the "Borrower"); the various financial institutions (the "Lenders") as are, or shall from time to time become, parties thereto and Bank of Montreal, as agent, (the "Agent"). Unless otherwise defined herein or the context otherwise requires, and terms used herein have the same meaning herein as in the Loan Agreement. This Agreement constitutes notice to each of you of the assignment and delegation to __ (the "Assignee") of __% of the Advances and Commitment of __ (the "Assignor") outstanding under the Loan Agreement on the date hereof. After giving effect to the foregoing assignment and delegation, the Assignor's and the other Lenders' Commitment Amounts for the purposes of the Loan Agreement are as set forth opposite such Person's name on the signature pages hereof. [ADD PARAGRAPH DEALING WITH ACCRUED INTEREST AND FEES WITH RESPECT TO ADVANCES ASSIGNED.] The Assignee hereby acknowledges and confirms that it has received a copy of the Loan Agreement, together with copies of the documents which were required to be delivered under the Loan Agreement as a condition to the making of the Advances thereunder. The Assignee further confirms and agrees that in becoming a Lender and in making its Commitment and Advances under the Loan Agreement, such actions have and will be made without recourse to, or representation or warranty by Agent. Except as otherwise provided in the Loan Agreement, effective as of the date of acceptance hereof by the Agent: (a) the Assignee (i) shall be deemed automatically to have become a party to the Loan Agreement, have all the rights and obligations of a "Lender" under the Loan Agreement as if it were an original signatory thereto to the extent specified in the second paragraph hereof; and (ii) agrees to be bound by the terms and conditions set forth in the Loan Agreement as if it were an original signatory thereto; and 99 -2- (b) the Assignor shall be released from any further obligations under the Loan Agreement accruing thereafter to the extent specified in the second paragraph hereof. The Assignee hereby advises each of you of the following administrative details with respect to the assigned Advances and Commitment and requests the Borrower, by its signature below, to acknowledge its consent to the assignment and transfer set forth herein and further requests the Agent and the Borrower to acknowledge receipt of this document: (a) Address for Notices: Institution Name: Attention: Lending Office: Telephone: Facsimile: (b) Payment Instructions: This Agreement may be executed by the Assignor and Assignee in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Adjusted Commitment Amount [ASSIGNOR] - -------------------------- Unused Commitment __ Advances $__ Commitment Amount $__ By: ------------------------- Title: Commitment Amount [ASSIGNEE] - ----------------- 100 -3- Unused Commitment $ ------------------------ Advances $ ------------------------ Commitment Amount $ ------------------------ By: ------------------------- Title: Accepted and acknowledged this __ day of ___, 199_. BANK OF MONTREAL as Agent By: ------------------------- Title: GULF CANADA RESOURCES LIMITED By: ------------------------- Title: By: ------------------------- Title: 101 SCHEDULE H BORROWER'S COUNSEL'S OPINION [LETTERHEAD OF BENNETT JONES VERCHERE] July 18, 1997 Bank of Montreal Osler, Hoskin & Harcourt Corporate and Institutional Suite 1900 Financial Services Toronto Dominion Square 350 - 7th Ave. S.W., 24th Floor 333 - 7th Avenue S.W. Calgary, Alberta Calgary, Alberta T2P 3N9 T2P 2Z1 And to the Lenders listed in Schedule A of Loan Agreement Dear Sirs/Mesdames: RE: LOAN AGREEMENT MADE AS OF JULY 18, 1997 BETWEEN GULF CANADA RESOURCES LIMITED, THE LENDERS NAMED THEREIN AND BANK OF MONTREAL, AS AGENT FOR THE LENDERS We have acted as counsel to Gulf Canada Resources Limited (the "Borrower") in connection with a loan agreement made as of July 18, 1997 (the "Loan Agreement") between the Borrower, the Lenders listed in Schedule A thereto (the "Lenders") and Bank of Montreal, as agent for the Lenders (the "Agent") which provides a credit facility to the Borrower. All capitalized terms used in this opinion letter shall, unless otherwise defined in this opinion letter, have the meanings ascribed to them in the Loan Agreement. In connection with the opinions expressed in this letter we have considered such questions of law and examined such public and corporate records, certificates and other documents and conducted such other examinations as we have considered necessary. In such examinations we have assumed the legal capacity of all individuals, the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity to authentic original documents of all documents submitted to us as certified, conformed, photostatic or facsimile copies. 102 Page 2 The law covered by the opinions expressed in this letter is limited to the laws of the Province of Alberta and the laws of Canada applicable therein. On the basis of the foregoing, and subject to the qualifications herein expressed, we are of the opinion that: I The Borrower is a body corporate incorporated under the Canada Business Corporations Act. II The Borrower has all necessary corporate power and capacity to enter into the Loan Agreement and to perform its obligations thereunder. III The execution and delivery of the Loan Agreement and the consummation of the transactions contemplated therein have been duly authorized by all necessary corporate action on the part of the Borrower. IV The Loan Agreement has been duly executed and delivered by the Borrower and is a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms. V The Borrower is not a party to, bound or affected by or subject to any provision in its articles or by-laws, or any statutory law or regulation, which is violated, contravened or breached by, or under which any default occurs, as a result of the execution, delivery and performance by it of the Loan Agreement. VI The indebtedness of the Borrower to the Lenders under the Loan Agreement constitutes Senior Indebtedness as defined in the Indenture dated as of January 27, 1994 made between the Borrower and The Bank of New York, as Trustee, and the Indenture dated as of July 5, 1995 made between the Borrower and The Bank of New York, as Trustee, (collectively, the "Subordinated Indentures") relating to the issuance of subordinated debentures, provided that such indebtedness of the Borrower to the Lender is not incurred in violation of the provisions of the Subordinated Indentures. If indebtedness of the Borrower to the Lenders in the amount of US$700,000,000 were incurred under the Loan Agreement on the date hereof, such indebtedness would not, to our knowledge, violate the provisions of the Subordinated Indentures. VII If indebtedness of the Borrower to the Lenders in the amount of US$700,000,000 were incurred under the Loan Agreement on the date hereof, such indebtedness would not, to our knowledge, violate the provisions of the indenture dated as of July 1, 1989 between the Borrower and The Bank of New York, as successor trustee to The Chase Manhattan Bank (National Association) or the indentures dated as of August 7, 1996 and March 21, 1997 103 Page 3 respectively between the Borrower and The Bank of New York, as trustee (collectively, the "Senior Indentures"). The foregoing opinions are subject to the qualifications set out below: 7.1 CERTIFICATES OF COMPLIANCE. In expressing the opinion set forth in paragraph 1 we have relied upon a certificate of compliance dated July 14, 1997 issued by Industry Canada, a copy of which has been delivered to you. 7.2 ENFORCEABILITY. The opinion set forth in paragraph 4 is based on the assumption that the Loan Agreement has been duly authorized, executed and delivered by, and is enforceable in accordance with its terms against the Agent and the Lenders and is subject to the following qualifications: (a) BANKRUPTCY - enforceability may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium, arrangement or winding up laws or other similar laws affecting the enforcement of creditors' rights generally; (b) EQUITABLE PRINCIPLES - enforceability may be limited by equitable principles, including the principle that equitable remedies, such as specific performance and injunction, may only be granted in the discretion of a court of competent jurisdiction; (c) SEVERABILITY - the validity and enforceability of provisions inserted in any agreement or instrument which purport to sever from the agreement or instrument any provision which is prohibited or unenforceable under applicable law without affecting the enforceability or validity of the remainder of the agreement or instrument would be determined only in the discretion of the court; (d) REASONABLENESS - notwithstanding any term or condition contained in the Loan Agreement, a court of competent jurisdiction may retain the discretion to determine when the actions of the Lenders or their agents have been conducted in a "commercially reasonable" manner, and determinations or demands made by a person in the exercise of a discretion purported to be given to it may be unenforceable if made in an unreasonable or arbitrary fashion; (e) INDEMNITY AND CONTRIBUTION - a court may decline to enforce rights of indemnity and contribution under the Loan Agreement which are found to be contrary to public policy; 104 Page 4 (f) LIMITATIONS - enforceability may be limited by restrictions which may be imposed by law on: (i) the right of a creditor to receive immediate payment of amounts stated to be payable on demand or which have been accelerated; (ii) the right of a party to the Loan Agreement to enforce its rights under the Loan Agreement on the basis of a default of a minor or non-substantive nature, such as the failure to produce a document in a timely manner; (iii) the effectiveness of provisions of the Loan Agreement which provide that delay or failure by a party to exercise any right, remedy or option will not operate as a waiver thereof may not be enforceable; and (g) WAIVERS OF RIGHTS - provisions of the Loan Agreement which provide for the waiver of certain legal or equitable rights or which absolve or purport to absolve a party from responsibility for its acts may not be enforceable. 7.3 RELIANCE ON OFFICER'S CERTIFICATE. In expressing the opinions set forth in the last sentence of paragraph 6 and in paragraph 7, we have relied on a certificate of an officer of the Borrower, a copy of which is attached as Schedule A hereto. In expressing the opinions set forth in paragraphs 6 and 7, we have also assumed the laws of the State of New York (which govern the Subordinated Indentures and the Senior Indentures) are the same as the laws of the Province of Alberta. No opinion is expressed as to compliance with the provisions of the Subordinated Indentures and the Senior Indentures at any future date. 7.4 CONCLUSIVE, FINAL OR BINDING. A court is not required to treat as conclusive, final or binding those certificates and determinations which the Loan Agreement states are to be so treated. 7.5 CURRENCY QUALIFICATION. Pursuant to the Currency Act (Canada), a judgment by a court in any province in Canada may be awarded in Canadian currency only and such judgment may be based on a rate of exchange in existence on a day other than the day of payment of such judgment. 7.6 INTEREST AFTER JUDGMENT. Under the Judgment Interest Act (Alberta) interest after judgment may be limited to less than the rate provided for contractually. 105 Page 5 7.7 DEFAULT INTEREST. We express no opinion as to the enforceability of any provision which purports to render any person liable for a higher rate of interest after default than before. This opinion is given solely for the benefit of the addressees of this opinion and may not be relied upon in whole or in part by any other person. Yours very truly, 106 SCHEDULE "A" CERTIFICATE TO: Bennett Jones Verchere Bank of Montreal, as Agent Osler, Hoskin & Harcourt This certificate is given in connection with an opinion dated July 18, 1997 delivered by Bennett Jones Verchere to the Bank of Montreal, as Agent for the Lenders (the "Agent"), and to Osler, Hoskin & Harcourt in connection with the loan agreement dated July 18, 1997 (the "Loan Agreement") between Gulf Canada Resources Limited (the "Borrower"), the Agent and the Lenders named in Schedule A thereto. Unless otherwise defined herein, capitalized terms shall have the meaning ascribed to them in the Loan Agreement. The undersigned hereby certifies, on behalf of the Borrower, as follows: I If indebtedness of the Borrower to the Lenders under the Loan Agreement were incurred on the date hereof in the amount of US$700,000,000, such indebtedness would constitute Senior Indebtedness as defined in the Indenture dated as of January 27, 1994 (the "1994 Indenture") made between the Borrower and The Bank of New York, as trustee, and the Indenture dated as of July 5, 1995 (the "1995 Indenture") made between the Borrower and The Bank of New York, as trustee, (collectively the "Subordinated Indentures"). Such indebtedness would not violate any of the provisions of the Subordinated Indentures including, without limitation, Section 1008 of the 1994 Indenture or Section 1009 of the 1995 Indenture. No Default or Event of Default exists under and as defined in the Subordinated Indentures. II If indebtedness of the Borrower to the Lenders under the Loan Agreement were incurred on the date hereof in the amount of US$700,000,000, such indebtedness would not violate any of the provisions of the Indenture dated as of July 1, 1989 made between the Borrower and The Bank of New York, as successor trustee to The Chase Manhattan Bank (National Association) or the Indentures dated as of August 7, 1996 and March 21, 1997 respectively between the Borrower and The Bank of New York, as trustee (collectively, the "Senior Indentures"). No Default or Event of Default exists under and as defined in the Senior Indentures. 107 Page 2 III The Subordinated Indentures and the Senior Indentures are the only material agreements relating to borrowed monies to which the Borrower is a party other than the Loan Agreement and the Existing Acquisition Facility. DATED this 18th day of July, 1997. GULF CANADA RESOURCES LIMITED By: ----------------------------------- 108 SCHEDULE I [LENDERS' COUNSELS' OPINION] [LETTERHEAD OF OSLER, HOSKIN & HARCOURT] July 18, 1997 Bank of Montreal Bank of Montreal Loan Agency Services First Canadian Centre After Sales 350 - 7th Avenue S.W. 22nd Floor 24th Floor 1 First Canadian Place Calgary, Alberta Toronto, Ontario M5X 1A1 T2P 3N9 And to the Lenders Listed in Schedule A of Loan Agreement Dear Sirs/Mesdames RE: LOAN AGREEMENT MADE AS OF JULY 18, 1997 AMONG GULF CANADA RESOURCES LIMITED, THE LENDERS NAMED THEREIN AND BANK OF MONTREAL, AS AGENT FOR THE LENDERS We have acted as counsel to Bank of Montreal (the "Agent") in connection with a loan agreement made as of July 18, 1997 (the "Loan Agreement") between Gulf Canada Resources Limited (the "Borrower"), the Lenders listed in Schedule A thereto (the "Lenders") and the Agent, as agent for the Lenders, which provides a credit facility to the Borrower. All capitalized terms used in this opinion letter shall, unless otherwise defined in this opinion letter, have the meanings ascribed to them in the Loan Agreement. In connection with the opinions expressed in this letter we have considered such questions of law and examined such public and corporate records, certificates and other documents and conducted such other examinations as we have considered necessary. In such examinations we have assumed the legal capacity of all individuals, the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity to authentic original documents of all documents submitted to us as certified, conformed, photostatic or facsimile copies. 109 Page 2 The law covered by the opinions expressed in this letter is limited to the laws of the Province of Alberta and the laws of Canada applicable therein. On the basis of the foregoing and subject to the qualifications herein expressed, we are of the opinion that: IV The Borrower is a body corporate incorporated under the Canada Business Corporations Act. V The Borrower has all necessary corporate power and capacity to enter into the Loan Agreement and to perform its obligations thereunder. VI The execution and delivery of the Loan Agreement and the consummation of the transactions contemplated therein have been duly authorized by all necessary corporate action on the part of the Borrower. VII The Loan Agreement has been duly executed and delivered by the Borrower and is a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms. VIII The Borrower is not a party to, bound or affected by or subject to any provision in its articles or by-laws, or any statutory law or regulation, which is violated, contravened or breached by, or under which any default occurs, as a result of the execution, delivery and performance by it of the Loan Agreement. IX The indebtedness of the Borrower to the Lenders under the Loan Agreement constitutes Senior Indebtedness as defined in the Indenture dated as of January 27, 1994 made between the Borrower and The Bank of New York, as Trustee, and the Indenture dated as of July 5, 1995 made between the Borrower and The Bank of New York, as Trustee, (collectively, the "Subordinated Indentures") relating to the issuance of subordinated debentures, provided that such indebtedness of the Borrower to the Lenders is not incurred in violation of the provisions of the Subordinated Indentures. If indebtedness of the Borrower to the Lenders in the amount of US$700,000,000 were incurred under the Loan Agreement on the date hereof, such indebtedness would not, to our knowledge, violate the provisions of the Subordinated Indentures. X If indebtedness of the Borrower to the Lenders in the amount of US$700,000,000 were incurred under the Loan Agreement on the date hereof, such indebtedness would not, to our knowledge, violate the provisions of the indenture dated as of July 1, 1989 between the Borrower and The Bank of New York, as successor trustee to The Chase Manhattan Bank (National Association) or the indentures dated as of August 7, 1996 and March 21, 1997 110 Page 3 respectively between the Borrower and The Bank of New York, as trustee (collectively, the "Senior Indentures"). The foregoing opinions are subject to the qualifications set out below: (a) RELIANCE. In expressing the opinions set forth in paragraphs 2, 3, 4 (in respect of due execution and delivery), 5, 6, 7, we have relied upon the opinions of Bennett Jones Verchere, counsel to the Borrower, dated the same date as this opinion and delivered to you. Such opinions are in form and scope satisfactory to us and we are of the opinion that we and you are justified in relying thereon.I (b) CERTIFICATES OF COMPLIANCE. In expressing the opinion set forth in paragraph 1 we have relied upon a certificate of compliance dated July 14, 1997 issued by Industry Canada, a copy of which has been delivered to you. (c) ENFORCEABILITY. The opinion set forth in paragraph 4 is based on the assumption that the Loan Agreement has been duly authorized, executed and delivered by, and is enforceable in accordance with its terms against the Agent and the Lenders and is subject to the following qualifications: (i) BANKRUPTCY - enforceability may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium, arrangement or winding up laws or other similar laws affecting the enforcement of creditors' rights generally; (ii) EQUITABLE PRINCIPLES - enforceability may be limited by equitable principles, including the principle that equitable remedies, such as specific performance and injunction, may only be granted in the discretion of a court of competent jurisdiction; (iii) SEVERABILITY - the validity and enforceability of provisions inserted in any agreement or instrument which purport to sever from the agreement or instrument any provision which is prohibited or unenforceable under applicable law without affecting the enforceability or validity of the remainder of the agreement or instrument would be determined only in the discretion of the court; (iv) REASONABLENESS - notwithstanding any term or condition contained in the Loan Agreement, a court of competent jurisdiction may retain the discretion to determine when the actions of the Lenders or their agents have been conducted in a "commercially reasonable" manner, and determinations or demands made by a person in the exercise of a discretion purported to be given to it may be unenforceable if made in an unreasonable or arbitrary fashion; 111 Page 4 (v) INDEMNITY AND CONTRIBUTION - a court may decline to enforce rights of indemnity and contribution under the Loan Agreement which are found to be contrary to public policy; (vi) LIMITATIONS - enforceability may be limited by restrictions which may be imposed by law on: (A) the right of a creditor to receive immediate payment of amounts stated to be payable on demand or which have been accelerated; (B) the right of a party to the Loan Agreement to enforce its rights under the Loan Agreement on the basis of a default of a minor or non-substantive nature, such as the failure to produce a document in a timely manner; (C) the effectiveness of provisions of the Loan Agreement which provide that delay or failure by a party to exercise any right, remedy or option will not operate as a waiver thereof may not be enforceable; and (vii) WAIVERS OF RIGHTS - provisions of the Loan Agreement which provide for the waiver of certain legal or equitable rights or which absolve or purport to absolve a party from responsibility for its acts may not be enforceable. (d) RELIANCE ON OFFICER'S CERTIFICATE. In expressing the opinions set forth in the last sentence of paragraph 6 and in paragraph 7, we have relied on a certificate of an officer of the Borrower, a copy of which is attached as Schedule A hereto. In expressing the opinions set forth in paragraphs 6 and 7, we have also assumed the laws of the State of New York (which govern the Subordinated Indentures and the Senior Indentures) are the same as the laws of the Province of Alberta. No opinion is expressed as to compliance with the provisions of the Subordinated Indentures and the Senior Indentures at any future date. (e) CONCLUSIVE, FINAL OR BINDING. A court is not required to treat as conclusive, final or binding those certificates and determinations which the Loan Agreement states are to be so treated. (f) CURRENCY QUALIFICATION. Pursuant to the Currency Act (Canada), a judgment by a court in any province in Canada may be awarded in Canadian currency only and such 112 Page 5 judgment may be based on a rate of exchange in existence on a day other than the day of payment of such judgment. (g) INTEREST AFTER JUDGMENT. Under the Judgment Interest Act (Alberta) interest after judgment may be limited to less than the rate provided for contractually. (h) DEFAULT INTEREST. We express no opinion as to the enforceability of any provision which purports to render any person liable for a higher rate of interest after default than before. This opinion is given solely for the benefit of the addressees of this opinion and may not be relied upon in whole or in part by any other person. Yours very truly, 113 SCHEDULE J NOTICE OF AMENDMENT OF UNRESTRICTED SUBSIDIARIES To: [LIST LENDERS] and Bank of Montreal, as Agent - -------------------------------------------------------------------------------- This Notice of Amendment of Unrestricted Subsidiaries is given pursuant to the terms of the loan agreement (the "Loan Agreement") dated July 18, 1997 between the Lenders named therein, the Agent and Gulf Canada Resources Limited. Unless otherwise defined herein or the context otherwise requires, all terms used in this Notice of Unrestricted Subsidiaries shall have the same meaning herein as in the Loan Agreement. Schedule L is hereby amended as follows: (A) To add as Restricted Subsidiaries: o (B) To add as Unrestricted Subsidiaries: o The undersigned hereby certifies that subsection 8.1(l) of the Loan Agreement would not have been contravened by the Borrower if the changes made above had occurred prior to the end of the last Fiscal Quarter preceding the date hereof. DATED the ___ day of ________, 199_. GULF CANADA RESOURCES LIMITED By: ------------------------------------ Name: Title: By: ------------------------------------ Name: Title: 114 SCHEDULE K LETTER OF CREDIT DOCUMENTATION TO: BANK OF MONTREAL, as Agent, and [LIST LENDERS] (the "Lenders") - -------------------------------------------------------------------------------- In consideration of the issuance by the Lenders of a Letter of Credit substantially according to any Drawdown Notice, the Borrower agrees as follows: 1. The Agent and the Lenders assume no liability or responsibility for the form, sufficiency, accuracy, genuineness, falsification or legal effect of any document(s) required pursuant to the Letter of Credit, or for the general and/or particular conditions stipulated in the document(s) or superimposed thereon; nor do they assume any liability or responsibility for the description, quality, delivery, value or existence of the services represented by any document(s), or for the good faith or acts and/or omissions, solvency, performance or standing of the beneficiary or any other Person whomsoever; and the Borrower hereby assumes and undertakes all such risk, including acts of the users of the Letter of Credit and the Borrower further agrees that the Agent may hold the delivery of documents conforming to the Letter of Credit as sufficient evidence of the good faith of the beneficiary and of the services described therein, without assuming any responsibility in regard to the services. 2. This Agreement is irrevocable with respect to the Letter of Credit and is to continue in force and to be applicable to all transactions relating to the Letter of Credit notwithstanding any change in the composition of the Borrower, the parties to or parties contemplated in this Agreement including, without limitation, any change arising from the accession of one or more new partners, or from the death or succession of any partner or partners or amalgamation of one or more corporations, and it shall cover any and all amounts that the Lenders may ultimately be required to pay under the Letter of Credit by reason of having issued same. The Borrower acknowledges that the Lender's obligations to pay and/or fulfil any other obligation under the Letter of Credit is not subject to claims or defence by the Borrower resulting from its relationship with other parties. 3. The Borrower hereby indemnifies and agrees to hold the Agent and the Lenders harmless from and against all losses, consequences or damages arising out of any transmission, including delay and/or loss in transit of any message(s), letter(s) or document(s) or for delay, mutilation or from insufficient or incorrect particulars being transmitted or other error(s) arising in the transmission or delivery of any telecommunication, including transmission by cable, telegraph, telecopier, wireless or otherwise except to the extent such losses, consequences or damages arise as a result of gross negligence or wilful misconduct of the Agent or Lender as the case may be. The Agent and the Lenders assume no liability or responsibility for errors in translation and/or interpretation of technical terms, and reserve the right to transmit Letter of Credit terms without translating them. 115 Page 2 4. In case the expiry date of the Letter of Credit is extended and/or the amount thereof is increased, and/or any of the terms and conditions are altered at the Borrower's request or with the Borrower's consent, all the terms of this Agreement shall remain in full force and effect, without releasing any party thereto. 5. The rights and powers conferred hereby are in addition to and without prejudice to any other rights which the Agent or the Lenders may now have or hereafter acquire from the Borrower or others. 6. This Agreement will be governed and construed in accordance with the laws of the Province of Alberta and the laws of Canada applicable herein. Should any provision of this Agreement be illegal or not enforceable under such law, it shall be considered severable and the Agreement and its conditions shall remain in full force and effect as if the said provision had never been included. 7. This Agreement shall enure to the benefit of the Agent and each of the Lenders and their respective successors and assigns, and shall be binding upon the Borrower and the Borrower's executors, liquidators, administrators, successors and assigns. 8. Except as otherwise expressly stated, each Letter of Credit is subject to the current Uniform Customs & Practice for Documentary Credits of the International Chamber of Commerce, as amended from time to time (the "UCP Rules") or in the case of a Demand Guarantee, the Letter of Credit is subject to the terms and conditions of the current "Uniform Rules for Demand Guarantees" of the ICC. If the provisions of this Agreement conflict with the UCP Rules, the provisions of this Agreement shall prevail. This Agreement shall not be construed as limiting any rights of the Agent or the Lenders which may be set out in separate documentation, between the Agent or the Lenders and the Borrower, including any credit facility. 116 SCHEDULE L LIST OF UNRESTRICTED SUBSIDIARIES CRUSADER GULF MISCELLANEOUS - -------- ------------------ Crusader (Philippines) Pty Ltd. TS, Inc. Pursuit Exploration Pty Ltd. Asamera (Cyprus) Ltd. Crusader (Victoria) Pty Ltd. Asamera Hurghada Inc. Crusader (Ireland) Pty Ltd. Canadian Oil Debco Inc. Crusirel Ltd. 534404 Alberta Ltd. 156911 Canada Inc. CLYDE Tuba 4 Transport Ltd. - ----- 2276496 Canada Limited Beaufinco Equipment Holdings Ltd. Clyde Exploratie Maatscappij BV CP (E&P) BV CORRIDOR - -------- Grissik Gas Company Ltd. Gulf International (Barbados) Inc. Asamera International (Barbados) Inc. Gulf Resources (Grissik) Ltd. formerly Asamera (Overseas) Limited UNITED STATES RELATED - --------------------- Asamera Oil (US) Inc. Asamera Petroleum Corporation Asamera Pipeline Inc. Asamera Minerals Florida Inc. MANVILLE RELATED - ---------------- Trilogy Italia Corporation Trilogy France Resources SNC Trilogy Resources Holding Co. Inc. Trilogy France Corporation EX-10.3 5 INCENTIVE STOCK OPTION PLAN 1 EXHIBIT 10.3 GULF CANADA RESOURCES LIMITED INCENTIVE STOCK OPTION PLAN (1994) May 3, 1995 2 GULF CANADA RESOURCES LIMITED INCENTIVE STOCK OPTION PLAN (1994) 1. PURPOSE The purpose of the Incentive Stock Option Plan (1994) (the "1994 Plan") is to provide effective incentives to regular employees of Gulf Canada Resources Limited ("Gulf") and its subsidiaries (for the purposes of the 1994 Plan collectively referred to as "the Company") and directors of Gulf and to reward such persons in relation to the long-term performance and growth of the Company and a total return to the shareholders and thereby align the interests of these persons with those of the shareholders. 2. ELIGIBLE PERSONS The President, subject to the approval of the Compensation Committee (the "Committee") of the Board of Directors (the "Board") of Gulf, shall from time to time designate those regular employees, including Officers, of the Company to whom stock options ("options") shall be granted and shall determine the extent and terms of their participation. Participation in the 1994 Plan does not confer upon the employee any right to continued employment with the Company. The Committee shall also decide, subject to the approval of the Board and satisfaction of such other requirements as the Board may impose from time to time, which directors of Gulf (including members of the Committee) shall be entitled to options. 3. SHARE SUBJECT TO THE 1994 PLAN A maximum of 19,970,800* Ordinary Shares of Gulf are reserved for issuance under the 1994 Plan, which number of Ordinary Shares includes all Ordinary Shares subject to unexercised options granted under the Incentive Stock Option Plan (1990) (the "1990 Plan") prior to the date hereof. The number of shares reserved for issuance under the 1994 Plan cannot be increased without shareholder approval. Ordinary Shares subject to options which are terminated, cancelled or expire prior to exercise shall be available for the grant of further options under the 1994 Plan. 4. ADMINISTRATION The 1994 Plan will be administered by the Committee. The Committee shall have the power to formulate guidelines and administrative provisions for the implementation of the 1994 Plan and to make such changes in such guidelines and administrative provisions as from time to time the Committee considers proper and in the best interests of the Company. The Committee shall decide all matters relating to the administration, interpretation and application of the terms of the 1994 Plan and may delegate to any Director or any employee of the Company such administrative duties and powers as it may consider appropriate. All decisions and acts of the Committee shall be final and conclusive. The Committee shall have full authority and discretion to: (a) determine, consistent with the provisions of the 1994 Plan, the times at which options shall be granted, the number of shares subject to each option (subject to the restriction below), the period during which each option becomes exercisable (subject to clause 6), and the terms contained in each option agreement; and (b) approve any forms required to carry out the purposes and provisions of the 1994 Plan. Notwithstanding that the Committee has discretion with respect to the granting of options, no individual may be granted options such that he may acquire, pursuant to the exercise of options, in excess of 5% of the outstanding Ordinary Shares of Gulf, determined on a non-diluted basis. The Committee's interpretation and construction of any provisions of the 1994 Plan or any option granted hereunder shall be binding and conclusive unless otherwise determined by the Board. Any power that may be exercised or any actions that may be taken by the Committee under the 1994 Plan may also be exercised or taken by the Board. 5. EXPIRATION OF THE 1994 PLAN Options may be granted under the 1994 Plan at any time prior to December 31, 1999. 6. TERM OF OPTIONS Options granted under the 1994 Plan will have a term to be determined by the President, subject to the approval of the Committee of the Board of Gulf, up to a maximum of ten (10) years and each option shall be subject to earlier termination as provided in clause 10. 7. EXERCISE OF OPTIONS Subject to the Committee determining otherwise in respect of a particular option, an option will first become exercisable only after two (2) years following its grant and then only in such installments as the Committee may determine. 8. OPTION PRICE The price at which shares will be issued to an optionee pursuant to an option shall be determined at the time the option is granted but shall in no case be less than 100 percent of the fair market value on the day of the grant. For the purposes of the 1994 Plan, "fair market value on the day of the grant" means the last board lot sale price on The Toronto Stock Exchange on the last trading day immediately prior to the day of the grant. Shares shall be issued to an optionee pursuant to the exercise of an option only upon receipt by Gulf from such optionee of payment in full either in cash or, where the optionee is an employee or a former employee of Gulf or a subsidiary thereof, by an exchange of Ordinary Shares of the Company previously owned by such optionee for at least six (6) months prior to the date of the exercise or a combination of both in an amount having a combined value equal to the aggregate purchase price of the shares subject to the option or portion thereof being exercised. 9. TRANSFERABILITY An option cannot be transferred by the optionee except pursuant to a will or according to the laws governing descent and distribution. * Maximum increased by 6,000,000 Ordinary Shares by the Shareholders at the meeting held April 30, 1997. Total now 25,970,800. 3 - 2 - 10. EARLY TERMINATION OF OPTION Subject to the Committee determining otherwise in respect of a particular option, the following provisions shall apply: (a) If during the term of an unexercised option held by an employee, the employee terminates employment with the Company for any reason other than retirement, death or disability, then the option must be exercised (if at all) on or before the expiration of three (3) months immediately following the date of termination of employment but only to the extent that the employee was entitled to exercise such option at the date of termination of employment and in no event later than ten (10) years from the date of the grant of such option. (b) If during the term of an unexercised option held by an employee, the Company terminates the employment of the employee for any reason other than retirement, death, disability or just cause, then the option must be exercised (if at all) on or before the expiration of one (1) year immediately following the date of such termination but in no event later than ten (10) years from the date of the grant of the option and the vesting date for all options held by such employee shall automatically be deemed to be the date of such termination of employment. (c) If during the term of an unexercised option, the optionee dies, then the option must be exercised (if at all) on or before the expiration of one (1) year immediately following the date of death but in no event later than ten (10) years from the date of the grant of the option and the vesting date for all options held by such optionee shall automatically be deemed to be the date of death. In the event of an optionee's death, the legal representative of the optionee or the optionee's estate shall be entitled to exercise the option. (d) If during the term of an unexercised option held by an employee, the employee terminates employment with the Company by reason of retirement or by reason of the employee's disability, then the option must be exercised (if at all) on or before the expiration of five (5) years immediately following the date of such termination of employment but in no event later than ten (10) years from the date of the grant of the option and the vesting date for all options held by such employee shall automatically be deemed to be the date of such termination of employment. In the event of the employee's disability, the legal representative of the employee shall be entitled to exercise the option. For the purposes of this clause: (i) "disability" means long-term illness or disability within the meaning of the Company's long-term disability plan; and (ii) "retirement" means early or normal retirement within the meaning of the applicable Company pension plans. (e) If during the term of an unexercised option held by a director of Gulf (who is not a full-time employee of the Company), the director ceases to be a director of Gulf other than by reason of death or retirement at normal retirement age, then the option must be exercised (if at all) on or before the expiration of three (3) months immediately following the date that person ceases to be a director, but only to the extent that the director was entitled to exercise such option at the date that he ceased to be a director and in no event later than ten (10) years from the date of the grant of such option. (f) If during the term of an unexercised option held by a director of Gulf (who is not also a full-time employee of the Company), the director ceases to be a director of Gulf by reason of retirement at normal retirement age, then the option must be exercised (if at all) on or before the expiration of five (5) years immediately following the date of such retirement but in no event later than ten (10) years from the date of the grant of the option and the vesting date for all options held by such director shall automatically be deemed to be the date of such retirement. (g) If during the term of an unexercised option held by an employee, the employee is terminated for just cause by the Company, then any option that has vested at the date of such termination of employment may be exercised by such employee immediately upon such termination of employment but not otherwise. (h) The unexercised portion of any option subject to this clause which is not exercised as provided for in this clause 10 shall lapse and the shares subject to such option shall be available for the granting of other options under the 1994 Plan. Notwithstanding the foregoing provisions in this clause 10, in no event may an option be exercisable after the earlier of seven (7) years after the optionee ceases to be an employee or a director and ten (10) years after the granting of the option. 11. OPTION AGREEMENTS Each option granted under the 1994 Plan shall be evidenced by written agreement between Gulf and the optionee in such form and with such provisions as the Committee from time to time shall consider appropriate, which provisions shall be consistent with the provisions of the 1994 Plan. Option agreements shall include the following provisions: (a) The number of shares for which the option is granted. (b) The timing and size of the installments in which the option may be exercised. (c) The price at which the option may be exercised. (d) All vesting requirements for such option and the expiry date of such option. 4 - 3 - 12. LOANS TO FINANCE OPTIONS The Company may make loans interest free to individual employees, including officers, as authorized by the Committee and on such terms as may be approved by the Committee for the purpose of financing the exercise of options granted under the 1994 Plan and the payment of any taxes that may be due with respect to such exercise. The maximum aggregate amount of a loan or loans to any individual employee may not exceed the amount of that employee's current year base salary. For greater certainty, loans under this clause 12 may not be made to directors who are not full-time employees. 13. DILUTION ADJUSTMENTS If the outstanding Ordinary Shares of Gulf are increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of Gulf whether through a stock dividend, stock split, consolidation, merger, amalgamation, reorganization, recapitalization or other transaction, then the Committee may make appropriate adjustments in the number or kind of shares available for options pursuant to the 1994 Plan (if applicable) and in the number or kind of shares that were the object of options already granted pursuant to the 1994 Plan and to the purchase price thereof. 14. REORGANIZATION AND CHANGE OF CONTROL Subject to the Committee determining otherwise in respect of a particular option grant, if there is any merger, amalgamation, consolidation or other reorganization of Gulf in which Gulf is not the surviving or continuing corporation or there is a change of control of Gulf, then any unexercised option may be exercised on or before the expiration of one (1) year following the date of such merger, amalgamation, consolidation or other reorganization or change of control and the vesting date for all options held by such optionee shall automatically be deemed to be the date of such merger, amalgamation, consolidation, reorganization or change of control. In no event shall any option be exercisable later than ten (10) years from the date of the grant of such option. 15. ACCELERATED EXERCISE OF OPTIONS If an offer is made for the purchase of all the shares of Gulf, then the Committee may, in its absolute discretion, require that all or some of the options granted pursuant to the 1994 Plan must be exercised on or before the effective date of such purchase. 16. TERMINATION OF PLAN The Board of Directors may discontinue the 1994 Plan in whole or in part but no such discontinuance shall, without the consent of the optionee, alter or impair his right or rights previously granted under the 1994 Plan. 17. CONSTRUCTION In the event any parts of the 1994 Plan are found to be void, the remaining provisions of the 1994 Plan shall nevertheless be binding with the same effect as though the void parts were deleted. 18. AMENDMENT The 1994 Plan may, with the approval of the Committee and subject to any necessary approval from stock exchanges upon which the Ordinary Shares are then listed, be amended at any time, and from time to time, by a written instrument duly executed by Gulf and any such amendment shall be communicated to those optionees participating in the 1994 Plan. 19. EFFECTIVE DATE AND TRANSITIONAL PROVISIONS The 1994 Plan shall become effective upon approval by the holders of Ordinary Shares of Gulf. Upon receipt of such approval, the 1994 Plan shall replace the 1990 Plan, and stock options granted under the 1990 Plan shall be deemed to be options outstanding under the 1994 Plan; provided that the rights of optionees under stock options originally granted under the 1990 Plan cannot be altered or impaired without the consent of the optionee. 20. GENERAL (a) The rights of all parties and the construction and effect of all provisions of the 1994 Plan shall be construed and interpreted according to the laws of the Province of Alberta. (b) For the purposes of the 1994 Plan, unless the context otherwise requires, words importing the singular include the plural and vice versa, and words importing the masculine gender include the feminine and neuter genders and vice versa. I, Craig S. Glick, Senior Vice President, Law and Corporate Services of Gulf Canada Resources Limited hereby confirm that the foregoing is the definitive form of the Incentive Stock Option Plan (1994), which plan is effective as of May 3, 1995. _____________________________ CRAIG S. GLICK -----END PRIVACY-ENHANCED MESSAGE-----