-----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, IrIjeoo2UKKGbJxvFq35xCzn4VbWpuiq03rMdFicIdJ8e+kZei73WW8/Lp4IqoiU Xb8o4y5/pPcOqQ9lGeP/iA== 0000912057-95-009920.txt : 19951119 0000912057-95-009920.hdr.sgml : 19951119 ACCESSION NUMBER: 0000912057-95-009920 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOREST OIL CORP CENTRAL INDEX KEY: 0000038079 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 250484900 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-04597 FILM NUMBER: 95591836 BUSINESS ADDRESS: STREET 1: 1500 COLORADO NATIONAL BLDG STREET 2: 950 17TH ST CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 8143687171 10-Q 1 FORM 10-Q ______________________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from N/A to N/A Commission File Number 0-4597 FOREST OIL CORPORATION (Exact name of registrant as specified in its charter) NEW YORK 25-0484900 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1600 Broadway, Suite 2200 Denver, Colorado 80202 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (303) 812-1400 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Number of Shares Outstanding Title of Class of Common Stock October 31, 1995 - ------------------------------ ----------------- Common Stock, Par Value $.10 Per Share 48,551,725 ______________________________________________________________________________ PART I. FINANCIAL INFORMATION FOREST OIL CORPORATION Condensed Consolidated Balance Sheets (Unaudited)
September 30, December 31, 1995 1994 ------------- ------------ (In Thousands) ASSETS Current assets: Cash and cash equivalents $ 3,417 2,869 Accounts receivable 15,299 20,418 Other current assets 3,499 2,231 ---------- --------- Total current assets 22,215 25,518 Property and equipment, at cost: Oil and gas properties - full cost accounting method 1,189,665 1,171,887 Buildings, transportation and other equipment 12,782 12,649 ---------- --------- 1,202,447 1,184,536 Less accumulated depreciation, depletion and valuation allowance 941,701 907,927 ---------- --------- Net property and equipment 260,746 276,609 Investment in and advances to affiliate 11,452 11,652 Other assets 10,330 11,053 ---------- --------- $ 304,743 324,832 ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Cash overdraft $ 1,739 4,445 Current portion of long-term debt 89 1,636 Current portion of gas balancing liability 5,000 5,735 Accounts payable 20,396 26,557 Retirement benefits payable to executives and directors 672 630 Accrued expenses and other liabilities: Interest 1,970 4,318 Other 1,108 4,297 ---------- --------- Total current liabilities 30,974 47,618 Long-term debt 181,959 207,054 Gas balancing liability 5,926 8,525 Retirement benefits payable to executives and directors 2,951 3,505 Other liabilities 20,045 16,136 Deferred revenue 18,501 35,908 Shareholders' equity: Preferred stock 24,356 15,845 Common stock 4,775 2,829 Capital surplus 230,756 190,074 Accumulated deficit (214,032) (199,499) Foreign currency translation (1,468) (1,337) Treasury stock, at cost - (1,826) ---------- --------- Total shareholders' equity 44,387 6,086 ---------- --------- $ 304,743 324,832 ========== =========
See accompanying notes to condensed consolidated financial statements. -1- FOREST OIL CORPORATION Condensed Consolidated Statements of Production and Operations (Unaudited)
Three Months Ended Nine Months Ended --------------------------- --------------------------- September 30, September 30, September 30, September 30, 1995 1994 1995 1994 ------------- ------------ ------------ ------------- (In Thousands Except Production and Per Share Amounts) PRODUCTION Gas (MMCF) 7,807 11,957 25,744 38,432 ======== ======= ======= ======= Oil and condensate (thousand barrels) 275 365 926 1,152 ======== ======= ======= ======= CONSOLIDATED STATEMENTS OF OPERATIONS Revenue: Oil and gas sales: Gas $ 13,139 21,874 45,141 74,323 Oil and condensate 4,236 5,830 14,764 16,825 Products and other 81 66 249 280 -------- ------- ------- ------- 17,456 27,770 60,154 91,428 Miscellaneous, net 161 437 374 2,299 -------- ------- ------- ------- Total revenue 17,617 28,207 60,528 93,727 Expenses: Oil and gas production 5,379 5,419 16,576 16,647 General and administrative 1,900 2,964 5,761 7,553 Interest 6,679 6,602 19,100 20,077 Depreciation and depletion 10,233 16,150 33,631 52,323 Provision for impairment of oil and gas properties - 30,000 - 30,000 -------- ------- ------- ------- Total expenses 24,191 61,135 75,068 126,600 -------- ------- ------- ------- Loss before income taxes and cumulative effect of change in accounting principle (6,574) (32,928) (14,540) (32,873) Income tax expense (benefit): Current - (55) (7) 29 -------- ------- ------- ------- Loss before cumulative effect of change in accounting principle (6,574) (32,873) (14,533) (32,902) Cumulative effect of change in method of accounting for oil and gas sales - - - (13,990) -------- ------- ------- ------- Net loss $ (6,574) (32,873) (14,533) (46,892) ======== ======= ======= ======= Weighted average number of common shares outstanding 42,312 28,135 33,057 28,072 ======== ======= ======= ======= Net loss attributable to common stock $ (7,114) (33,414) (16,153) (48,513) ======== ======= ======= ======= Primary and fully diluted loss per share: Loss before cumulative effect of change in accounting principle $ (.17) (1.19) (.49) (1.23) ======== ======= ====== ====== Net loss $ (.17) (1.19) (.49) (1.73) ======== ======= ====== ======
See accompanying notes to condensed consolidated financial statements. -2- FOREST OIL CORPORATION Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended ----------------------------- September 30, September 30, 1995 1994 -------- -------- (In Thousands) Cash flows from operating activities: Loss before cumulative effect of change in accounting principle $(14,533) (32,902) Adjustments to reconcile loss before cumulative effect of change in accounting principle to net cash provided (used) by operating activities: Depreciation and depletion 33,631 52,323 Provision for impairment of oil and gas properties - 30,000 Other, net 2,596 3,230 Decrease in accounts receivable 5,119 2,339 Decrease (increase) in other current assets (1,268) 653 Decrease in accounts payable (6,854) (6,788) Increase (decrease) in accrued expenses and other liabilities (5,537) 425 Proceeds from volumetric production payments - 4,353 Amortization of deferred revenue (17,407) (27,790) -------- ------- Net cash provided (used) by operating activities (4,253) 25,843 Cash flows from investing activities: Capital expenditures for property and equipment (20,405) (26,706) Proceeds from sales of property and equipment 2,706 13,203 Decrease (increase) in other assets, net 464 (1,895) -------- ------- Net cash used by investing activities (17,235) (15,398) Cash flows from financing activities: Proceeds of bank debt 61,200 12,500 Repayments of bank debt (74,400) (10,500) Proceeds of stock and warrants issued, net of costs 41,060 - Proceeds of nonrecourse secured loan - 1,400 Repayments of nonrecourse secured loan (1,143) - Repayments of production payment (1,708) (2,394) Redemptions and purchases of subordinated debentures - (7,171) Payment of preferred stock dividends (540) (1,621) Deferred debt costs (482) (702) Decrease in cash overdraft (2,706) (430) Increase (decrease) in other liabilities, net 756 (6,613) -------- ------- Net cash provided (used) by financing activities 22,037 (15,531) Effect of exchange rate changes on cash (1) 164 -------- ------- Net increase (decrease) in cash and cash equivalents 548 (4,922) Cash and cash equivalents at beginning of period 2,869 6,949 -------- ------- Cash and cash equivalents at end of period $ 3,417 2,027 ======== ======= Cash paid during the period for: Interest $ 19,002 20,543 ======== ======= Income taxes $ - 6 ======== =======
See accompanying notes to condensed consolidated financial statements. -3- FOREST OIL CORPORATION Notes to Condensed Consolidated Financial Statements Nine Months Ended September 30, 1995 and 1994 (Unaudited) (1) Basis of Presentation The condensed consolidated financial statements included herein are unaudited. In the opinion of management, all adjustments, consisting of normal recurring accruals, have been made which are necessary for a fair presentation of the financial position of the Company at September 30, 1995 and the results of operations for the nine month periods ended September 30, 1995 and 1994. Quarterly results are not necessarily indicative of expected annual results because of the impact of fluctuations in prices received for oil and natural gas and other factors. For a more complete understanding of the Company's operations and financial position, reference is made to the consolidated financial statements of the Company, and related notes thereto, filed with the Company's annual report on Form 10-K for the year ended December 31, 1994, previously filed with the Securities and Exchange Commission. (2) Long-term Debt The components of long-term debt are as follows:
September 30, December 31, 1995 1994 ------------- ------------ (In Thousands) Bank debt $ 19,800 33,000 Nonrecourse secured loan 46,069 57,840 Production payment obligation 16,826 18,534 11-1/4% Subordinated debentures 99,353 99,316 -------- ------- 182,048 208,690 Less current portion (89) (1,636) -------- ------- Long-term debt $181,959 207,054 ======== =======
On August 11, 1995 the Company and the banks executed an amendment to the Company's credit facility pursuant to which the ratios required by the tests were amended. At September 30, 1995 the Company was in compliance with the covenants of its bank debt. (3) Earnings (Loss) Per Share Primary earnings (loss) per share is computed by dividing net earnings (loss) attributable to common stock by the weighted average number of common shares and common share equivalents outstanding during each period, excluding treasury shares. Net earnings (loss) attributable to common stock represents net earnings (loss) less preferred stock dividend requirements. Common share equivalents include, when applicable, dilutive stock options using the treasury stock method and warrants using the if converted method. Fully diluted earnings (loss) per share assumes, in addition to the above, (i) that convertible debentures were converted at the beginning of each period or date of issuance, if later, with earnings being increased for interest expense, net of taxes, that would not have been incurred had conversion taken place, (ii) that convertible preferred stock was converted at the beginning of each period or date of issuance, if later, and (iii) any additional dilutive effect of stock options and warrants. The assumed exercises and conversions were antidilutive for the nine month periods ended September 30, 1995 and 1994. -4- (4) Change in Accounting for Oil and Gas Sales The Company changed its method of accounting for oil and gas sales from the sales method to the entitlements method effective January 1, 1994. Under the sales method previously used by the Company, all proceeds from production credited to the Company were recorded as revenue until such time as the Company had produced its share of the related reserves. Under the entitlements method, revenue is recorded based upon the Company's share of volumes sold, regardless of whether the Company has taken its proportionate share of volumes produced. Under the entitlements method, the Company records a receivable or payable to the extent it receives less or more than its proportionate share of the related revenue. The Company believes that the entitlements method is preferable because it allows for recognition of revenue based on the Company's actual share of jointly owned production and provides a better matching of revenue and related expenses. The cumulative effect of the change for the periods through December 31, 1993 was a charge of $13,990,000 recorded in the first quarter of 1994. As the Company adopted this change in the fourth quarter of 1994, previously reported 1994 information has been restated to reflect the change effective January 1, 1994. (5) Anschutz and JEDI Transactions During the second and third quarters of 1995, following receipt of shareholder approval, the Company consummated transactions with The Anschutz Corporation (Anschutz) and with Joint Energy Development Investments Limited Partnership (JEDI), a Delaware limited partnership the general partner of which is an affiliate of Enron Corp., in each case as described below. ANSCHUTZ TRANSACTION: Pursuant to the Anschutz agreements, Anschutz purchased 18,800,000 shares of the Company's common stock and shares of a new series of preferred stock that are convertible into 6,200,000 additional shares of common stock for a total consideration of $45,000,000, or $1.80 per share. The preferred stock has liquidation preference and receives dividends ratably with the common stock. In addition, Anschutz received warrants to purchase 19,444,444 shares of the Company's common stock for $2.10 per share. The $2.10 warrants are exercisable during the first 18 months after the second closing, subject to extension in certain circumstances to 36 months. The Anschutz investment was made in two closings. In the first closing, which occurred on May 19, 1995, Anschutz loaned the Company $9,900,000. The loan carried interest at 8% per annum. The loan was nonrecourse to the Company and was secured by oil and gas properties owned by the Company, the preferred stock of Archean Energy Ltd. and a cash collateral account with an initial balance of $2,000,000. At the second closing, which occurred on July 27, 1995, the loan was converted into 5,500,000 shares of Forest's common stock. Also at the second closing, Anschutz purchased an additional 13,300,000 shares of common stock, the convertible preferred stock and the $2.10 warrants described above for $35,100,000. At the second closing, Anschutz also received from JEDI an option to purchase from JEDI up to 11,250,000 shares of common stock that JEDI may acquire from the Company upon exercise of the $2.00 warrants referred to below. This option will terminate 36 months after the second closing, or earlier upon the conveyance by the Company of certain property to JEDI in satisfaction of the restructured JEDI loan, as described below. Pursuant to the Anschutz agreements, Anschutz agreed to certain voting, acquisition, and transfer limitations regarding shares of common stock for five years after the second closing, including (a) a limit on voting, subject to certain exceptions, that would require Anschutz to vote all equity securities of the Company owned by Anschutz having voting power in excess of an amount equal to 19.99% of the aggregate voting power of the equity securities of the Company then outstanding in the same proportion as all other equity securities of the Company voted with respect to the matter (other than equity securities owned by Anschutz) are voted, (b) the number of persons associated with Anschutz that may at any time be elected as directors of the -5- Company is limited to three, and (c) a limit on the acquisition of additional shares of common stock by Anschutz (whether pursuant to the conversion of the new preferred stock, the exercise of the $2.10 warrants or the option received from JEDI, or otherwise), subject to certain exceptions, that would prohibit any acquisition by Anschutz that would result in Anschutz owning 40% or more of the shares of common stock then issued and outstanding. While the foregoing limitations are in effect, Anschutz will be entitled to a minority representation on the board of directors. JEDI TRANSACTION: At the second closing, Forest and JEDI restructured JEDI's existing loan which had a principal balance on July 27, 1995 of approximately $62,368,000 before unamortized discount of $4,984,000. JEDI relinquished the net profits interest that it held in certain Forest properties and reduced the interest rate relating to the loan. In consideration, JEDI received warrants to purchase 11,250,000 shares of the Company's common stock for $2.00 per share. The $2.00 warrants will expire on the earlier of December 31, 2002 or 36 months following exercise of the Company's option to convey properties in satisfaction of the JEDI loan (the Conveyance Option). Also at the second closing, JEDI granted a 36 month option to Anschutz to purchase from JEDI up to 11,250,000 shares at a purchase price per share of $2.00 plus an amount equal to the lesser of (a) 18% per annum from the second closing date to the date of exercise of the option, or (b) $3.10. JEDI will satisfy its obligations under the option to Anschutz by exercising the $2.00 warrants. Provided the Conveyance Option has not been exercised, the Company may terminate the $2.00 warrants at any time beginning 36 months after the second closing if the average closing price of the common stock for both the 90 day and 15 day periods immediately preceding the termination is in excess of $2.50 per share. As a result of the loan restructuring and the issuance of the warrants described below, the Company recorded a reduction of the amount of the related liability to approximately $45,493,000 and anticipates a reduction of annual interest expense of approximately $2,000,000. Subject to certain conditions, the Company may satisfy the restructured JEDI loan by conveying to JEDI the properties securing the loan during a 30-day period beginning 18 months after the second closing or, if the $2.10 warrants have been extended, during a 30-day period beginning 36 months after the second closing. Any such conveyance during the first 36 months after the second closing must be approved by Anschutz, if the option from JEDI has not then been exercised or terminated. Prior to the exercise or termination of the JEDI option, JEDI has agreed that it will not assign all or any portion of the JEDI loan or the $2.00 warrants to an unaffiliated person without the approval of the Company. The Company has agreed to not give such approval without the consent of Anschutz. The Company has agreed to use the proceeds from the exercise of the $2.00 warrants and the $2.10 warrants to repay principal and interest on the JEDI loan. (6) Subsequent Events On October 11, 1995, Forest and Saxon Petroleum, Inc. (Saxon) of Calgary, Alberta entered into an agreement pursuant to which Forest contributed capital to Saxon in exchange for a majority interest in Saxon. The agreement is subject to satisfaction of several conditions including approval of Saxon's shareholders. Under the terms of the agreement, Forest would receive from Saxon, in two closings, an aggregate of 53,100,000 common shares, 5,300,000 warrants and $15,500,000 CDN of convertible preferred shares due November 15, 1998. Saxon would receive $1,500,000 CDN cash, 5,300,000 common shares of Forest (subject to possible adjustment for change in the market value of Forest stock) and all of the preferred shares owned by Forest in Archean Energy, Ltd., a privately held oil and gas company based in Calgary. At the completion of the transaction, Forest would own approximately 56% of the outstanding common shares of Saxon, including slightly less than 50% of the voting shares, and would hold warrants and conversion rights for shares which, if fully exercised, would constitute -6- approximately 63% of Saxon's outstanding common stock. Pursuant to the terms of the agreement, Forest would have the right to name four of seven directors to a newly-constituted board. In addition, Forest would have the right to participate in any future equity issues undertaken by Saxon. In the first closing, which occurred on October 26, 1995, Forest acquired 8,800,000 shares of Saxon common stock in exchange for 790,000 shares of Forest common stock. Forest also purchased a newly issued preferred stock for $3,000,000 CDN which will be redeemable at the earlier of April 25, 1996, or at the second closing, which is currently scheduled for December 20, 1995. A special meeting of Saxon's shareholders has been scheduled for December 18, 1995. At the second closing the following transactions would take place: 1) the preferred stock of Saxon issued at the first closing would be redeemed for $1,500,000 CDN of cash and $1,500,000 CDN of common shares of Saxon; 2) Saxon would issue 44,300,000 common shares and 5,300,000 warrants to Forest in exchange for, subject to adjustment, 4,510,000 common shares of Forest; and 3) Saxon would issue $15,500,000 CDN of new convertible preferred stock to Forest in exchange for the Archean Energy Ltd. preferred stock owned by Forest. -7- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto. RESULTS OF OPERATIONS FOR THE THIRD QUARTER OF 1995 NET LOSS The net loss for the third quarter of 1995 was $6,574,000 or $.17 per common share compared to a net loss of $32,873,000 or $1.19 per common share in the third quarter of 1994. The 1995 loss was due primarily to decreased oil and natural gas volumes and lower natural gas and oil prices. The 1994 loss included a $30,000,000 writedown of the book value of the Company's oil and gas properties due to the ceiling test limitation. REVENUE The Company's oil and gas sales revenue decreased by 37% to $17,456,000 in the third quarter of 1995 from $27,770,000 in the third quarter of 1994. Production volumes for natural gas and oil in the third quarter of 1995 decreased 35% and 25%, respectively, from the comparable 1994 period due primarily to normal, anticipated production declines as well as decreased well performance in certain fields. The average sales price for natural gas in the third quarter of 1995 was $1.68 per thousand cubic feet of natural gas (MCF), a decrease of $.15 per MCF or 8% compared to the average sales price in the third quarter of the previous year. The average sales price for oil in the third quarter of 1995 of $15.38 per barrel represented a decrease of $.57 per barrel or 4% compared to the average sales price in the same period of 1994. EXPENSES Oil and gas production expense decreased slightly to $5,379,000 in the third quarter of 1995 from $5,419,000 in the comparable period of 1994. On an MCFE basis (MCFE means thousands of cubic feet of natural gas equivalents, using a conversion ratio of one barrel of oil to six MCF of natural gas), production expense increased 50% in the third quarter of 1995 to $.57 per MCFE from $.38 per MCFE in the third quarter of 1994. The increased cost per MCFE is directly attributable to fixed components of oil and gas production expense being allocated over a smaller production base. General and administrative expense was $1,900,000 in the third quarter of 1995, a decrease of 36% from $2,964,000 in the comparable period of 1994. Total overhead costs (capitalized and expensed general and administrative costs) of $3,070,000 in the third quarter of 1995 decreased 37% from $4,911,000 in the comparable period of 1994. The decreases were due primarily to a reduction in the size of the Company's workforce effective March 1, 1995. Interest expense of $6,679,000 in the third quarter of 1995 increased slightly from $6,602,000 in 1994 due primarily to restructuring fees associated with the nonrecourse secured loan with Joint Energy's Development Investments Limited Partnership (JEDI), a Delaware limited partnership, the general partner of which is an affiliate of Enron Corporation, and interest related to a separate nonrecourse loan, offset partially by a decrease in interest expense on the restructured nonrecourse secured loan. Depreciation and depletion expense decreased 37% to $10,233,000 in the third quarter of 1995 from $16,150,000 in the third quarter of 1994 due to the decrease in production, as well as a decrease in the depletion rate per unit of production. The depletion rate decreased to $1.07 per MCFE in the third quarter of 1995 from $1.13 per MCFE in the comparable 1994 period due to writedowns of the Company's oil and gas properties taken in the third and fourth quarters of 1994. -8- RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 NET LOSS The net loss for the first nine months of 1995 was $14,533,000 or $.49 per common share compared to a net loss of $46,892,000 or $1.73 per common share in the first nine months of 1994. The 1994 loss included a $30,000,000 writedown of the book value of the Company's oil and gas properties due to a ceiling test limitation and a charge of $13,990,000 relating to the change in the method of accounting for oil and gas sales from the sales method to the entitlements method. See "Changes in Accounting." The 1995 loss was primarily due to decreased oil and natural gas volumes and lower natural gas prices. REVENUE The Company's oil and gas sales revenue decreased by 34% to $60,154,000 in the first nine months of 1995 from $91,428,000 in the same period of 1994. Production volumes for natural gas and oil in the first nine months of 1995 decreased 33% and 20%, respectively, from the comparable 1994 period due primarily to normal, anticipated production declines as well as decreased well performance in certain fields. The average sales price for natural gas in the first nine months of 1995 was $1.75 per thousand cubic feet of natural gas (MCF), a decrease of $.18 per MCF or 9% compared to the average sales price in the first nine months of the previous year. The average sales price for oil in the first nine months of 1995 of $15.94 per barrel represented an increase of $1.34 per barrel or 9% compared to the average sales price in the same period of 1994. Production volumes and weighted average sales prices during the periods were as follows:
Three Months Ended Nine Months Ended --------------------------- --------------------------- September 30, September 30, September 30, September 30, 1995 1994 1995 1994 ------------- ------------- ------------- ------------- (In Thousands) Natural Gas Production under long-term fixed price contracts (MMCF) (1) 2,306 4,048 8,001 13,057 Average contract sales price (per MCF) (1) $ 1.79 1.78 1.77 1.78 Production sold on the spot market (MMCF) 5,501 7,909 17,743 25,375 Spot sales price received (per MCF) $ 1.45 1.73 1.54 1.99 Effects of energy swaps (per MCF) (2) .19 .13 .21 .02 ------ ------ ------ ------ Average spot sales price (per MCF) $ 1.64 1.86 1.75 2.01 Total production (MMCF) 7,807 11,957 25,744 38,432 Average sales price (per MCF) $ 1.68 1.83 1.75 1.93 Oil and condensate (3) Total production (MBBLs) 275 365 926 1,152 Average sales price (per BBL) $15.38 15.95 15.94 14.60
(1) Production under long-term fixed price contracts includes scheduled deliveries under volumetric production payments, net of royalties. See "Volumetric Production Payments" below. (2) Energy swaps were entered into to hedge the price of spot market volumes against price fluctuation. Hedged volumes were 2,070 MMCF and 3,458 MMCF for the three months ended September 30, 1995 and 1994, respectively, and were 7,562 MMCF and 8,840 MMCF for the nine months ended September 30, 1995 and 1994, respectively. (3) Oil and condensate production is sold primarily on the spot market. An immaterial amount of production is covered by long-term fixed price contracts, including scheduled deliveries under volumetric production payments. Miscellaneous net revenue decreased to $374,000 in the first nine months of 1995 from $2,299,000 in the comparable 1994 period. The 1994 amount includes income from the sale of miscellaneous pipeline systems and equipment and the reversal of an accounts receivable reserve. -9- EXPENSES Oil and gas production expense decreased slightly to $16,576,000 in the first nine months of 1995 from $16,647,000 in the comparable period of 1994. On an MCFE basis, production expense increased 43% in the first nine months of 1995 to $.53 per MCFE from $.37 per MCFE in the first nine months of 1994. The increased cost per MCFE is directly attributable to fixed components of oil and gas production expense being allocated over a smaller production base. General and administrative expense was $5,761,000 in the first nine months of 1995, a decrease of 24% from $7,553,000 in the comparable period of 1994. Total overhead costs (capitalized and expensed general and administrative costs) of $10,130,000 in the first nine months of 1995 decreased 23% from $13,076,000 in the comparable period of 1994. The Company's salaried workforce was 116 at September 30, 1995 and 142 at September 30, 1994. The decreases in total overhead costs and personnel were due primarily to a reduction in the size of the Company's workforce effective March 1, 1995. The following table summarizes the total overhead costs incurred during the periods:
Three Months Ended Nine Months Ended --------------------------- --------------------------- September 30, September 30, September 30, September 30, 1995 1994 1995 1994 ------------- ------------- ------------- ------------- (In Thousands) Overhead costs capitalized $1,170 1,947 4,369 5,523 General and administrative costs expensed 1,900 2,964 5,761 7,553 ------ ----- ------ ------ Total overhead costs $3,070 4,911 10,130 13,076 ====== ===== ====== ======
Interest expense of $19,100,000 in the first nine months of 1995 decreased 5% from $20,077,000 in 1994 due primarily to lower effective interest rates related to the nonrecourse secured loan and the dollar denominated production payment. Depreciation and depletion expense decreased 36% to $33,631,000 in the first nine months of 1995 from $52,323,000 in the first nine months of 1994 due to the decrease in production, as well as a decrease in the depletion rate per unit of production. The depletion rate decreased to $1.06 per MCFE in the first nine months of 1995 from $1.14 per MCFE in the comparable 1994 period due to writedowns of the Company's oil and gas properties taken in the third and fourth quarters of 1994. At September 30, 1995, the Company had undeveloped properties with a cost basis of approximately $31,981,000 which were excluded from depletion, compared to $41,824,000 at September 30, 1994. The decrease is attributable to exploration and development work, as well as lease expirations and property sales. The Company was not required to record a writedown of the carrying value of its oil and gas properties in the first nine months of 1995. However, the Company was required to record a $30,000,000 writedown of the carrying value of its oil and gas properties in the first nine months of 1994. Writedowns of the full cost pool may be required in the future if prices decrease, estimated proved reserve volumes are revised downward or costs incurred in exploration, development, or acquisition activities exceed the discounted future net cash flows from the additional reserves, if any. As of December 31, 1993, there were no remaining deferred tax liabilities. No tax benefits for operating loss carryforwards have been recorded in the first nine months of 1995 or 1994. -10- CHANGES IN ACCOUNTING The Company changed its method of accounting for oil and gas sales from the sales method to the entitlements method effective January 1, 1994. Under the sales method previously used by the Company, all proceeds from production credited to the Company were recorded as revenue until such time as the Company had produced its share of related reserves. Under the entitlements method, revenue is recorded based upon the Company's share of volumes sold, regardless of whether the Company has taken its proportionate share of volumes produced. Under the entitlements method, the Company records a receivable or payable to the extent it receives less or more than its proportionate share of the related revenue. The Company believes that the entitlements method is preferable because it allows for recognition of revenue based on the Company's actual share of jointly owned production and provides a better matching of revenue and related expenses. The cumulative effect of the change for the periods through December 31, 1993, was a charge of $13,990,000. The effect of this change on the third quarter of 1994 was an increase in earnings from operations of $1,147,000 and an increase in production volumes of 586,000 MCF of natural gas. The effect of this change on the nine months ended September 30, 1994 was an increase in earnings from operations of $3,840,000 and an increase in production volumes of 1,804,000 MCF of natural gas. There were no related income tax effects in 1994. As the Company adopted this change in the fourth quarter of 1994, previously reported 1994 information has been restated to reflect the change effective January 1, 1994. LIQUIDITY AND CAPITAL RESOURCES RECENT DEVELOPMENTS During the second and third quarters of 1995, following receipt of shareholder approval, the Company consummated transactions with The Anschutz Corporation (Anschutz) and with JEDI, in each case as described below. ANSCHUTZ TRANSACTION: Pursuant to the Anschutz agreements, Anschutz purchased 18,800,000 shares of the Company's common stock and shares of a new series of preferred stock that are convertible into 6,200,000 additional shares of common stock for a total consideration of $45,000,000, or $1.80 per share. The preferred stock has liquidation preference and receives dividends ratably with the common stock. In addition, Anschutz received warrants to purchase 19,444,444 shares of the Company's common stock for $2.10 per share. The $2.10 warrants are exercisable during the first 18 months after the second closing, subject to extension in certain circumstances to 36 months. The Anschutz investment was made in two closings. In the first closing, which occurred on May 19, 1995, Anschutz loaned the Company $9,900,000. The loan carried interest at 8% per annum. The loan was nonrecourse to the Company and was secured by oil and gas properties owned by the Company, the preferred stock of Archean Energy Ltd. and a cash collateral account with an initial balance of $2,000,000. At the second closing, which occurred on July 27, 1995, the loan was converted into 5,500,000 shares of Forest's common stock. Also at the second closing, Anschutz purchased an additional 13,300,000 shares of common stock, the convertible preferred stock and the $2.10 warrants described above for $35,100,000. At the second closing, Anschutz also received from JEDI an option to purchase from JEDI up to 11,250,000 shares of common stock that JEDI may acquire from the Company upon exercise of the $2.00 warrants referred to below. This option will terminate 36 months after the second closing, or earlier upon the conveyance by the Company of certain property to JEDI in satisfaction of the restructured JEDI loan, as described below. Pursuant to the Anschutz agreements, Anschutz agreed to certain voting, acquisition, and transfer limitations regarding shares of common stock for five years after the second closing, including (a) a limit on voting, subject to certain exceptions, that would require Anschutz to vote all equity securities of the Company owned by Anschutz having voting power in excess of an amount equal to -11- 19.99% of the aggregate voting power of the equity securities of the Company then outstanding in the same proportion as all other equity securities of the Company voted with respect to the matter (other than equity securities owned by Anschutz) are voted, (b) the number of persons associated with Anschutz that may at any time be elected as directors of the Company is limited to three, and (c) a limit on the acquisition of additional shares of common stock by Anschutz (whether pursuant to the conversion of the new preferred stock, the exercise of the $2.10 warrants or the option received from JEDI, or otherwise), subject to certain exceptions, that would prohibit any acquisition by Anschutz that would result in Anschutz owning 40% or more of the shares of common stock then issued and outstanding. While the foregoing limitations are in effect, Anschutz will be entitled to a minority representation on the board of directors. JEDI TRANSACTION: At the second closing, Forest and JEDI restructured JEDI's existing loan which had a principal balance on July 27, 1995 of approximately $62,368,000 before unamortized discount of $4,984,000. JEDI relinquished the net profits interest that it held in certain Forest properties and reduced the interest rate relating to the loan. In consideration, JEDI received warrants to purchase 11,250,000 shares of the Company's common stock for $2.00 per share. The $2.00 warrants will expire on the earlier of December 31, 2002 or 36 months following exercise of the Company's option to convey properties in satisfaction of the JEDI loan (the Conveyance Option). Also at the second closing, JEDI granted a 36 month option to Anschutz to purchase from JEDI up to 11,250,000 shares at a purchase price per share of $2.00 plus an amount equal to the lesser of (a) 18% per annum from the second closing date to the date of exercise of the option, or (b) $3.10. JEDI will satisfy its obligations under the option to Anschutz by exercising the $2.00 warrants. Provided the Conveyance Option has not been exercised, the Company may terminate the $2.00 warrants at any time beginning 36 months after the second closing if the average closing price of the common stock for both the 90 day and 15 day periods immediately preceding the termination is in excess of $2.50 per share. As a result of the loan restructuring and the issuance of the warrants described below, the Company recorded a reduction of the amount of the related liability to approximately $45,493,000 and anticipates a reduction of annual interest expense of approximately $2,000,000. Subject to certain conditions, the Company may satisfy the restructured JEDI loan by conveying to JEDI the properties securing the loan during a 30-day period beginning 18 months after the second closing or, if the $2.10 warrants have been extended, during a 30-day period beginning 36 months after the second closing. Any such conveyance during the first 36 months after the second closing must be approved by Anschutz, if the option from JEDI has not then been exercised or terminated. Prior to the exercise or termination of the JEDI option, JEDI has agreed that it will not assign all or any portion of the JEDI loan or the $2.00 warrants to an unaffiliated person without the approval of the Company. The Company has agreed to not give such approval without the consent of Anschutz. The Company has agreed to use the proceeds from the exercise of the $2.00 warrants and the $2.10 warrants to repay principal and interest on the JEDI loan. The Company's short-term and long-term liquidity have been significantly improved by the conclusion of the transactions described above. SHORT-TERM LIQUIDITY During 1994 and the first nine months of 1995, the Company's operating cash flows and working capital were adversely affected by a severe industry-wide decline in the price of natural gas. The prices the Company receives for its future oil and natural gas production will significantly impact future operating cash flows. No prediction can be made as to the prices the Company will receive for its future oil and gas production. The Company has a secured credit facility (the Credit Facility) with The Chase Manhattan Bank, NA. (Chase) as agent for a group of banks. Effective August 31, 1995, an amended and restated credit agreement was approved by the Company and the banks. Under the amended Credit Facility, the Company may borrow up to $40,000,000 for acquisition or development of proved oil and gas reserves, working capital and/or general corporate purposes, subject to semi-annual redetermination at the banks' -12- discretion. The amount of the maximum borrowings under the Credit Facility is at the discretion of the banks and is subject to change at any time. The Credit Facility is secured by a lien on, and a security interest in, a majority of the Company's proved oil and gas properties and related assets (subject to prior security interests granted to holders of volumetric production payment agreements), a pledge of accounts receivable, material contracts and the stock of material subsidiaries, and a negative pledge on remaining assets. The amended maturity date of the Credit Facility is July 1, 1998. Under the terms of the Credit Facility, the Company is subject to certain covenants and financial tests (which may from time to time restrict the Company's activities), including restrictions or requirements with respect to working capital, net cash flow, additional debt, asset sales, mergers, cash dividends on capital stock and reporting responsibilities. At September 30, 1995 the outstanding balance under this facility was $19,800,000. The Company has used the facility for a $1,500,000 letter of credit, leaving an available borrowing capacity of $21,700,000. At September 30, 1995 the Company was in compliance with the covenants of its bank debt. Since December 31, 1994, the Company has taken steps and committed to certain actions to address its short-term liquidity needs, including the Anschutz and JEDI transactions described above. In addition to the Anschutz and JEDI transactions, the Company has taken or committed to other key short-term actions as set forth below. The Company has reduced its budgeted general and administrative expenditures for 1995 principally through a workforce reduction effective March 1, 1995. Currently, total overhead for 1995 is expected to decrease by approximately $4,700,000 compared to 1994 or by approximately 25%. In response to current market conditions, the Company reduced its budgeted capital expenditures during the first six months of 1995 to those required to maintain its producing oil and gas properties as well as certain essential development drilling and other activities. Due to the Anschutz investment, however, the Company's capital expenditures in the third quarter of 1995 and the projected capital expenditures in the fourth quarter of 1995 are expected to be greater than in the first six months of the year. The Company's 1995 budgeted expenditures for exploration and development for the fourth quarter of 1995 are approximately $5,348,000 and $3,246,000, respectively, including capitalized overhead of $1,224,000 and $194,000, respectively. The planned levels of capital expenditures could be reduced if the Company experiences lower than anticipated net cash provided by operations or other liquidity needs or could be increased if the Company experiences increased cash flow. On April 13, 1995 Forest sold to a bank a participation interest in Forest's claim evidenced by that certain proof of claim dated March 16, 1992 filed by Forest on March 17, 1992 against Columbia Gas Transmission Corp. (Transmission), a subsidiary of Columbia Gas System (CGS). The Company had two natural gas sales contracts with Transmission. On July 31, 1991, CGS and Transmission filed Chapter 11 bankruptcy petitions with the United States Bankruptcy Court for the District of Delaware. Consideration received from the bank consisted of a $4,000,000 nonrecourse loan, in exchange for which the bank will receive, solely from the proceeds of the bankruptcy claim, an amount equal to the loan principal plus accrued interest at 16.5% per annum plus 25% of the excess, if any, of the proceeds over the loan principal and interest. The Company may, under certain conditions, limit the overall cost of financing to 23.5% per annum by exercising its option to repurchase the bank's interest in the bankruptcy claim prior to receipt of any proceeds of the claim. Proceeds from this financing transaction were used for working capital needs. The Company currently intends to repay this loan in the fourth quarter of 1995. Pursuant to the Second Amended Plan of Reorganization (the "Plan") of Columbia Gas Transmission Corporation, as amended, Forest expects to receive a minimum distribution of approximately $6,800,000. A hearing to consider confirmation of the Plan was scheduled to commence on November 13, 1995. If the current Plan is confirmed, Forest expects to record income of approximately $4,000,000. Net cash proceeds will be less than the settlement amount due to payments which will be made to the bank and other third parties. -13- Based on the Company's actions taken to date and its plans, including the recent developments described above, management believes the Company will have adequate sources of short-term liquidity to meet its working capital needs, fund capital expenditures at the levels described above, and meet its current debt service obligations. CASH FLOW Historically, one of the Company's primary sources of capital has been funds provided by operations, which has varied dramatically in prior periods, depending upon factors such as natural gas price fluctuations and contract settlements which are difficult to predict. The following summary table reflects comparative cash flows for the Company for the periods ended September 30, 1995 and 1994:
Nine Months Ended --------------------------- September 30, September 30, 1995 1994 ------------- ------------- (In Thousands) Funds provided by operations (A) $ 21,694 52,651 Net cash provided (used) by operating activities (4,253) 25,843 Net cash used by investing activities (17,235) (15,398) Net cash provided (used) by financing activities 22,037 (15,531)
(A) Funds provided by operations consists of net cash provided (used) by operating activities exclusive of adjustments for working capital items, proceeds from volumetric production payments and amortization of deferred revenue. This information is being presented in accordance with industry practice and is not intended to be a substitute for cash provided by operating activities, a measure of performance prepared in accordance with generally accepted accounting principles, and should not be relied upon as such. As discussed previously under "Results of Operations," the Company's production volumes decreased significantly in the first nine months of 1995 compared to the prior year. Lower production volumes coupled with decreased prices for natural gas resulted in a 59% decrease in funds provided by operations to $21,694,000 in the first nine months of 1995 from $52,651,000 in the first nine months of 1994. The Company experienced a net use of cash for operating activities of $4,253,000 in the first nine months of 1995 compared to $25,843,000 of net cash provided by operating activities in the corresponding prior year period; this decrease is attributable to lower production volumes and decreased prices discussed above. The Company used $17,235,000 for investing activities in the 1995 period compared to $15,398,000 in the prior year period due to higher direct expenditures and lower proceeds from property sales. The increase in cash due to financing activities of $22,037,000 in the 1995 period was the result of the net proceeds from the issuance of stock and warrants to Anschutz and the proceeds from the sale of the participation interest in the bankruptcy claim which were partially offset by repayments of the Company's Credit Facility. In the first nine months of 1994, the Company had a net use of cash for financing activities of $15,531,000, primarily consisting of the redemption of subordinated debentures and a decrease in other liabilities. LONG-TERM LIQUIDITY The Company has historically addressed its long-term liquidity needs through the use of nonrecourse production-based financing and through issuance of debt and common stock when market conditions permit. Many of the factors which may affect the Company's future operating performance and long-term liquidity are beyond the Company's control, including, but not limited to, oil and natural gas prices, governmental actions and taxes, the availability and attractiveness of properties for acquisition, the adequacy and attractiveness of financing and operational results. The Company continues to examine alternative sources of long-term liquidity, including public and private issuances of equity, refinancing debt with equity and sales of non-strategic assets. -14- VOLUMETRIC PRODUCTION PAYMENTS As of September 30, 1995, deferred revenue relating to production payments was $18,501,000 and the annual amortization of deferred revenue and the corresponding delivery and net sales volumes were as set forth below:
Net sales volumes Volumes required to be attributable to production delivered to Enron payment deliveries (1) ---------------------- -------------------------- Natural Natural Annual amortization Oil Gas Oil Gas of deferred revenue (MBBLS) (MMCF) (MBBLS) (MMCF) ------------------- ------- -------- ------- ------- (In Thousands) Remainder of 1995 $ 3,365 41 1,653 34 1,375 1996 7,545 87 3,721 73 3,095 1997 2,439 - 1,410 - 1,173 1998 1,592 - 892 - 742 Thereafter 3,560 - 1,994 - 1,658 ------- --- ----- --- ----- $18,501 128 9,670 107 8,043 ======= === ===== === =====
(1) Represents volumes required to be delivered to Enron net of estimated royalty volumes. NONRECOURSE SECURED LOAN AND DOLLAR-DENOMINATED PRODUCTION PAYMENT Under the terms of the JEDI loan and the dollar-denominated production payment, the Company is required to make payments based on the net proceeds, as defined, from certain subject properties. The terms of the JEDI loan have been restructured based on the terms of certain agreements described in "Recent Developments." The JEDI loan was initially recorded at a discounted amount to reflect the conveyance to the lender of a 20% interest in the net profits, as defined, of properties located in south Texas. Before restructuring, the JEDI loan bore annual interest at the rate of 12.5%. Pursuant to the restructuring of the JEDI loan described above in "Recent Developments," the net profits interest has been eliminated and the required interest payments reduced. Under the restructured loan, the Company is required to pay interest at 12.5% per annum on $40,316,000 of the loan balance. All principal payments will be applied to reduce this balance, as will the proceeds, if any, from the exercise of the $2.10 warrants. The remaining loan balance, which was $22,368,000 as of September 30, 1995, is non-interest bearing and will be reduced by principal payments made after full repayment of the $40,316,000 balance as well as by the proceeds, if any, from the exercise of the $2.00 warrants. At September 30, 1995, the principal amount of the loan was $62,684,000 and the recorded liability was $46,069,000. Under the terms of the JEDI loan, additional funds may be advanced to fund a portion of the development projects which will be undertaken by the Company on the properties pledged as security for the loan. Payments of principal and interest under the JEDI loan are due monthly and are equal to 90% of total net operating income from the secured properties, reduced by 80% of allowable capital expenditures, as defined. The Company's current estimate under the restructured agreement, based on expected production and prices, budgeted capital expenditure levels and expected discount amortization, is that the recorded liability will increase by approximately $618,000 during the remainder of 1995. The increase in the liability is due to projected cash flows that do not cover projected interest requirements as a result of declining production on the existing wells. New drilling and recompletions should reverse this trend in the beginning of 1996. The dollar-denominated production payment was entered into in 1992 to finance property acquisitions. The original amount of the dollar-denominated production payment was $37,550,000, which was recorded as a liability of $28,805,000 after a discount to reflect a market rate of interest. At September 30, 1995 the remaining principal amount was $21,155,000 and the recorded liability was $16,826,000. Under the terms of this production payment, the Company must make a monthly cash -15- payment which is the greater of a base amount or 85% of the net proceeds from the subject properties, as defined, except that the amount required to be paid in any given month shall not exceed 100% of the net proceeds from the subject properties. Forest retains a management fee equal to 10% of sales from the properties, which is deducted in the calculation of net proceeds. The Company's current estimate, based on expected production and prices, budgeted capital expenditure levels and expected discount amortization, is that the remaining 1995 payments will reduce the recorded liability by approximately $559,000. HEDGING PROGRAM In addition to the volumes of natural gas and oil dedicated to volumetric production payments, the Company has also used energy swaps and other financial agreements to hedge against the effects of fluctuations in the sales prices for oil and natural gas. In a typical swap agreement, the Company receives the difference between a fixed price per unit of production and a price based on an agreed upon third-party index if the index price is lower. If the index price is higher, the Company pays the difference. The Company's current swaps are settled on a monthly basis. At September 30, 1995, the Company had natural gas swaps and collars for an aggregate of approximately 29.2 BBTU (billion British Thermal Units) per day of natural gas during the remainder of 1995 at fixed prices and floors (NYMEX basis) ranging from $1.90 to $2.41 per MMBTU (million British Thermal Units) and an aggregate of approximately 17.5 BBTU per day of natural gas during 1996 at fixed prices and floors ranging from $1.90 to $2.48 per MMBTU. At September 30, 1995, the Company had oil swaps for an aggregate of approximately 1,300 barrels per day of oil during the remainder of 1995 at fixed prices ranging from $16.70 to $17.75 (NYMEX basis) and an aggregate of approximately 600 barrels per day of oil during 1996 at fixed prices ranging from $16.70 to $17.75 per barrel. In the third quarter of 1995, the Company sold a call at $2.00 per MMBTU on 10,000 MMBTU per day to Enron for the period from January 1, 1996 to December 31, 1997 for a price of $.086 per MMBTU. Enron will pay the $.086 per MMBTU price every month. The Company will pay Enron only in the event that the average of the last three days NYMEX price exceeds $2.00 per MMBTU for any month. SUMMARY OF CASH FLOW CONSIDERATIONS AND EXPOSURE TO PRICE AND RESERVE RISK Pursuant to certain of the Company's financing arrangements, significant amounts of production are contractually dedicated to production payments and the repayment of nonrecourse debt over the next five years (dedicated volumes). The dedicated volumes decrease over the next five years and also decrease as a percentage of the Company's total production during this period. The production volumes not contractually dedicated to repayment of nonrecourse debt (undedicated volumes) are relatively stable but increase as a percentage of the Company's total production over the next five years. This relative stability of undedicated volumes is due to the fact that the decrease in dedicated volumes corresponds generally to the Company's estimates of the decrease in its total production. In the Company's opinion, the relative stability of undedicated volumes should provide a more constant level of cash flow available for corporate purposes other than debt repayment. As a result of volumetric production payments, energy swaps, and fixed contracts, the Company currently estimates that approximately 57% of its natural gas production and 58% of its oil production will not be subject to price fluctuations from October 1995 through December 1995. It is estimated that existing volumetric production payments, energy swaps, fixed contracts and other hedging instruments currently cover approximately 56% of the Company's natural gas production and 23% of its oil production for the year ending December 31, 1996. Currently, it is the Company's intention to commit no more than 75% of its anticipated total production and no more than 85% of its anticipated undedicated production to such arrangements at any point in time. See "Hedging Program" above. -16- CAPITAL EXPENDITURES The Company's expenditures for property acquisition, exploration and development for the first nine months of 1995 and 1994, including overhead related to these activities which was capitalized, were as follows:
Nine months ended September 30, ------------------------------- 1995 1994 ------- ------- (In Thousands) Property acquisition costs: Proved properties $ 199 8,835 Undeveloped properties 192 - ------- ------ 391 8,835 Exploration costs: Direct costs 7,482 5,501 Overhead capitalized 600 414 ------- ------ 8,082 5,915 Development costs: Direct costs 8,032 6,693 Overhead capitalized 3,769 5,109 ------- ------ 11,801 11,802 ------- ------ $20,274 26,552 ======= ======
In response to current market conditions, the Company reduced its budgeted capital expenditures for the first six months of 1995 to those required to maintain its producing oil and gas properties as well as certain essential development, drilling and other activities. Due to the liquidity provided by the Anschutz investment, however, the Company's capital expenditures increased in the third quarter of 1995 and the projected capital expenditures in the fourth quarter of 1995 are expected to be greater than in the first six months of the year. The Company's 1995 estimated expenditures for exploration and development for the fourth quarter of 1995 are approximately $5,348,000 and $3,246,000, respectively, including capitalized overhead of $1,224,000 and $194,000, respectively. The planned levels of capital expenditures could be further reduced if the Company experiences lower than anticipated net cash provided by operations or other liquidity needs or could be increased if the Company experiences increased cash flow. During 1995, the Company intends to continue its strategy of acquiring reserves that meet its investment criteria; however, no assurance can be given that the Company can locate or finance any property acquisitions. In order to finance future acquisitions, the Company is exploring many options including, but not limited to: a variety of debt instruments; sale of production payments or other nonrecourse financing; the sale of equity; the issuance of net profits interests; sales of non-strategic properties, prospects and technical information; or joint venture financing. Availability of these sources of capital and, therefore, the Company's ability to execute its operating strategy will depend upon a number of factors, some of which are beyond the control of the Company. If adequate sources of liquidity are not available to the Company in 1995, the amount invested in exploration, development and reserve acquisitions may be reduced due principally to the desire of the Company to protect its capital in the event of inadequate liquidity. DIVIDENDS On February 1, 1995, a cash dividend of $.1875 on its $.75 Convertible Preferred Stock was paid to holders of record on January 10, 1995. On May 1, 1995 a stock dividend of 0.094693 shares of Common Stock was paid on each share of its outstanding $.75 Convertible Preferred Stock to holders of record on April 10, 1995. On August 1, 1995 a stock dividend of 0.112045 shares of Common Stock was -17- paid on each share of its outstanding $.75 Convertible Preferred Stock to holders of record on July 10, 1995. On November 1, 1995 a stock dividend of .074898 shares of Common Stock was paid on each share of its outstanding $.75 Convertible Preferred Stock to holders of record on October 10, 1995. As of March 31, 1995 the Company was prohibited from paying cash dividends on its $.75 Convertible Preferred Stock due to restrictions contained in the Credit Agreement with its lending banks. The Indenture executed in connection with the 11 1/4% Senior Subordinated Notes due 2003 and the Credit Facility contain restrictive provisions governing dividend payments. GAS BALANCING It is customary in the industry for various working interest partners to produce more or less than their entitlement share of natural gas from time to time. The Company's net overproduced position decreased in the first nine months of 1995 to approximately 6.7 BCF from approximately 8.4 BCF at December 31, 1994. At September 30, 1995 the undiscounted value of this imbalance is approximately $10,926,000, of which $5,000,000 is reflected on the balance sheet as a short-term liability and the remaining $5,926,000 is reflected on the balance sheet as a long-term liability. In the absence of a gas balancing agreement, the Company is unable to determine when its partners may choose to make up their share of production. If and when the Company's partners do make up their share of production, the Company's deliverable natural gas volumes could decrease, adversely affecting cash flow. -18- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Royalty owners have filed two separate class action lawsuits against the Company in the State District Court of Caddo County, Oklahoma. In each case the plaintiff has alleged unjust enrichment, breach of fiduciary duty, constructive fraud and breach of contract. The claims in both suits are based on the allegation that the Company underpaid royalties on the consideration received pursuant to settlement agreements with ONEOK, Inc. in 1990 and 1992. In MODRALL V. FOREST OIL CORPORATION, Case No. CJ-95-67, filed on March 24, 1995, the Court, on September 13, 1995, certified a class comprised of the royalty and overriding royalty owners in the three wells involved in the 1992 ONEOK, Inc. settlement. No class has been certified as yet in MERCO OF OKLAHOMA, INC. V. FOREST OIL CORPORATION, Case No. CJ-95-230, which suit was filed on September 27, 1995. This suit involves the 1990 ONEOK, Inc. settlement. The plaintiffs in both suits seek actual damages in excess of $10,000, punitive damages in excess of $10,000, an accounting, interest and costs. There has been no specific determination of the amount in controversy in either case. The plaintiffs allege in both cases that they are entitled to share in all value received by the Company under the aforesaid settlements, including proceeds not attributable to actual gas production. The Company believes that it was not required to pay a royalty on such proceeds, and therefore intends to vigorously resist these claims. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's Annual Meeting held on July 26, 1995, the shareholders of the Company (a) elected two (2) Class I directors; (b) ratified the appointment of KPMG Peat Marwick as independent auditors for the Company in 1995; (c) approved certain transactions between the Company and The Anschutz Corporation (Anschutz) and Joint Energy Development Investments Limited Partnerships (JEDI) and (d) amended the Company's Restated Certificate of Incorporation. With respect to the election of the Class I directors, votes for and withheld with respect to each director are as follows: William L. Dorn For 16,584,108 votes Withheld 1,459,088 votes James H. Lee For 16,573,209 votes Withheld 1,469,987 votes In all such cases, there were no broker non-votes. The terms of the following directors continued after the meeting: Donald H. Anderson, Austin M. Beutner, Robert S. Boswell, Dale F. Dorn, John C. Dorn, Harold H. Hammar, Jeffrey W. Miller, Jack D. Riggs and Michael B. Yanney. The shareholders voted 17,662,840 shares in favor of the transaction with Anschutz and JEDI, while 229,843 shares were voted against and 139,530 shares abstained from voting. Directed broker non-votes totaled 10,983. 16,915,247 votes were cast in favor of the amendment of the Restated Certificate of Incorporation to increase the number of authorized shares of Common stock to 200,000,000. 984,560 votes were cast against the amendment and 143,389 votes abstained. There were no broker non-votes. With respect to the ratification of the appointment of KPMG Peat Marwick as independent auditors for the Company for 1995, 17,901,254 votes were cast in favor of such ratification, 69,989 votes were cast against such ratification, 71,953 votes abstained from voting and there were no broker non-votes. Under New York law and the Company's By-laws, abstentions and broker non-votes have no effect on the outcome of the vote on any of the matters considered at the Annual Meeting. A broker non-vote occurs if a broker or other nominee does not have discretionary authority and has not received instructions with respect to a particular item. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 3(i) Restated Certificate of Incorporation of Forest Oil Corporation dated October 14, 1993, incorporated herein by reference to Exhibit 3(i) to Form 10-Q for Forest Oil Corporation for the quarter ended September 30, 1993 (File No. 0-4597). Exhibit 3(i)(a) Certificate of Amendment of the Restated Certificate of Incorporation dated as of July 20, 1995, incorporated herein by reference to Exhibit 3(i)(a) to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1995. -19- Exhibit 3(i)(b) Certificate of Amendment of the Certificate of Incorporation dated as of July 26, 1995, incorporated herein by reference to Exhibit 3(i)(b) to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1995. Exhibit 3(ii) Restated By-Laws of Forest Oil Corporation as of May 9, 1990, Amendment No. 1 to By-Laws dated as of April 2, 1991, Amendment No. 2 to By-Laws dated as of May 8, 1991, Amendment No. 3 to By-Laws dated as of July 30, 1991, Amendment No. 4 to By-Laws dated as of January 17, 1992, Amendment No. 5 to By-Laws dated as of March 18, 1993 and Amendment No. 6 to By-Laws dated as of September 14, 1993, incorporated herein by reference to Exhibit 3(ii) to Form 10-Q for Forest Oil Corporation for the quarter ended September 30, 1993 (File No. 0-4597). Exhibit 3(ii)(a) Amendment No. 7 to By-Laws dated as of December 3, 1993, incorporated herein by reference to Exhibit 3(ii)(a) to Form 10-K for Forest Oil Corporation for the year ended December 31, 1993 (File No. 0-4597). Exhibit 3(ii)(b) Amendment No. 8 to By-Laws dated as of February 24, 1994, incorporated herein by reference to Exhibit 3(ii)(b) to Form 10-K for Forest Oil Corporation for the year ended December 31, 1993 (File No. 0-4597). Exhibit 3(ii)(c) Amendment No. 9 to By-Laws dated as of May 15, 1995, incorporated herein by reference to Exhibit 3(ii)(c) to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1995. Exhibit 3(ii)(d) Amendment No. 10 to By-Laws dated as of July 27, 1995, incorporated herein by reference to Exhibit 3(ii)(d) to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1995. *Exhibit 4.1 Amended and Restated Credit Agreement dated as of August 31, 1995 between Forest Oil Corporation and Subsidiaries, Borrowers and Subsidiary Guarantors and The Chase Manhattan Bank (National Association), as agent. Exhibit 10.1 Description of Employee Overriding Royalty Bonuses, incorporated herein by reference to Exhibit 10.1 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1990 (File No. 0-4597). Exhibit 10.2 Description of Executive Life Insurance Plan, incorporated herein by reference to Exhibit 10.2 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1991 (File No. 0-4597). Exhibit 10.3 Form of non-qualified Executive Deferred Compensation Plan (File No. 0-4597), incorporated herein by reference to Exhibit 10.3 to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1994 (File No. 0-4597). Exhibit 10.4 Form of non-qualified Supplemental Executive Retirement Plan, incorporated herein by reference to Exhibit 10.4 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1990 (File No. 0-4597). Exhibit 10.5 Form of Executive Retirement Agreement, incorporated herein by reference to Exhibit 10.5 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1990 (File No. 0-4597). Exhibit 10.6 Forest Oil Corporation 1992 Stock Option Plan and Option Agreement, incorporated herein by reference to Exhibit 10.7 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1991 (File No. 0-4597). Exhibit 10.7 Letter Agreement with Richard B. Dorn relating to a revision to Exhibit 10.5 hereof, incorporated herein by reference to Exhibit 10.11 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1991 (File No. 0-4597). Exhibit 10.8 Forest Oil Corporation Annual Incentive Plan effective as of January 1, 1992, incorporated herein by reference to Exhibit 10.8 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1992 (File No. 0-4597). -20- Exhibit 10.9 Form of Executive Severance Agreement, incorporated herein by reference to Exhibit 10.9 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1993 (File No. 0-4597). Exhibit 10.10 Form of Settlement Agreement and General Release between John F. Dorn and Forest Oil Corporation dated March 7, 1994, incorporated herein by reference to Exhibit 10.10 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1993 (File No. 0-4597). *Exhibit 11 Forest Oil Corporation and Subsidiaries - Calculation of Earnings per Share of Common Stock. *Exhibit 27 Financial Data Schedule. * Filed with this report. (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed by the Company during the third quarter of 1995. -21- 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. FOREST OIL CORPORATION (Registrant) Date: November 14, 1995 /s/ Daniel L. McNamara ------------------------------------- Daniel L. McNamara Corporate Counsel and Secretary (Signed on behalf of the registrant) /s/ David H. Keyte ------------------------------------- David H. Keyte Vice President and Chief Accounting Officer (Principal Accounting Officer) -22- EX-4.1 2 AMDED & RESTATED C.A. EXECUTION COUNTERPART ================================================================= FOREST OIL CORPORATION and SUBSIDIARY BORROWERS and SUBSIDIARY GUARANTORS _____________________________ AMENDED AND RESTATED CREDIT AGREEMENT Dated as of August 31, 1995 ______________________________ THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Agent ================================================================= TABLE OF CONTENTS This Table of Contents is not part of the Agreement to which it is attached but is inserted for convenience of reference only. Page Section 1. Definitions and Accounting Matters 1 1.01 Certain Defined Terms 1 1.02 Accounting Terms and Determinations 26 1.03 Borrowing Base 27 1.04 Types of Loans 29 Section 2. Commitments, Loans, Notes and Prepayments 30 2.01 Loans 30 2.02 Borrowings 31 2.03 Letters of Credit 31 2.04 Changes of Commitments 36 2.05 Commitment Fee 36 2.06 Lending Offices 36 2.07 Several Obligations; Remedies Independent 36 2.08 Notes 37 2.09 Optional Prepayments and Conversions or Continuations of Loans 37 2.10 Mandatory Prepayments and Reductions of Commitments 38 Section 3. Payments of Principal and Interest 40 3.01 Repayment of Loans 40 3.02 Interest 40 Section 4. Payments; Pro Rata Treatment; Computations; Etc. 41 4.01 Payments 41 4.02 Pro Rata Treatment 42 4.03 Computations 43 4.04 Minimum Amounts 43 4.05 Certain Notices 43 4.06 Non-Receipt of Funds by the Agent 44 4.07 Sharing of Payments, Etc. 45 Section 5. Yield Protection, Etc. 47 5.01 Additional Costs 47 5.02 Limitation on Types of Loans 49 5.03 Illegality 50 5.04 Treatment of Affected Loans 50 5.05 Compensation 51 5.06 Additional Costs in Respect of Letters of Credit 52 (i) Page Section 6. Guarantee 52 6.01 Guarantee 52 6.02 Obligations Unconditional 53 6.03 Reinstatement 54 6.04 Subrogation 54 6.05 Remedies 54 6.06 Continuing Guarantee 55 6.07 Rights of Contribution 55 6.08 Limitation on Guarantee Obligations 55 Section 7. Conditions Precedent 56 7.01 Conditions to Effectiveness 56 7.02 Initial and Subsequent Extensions of Credit 59 Section 8. Representations and Warranties 60 8.01 Corporate Existence 60 8.02 Financial Condition 60 8.03 Litigation 60 8.04 No Breach 60 8.05 Action 61 8.06 Approvals 61 8.07 Use of Credit 61 8.08 ERISA 62 8.09 Taxes 62 8.10 Investment Company Act 62 8.11 Public Utility Holding Company Act 62 8.12 Material Agreements and Liens 62 8.13 Environmental Matters 63 8.14 Subsidiaries, Etc. 65 8.15 True and Complete Disclosure 66 Section 9. Covenants of the Obligors 66 9.01 Financial Statements Etc 67 9.02 Litigation 70 9.03 Existence, Etc. 71 9.04 Insurance 71 9.05 Prohibition of Fundamental Changes 71 9.06 Limitation on Liens 73 9.07 Indebtedness 75 9.08 Investments 76 9.09 Dividend Payments 78 9.10 Debt Coverage Ratio; Interest Coverage Ratio 79 9.11 Working Capital 79 9.12 Lines of Business 79 9.13 Transactions with Affiliates 80 (ii) Page 9.14 Use of Proceeds 80 9.15 Certain Obligations Respecting Subsidiaries 80 9.16 Additional Borrowers and Subsidiary Guarantors 81 9.17 Modifications and Payments of Subordinated Indebtedness and Non-Recourse Indebtedness 81 9.18 Changes to Production Payments 82 9.19 Unrestricted Subsidiaries 82 9.20 Amendments to Transactions Documents 83 Section 10. Events of Default 83 Section 11. The Agent 87 11.01 Appointment, Powers and Immunities 87 11.02 Reliance by Agent 88 11.03 Defaults 88 11.04 Rights as a Bank 89 11.05 Indemnification 89 11.06 Non-Reliance on Agent and Other Banks 90 11.07 Failure to Act 90 11.08 Resignation or Removal of Agent 90 11.09 Consents under Other Basic Documents 91 11.10 Collateral Sub-Agents 91 Section 12. Miscellaneous 92 12.01 Waiver 92 12.02 Notices 92 12.03 Expenses. 92 12.04 Amendments, Etc. 93 12.05 Successors and Assigns 94 12.06 Assignments and Participations 94 12.07 Indemnification. 96 12.08 Survival 97 12.09 Captions 97 12.10 Counterparts 97 12.11 Governing Law; Submission to Jurisdiction 97 12.12 Waiver of Jury Trial 98 12.13 Treatment of Certain Information 98 (iii) SCHEDULE I - Material Agreements and Liens SCHEDULE II - Hazardous Materials SCHEDULE III - Subsidiaries and Investments SCHEDULE IV - JEDI Collateral (Leases) EXHIBIT A - Form of Note EXHIBIT B - Form of Security Agreement EXHIBIT C - Form of Opinion of Counsel to the Obligors EXHIBIT D - Form of Opinion of Special Counsel to Chase EXHIBIT E - Form of Mortgage EXHIBIT F - Form of Pledge Agreement EXHIBIT G - Form of Confidentiality Agreement (iv) AMENDED AND RESTATED CREDIT AGREEMENT dated as of August 31, 1995, between: FOREST OIL CORPORATION, a corporation duly organized and validly existing under the laws of the State of New York (the "Company"); each of the Subsidiaries of the Company that becomes a borrower pursuant to Section 9.16 hereof (individually, a "Subsidiary Borrower" and, collectively with the Company, the "Borrowers"); each of the Subsidiaries of the Company that becomes a guarantor pursuant to Section 9.16 hereof (individually, a "Subsidiary Guarantor" and, collectively, the "Subsidiary Guarantors" and, together with the Borrowers, the "Obligors"); each of the lenders that is a signatory hereto identified under the caption "BANKS" on the signature pages hereto or which, pursuant to Section 12.06(b) hereof, shall become a "Bank" hereunder (individually, a "Bank" and, collectively, the "Banks"); and THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), a national banking association, as agent for the Banks (in such capacity, together with its successors in such capacity, the "Agent"). The Company, the Existing Banks (as defined below) and the Agent are parties to a Credit Agreement dated as of December 1, 1993 (as heretofore modified and supplemented and in effect on the date of this Agreement, (the "Original Credit Agreement")). The parties hereto wish to amend and restate the Original Credit Agreement in its entirety, all on the terms and conditions hereinafter set forth. Accordingly, the parties hereto agree to amend and restate the Original Credit Agreement so that, amended and restated, it reads in its entirety as provided herein. Section 1. Definitions and Accounting Matters. 1.01 Certain Defined Terms. As used herein, the following terms shall have the following meanings (all terms defined in this Section 1.01 or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa): "Affiliate" shall mean any Person that directly or indirectly controls, or is under common control with, or is controlled by, the Company and, if such Person is an individual, any member of the immediate family (including parents, spouse, children and siblings) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise), provided that, in any event, any Person that owns directly or indirectly securities having 10% or more of the -2- voting power for the election of directors or other governing body of a corporation or 10% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person. Notwithstanding the foregoing, (a) no individual shall be an Affiliate solely by reason of his or her being a director, officer or employee of the Company or any of its Subsidiaries and (b) none of the Restricted Subsidiaries of the Company shall be, for purposes of this definition, Affiliates of the Company. "Amendment Fee Letter" shall mean the letter agreement dated August 31, 1995 between the Agent and the Company. "Anschutz" shall mean The Anschutz Corporation, a Kansas corporation. "Applicable Lending Office" shall mean, for each Bank and for each Type of Loan, the "Lending Office" of such Bank (or of an affiliate of such Bank) designated for such Type of Loan on the signature pages hereof or such other office of such Bank (or of an affiliate of such Bank) as such Bank may from time to time specify to the Agent and the Company as the office by which its Loans of such Type are to be made and maintained. "Applicable Margin" shall mean, with respect to each Type of Loan for any period during which the outstanding Loans and Letters of Credit Liabilities under this Agreement are within the range specified under the "Ratio of Aggregate Outstanding Liabilities to then Existing Borrowing Base" in Schedule X below, the percentage per annum set forth opposite such range under such Type of Loan in such Schedule X, provided that the "Applicable Margin" shall be increased or reduced, as applicable, on the date of the borrowing of a Loan or the issuance of a Letter of Credit, or the repayment of a Loan or expiration of a Letter of Credit, as the case may be, which results in the outstanding Loans and Letter of Credit Liabilities shifting from one range to another. Schedule X __________ Ratio of Aggregate Applicable Margin (% p.a.) Outstanding Liabilities Base Rate Loans Eurodollar Loans to then Existing _______________ ________________ Borrowing Base ______________ 0 - .600:1.00 1/4% 1 1/2% .601:1.00 to .800:1.00 1/2% 1 3/4% .801:1.00 to 1.000:1.00 1% 2 1/4% -3- "Bankruptcy Code" shall mean the Federal Bankruptcy Code of 1978, as amended from time to time. "Banks" shall mean (a) on the date hereof, the Banks having Commitments as indicated on the signature pages hereof and (b) thereafter, the Banks from time to time holding Loans and (if the same have not expired or been terminated) Commitments after giving effect to any assignments thereof permitted by Section 12.06 hereof. "Base Rate" shall mean, for any day, a rate per annum equal to the higher of (a) the Federal Funds Rate for such day plus 1/2 of 1% and (b) the Prime Rate for such day. Each change in any interest rate provided for herein based upon the Base Rate resulting from a change in the Base Rate shall take effect at the time of such change in the Base Rate. "Base Rate Loans" shall mean Loans that bear interest at rates based upon the Base Rate. "Basic Documents" shall mean, collectively, this Agreement, the Notes, the Letter of Credit Documents and the Security Documents. "Borrowing Base" has the meaning given to such term in Section 1.03 hereof. "Borrowing Base Deficiency" has the meaning given to such term in Section 2.10(a) hereof. "Business Day" shall mean (a) any day on which commercial banks are not authorized or required to close in New York City and (b) if such day relates to a borrowing of, a payment or prepayment of principal of or interest on, a Conversion of or into, or an Interest Period for, a Eurodollar Loan or a notice by any of the Borrowers with respect to any such borrowing, payment, prepayment, Conversion or Interest Period, any day on which dealings in Dollar deposits are carried out in the London interbank market. "Capital Expenditures" shall mean, for any period, expenditures (including, without limitation, the aggregate amount of Capital Lease Obligations incurred during such period) made by the Company or any of its Subsidiaries in connection with the acquisition and exploitation of, or the exploration for or development or production of, hydrocarbon reserves or to acquire or construct fixed assets, plant and equipment (including renewals, improvements and replacements, but excluding repairs) during such period computed in accordance with GAAP. "Capital Lease Obligations" shall mean, for any Person, all obligations of such Person to pay rent or other amounts under -4- a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP. "Capital Stock" shall mean, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) of corporate stock or partnership interests and any and all warrants, options and rights with respect thereto (whether or not currently exercisable), including each class of common stock and preferred stock of such Person. "Cash Flow" shall mean, for any period, for the Company and the Restricted Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), the sum of the following: the total sales revenue from natural gas, oil and other hydrocarbon products for such period plus cash dividend payments, if any, by an Unrestricted Subsidiary to the Company or a Restricted Subsidiary in an aggregate amount in excess of the aggregate amount of the Investments in such Unrestricted Subsidiary by the Company and the Restricted Subsidiaries during such period plus the total Net Cash Payments (excluding the fair market value of non-cash consideration) received by the Company and its Restricted Subsidiaries during such period plus the total cash proceeds received by the Company as a result of the issuance or sale of Capital Stock of the Company (other than Disqualified Stock of the Company) that has been utilized to repay any Indebtedness (to the extent permitted pursuant to the terms of this Agreement) of the Company plus the total cash proceeds received from any Disposition, including any Disposition of Unrestricted Properties to the extent the proceeds of such Disposition are applied during such period in satisfaction of the obligations described in clause (b) of this definition plus the net proceeds received from the issuance of any Debt to the extent such net proceeds are applied during such period in satisfaction of the obligations described in clause (b) of this definition minus (a) the revenue attributable to Volumetric Production Payments for such period, (b) the interest and principal paid in satisfaction of obligations under Non-Recourse Debt financings for such period (other than Volumetric Production Payments), (c) oil and gas production expenses for such period and (d) total overhead costs paid or required to be paid in cash during such period (whether or not capitalized, but net of credits related to such expenses). "Casualty Event" shall mean, with respect to any Property of any Person, any loss of or damage to, or any condemnation or other taking of, such Property for which such -5- Person or any of its Subsidiaries receives insurance proceeds, or proceeds of a condemnation award or other compensation. "Change of Control" shall mean any event or series of events by which: (i) any "Person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of 40% or more of the total voting power of the Voting Stock of the Company; (ii) the Company consolidates with or merges or amalgamates with or into another Person or conveys, transfers, or leases all or substantially all of its assets to any other Person, or any Person consolidates with, or merges or amalgamates with or into the Company, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is changed into or exchanged for cash, securities or other property, other than any such transaction where (a) the outstanding Voting Stock of the Company is changed into or exchanged for Voting Stock of the surviving corporation which is not Disqualified Stock and (b) the holders of the Voting Stock of the Company immediately prior to such transaction own, directly or indirectly, not less than a majority of the Voting Stock of the surviving corporation immediately after such transaction; (iii) the shareholders of the Company approve any plan of liquidation or dissolution of the Company; or (iv) during any period of 12 consecutive months, individuals who at the beginning of such period constituted the board of directors of the Company (or whose nomination for election by the shareholders of the Company was approved by a vote of not less than a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the board of directors of the Company then in office. "Chase" shall mean The Chase Manhattan Bank (National Association). "Closing Date" shall mean December 1, 1993, the date upon which the initial extension of credit was made hereunder. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Collateral Account" shall have the meaning assigned to such term in Section 4.01 of the Security Agreement. "Commitment" shall mean, for each Bank, the obligation of such Bank to make Loans in an aggregate principal amount up to but not exceeding (a) in the case of a Bank that is a party to this Agreement as of the date hereof, the amount set opposite the name of such Bank on the signature pages hereof under the caption "Commitment" or (b) in the case of any other Bank, the aggregate -6- amount of the Commitments of other Banks acquired by it pursuant to Section 12.06(b) hereof (in each case, as the same may be reduced from time to time pursuant to Section 2.04 hereof or increased or reduced from time to time pursuant to said Section 12.06(b)). "Commitment Percentage" shall mean, with respect to any Bank, the ratio of the amount of the Commitment of such Bank to the aggregate amount of the Commitments of all of the Banks. "Commitment Termination Date" shall mean July 1, 1998. "Commodity Hedging Agreement" shall mean, for any Person, an agreement or arrangement between such Person and one or more financial institutions or other entities providing for the transfer or mitigation of risks of fluctuations in prices of hydrocarbons, either generally or under specific circumstances. "Consolidated Subsidiary" shall mean, for any Person, each Subsidiary of such Person (whether now existing or hereafter created or acquired) the financial statements of which are (or should have been) consolidated with the financial statements of such Person in accordance with GAAP. "Continue", "Continuation" and "Continued" shall refer to the continuation pursuant to Section 2.09 hereof of a Eurodollar Loan from one Interest Period to the next Interest Period. "Convert", "Conversion" and "Converted" shall refer to a conversion pursuant to Section 2.09 hereof of one Type of Loans into another Type of Loans, which may be accompanied by the transfer by a Bank (at its sole discretion) of a Loan from one Applicable Lending Office to another. "Debt Coverage Ratio" shall mean, for any period, the ratio of (a) Cash Flow for such period to (b) Debt Service for such period. "Debt Service" shall mean, for any period, the sum, for the Company and the Restricted Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) all payments of principal of Indebtedness (other than Non-Recourse Debt) scheduled to be made during such period plus (b) all Interest Expense for such period. "Deficiency Notice" shall have the meaning assigned to such term in Section 2.10 hereof. "Default" shall mean an Event of Default or an event that with notice or lapse of time or both would become an Event of Default. -7- "Determination Date" shall mean (a) each May 1 and October 15 of each year prior to the Commitment Termination Date and (b) 45 days after each other date, if any, on which a Reserve Evaluation Report is delivered to the Agent as contemplated hereby. "Determination Period" shall mean each period commencing on a Determination Date and ending on the day next preceding the next succeeding Determination Date. "Disposition" shall mean any sale, assignment, transfer or other disposition of any Property (whether now owned or hereafter acquired) by the Company or any of its Restricted Subsidiaries to any Person (other than by any such Restricted Subsidiary to the Company or any other Restricted Subsidiary, or by the Company to a Restricted Subsidiary), excluding any sale, assignment, transfer or other disposition of (i) any Property sold or disposed of in the ordinary course of business and on ordinary business terms and (ii) any Unrestricted Properties. "Disqualified Stock" means any Capital Stock of the Company or any Material Subsidiary of the Company which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event or with the passage of time, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the Commitment Termination Date or which is exchangeable or convertible into debt securities of the Company or any Material Subsidiary of the Company, except to the extent that such exchange or conversion rights cannot be exercised prior to the Commitment Termination Date. "Dividend Payment" shall mean dividends (in cash, Property or obligations) on, or other payments or distributions on account of, or the setting apart of money for a sinking or other analogous fund for, or the purchase, redemption, retirement or other acquisition of, any shares of any class of stock of the Company or any of its Subsidiaries or of any warrants, options or other rights to acquire the same (or to make any payments to any Person, such as "phantom stock" payments, where the amount thereof is calculated with reference to the fair market or equity value of the Company or any of its Subsidiaries), but excluding dividends payable solely in shares of common stock of the Company. "Dollar-Denominated Production Payments" shall mean production payment obligations of the Company or any of its Subsidiaries which are payable from a specified share of proceeds received from production from specific Properties, together with all undertakings and obligations in connection therewith. -8- "Dollars" and "$" shall mean lawful money of the United States of America. "Environmental Claim" shall mean, with respect to any Person, (a) any written or oral notice, claim, demand or other communication (collectively, a "claim") by any other Person alleging or asserting such Person's liability for investigatory costs, cleanup costs, governmental response costs, damages to natural resources or other Property, personal injuries, fines or penalties arising out of, based on or resulting from (i) the presence, or Release into the environment, of any Hazardous Material at any location, whether or not owned by such Person, or (ii) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. The term "Environmental Claim" shall include, without limitation, any claim by any governmental authority for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and any claim by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from the presence of Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment. "Environmental Laws" shall mean any and all present and future Federal, state, local and foreign laws, rules or regula tions, and any orders or decrees, in each case as now or here after in effect, relating to the regulation or protection of human health, safety or the environment or to emissions, dis charges, releases or threatened releases of pollutants, con taminants, chemicals or toxic or hazardous substances or wastes into the indoor or outdoor environment, including, without limitation, ambient air, soil, surface water, ground water, wetlands, land or subsurface strata, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals or toxic or hazardous substances or wastes. "Equity Rights" shall mean, with respect to any Person, any outstanding subscriptions, options, warrants, commitments, preemptive rights or agreements of any kind (including, without limitation, any stockholders' or voting trust agreements) for the issuance, sale, registration or voting of, or outstanding securities convertible into, any additional shares of Capital Stock of any class, or partnership or other ownership interests of any type in, such Person. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" shall mean any corporation or trade or business that is a member of any group of organizations (a) described in Section 414(b) or (c) of the Code of which the -9- Company is a member and (b) solely for purposes of potential lia bility under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of which the Company is a member. "Eurodollar Base Rate" shall mean, with respect to any Eurodollar Loan for any Interest Period therefor, the arithmetic mean (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the respective rates per annum quoted by the respective Reference Banks at approximately 11:00 a.m. London time (or as soon thereafter as practicable) on the date two Business Days prior to the first day of such Interest Period for the offering by the respective Reference Banks to leading banks in the London interbank market of Dollar deposits having a term comparable to such Interest Period and in amounts comparable to the principal amount of the Eurodollar Loan to be made by the respective Reference Banks for such Interest Period. If any Reference Bank is not participating in any Eurodollar Loan during any Interest Period therefor, the Eurodollar Base Rate for such Loan for such Interest Period shall be determined by reference to the amount of the Loan that such Reference Bank would have made or had out standing had it been participating in such Loan during such Interest Period. "Eurodollar Loans" shall mean Loans the interest rates on which are determined on the basis of rates referred to in the definition of "Eurodollar Base Rate" in this Section 1.01. "Eurodollar Rate" shall mean, for any Eurodollar Loan for any Interest Period therefor, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Agent to be equal to the Eurodollar Base Rate for such Loan for such Interest Period divided by 1 minus the Reserve Require ment for such Loan for such Interest Period. "Event of Default" shall have the meaning assigned to such term in Section 10 hereof. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder. "Existing Banks" shall mean the financial institutions party to the Original Credit Agreement. "Federal Funds Rate" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as pub lished by the Federal Reserve Bank of New York on the Business -10- Day next succeeding such day, provided that (a) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day and (b) if such rate is not so published for any Business Day, the Federal Funds Rate for such Business Day shall be the average rate charged to Chase on such Business Day on such transactions as determined by the Agent. "First Chicago" shall mean The First National Bank of Chicago, a national banking association. "First Chicago Collateral" shall mean the "Claim" and "Distributions" each as defined in the Participation Agreement as of April 13, 1995. "Future Net Revenues" shall mean, for any period, the future gross revenues attributable to all or a part (as specified herein) of Proved Reserves constituting part of the Mortgaged Properties for such period less the sum for such period of all projected Operating Expenses and Capital Expenditures with respect thereto, as set forth in the related Reserve Evaluation Report, and less (without duplication) all amounts projected to be applied to the discharge of any Production Payment and to the unearned balance of any advance payment received under any contract to be performed relating to such Proved Reserves. "GAAP" shall mean generally accepted accounting principles applied on a basis consistent with those which, in accordance with the last sentence of Section 1.02(a) hereof, are to be used in making the calculations for purposes of determining compliance with this Agreement. "Government Authority" shall mean any federal, state, municipal, local, territorial, or other governmental subdivision, department, commission, board, bureau, agency, regulatory authority, instrumentality, judicial or administrative body, domestic or foreign. "Guarantee" shall mean a guarantee, an endorsement, a contingent agreement to purchase or to furnish funds for the payment or maintenance of, or otherwise to be or become con tingently liable under or with respect to, the Indebtedness, other obligations, net worth, working capital or earnings of any Person or any production or revenues generated by (or any capital or other expenditures incurred in connection with the acquisition and exploitation of, exploration for, development of or production from) any hydrocarbon reserves, or a guarantee of the payment of dividends or other distributions upon the stock or equity interests of any Person, or an agreement to purchase, sell or lease (as lessee or lessor) Property, products, materials, -11- supplies or services primarily for the purpose of enabling a debtor to make payment of such debtor's obligations or an agreement to assure a creditor against loss, and including, without limitation, causing a bank, surety company or other financial institution or similar entity to issue a letter of credit, surety bond or other similar instrument for the benefit of another Person, but excluding endorsements for collection or deposit in the ordinary course of business. The terms "Guarantee" and "Guaranteed" used as a verb shall have a correlative meaning. "Hazardous Material" shall mean, collectively, (a) any petroleum or petroleum products, flammable explosives, radio active materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, and transformers or other equipment that contain dielectric fluid containing polychlorinated biphenyls (PCB's), (b) any chemicals or other materials or substances which are now or hereafter become defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous wastes", "restricted hazardous wastes", "toxic substances", "toxic pollutants", "contaminants", "pollutants" or words of similar import under any Environmental Law and (c) any other chemical or other material or substance, exposure to which is now or hereafter prohibited, limited or regulated under any Environmental Law. "Hydrocarbon Properties" shall mean interests which one or more of the Obligors have from time to time in hydrocarbon reserves. "Inactive Subsidiary" shall mean, as at any date, any Subsidiary of the Company that, as at the end of and for the quarterly accounting period ending on or most recently ended prior to such date, had $1,000 or less in assets and $1,000 or less in gross revenues. "Indebtedness" shall mean, for any Person: (a) obliga tions created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of Property to another Person subject to an under standing or agreement, contingent or otherwise, to purchase or repurchase the same or similar Property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of Property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within 90 days of the date the respective goods are delivered or the respective services are rendered; (c) obligations of others secured by a Lien on the Property of such Person, whether or not the respective obligations so secured has been assumed by such Person; (d) obligations of such Person in respect of letters of credit, surety bonds or similar instruments issued or accepted by banks, surety companies and other financial institutions for account of such Person; (e) Capital Lease Obligations of such -12- Person; (f) obligations of such Person in respect of obligations of the types specified in other clauses of this definition as a general partner or joint venturer of any partnership or joint venture (other than in respect of obligations incurred in the ordinary course of business); (g) upon the failure of such Person to perform or fulfill any warranties or guaranties of, or similar obligations relating to, production or payment contained in any Non-Recourse Debt, the maximum amount of the obligation of such Person in respect of such warranties, guaranties or similar obligations; (h) the unearned balance of any advance payment received by such Person under any contract to be performed in excess of $250,000 in the aggregate (other than as provided in clause (i) below); (i) the unearned balance of any advance payment received by such Person under any contract to be performed in excess of $2,000,000 in the aggregate resulting from transactions in the ordinary course of such Person's business; and (j) Indebtedness of others Guaranteed by such Person. "Independent Petroleum Engineer" shall mean (a) Ryder Scott Company or (b) such other firm of independent petroleum engineers expert in the matters required to be performed in connection with the preparation and delivery of a Reserve Evaluation Report and satisfactory to the Majority Banks. "Interest Coverage Ratio" shall mean, for any period, the ratio of (a) Cash Flow for such period to (b) Interest Expense for such period. "Interest Expense" shall mean, for any period, interest expense for the Company and the Restricted Subsidiaries for such period (determined on a consolidated basis without duplication in accordance with GAAP) including, without limitation, the following: all interest in respect of Indebtedness accrued or capitalized during such period (whether or not actually paid during such period) (other than interest paid in common stock of the Company) and the net amounts payable (or minus the net amounts receivable) under Interest Rate Protection Agreements accrued during such period (whether or not actually paid or received during such period), but excluding the non-cash amortization of deferred debt issuance costs and original issue discount for such period and the interest expense attributable to Non-Recourse Debt for such period. "Interest Period" shall mean, with respect to any Eurodollar Loan, each period commencing on the date such Eurodollar Loan is made or Converted from a Base Rate Loan or the last day of the next preceding Interest Period for such Loan and ending on the numerically corresponding day in the first, second, -13- third or sixth calendar month thereafter, as the applicable Borrower may select as provided in Section 4.05 hereof, except that each Interest Period that commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. Notwithstanding the foregoing: (i) if any Interest Period would otherwise end after the Commitment Termination Date, such Interest Period shall end on the Commitment Termination Date; (ii) each Interest Period that would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); and (iii) notwith standing clause (i) above, no Interest Period shall have a duration of less than one month and, if the Interest Period for any Eurodollar Loan would otherwise be a shorter period, such Loan shall not be available as a Eurodollar Loan hereunder for such period. "Interest Rate Protection Agreement" shall mean, for any Person, an interest rate swap, cap or collar agreement or similar arrangement between such Person and one or more financial institutions or other entities providing for the transfer or mitigation of interest risks, either generally or under specific contingencies. "Investment" shall mean, for any Person: (a) the acquisition (whether for cash, Property, services or securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities of any other Person or any agreement to make any such acquisition (including, without limitation, any "short sale" or any sale of any securities at a time when such securities are not owned by the Person entering into such short sale); (b) the making of any deposit with, or advance, loan or other extension of credit to, any other Person (including the purchase of Property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such Property to such Person, but excluding any such advance, loan or extension of credit having a term not exceeding 90 days representing the purchase price of inventory or supplies sold by such Person in the ordinary course of business); (c) the entering into of any Guarantee of, or other contingent obligation with respect to, Indebtedness or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such Person; or (d) the entering into of any Interest Rate Protection Agreement or Commodity Hedging Agreement. "Issuing Bank" shall mean Chase, as the issuer of Letters of Credit under Section 2.03 hereof, together with its successors and assigns in such capacity. -14- "JEDI Agreement" shall mean the Loan Agreement dated as of December 28, 1993 between the Company and the JEDI Lender, as the same shall be amended, modified and supplemented and in effect from time to time. "JEDI Collateral" shall mean "Collateral" as defined in the JEDI Agreement as of December 28, 1993; provided, however, that the term "Mortgaged Properties", as defined in the JEDI Agreement, shall include the oil and gas leases, oil, gas and mineral leases, and other mineral leases that cover lands or interests previously covered by an expired lease that, prior to such expiration, constituted JEDI Collateral and is described on Schedule IV hereto. "JEDI Investments" shall mean at any time of determination all amounts, including without limitation cash expended and the fair market value of Property contributed by the Company or any of its Subsidiaries in connection with the JEDI Mortgaged Properties, including without limitation all expenses for Capital Operations (excluding any general, administrative or office charges or overhead, except to the extent allocated to such Properties in accordance with GAAP) prior to such time of determination (on a cumulative basis) and all Operating Costs prior to such time of determination (on a cumulative basis) (each as defined in the JEDI Agreement as of December 28, 1993), but excluding the purchase price of the JEDI Mortgaged Properties acquired on or prior to December 31, 1993 minus Net Operating Cash Flow received by or for the account of the Company prior to such time of determination (on a cumulative basis) provided that the calculation of the JEDI Investments shall not result in a number less than zero. "JEDI Lender" shall mean Joint Energy Development Investments Limited Partnership, a Delaware Limited Partnership and its successors and assigns. "JEDI Mortgaged Properties" shall mean "Mortgaged Properties" as defined in the JEDI Agreement. "Letter of Credit" shall have the meaning assigned to such term in Section 2.03 hereof. "Letter of Credit Documents" shall mean, with respect to any Letter of Credit, collectively, any application therefor and any other agreements, instruments, guarantees or other documents (whether general in application or applicable only to such Letter of Credit) governing or providing for (a) the rights and obligations of the parties concerned or at risk with respect to such Letter of Credit or (b) any collateral security for any of such obligations, each as the same may be modified and supplemented and in effect from time to time. -15- "Letter of Credit Interest" shall mean, for each Bank, such Bank's participation interest (or, in the case of the Issuing Bank, the Issuing Bank's retained interest) in the Issuing Bank's liability under Letters of Credit and such Bank's rights and interests in Reimbursement Obligations and fees, interest and other amounts payable in connection with Letters of Credit and Reimbursement Obligations. "Letter of Credit Liability" shall mean, without duplication, at any time and in respect of any Letter of Credit, the sum of (a) the undrawn face amount of such Letter of Credit plus (b) the aggregate unpaid principal amount of all Reimburse ment Obligations of the Company at such time due and payable in respect of all drawings made under such Letter of Credit. For purposes of this Agreement, a Bank (other than the Issuing Bank) shall be deemed to hold a Letter of Credit Liability in an amount equal to its participation interest in the related Letter of Credit under Section 2.03 hereof, and the Issuing Bank shall be deemed to hold a Letter of Credit Liability in an amount equal to its retained interest in the related Letter of Credit after giving effect to the acquisition by the Banks other than the Issuing Bank of their participation interests under said Section 2.03. "Lien" shall mean, with respect to any Property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such Property (including any Production Payments, advance payment or similar arrangements with respect to minerals in place). For purposes of this Agreement and the other Basic Documents, a Person shall be deemed to own subject to a Lien any Property that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement (other than an operating lease) relating to such Property. "Loans" shall mean the loans provided for by Section 2.01(a) hereof. "Majority Banks" shall mean Banks having at least 66-2/3% of the aggregate amount of the Commitments, or if the Commitments shall have been terminated, Banks holding at least 66- 2/3% of the sum of the aggregate unpaid principal amount of the Loans and the Letter of Credit Liabilities in respect of the Commitments. "Margin Stock" shall mean "margin stock" within the meaning of Regulations U and X. "Material Adverse Effect" shall mean a material adverse effect on (a) the Property, business, operations, financial condition, prospects, liabilities or capitalization of the Company and its Subsidiaries taken as a whole, (b) the ability of -16- any Obligor to perform its obligations under any of the Basic Documents to which it is a party, (c) the validity or enforce ability of any of the Basic Documents, (d) the rights and remedies of the Banks and the Agent under any of the Basic Documents or (e) the timely payment of the principal of or interest on the Loans or the Reimbursement Obligations or other amounts payable in connection therewith. "Material Subsidiary" shall mean, at any time, a Subsidiary of the Company whose assets at such time exceed 5% of the Tangible Net Worth of the Company and its Consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP, provided that, notwithstanding the foregoing, each Subsidiary Guarantor and each Restricted Subsidiary shall be deemed to be a "Material Subsidiary". "Mortgage(s)" shall mean, collectively, one or more Mortgages, Deeds of Trust, Assignments of Rents, Security Agreements and Fixture Filings or similar documents executed by the Company in favor of the Agent and Bettylou J. Robert, as Trustee, for the benefit of the Agent and the Banks, in each case substantially in the form of Exhibit E hereto and covering the respective Mortgaged Properties and leasehold interest identified in any Exhibit or Schedule thereto, as the same shall be modified and supplemented and in effect from time to time. "Mortgage Amendments" shall mean the amendments to the Mortgages executed by the Company in connection with this Agreement. "Mortgaged Properties" shall mean Hydrocarbon Properties which are subject to the Liens created hereunder and under the Security Documents. "Multiemployer Plan" shall mean a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been made by the Company or any ERISA Affiliate and which is covered by Title IV of ERISA. "Net Available Proceeds" shall mean: (a) in the case of any Disposition by the Company or a Restricted Subsidiary, the amount of Net Cash Payments received in connection with such Disposition; provided that if 20% or less of the total value of such Net Cash Payments consists of non-cash consideration, and if such non-cash consideration is subjected to the Lien of the Security Documents within 90 days after its receipt by the Company or a Restricted Subsidiary, the amount of such Net Cash Payments received shall be deemed to equal the amount of all cash payments received in connection with such Disposition; -17- (b) in the case of any Casualty Event, the aggregate amount of proceeds of insurance, condemnation awards and other compensation received by the Company and its Restricted Subsidiaries in respect of such Casualty Event net of (i) reasonable expenses incurred by the Company and its Restricted Subsidiaries in connection therewith and (ii) contractually required repayments of Indebtedness to the extent secured by a Lien on such Property and any income and transfer taxes payable by the Company or any of its Restricted Subsidiaries in respect of such Casualty Event; and (c) in the case of any Equity Issuance, the aggregate amount of all cash received by the Company and its Restricted Subsidiaries in respect of such Equity Issuance net of commissions, discounts and other transaction costs incurred by the Company and its Restricted Subsidiaries in connection therewith. "Net Cash Payments" shall mean, with respect to any Disposition, the aggregate amount of all cash payments, and the fair market value of any non-cash consideration, received by the Company and its Subsidiaries directly or indirectly in connection with such Disposition; provided that (a) Net Cash Payments shall be net of (i) the amount of any legal, title and recording tax expenses, commissions and other fees and expenses paid by the Company and its Subsidiaries in connection with such Disposition and (ii) any Federal, state and local income or other taxes estimated to be payable by the Company and its Subsidiaries as a result of such Disposition (but only to the extent that (x) such estimated taxes are in fact paid to the relevant Federal, state or local governmental authority within three months of date of such Disposition or placed in escrow for the payment of such taxes or (y) the amount of such estimated taxes is less than $2,000,000 and the payment of such taxes is being contested in good faith and by appropriate proceedings), (b) Net Cash Payments shall not include any cash payment (or portion thereof) received in any fiscal year of the Company in respect of such Disposition to the extent that such cash payment (or portion thereof), together with all cash payments with respect to other Dispositions theretofore received in such fiscal year, does not exceed $1,000,000 and (c) Net Cash Payments shall be net of any repayments by the Company or any of its Subsidiaries of Indebted ness or Non-Recourse Debt to the extent that (i) such Indebtedness or Non-Recourse Debt, as the case may be, is secured by a Lien on the Property that is the subject of such Disposition and (ii) such Indebtedness or Non Recourse Debt, as the case may be, is to be repaid as a condition to the Disposition of such Property. -18- "Net Operating Cash-Flow" shall have the meaning assigned to such term in the JEDI Agreement as of December 28, 1993. "New Wholly-Owned Subsidiary" shall have the meaning assigned to such term in Section 9.08 hereof. "Non-Recourse Debt" shall mean any Indebtedness of the Company or a Subsidiary of the Company in respect of which the sole recourse of the holder or holders thereof (except to the extent approved by the Majority Banks) is to specified Properties of the Company or one of its Subsidiaries and the revenues generated thereby or to a Subsidiary of the Company whose only assets (except to the extent approved by the Majority Banks) consist of such specified Properties and the revenues generated thereby and the terms and conditions of which (including, without limitation, the amortization and other payment provisions of which and the interest and other compensation payable in respect of which, the non-recourse provisions of which and the other terms of which including, without limitation, covenants and events of default), and the documentation for which, are acceptable to the Majority Banks or which have been disclosed in writing to the Banks on or prior to the date hereof; provided that the existence in any document executed by the Company or such Subsidiary in connection with such Non-Recourse Debt (the "Subject Debt") of a provision which provides for recourse to the Properties or assets of the Company or such Subsidiary generally by reason of the gross negligence or willful misconduct of the Company or such Subsidiary, will not cause the Subject Debt to be excluded from the definition of "Non-Recourse Debt" prior to the time that a claim is made against the Company or such Subsidiary, as the case may be, alleging the gross negligence or willful misconduct of the Company or such Subsidiary, as the case may be (it being understood that immediately upon any such claim being made against the Company or such Subsidiary the amount of such claim shall cease to be Non-Recourse Debt); provided, further, upon the failure of the Company or any such Subsidiary to perform or fulfill any warranties or guaranties of, or similar obligations relating to, production or payment relating to any such Non-Recourse Debt, the maximum amount of the obligations of the Company or such Subsidiary, as the case may be, in respect of such warranties, guaranties or similar obligations shall cease to be Non-Recourse Debt. Notwithstanding any provision of this Agreement to the contrary, Production Payments shall be considered "Non-Recourse Debt"; provided that upon the failure of the Company or any Subsidiary of the Company to perform or fulfill any warranties or guaranties of, or similar obligations relating to, production or payment relating to any such Production Payments, the maximum amount of the obligations of the Company or such Subsidiary, as the case may be, in respect of such warranties or guaranties or similar obligations shall cease to be Non-Recourse Debt. Notwithstanding the forgoing, -19- Indebtedness incurred by the Company pursuant to the JEDI Agreement shall be considered Non-Recourse Debt, provided that if (a) any claim or claims in the aggregate in excess of $1,000,000 is made against the Company by or through the JEDI Lender seeking any recourse against the Company other than with respect to the Company's interest in the JEDI Collateral or (b) the JEDI Agreement is amended, modified or supplemented to expand the circumstances in which the JEDI Lender may assert any of its claims thereunder with recourse to the Company (other than with respect to the Company's interest in the JEDI Collateral), Indebtedness incurred pursuant to the JEDI Agreement shall cease to be Non-Recourse Debt. "Notes" shall mean the promissory notes provided for by Section 2.08 hereof and all promissory notes delivered in substi tution or exchange therefor, in each case as the same shall be modified and supplemented and in effect from time to time. "Operating Expenses" shall mean, for any period, the sum of the following for the Company and its Consolidated Subsidiaries (determined on a consolidated basis in accordance with GAAP) to the extent accrued or paid during such period (without duplication): (i) lease operating expenses; (ii) Taxes; (iii) general and administrative and other overhead expenditures; and (iv) all other expenses paid or accrued. "Original Fee Letter" shall mean the letter agreement dated December 1, 1993 between the Agent and the Company. "Original Notes" shall mean the promissory notes delivered pursuant to the Original Credit Agreement. "Participation Agreement" shall mean the Participation Agreement dated as of April 13, 1995 between the Company and First Chicago, as the same shall be amended, modified and supplemented and in effect from time to time. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Permitted Investments" shall mean: (a) direct obligations of the United States of America, or of any agency thereof, or obligations guaranteed as to principal and interest by the United States of America, or of any agency thereof, in either case maturing not more than 90 days from the date of acquisition thereof; (b) certificates of deposit issued by any bank or trust company organized under the laws of the United States of America or any state thereof and having capital, surplus and undivided profits of at least $500,000,000, maturing not more than 90 days from the date of acquisition thereof; (c) commercial paper rated A-1 or better or P-1 by Standard & -20- Poor's Rating Group or Moody's Investors Services, Inc., respectively, maturing not more than 90 days from the date of acquisition thereof; and (d) commercial paper rated A-2 or better (but less than A-1) or P-2 or better (but less than P-1) by Standard and Poor's Rating Group or Moody's Investors Services, Inc. respectively, maturing not more than 30 days from the date of acquisition thereof. "Person" shall mean any individual, corporation, company, voluntary association, partnership, joint venture, trust, unincorporated organization or government (or any agency, instrumentality or political subdivision thereof). "Plan" shall mean an employee benefit or other plan established or maintained by the Company or any ERISA Affiliate and that is covered by Title IV of ERISA, other than a Multiemployer Plan. "Pledge Agreement" shall mean the Pledge Agreement substantially in the form of Exhibit F hereto between any Obligor required to execute a Pledge Agreement at any time after the date hereof and the Agent, as the same shall be modified and supplemented and in effect from time to time. "Post-Default Rate" shall mean, in respect of any principal of any Loan, any Reimbursement Obligation or any other amount under this Agreement, any Note or any other Basic Document that is not paid when due (whether at stated maturity, by acceleration, by optional or mandatory prepayment or otherwise), a rate per annum during the period from and including the due date to but excluding the date on which such amount is paid in full equal to 2% plus the Base Rate as in effect from time to time plus the Applicable Margin for Base Rate Loans (provided that, if the amount so in default is principal of a Eurodollar Loan and the due date thereof is a day other than the last day of the Interest Period therefor, the "Post-Default Rate" for such principal shall be, for the period from and including such due date to but excluding the last day of the Interest Period, 2% plus the interest rate for such Loan as provided in Section 3.02(b) hereof and, thereafter, the rate provided for above in this definition). "Present Value of Reserves" shall mean, on any date, estimated net cash flow expressed in Dollars (after development expenses and production taxes) in respect of Proved Reserves attributable to Hydrocarbon Properties calculated in accordance with the Agent's risk factors and product pricing models in effect from time to time and discounted to present value at a discount rate acceptable to the Majority Banks from time to time for Proved Reserves. -21- "Prime Rate" shall mean the rate of interest from time to time announced by Chase at the Principal Office as its prime commercial lending rate. "Principal Office" shall mean the principal office of Chase, located on the date hereof at 1 Chase Manhattan Plaza, New York, New York 10081. "Production Payments" shall mean, collectively, Dollar- Denominated Production Payments and Volumetric Production Payments. "Property" shall mean any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "Proved Reserves" shall mean reserves (to the extent of the net interest of the Company and its Subsidiaries therein) comprised of quantities of hydrocarbons that geologic and engineering data demonstrate with reasonable certainty to be recoverable in the future from known reservoirs under existing conditions, provided that such reserves are recoverable from (a) existing wells, whether from completion intervals currently open and producing to market, or completion intervals currently open but not currently producing or zones behind casing of existing wells, or (b) new wells on undrilled acreage. Proved Reserves on undrilled acreage shall be limited to those drilling units offsetting productive units that are reasonably certain to be productive when drilled. Other undrilled units may also be credited with Proved Reserves where continuity of production from existing productive formations can be demonstrated with reason able certainty. For purposes of determining whether any Hydrocarbon Properties of any Obligor (other than Hydrocarbon Properties that have been acquired by such Obligor since the date of the most recent Reserve Evaluation Report or other internal reserve reports prepared by the Company, all of which shall be considered Proved Reserves) contain Proved Reserves, the Banks and the Obligors agree that the most recent Reserve Evaluation Report or other internal reserve reports prepared by the Company shall be determinative. "Purchase Agreement" shall mean the Purchase Agreement dated as of May 15, 1995 between Anschutz and the Company, as the same shall be amended, modified and supplemented and in effect from time to time. "Quarterly Dates" shall mean the last day of March, June, September and December in each year, the first of which shall be the first such day after the date of this Agreement; provided that if any such day is not a Business Day, then such Quarterly Date shall be the next preceding Business Day. -22- "Reference Banks" shall mean Chase and such other Banks as are agreed to from time to time by the Agent (with the consent of the Majority Banks) and the Company (or their respective Applicable Lending Offices, as the case may be). "Regulation A", "Regulation D", "Regulation U" and Regulation X" shall mean, respectively, Regulations A, D, U and X of the Board of Governors of the Federal Reserve System (or any successor), as the same may be modified and supplemented and in effect from time to time. "Regulatory Change" shall mean, with respect to any Bank, any change after the date of this Agreement in Federal, state or foreign law or regulations (including, without limitation, Regulation D) or the adoption or making after such date of any interpretation, directive or request applying to a class of banks including such Bank of or under any Federal, state or foreign law or regulations (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Reimbursement Obligations" shall mean, at any time, the obligations of the Borrowers then outstanding, or which may thereafter arise in respect of all Letters of Credit then outstanding, to reimburse amounts paid by the Issuing Bank in respect of any drawings under a Letter of Credit. "Release" shall mean any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, including, without limitation, the movement of Hazardous Materials through ambient air, soil, surface water, ground water, wetlands, land or subsurface strata. "Report Delivery Date" shall mean, with respect to any Reserve Evaluation Report, 45 days prior to the applicable Determination Date. "Reserve Evaluation Report" shall mean an unsuperceded report that (a) is (i) prepared, in the case of the report required to be delivered by the Company pursuant to Section 9.01(f) hereof in connection with the Determination Date occurring on May 1 of each year, by the Independent Petroleum Engineer on the basis of assumptions and projections which the Company believes in good faith to be reasonable or, in the case of the report required to be delivered by the Company pursuant to Section 9.01(f) hereof in connection with each other Determi nation Date, by the Company, and (ii) satisfactory in form and substance to the Majority Banks (including as to assumptions) and (b)(x) is prepared on the basis of findings and material data as of a date not more than 60 days prior to the effective date of -23- such report, in the case of a report prepared by the Company and (y) not more than 90 days prior to the effective date of such report, in the case of a report prepared by the Independent Petroleum Engineer, (i) identifies the Hydrocarbon Properties covered thereby, (ii) identifies (in the case of any report prepared by the Company) the Mortgaged Properties, (iii) as to each of the Hydrocarbon Properties, sets forth (A) the Proved Reserves attributable to such Hydrocarbon Property, (B) the total amount of such Proved Reserves attributable to such Hydrocarbon Property that, in the opinion of the preparer of such report, the Company and its Subsidiaries have the right to produce for their own account in the current and each succeeding calendar year, (C) a projection of the rate of production and the Future Net Revenues of the Company and its Subsidiaries (including as additional information the data and assumptions used to determine such Future Net Revenues) from such Proved Reserves for the current and each succeeding calendar year, (D) the quantity and type of hydrocarbons recoverable from such Proved Reserves in the current and each succeeding calendar year, (E) an estimate of the projected revenues and expenses attributable to such Proved Reserves in the current and each succeeding calendar year, and (F) any reports or evaluations prepared by the Company regarding the expediency of any change in methods of treatment or operation of all or any wells drilled to produce any of such Proved Reserves that are producing or capable of producing hydrocarbons, any new drilling or development, any method of secondary recovery by repressuring or otherwise, or any other action with respect to such Proved Reserves, the decision as to which may increase or reduce the quantity of hydrocarbons ultimately recoverable, or the rate of production thereof and (c) reconciles (i) the total amount of Proved Reserves attributable to each Hydrocarbon Property and (ii) any material changes in Operating Expenses or Capital Expenditures contained in such Reserve Evaluation Report with the information contained in the immediately preceding Reserve Evaluation Report, if any. "Reserve Requirement" shall mean, for any Interest Period for any Eurodollar Loan, the average maximum rate at which reserves (including, without limitation, any marginal, supple mental or emergency reserves) are required to be maintained during such Interest Period under Regulation D by member banks of the Federal Reserve System in New York City with deposits exceeding one billion Dollars against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall include any other reserves required to be maintained by such member banks by reason of any Regulatory Change with respect to (i) any category of liabilities that includes deposits by reference to which the Eurodollar Base Rate is to be determined as provided in the definition of "Eurodollar Base Rate" in this Section 1.01 or (ii) any category of extensions of credit or other assets that includes Eurodollar Loans. -24- "Restricted Subsidiary" shall mean any Subsidiary of the Company other than an Unrestricted Subsidiary. "Security Agreement" shall mean an Amended and Restated Security Agreement substantially in the form of Exhibit B hereto between the Borrowers and the Agent, as the same shall be modified and supplemented and in effect from time to time. "Security Documents" shall mean, collectively, the Security Agreement, the Pledge Agreement, the Mortgages and all Uniform Commercial Code financing statements required by this Agreement, the Security Agreement, the Pledge Agreement or the Mortgages to be filed with respect to the security interests in personal Property and fixtures created pursuant to the Security Agreement, the Pledge Agreement or the Mortgages. "Senior Subordinated Debt" shall mean the Indebtedness of the Company in respect of the 11 1/4% Senior Subordinated Notes of the Company due September 1, 2003 issued pursuant to the Senior Subordinated Debt Documents. "Senior Subordinated Debt Documents" shall mean all documents and agreements executed and delivered in connection with the original issuance of the Senior Subordinated Debt, including the Indenture dated as of September 8, 1993 between the Company and Shawmut Bank Connecticut, National Association, as trustee, as the same shall, subject to Section 9.17 hereof, be modified and supplemented and in effect from time to time. "Subordinated Indebtedness" shall mean, collectively, (a) the Senior Subordinated Debt, and (b) any other Indebtedness of any of the Obligors outstanding on the date hereof (i) for which any Obligor is directly and primarily liable, (ii) in respect of which none of the Company's other Subsidiaries is contingently or otherwise obligated and (iii) which is subordi nated to the obligations of the respective Obligors to pay principal of and interest on the Loans, Reimbursement Obligations and Notes hereunder, and any extensions on renewals thereof, but excluding any increases in the outstanding amount thereof, on terms, and pursuant to documentation containing other terms (including interest, amortization, covenants and events of default), in form and substance satisfactory to the Majority Banks. "Subsidiary" shall mean, for any Person, any corpora tion, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other -25- entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. "Wholly Owned Subsidiary" shall mean any such corporation, partnership or other entity of which all of the equity securities or other ownership interests (other than, in the case of a corporation, directors' qualifying shares) are so owned or controlled. "Tangible Net Worth" shall mean, as at any date for any Person, the sum for such Person and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) the amount of capital stock, plus (b) the amount of surplus and retained earnings (or, in the case of a surplus or retained earnings deficit, minus the amount of such deficit), minus (c) the sum of the following: cost of treasury shares and the book value of all assets which should be classified as intangibles (without duplication of deductions in respect of items already deducted in arriving at surplus and retained earnings) but in any event including goodwill, minority interests, research and development costs, trade marks, trade names, copyrights, patents and franchises, unamortized debt discount and expense, all accounting reserves. "Taxes" shall mean all taxes, levies, imposts, stamp taxes, duties, charges to tax, fees, deductions, withholdings, royalties, charges, compulsory loans or restrictions or conditions resulting in a charge which are imposed, levied, collected, withheld or assessed by any political subdivision or taxing authority as of the date of this Agreement or at any time in the future together with interest thereon and penalties with respect thereto, if any, and any payments of principal, interest, charges, fees or other amounts made on or in respect thereof, including without limitation production and severance taxes and windfall profit taxes, and "Tax" and "Taxation" shall be construed accordingly provided that "Taxes" shall exclude taxes imposed on or measured by the overall net income of a Person. "Type" shall have the meaning assigned to such term in Section 1.04 hereof. "Unrestricted Properties" shall mean the Hydrocarbon Properties of the Company and its Restricted Subsidiaries that are not Mortgaged Properties and that do not contain Proved Reserves. -26- "Unrestricted Subsidiary" shall mean such Subsidiaries of the Company (other than Subsidiary Borrowers) as may be designated by the Company as "Unrestricted Subsidiaries" as provided in Section 1.05 hereof. "Volumetric Production Payments" shall mean production payment obligations of the Company or any of its Subsidiaries which are payable from a specified share of production from specific Properties, together with all undertakings and obligations in connection therewith. "Voting Stock" means, with respect to any Person, securities of any class or classes of Capital Stock in such Person entitling the holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of any contingency) to vote in the election of members of the Board of Directors or other governing body of such Person. 1.02 Accounting Terms and Determinations. (a) Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Banks hereunder shall (unless otherwise disclosed to the Banks in writing at the time of delivery thereof in the manner described in subsection (b) below) be prepared, in accordance with GAAP applied on a basis consistent with those used in the preparation of the latest financial statements furnished to the Banks hereunder (which, prior to the delivery of the first financial statements under Section 9.01 hereof, shall mean the audited financial statements as at December 31, 1994 referred to in Section 8.02 hereof). All calculations made for the purposes of determining compliance with this Agreement shall (except as otherwise expressly provided herein) be made by application of GAAP applied on a basis consistent with those used in the preparation of the latest annual or quarterly financial statements furnished to the Banks pursuant to Section 9.01 hereof (or, prior to the delivery of the first financial statements under Section 9.01 hereof, used in the preparation of the audited financial statements as at December 31, 1994 referred to in Section 8.02 hereof) unless (i) the Company objects to the Banks in writing to determining such compliance on such basis at the time of delivery of such financial statements to the Banks or (ii) the Majority Banks shall object to the Company (through the Agent) in writing to so determining such compliance within 30 days after such delivery of such financial statements, in either of which events such calculations shall be made on a basis consistent with those used in the preparation of the latest financial statements as to which such objection shall not have been made (which, if objection is made in respect of the first financial statements delivered under -27- Section 9.01 hereof, shall mean the financial statements referred to in Section 8.02 hereof). (b) At the reasonable request of the Majority Banks the Borrowers shall deliver to the Banks (i) a description in reasonable detail of any material variation between the application of accounting principles employed in the preparation of such statement and the application of accounting principles employed in the preparation of the next preceding annual or quarterly financial statements as to which no objection has been made in accordance with the last sentence of subsection (a) above and (ii) reasonable estimates of the difference between such statements arising as a consequence thereof. (c) None of the Company and its Subsidiaries will change the last day of their respective fiscal years from December 31 of each year, or the last days of the first three fiscal quarters in each of its fiscal years from March 31, June 30 and September 30 of each year, respectively. 1.03 Borrowing Base. (a) Reserve Evaluation Reports. The Company has furnished to the Agent and the Banks a reserve report as of January 1, 1995, which report shall be deemed to be the initial Reserve Evaluation Report. On or before each Report Delivery Date, the Company shall furnish to the Agent and the Banks an updated Reserve Evaluation Report. (b) Borrowing Base. During the period commencing on the date hereof and ending on such date the first redetermination of the Borrowing Base becomes effective as provided below in this Section 1.03(b), the Borrowing Base shall be $43,000,000 (subject to any adjustments and redeterminations provided for by Sections 1.03(c), 1.03(d) and 1.03(e) hereof) which amount has been determined on the basis of the initial Reserve Evaluation Report referred to in the first sentence of Section 1.03(a) hereof (with such adjustments to the rates, factors, values, estimates, assump tions and computations set forth in such Reserve Evaluation Report as are acceptable to the Majority Banks). As promptly as reasonably practicable after its receipt of each Reserve Evaluation Report furnished to it pursuant to the second sentence of Section 1.03(a) hereof, the Agent (in consultation with the Majority Banks) shall endeavor to redetermine the Borrowing Base on the basis of such Reserve Evaluation Report in the manner provided in this clause (b), notify the Banks of such redetermination and, if such redetermination is approved by each of the Banks (in the case of an increase in the Borrowing Base) or by the Majority Banks (in the case of a decrease in the Borrowing Base), as applicable, notify the Company of the Borrowing Base as so redetermined and such redetermined Borrowing Base shall become effective on the Determination Date next -28- following each Report Delivery Date (or, if later, on the date notified by the Agent to the Company) and shall remain effective until again redetermined as provided in this Section 1.03(b) (subject to any adjustments and redeterminations provided for by Sections 1.03(c), 1.03(d) and 1.03(e) hereof). The determination by the Agent and each of the Banks or the Majority Banks, as the case may be, of the Borrowing Base for any Determination Period shall be made on the basis of parameters which may include the Present Value of Reserves attributable to Hydrocarbon Properties included in the Mortgaged Properties as set forth in the Reserve Evaluation Report for such Determination Period, subject, however, to such adjustments as the Agent, with the concurrence of each of the Banks or the Majority Banks, as the case may be, may make in its and their sole discretion to the rates, factors, values, estimates, assumptions and computations set forth in such Reserve Evaluation Report and any other relevant information or factors, including without limitation, any additional Indebtedness or other obligations that may be incurred by the Company and its Subsidiaries that the Majority Banks may deem appropriate. (c) Material Change. The Company agrees to notify the Agent promptly of any material change of which the Company or any of its Subsidiaries is aware which reduces or may result in a reduction of the Borrowing Base by more than 10%. Promptly upon receipt of such notice, the Agent (in consultation with the Banks) shall endeavor to adjust the Borrowing Base pursuant to the procedures set forth in Section 1.03(b) hereof. (d) Redetermination. If so requested by the Majority Banks or the Company at any time, the Agent shall, as promptly as reasonably practicable after the receipt of such request, endeavor to redetermine (in consultation with the Company and the Banks) the Borrowing Base as then in effect on the basis of the then most recent Reserve Evaluation Report (subject, however, to such additional adjustments to the rates, factors, values, estimates, assumptions and computations as set forth therein as the Agent, with the concurrence of the Majority Banks, may determine to be appropriate) and any other relevant information and factors, including, without limitation, any additional Indebtedness or other obligations that have been or are reasonably anticipated to be incurred by the Company and its Subsidiaries and any Hydrocarbon Properties acquired by the Company and its Subsidiaries which are not subject to any Lien other than Liens created hereunder or under the Security Documents, Liens permitted by Section 9.06 hereof, that the Majority Banks may deem appropriate and otherwise as provided in Section 1.03(b) hereof, provided that no Hydrocarbon Properties acquired by any Subsidiary of the Company (other than Forest I Development Company) after the date hereof shall be included in the calculation of the Borrowing Base unless such Subsidiary is a Borrower under this Agreement. -29- (e) Determinations, Etc. All determinations and redeterminations and adjustments by the Agent provided for above in this Section 1.03 or in the definition of "Present Value of Reserves" in Section 1.01 (and any determinations and decisions by the Majority Banks in connection therewith, including any thereof approving or disapproving a proposed redetermination or redetermination by the Agent or effecting any adjustment to any element included in a Reserve Evaluation Report or the determina tion or redetermination of the Borrowing Base) shall be made on a reasonable basis, in good faith and in a manner reasonably consistent with the basis on which the initial Borrowing Base was determined to be acceptable to the Banks (but after giving effect to changes in facts and circumstance occurring after the date of such initial determination including, but not limited to, reserves and production, operating expenses and economic assumptions with respect to price of hydrocarbons and inflation), and any such determination, redetermination or adjustment shall consider any other relevant information or factors, including without limitation, any additional Indebtedness or other obligations that may be incurred by the Company and its Subsidi aries that the Majority Banks may deem appropriate, provided that no Hydrocarbon Properties acquired by any Subsidiary of the Company (other than Forest I Development Company) after the date hereof shall be included in the calculation of the Borrowing Base unless such Subsidiary is a Borrower under this Agreement. 1.04 Types of Loans. Loans hereunder are distinguished by "Type". The "Type" of a Loan refers to whether such Loan is a Base Rate Loan or a Eurodollar Loan, each of which constitutes a Type. 1.05 Designation of Subsidiaries as Restricted or Unrestricted Subsidiaries. The Company may, but only with the approval of the Majority Banks, designate (by notice to the Agent which shall promptly notify the Banks) a Restricted Subsidiary (other than a Subsidiary Borrower) to be an Unrestricted Subsidiary or an Unrestricted Subsidiary to be a Restricted Subsidiary; provided that the Company may, without such approval, designate (by notice to the Agent which shall promptly notify the Banks) a corporation or other entity that is formed or acquired as a direct or indirect Subsidiary of the Company after the date hereof (no part of the business or assets of which was owned by the Company or a Restricted Subsidiary prior to the date of such formation or acquisition) to be an Unrestricted Subsidiary on or prior to the date of such formation or acquisition if, after giving effect thereto, the Company would be in compliance with its obligations with respect to such Subsidiary as an Unrestricted Subsidiary under Section 9.19 hereof and no other Default shall have occurred and be continuing. -30- 1.06 References to Subsidiaries, Restricted Subsidiaries and Unrestricted Subsidiaries in Connection with Calculations of Certain Financial Ratios. References (whether in the singular or the plural) to Subsidiaries, Restricted Subsidiaries and Unrestricted Subsidiaries in the definitions of "Cash Flow", "Debt Service" and "Interest Expense" in Section 1.01 hereof shall, for purposes of calculating Cash Flow, Debt Service or Interest Expense (as the case may be) for a period or part of a period ending prior to the date of this Agreement, be deemed to refer to corporations or other entities that would have been "Subsidiaries", "Restricted Subsidiaries" or "Unrestricted Subsidiaries" (as the case may be) had this Agreement been in effect on the first day of such period. Section 2. Commitments, Loans, Notes and Prepayments. 2.01 Loans. (a) Each Bank severally agrees, in accordance with the terms and conditions of this Agreement, to make one or more loans to the Borrowers in Dollars during the period from and including the Closing Date to and including the Commitment Termination Date, in an aggregate amount, as to all Borrowers, up to but not exceeding the lesser of (x) the Commitment of such Bank and (y) an amount equal to such Bank's Commitment Percentage multiplied by the Borrowing Base determined pursuant to the immediately preceding Reserve Evaluation Report; provided that (i) in no event shall the aggregate principal amount of all Loans, together with the aggregate amount of all Letter of Credit Liabilities, exceed the lesser of (x) the aggregate amount of the Commitments as in effect from time to time any (y) the Borrowing Base determined pursuant to the immediately preceding Reserve Evaluation Report and (ii) the Borrowers may not borrow Loans or obtain Letters of Credit under this Agreement at any time while a Borrowing Base Deficiency exists. The aggregate of the Commitments of the Banks on the date hereof is $50,000,000. (b) Subject to the terms and conditions of this Agreement, during the period from and including the Closing Date to but not including the Commitment Termination Date, the Borrowers may borrow, repay and reborrow the Loans by means of Base Rate Loans and Eurodollar Loans, and may Convert Loans of one Type into Loans of another Type (as provided in Section 2.08 hereof) or Continue Loans of one Type as Loans of the same Type (as provided in Section 2.08 hereof); provided that no more than three separate Interest Periods in respect of Eurodollar Loans may be outstanding at any one time. (c) Notwithstanding any provision of this Section 2.01 to the contrary, the aggregate amount of Letter of Credit Liabilities outstanding under this Agreement shall not at any -31- time exceed the lesser of (i) $10,000,000 and (ii) the aggregate of the Commitments. 2.02 Borrowings. The Company shall give the Agent (which shall promptly notify the Banks) notice of each borrowing hereunder as provided in Section 4.05 hereof. Not later than 1:00 p.m. New York time on the date specified for each borrowing hereunder, each Bank shall make available the amount of the Loan or Loans to be made by it on such date to the Agent, at account number NYAO-DI-900-9-000036 maintained by the Agent with Chase at the Principal Office, in immediately available funds, for account of the Borrowers. The amount so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Borrowers by depositing the same, in immediately available funds, in an account of the Borrowers maintained with Chase at the Principal Office designated by the Company. 2.03 Letters of Credit. Subject to the terms and conditions of this Agreement, the Commitments may be utilized, upon the request of the Company, in addition to the Loans provided for by Section 2.01(a) hereof, for the issuance by the Issuing Bank of letters of credit (collectively, "Letters of Credit") for account of the Borrowers, provided that in no event shall (i) the aggregate amount of all Letter of Credit Liabilities, together with the aggregate principal amount of the Loans, exceed the lesser of (A) the aggregate of the Commitments and (B) the Borrowing Base as determined pursuant to the immediately preceding Reserve Evaluation Report, (ii) the outstanding aggregate amount of all Letter of Credit Liabilities exceed $10,000,000 and (iii) the expiration date of any Letter of Credit extend beyond the earlier of the Commitment Termination Date and the date 12 months following the issuance of such Letter of Credit. The following additional provisions shall apply to Letters of Credit: (a) The Company shall give the Agent at least three Business Days' irrevocable prior notice (effective upon receipt) specifying the Business Day (which shall be no later than 30 days preceding the Commitment Termination Date) each Letter of Credit is to be issued and the account party or parties therefor and describing in reasonable detail the proposed terms of such Letter of Credit (including the beneficiary thereof) and the nature of the transactions or obligations proposed to be supported thereby (including whether such Letter of Credit is to be a commer cial letter of credit or a standby letter of credit). Upon receipt of any such notice, the Agent shall advise the Issuing Bank of the contents thereof. (b) On each day during the period commencing with the issuance by the Issuing Bank of any Letter of Credit and until such Letter of Credit shall have expired or been -32- terminated, the Commitment of each Bank shall be deemed to be utilized for all purposes of this Agreement in an amount equal to such Bank's Commitment Percentage of the then undrawn face amount of such Letter of Credit. Each Bank (other than the Issuing Bank) agrees that, upon the issuance of any Letter of Credit hereunder, it shall automatically acquire a participation in the Issuing Bank's liability under such Letter of Credit in an amount equal to such Bank's applicable Commitment Percentage of such liability, and each such Bank (other than the Issuing Bank) thereby shall absolutely, unconditionally and irrevocably assume, as primary obligor and not as surety, and shall be unconditionally obligated to the Issuing Bank to pay and discharge when due, its Commitment Percentage of the Issuing Bank's liability under such Letter of Credit. (c) Upon receipt from the beneficiary of any Letter of Credit of any demand for payment under such Letter of Credit, the Issuing Bank shall promptly notify the Company (through the Agent) of the amount to be paid by the Issuing Bank as a result of such demand and the date on which payment is to be made by the Issuing Bank to such bene ficiary in respect of such demand. Notwithstanding the identity of the account party of any Letter of Credit, the Borrowers hereby jointly and severally unconditionally agree to pay and reimburse the Agent for account of the Issuing Bank for the amount of each demand for payment under such Letter of Credit at or prior to the date on which payment is to be made by the Issuing Bank to the beneficiary there under, without presentment, demand, protest or other formalities of any kind. (d) Forthwith upon its receipt of a notice referred to in clause (c) of this Section 2.03, the Company shall advise the Agent whether or not the Borrowers intend to borrow hereunder to finance their obligations to reimburse the Issuing Bank for the amount of the related demand for payment and, if it does, submit a notice of such borrowing as provided in Section 4.05 hereof. In the event that the Company fails to so advise the Agent, or if the Borrowers fail to reimburse the Issuing Bank for a demand for payment under a Letter of Credit by the date of such payment, the Agent shall give each Bank prompt notice of the amount of the demand for payment, specifying such Bank's Commitment Percentage of the amount of the related demand for payment. (e) Each Bank (other than the Issuing Bank) shall pay to the Agent for the account of the Issuing Bank at the Principal Office in Dollars and in immediately available funds, the amount of such Bank's Commitment Percentage of any payment under a Letter of Credit upon notice by the Issuing Bank (through the Agent) to such Bank requesting -33- such payment and specifying such amount. Each Bank's obligation to make such payments to the Agent for account of the Issuing Bank under this clause (e), and the Issuing Bank's right to receive the same, shall be absolute and unconditional and shall not be affected by any circumstance whatsoever, including, without limitation, (i) the failure of any other Bank to make its payment under this clause (e), the financial condition of the Borrowers and the other Obligors (or any other account party), the existence of any Default or (ii) the termination of the Commitments. Each such payment to the Issuing Bank shall be made without any offset, abatement, withholding or reduction whatsoever. If any Bank shall default in its obligation to make any such payment to the Agent for account of the Issuing Bank, for so long as such default shall continue the Agent shall at the request of the Issuing Bank withhold from any payments received by the Agent under this Agreement or any Note for account of such Bank the amount so in default and the Agent shall pay the same to the Issuing Bank in satisfaction of such defaulted obligation. (f) Upon the making of each payment by a Bank to the Issuing Bank pursuant to clause (e) above in respect of any Letter of Credit, such Bank shall, automatically and without any further action on the part of the Agent, the Issuing Bank or such Bank, acquire (i) a participation in an amount equal to such payment in the Reimbursement Obligation owing to the Issuing Bank by such Borrower hereunder and under the Letter of Credit Documents relating to such Letter of Credit and (ii) a participation in a percentage equal to such Bank's Commitment Percentage of its Commitment in any interest or other amounts payable by such Borrower hereunder and under such Letter of Credit Documents in respect of such Reimbursement Obligation (other than the commissions, charges, costs and expenses payable to the Issuing Bank pursuant to clause (g) of this Section 2.03). Upon receipt by the Issuing Bank from or for account of such Borrower of any payment in respect of any Reimbursement Obligation or any such interest or other amount (including by way of setoff or application of proceeds of any collateral security) the Issuing Bank shall promptly pay to the Agent for account of each Bank, such Bank's Commitment Percentage of its Commitment of such payment, each such payment by the Issuing Bank to be made in the same money and funds in which received by the Issuing Bank. In the event any payment received by the Issuing Bank and so paid to the Banks hereunder is rescinded or must otherwise be returned by the Issuing Bank, each Bank shall, upon the request of the Issuing Bank (through the Agent), repay to the Issuing Bank (through the Agent) the amount of such payment paid to such Bank, with interest at the rate specified in clause (j) of this Section 2.03. -34- (g) The Borrowers jointly and severally agree to pay to the Agent for account of the Issuing Bank in respect of each Letter of Credit issued to such Borrower an issuance fee in an amount equal to 1.25% per annum of the daily average undrawn face amount of such Letter of Credit for the period from and including the date of issuance of such Letter of Credit to and including the date such Letter of Credit is drawn in full, expires or is terminated (such fee to be non-refundable, to be paid in arrears on each Quarterly Date and on the Commitment Termination Date and to be calculated, for any day, after giving effect to any payments made under such Letter of Credit on such day). The Issuing Bank shall pay to the Agent for account of each Bank (other than the Issuing Bank), from time to time at reasonable intervals (but in any event at least quarterly), but only to the extent actually received from the Borrowers, an amount equal to such Bank's Commitment Percentage of all such fees in respect of each Letter of Credit (including any such fee in respect of any period of any renewal or extension thereof). In addition, the Borrowers jointly and severally agree to pay to the Agent for account of the Issuing Bank a fronting fee in respect of each Letter of Credit in an amount equal to the greater of (i) $1,000 and (ii) 1/2 of 1% per annum of the daily average undrawn face amount of such Letter of Credit for the period from and including the date of issuance of such Letter of Credit to and including the date such Letter of Credit is drawn in full, expires or is terminated (such fee to be non-refundable, $1,000 of such fee to be paid on the date of the issuance of such Letter of Credit, with the balance, if any, to be paid in arrears on each Quarterly Date and on the Commitment Termination Date and to be calculated, for any day, after giving effect to any payments made under such Letter of Credit on such day) plus all commissions, charges, costs and expenses in the amounts customarily charged by the Issuing Bank from time to time in like circumstances with respect to the issuance of each Letter of Credit and drawings and other transactions relating thereto. (h) Promptly following the end of each calendar month, the Issuing Bank shall deliver (through the Agent) to each Bank and the Company notice describing the aggregate amount of all Letters of Credit outstanding at the end of such month. Upon the request of any Bank from time to time, the Issuing Bank shall deliver any other information in its possession reasonably requested by such Bank with respect to each Letter of Credit then outstanding. (i) The issuance by the Issuing Bank of each Letter of Credit shall, in addition to the conditions precedent set forth in Section 7 hereof, be subject to the conditions precedent that (i) such Letter of Credit shall be in such -35- form, contain such terms and support such transactions as shall be satisfactory to the Issuing Bank consistent with its then current practices and procedures with respect to letters of credit of the same type and (ii) each Borrower shall have executed and delivered such applications, agreements and other instruments relating to such Letter of Credit as the Issuing Bank shall have reasonably requested consistent with its then current practices and procedures with respect to letters of credit of the same type, provided that in the event of any conflict between any such application, agreement or other instrument and the provisions of this Agreement or any Security Document, the provisions of this Agreement and the Security Documents shall control. (j) To the extent that any Bank fails to pay any amount required to be paid pursuant to clause (e) or (f) of this Section 2.03 on the due date therefor, such Bank shall pay interest to the Issuing Bank (through the Agent) on such amount from and including such due date to but excluding the date such payment is made (i) during the period from and including such due date to but excluding the date three Business Days thereafter, at a rate per annum equal to the Federal Funds Rate (as in effect from time to time) and (ii) thereafter, at a rate per annum equal to the Base Rate (as in effect from time to time) plus 2%. (k) The issuance by the Issuing Bank of any modifica tion or supplement to any Letter of Credit hereunder shall be subject to the same conditions applicable under this Section 2.03 to the issuance of new Letters of Credit, and no such modification or supplement shall be issued hereunder unless either (x) the respective Letter of Credit affected thereby would have complied with such conditions had it originally been issued hereunder in such modified or supplemented form or (y) each Bank shall have consented thereto. The Borrowers hereby jointly and severally indemnify and hold harmless each Bank and the Agent from and against any and all claims and damages, losses, liabilities, costs or expenses which such Bank or the Agent may incur (or which may be claimed against such Bank or the Agent by any Person whatsoever) by reason of or in connection with the execution and delivery or transfer of or payment or refusal to pay by the Issuing Bank under any Letter of Credit; provided that the Borrowers shall not be required to indemnify any Bank or the Agent for any claims, damages, losses, liabilities, costs or expenses to the extent caused by (x) the willful misconduct or gross negligence of the Issuing Bank in determining whether a request presented under any Letter of Credit complied with the terms of such Letter of Credit or (y) in the case of the Issuing Bank, such Bank's failure to pay under -36- any Letter of Credit after the presentation to it of a request strictly complying with the terms and conditions of such Letter of Credit. Nothing in this Section 2.03 is intended to limit the other obligations of the Borrowers, any Bank or the Agent under this Agreement. 2.04 Changes of Commitments. (a) The aggregate amount of the Commitments shall be automatically reduced to zero on the Commitment Termination Date. (b) The Borrowers shall have the right at any time or from time to time (i) so long as no Loans or Letter of Credit Liabilities are outstanding, to terminate the Commitments and (ii) to reduce the aggregate unused amount of the Commitments (for which purpose use of the Commitments shall be deemed to include the aggregate amount of Letter of Credit Liabilities); provided that (x) the Company shall give notice of each such termination or reduction as provided in Section 4.05 hereof and (y) each partial reduction shall be in an aggregate amount at least equal to $1,000,000 or in multiples of $500,000 in excess thereof. (c) The Commitments once terminated or reduced may not be reinstated. 2.05 Commitment Fee. The Borrowers shall pay to the Agent for account of each Bank a commitment fee on the daily average unused amount of the difference, if any, between (x) each Bank's outstanding Loans and (y) an amount equal to such Bank's Commitment Percentage multiplied by the Borrowing Base determined pursuant to the immediately preceding Reserve Evaluation Report (the "Available Borrowing Amount") (for which purpose the aggregate amount of any Letter of Credit Liabilities shall be deemed to be a pro rata use of each Bank's Available Borrowing Amount) for the period from and including the date of this Agreement to but not including the earlier of the date such Bank's Commitment is terminated and the Commitment Termination Date, at a rate per annum equal to 1/2 of 1%. Accrued commitment fee shall be payable on each Quarterly Date and on the earlier of the date the Commitments are terminated and the Commitment Termination Date. 2.06 Lending Offices. The Loans of each Type made by each Bank shall be made and maintained at such Bank's Applicable Lending Office for Loans of such Type. 2.07 Several Obligations; Remedies Independent. The failure of any Bank to make any Loan to be made by it on the date specified therefor shall not relieve any other Bank of its obligation to make its Loan on such date, but neither any Bank nor the Agent shall be responsible for the failure of any other -37- Bank to make a Loan to be made by such other Bank, and no Bank shall have any obligation to the Agent or any other Bank for the failure by such Bank to make any Loan required to be made by such Bank. The amounts payable by the Borrowers at any time hereunder and under the Notes to each Bank shall be a separate and independent debt and each Bank shall be entitled to protect and enforce its rights arising out of this Agreement and the Notes, and it shall not be necessary for any other Bank or the Agent to consent to, or be joined as an additional party in, any proceedings for such purposes. 2.08 Notes. (a) The Loans made by each Bank shall be evidenced by a single promissory note of the Borrowers substantially in the form of Exhibit A hereto, dated the date hereof, payable to such Bank in a principal amount equal to the amount of its Commitment as originally in effect and otherwise duly completed. (b) The date, amount, Type, interest rate and duration of Interest Period (if applicable) of each Loan made by each Bank to the Borrowers, and each payment made on account of the principal thereof, shall be recorded by such Bank on its books and, prior to any transfer of the Note evidencing the Loans held by it, endorsed by such Bank on the schedule attached to such Note or any continuation thereof; provided that the failure of such Bank to make any such recordation or endorsement shall not affect the obligations of the Borrowers to make a payment when due of any amount owing hereunder or under such Note in respect of the Loans evidenced by such Note. (c) No Bank shall be entitled to have its Notes subdivided, by exchange for promissory notes of lesser denominations or otherwise, except in connection with a permitted assignment of all or any portion of such Bank's Commitment, Loans and Note pursuant to Section 12.06(b) hereof. 2.09 Optional Prepayments and Conversions or Continuations of Loans. Subject to Section 4.04 hereof, the Borrowers shall have the right to prepay Loans, or to Convert Loans of one Type into Loans of another Type or Continue Loans of one Type as Loans of the same Type, at any time or from time to time, provided that: (a) the Company shall give the Agent notice of each such prepayment, Conversion or Continuation as provided in Section 4.05 hereof (and, upon the date specified in any such notice of prepayment, the amount to be prepaid shall become due and payable hereunder); and (b) Eurodollar Loans may be prepaid or Converted only on the last day of an Interest Period for such Loans. Notwithstanding the foregoing, and without limiting the rights and remedies of the Banks under Section 10 hereof, in the event that any Event of Default shall have occurred and be continuing, the Agent may (and at the request of the Majority -38- Banks shall) by notice to the Company suspend the right of the Borrowers to Convert any Loan into a Eurodollar Loan, or to Continue any Loan as a Eurodollar Loan, in which event all Loans shall be Converted (on the last day(s) of the respective Interest Periods therefor) or Continued, as the case may be, as Base Rate Loans. 2.10 Mandatory Prepayments and Reductions of Commitments. (a) Borrowing Base. The Agent shall notify the Borrowers (in a "Deficiency Notice") any time the Borrowing Base as then in effect is less than the aggregate principal amount of the Loans and Letter of Credit Liabilities outstanding at such time (the amount of such difference being called herein the "Borrowing Base Deficiency") and within 30 days after the date of the Deficiency Notice the Company shall notify the Agent of the Borrowers' intentions with respect to compliance with the procedures set forth in this Section 2.10(a). As specified in such notice from the Borrowers, the Borrowers shall (within 90 days after the date of the Deficiency Notice) (i) prepay (in accordance with the procedures of this Agreement) the outstanding principal of the Loans and, if all of the Loans have been prepaid and a Borrowing Base Deficiency still exists, provide cover for Letter of Credit Liabilities in an amount equal to such Deficiency as specified in clause (e) below and/or (ii) add to the Hydrocarbon Properties included in the Mortgaged Properties (each such additional Property to have a Present Value of Reserves at least equal to $1,000,000) having a loan value, as determined by the Majority Banks, in an amount sufficient so that the aggregate amount of such prepayments and the loan value of such additional Properties shall equal or exceed the Borrowing Base Deficiency (any such additional Property to be deemed added to the Hydrocarbon Properties on the date the Borrowers deliver to the Agent a written commitment to subject such additional Property to the Lien of the Mortgages). The Borrowers shall, within 120 days of receipt of notice from the Agent that the Properties to be added to the Borrowing Base are acceptable to the Majority Banks, subject such Properties to the Lien of the Mortgages pursuant to documentation and otherwise in a manner satisfactory to the Majority Banks. (b) Casualty Events. Upon the date 30 days following the receipt by the Company or any of its Subsidiaries of the proceeds of insurance, condemnation award or other compensation in respect of any Casualty Event affecting any Hydrocarbon Property other than Unrestricted Properties of any Borrower, the Borrowers (jointly and severally) shall prepay the Loans (and/or provide cover for Letter of Credit Liabilities as specified in clause (e) below), and the Commitments shall be subject to automatic reduction, in an aggregate amount, if any, equal to 100% of the Net Available Proceeds of such Casualty Event not -39- theretofore applied to the repair or replacement of such Hydrocarbon Property, or such lesser amount as is specified in a written notice from the Majority Banks, such prepayment and reduction to be effected in each case in the manner and to the extent specified in clause (d) of this Section 2.10. Nothing in this clause (b) shall be deemed to limit any obligation of the Company and any of its Subsidiaries pursuant to any of the Security Documents to remit to a collateral or similar account (including, without limitation, the Collateral Account) maintained by the Agent pursuant to any of the Security Documents the proceeds of insurance, condemnation award or other compensation received in respect of any Casualty Event. (c) Sale of Assets. Without limiting the obligation of the Obligors to obtain the consent of the Majority Banks pursuant to Section 9.05 hereof to any Disposition not otherwise permitted hereunder, no later than five Business Days prior to the occurrence of any Disposition, the Company, on behalf of the applicable Obligor will deliver to the Banks a statement, certified by the chief financial officer or treasurer of the Company, in form and detail satisfactory to the Agent, of the amount of the Net Available Proceeds of such Disposition and, to the extent such Net Available Proceeds (when taken together with the Net Available Proceeds of all prior Dispositions as to which a prepayment has not yet been made under this Section 2.10(c)) shall exceed $1,000,000, the Borrowers (jointly and severally) shall prepay the Loans (and/or provide cover for Letter of Credit Liabilities as specified in clause (e) below), and the Commitments shall be subject to automatic reduction, in an aggregate amount equal to 100% of the Net Available Proceeds of such Disposition, or such lesser amount as is specified in a written notice from the Majority Banks (together with 100%, or such lesser amount as is specified in a written notice from the Majority Banks, of the Net Available Proceeds of all prior Dispositions as to which a prepayment has not yet been made under this Section 2.10(c)), such prepayment and reduction to be effected in each case in the manner and to the extent specified in clause (d) of this Section 2.10. Notwithstanding the forgoing, the Company shall not be required to prepay the Loans (and/or provide cover for the Letter of Credit Liabilities pursuant to Section 2.10(e) hereof), and the Commitments shall not be subject to automatic reduction upon any sale of Property, other than Mortgaged Property, pursuant to Section 9.05 hereof. (d) Application. Prepayments and reductions of Commitments described in the above clauses of this Section 2.10 shall be effected as follows: the Commitments shall be automatically reduced by an amount equal to the amount specified in such clauses (and to the extent that, after giving effect to such reduction, the aggregate principal amount of the Loans, together with the aggregate amount of all Letter of Credit Liabilities, would exceed the Commitments, the Borrowers shall -40- first, prepay the Loans and second, provide cover for Letter of Credit Liabilities with respect to the Commitments as specified in clause (e) below, in an aggregate amount equal to such excess). (e) Cover for Letter of Credit Liabilities. In the event that the Borrowers shall be required pursuant to this Section 2.10, or pursuant to Section 3.01 or 5.07(c) hereof, to provide cover for Letter of Credit Liabilities, the Borrowers shall effect the same by paying to the Agent immediately available funds in an amount equal to the required amount, which funds shall be retained by the Agent in the Collateral Account (as provided in Section 4.04 of the Security Agreement as collateral security in the first instance for the Letter of Credit Liabilities) until such time as the Letters of Credit shall have been terminated and all of the Letter of Credit Liabilities have been paid in full. Section 3. Payments of Principal and Interest. 3.01 Repayment of Loans. The Borrowers hereby jointly and severally promise to pay to the Agent for the account of each Bank the entire outstanding principal amount of such Bank's Loans, and each Loan shall mature, on the Commitment Termination Date. In addition, if following any reduction in the Commitments, the aggregate principal amount of the Loans, together with the aggregate amount of all Letter of Credit Liabilities shall exceed the Commitments, the Borrowers shall first, prepay Loans and second, provide cover for Letter of Credit Liabilities with respect to the Commitments as specified in Section 2.10(e) above, in an aggregate amount equal to such excess. 3.02 Interest. The Borrowers hereby jointly and severally promise to pay to the Agent for the account of each Bank interest on the unpaid principal amount of each Loan made by such Bank for the period from and including the date of such Loan to but excluding the date such Loan shall be paid in full, at the following rates per annum: (a) during such periods as such Loan is a Base Rate Loan, the Base Rate (as in effect from time to time) plus the Applicable Margin, and (b) during such periods as such Loan is a Eurodollar Loan, for each Interest Period relating thereto, the Eurodollar Rate for such Loan for such Interest Period plus the Applicable Margin. Notwithstanding the foregoing, the Borrowers hereby jointly and severally promise to pay to the Agent for account of each Bank -41- interest at the applicable Post-Default Rate on any principal of any Loan made by such Bank, on any Reimbursement Obligation held by such Bank and on any other amount payable by the Borrowers hereunder or under the Note held by such Bank to or for account of such Bank, which shall not be paid in full when due (whether at stated maturity, by acceleration, by mandatory prepayment or otherwise), for the period from and including the due date thereof to but excluding the date the same is paid in full. Accrued interest on each Loan shall be payable (i) in the case of a Base Rate Loan, quarterly on the Quarterly Dates, (ii) in the case of a Eurodollar Loan, on the last day of each Interest Period therefor and (iii) in the case of any Loan, upon the payment or prepayment thereof or the Conversion of such Loan to a Loan of another Type (but only on the principal amount so paid, prepaid or Converted), except that interest payable at the Post-Default Rate shall be payable from time to time on demand. Promptly after the determination of any interest rate provided for herein or any change therein, the Agent shall give notice thereof to the Banks to which such interest is payable and to the Company. Section 4. Payments; Pro Rata Treatment; Computations; Etc. 4.01 Payments. (a) Except to the extent otherwise provided herein, all payments of principal, interest, Reimbursement Obligations and other amounts to be made by the Borrowers under this Agreement and the Notes, and, except to the extent otherwise provided therein, all payments to be made by the Obligors under any other Basic Document, shall be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim, to the Agent at account number NYAO-DI-900-9-000036 maintained by the Agent with Chase at the Principal Office, not later than 1:00 p.m. New York time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). (b) Any Bank for whose account any such payment is to be made may (but shall not be obligated to) debit the amount of any such payment that is not made by such time to any ordinary deposit account of one or more of the Borrowers with such Bank (with notice to the Borrowers, through the Company, and the Agent). (c) The Company shall, at the time of making each payment under this Agreement or any Note for the account of any Bank, specify to the Agent (which shall so notify the intended recipient(s) thereof) the Loans, Reimbursement Obligations or -42- other amounts payable by the Borrowers hereunder to which such payment is to be applied (and in the event that the Company fail to so specify, or if an Event of Default has occurred and is continuing, the Agent may distribute such payment to the Banks for application in such manner as it or the Majority Banks, subject to Section 4.02 hereof, may determine to be appropriate). (d) Except to the extent otherwise provided in the last sentence of Section 2.03(e) hereof, each payment received by the Agent under this Agreement or any Note for account of any Bank shall be paid by the Agent promptly to such Bank, in immediately available funds, for account of such Bank's Applicable Lending Office for the Loan or other obligation in respect of which such payment is made. (e) If the due date of any payment under this Agreement or any Note would otherwise fall on a day that is not a Business Day, such date shall be extended to the next succeeding Business Day, and interest shall be payable for any principal so extended for the period of such extension. 4.02 Pro Rata Treatment. Except to the extent otherwise provided herein: (a) each borrowing of Loans from the Banks under Section 2.01 hereof shall be made from the Banks, each payment of commitment fee under Section 2.05 hereof in respect of Commitments shall be made for account of the Banks, and each termination or reduction of the amount of the Commit ments under Section 2.04 hereof shall be applied to the respective Commitments of the Banks, pro rata according to the amounts of their respective Commitments; (b) the making, Conversion and Continuation of Loans of a particular Type (other than Conversions provided for by Section 5.04 hereof) shall be made pro rata among the Banks according to the amounts of their respective Commitments (in the case of the making of Loans) or their respective Loans (in the case of Conversions and Continuations of Loans) and the then current Interest Period for each Eurodollar Loan shall be coterminous; (c) each payment or prepayment of principal of Loans by the Borrowers shall be made for the account of the Banks pro rata in accordance with the respective unpaid principal amounts of the Loans held by them; provided that if immediately prior to giving effect to any such payment in respect of any Loans the outstanding principal amount of the Loans shall not be held by the Banks pro rata in accordance with their respective Commitments in effect at the time such Loans were made (whether by reason of a failure of a Bank to make a Loan hereunder in the circumstances described in the last paragraph of Section 12.04 hereof or otherwise), then such payment shall be applied to the Loans in such manner as shall result, as nearly as is practicable, in the outstanding principal amount of the Loans being held by the Banks pro rata in accordance with their respective Commitments; and (d) each payment of interest on Loans by the Borrowers shall be made for -43- account of the Banks pro rata in accordance with the amounts of interest on such Loans then due and payable to the respective Banks. 4.03 Computations. Interest on Eurodollar Loans and commitment fee and letter of credit fees shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable and interest on Base Rate Loans and Reimburse ment Obligations shall be computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable. Notwithstanding the foregoing, for each day that the Base Rate is calculated by reference to the Federal Funds Rate, interest on Base Rate Loans and Reimbursement Obligations shall be computed on the basis of a year of 360 days and actual days elapsed. 4.04 Minimum Amounts. Except for mandatory prepay ments made pursuant to Section 2.10 hereof and Conversions or prepayments made pursuant to Section 5.04 hereof, each borrowing, Conversion and partial prepayment of principal of Loans shall be in an aggregate amount at least equal to $500,000 or in multiples of $100,000 in excess thereof (borrowings, Conversions or prepay ments of or into Loans of different Types or, in the case of Eurodollar Loans, having different Interest Periods at the same time hereunder to be deemed separate borrowings, Conversions and prepayments for purposes of the foregoing, one for each Type or Interest Period). 4.05 Certain Notices. Notices by the Borrowers to the Agent of terminations or reductions of the Commitments and of borrowings, Conversions, Continuations and optional prepayments of Loans, of Types of Loans and of the duration of Interest Periods shall be irrevocable and shall be effective only if received by the Agent not later than 11:00 a.m. New York time on the number of Business Days prior to the date of the relevant termination, reduction, borrowing, Conversion, Continuation or prepayment or the first day of such Interest Period specified below: -44- Number of Business Notice Days Prior ------ ---------- Termination or reduction 2 of Commitments Borrowing or prepayment of 1 Base Rate Loans Borrowing or prepayment of, 3 Conversions of or into, Continuations as, or duration of Interest Period for, Eurodollar Loans Each such notice of termination or reduction shall specify the amount of the Commitments to be terminated or reduced. Each such notice of borrowing, Conversion, Continuation or optional prepayment shall specify the Loans to be borrowed, Converted, Continued or prepaid and the amount (subject to Section 4.04 hereof) and Type of each Loan to be borrowed, Converted, Continued or prepaid and the date of borrowing, Conversion, Continuation or optional prepayment (which shall be a Business Day). Each such notice of the duration of an Interest Period shall specify the Loans to which such Interest Period is to relate. The Agent shall promptly notify the Banks of the contents of each such notice. In the event that the Borrowers fail to select the Type of Loan, or the duration of any Interest Period for any Eurodollar Loan, within the time period and otherwise as provided in this Section 4.05, such Loan (if outstanding as a Eurodollar Loan) will be automatically Converted into a Base Rate Loan on the last day of the then current Interest Period for such Loan or (if outstanding as a Base Rate Loan) will remain as, or (if not then outstanding) will be made as, a Base Rate Loan. 4.06 Non-Receipt of Funds by the Agent. Unless the Agent shall have been notified by a Bank or a Borrower (the "Payor") prior to the date on which the Payor is to make payment to the Agent of (in the case of a Bank) the proceeds of a Loan to be made by such Bank, or a participation in a Letter of Credit drawing to be acquired by such Bank, hereunder or (in the case of the Borrowers) a payment to the Agent for account of one or more of the Banks hereunder (such payment being herein called the "Required Payment"), which notice shall be effective upon receipt, that the Payor does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient(s) on such date; and, if the Payor has -45- not in fact made the Required Payment to the Agent, the recipient(s) of such payment shall, on demand, repay to the Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date (the "Advance Date") such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to the Federal Funds Rate for such day and, if such recipient(s) shall fail promptly to make such payment, the Agent shall be entitled to recover such amount, on demand, from the Payor, together with interest as aforesaid, provided that if neither the recipient(s) nor the Payor shall return the Required Payment to the Agent within three Business Days of the Advance Date, then, retroactively to the Advance Date, the Payor and the recipient(s) shall each be obligated to pay interest on the Required Payment as follows: (i) if the Required Payment shall represent a payment to be made by the Borrowers to the Banks, the Borrowers (jointly and severally) and the recipient(s) shall each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the Post-Default Rate (and, in case the recipient(s) shall return the Required Payment to the Agent, without limiting the obligation of the Borrowers under Section 3.02 hereof to pay interest to such recipient(s) at the Post-Default Rate in respect of the Required Payment) and (ii) if the Required Payment shall represent proceeds of a loan to be made by a Bank to the Borrowers, the Payor and the Borrowers shall each be obligated retroactively to the Advance Date to pay interest in respect of the Required Payment at the rate of interest provided for such Required Payment pursuant to Section 3.02 hereof (and, in case the Borrowers shall return the Required Payment to the Agent, without limiting any claim the Borrowers may have against the Payor in respect of the Required Payment); provided that the Agent shall only be entitled to retain interest in respect of a Required Payment pursuant to clause (i) or (ii) above from either the Payor or the recipient. 4.07 Sharing of Payments, Etc. (a) Each of the Obligors agrees that, in addition to (and without limitation of) any right of set-off, banker's lien or counterclaim a Bank may otherwise have, each Bank shall be entitled, at its option, to offset balances held by it for account of such Obligor at any of its offices, in Dollars or in any other currency, against any principal of or interest on any of such Bank's Loans, Reimbursement Obligations or any other amount payable to such Bank hereunder, that is not paid when due (regardless of whether such balances are then due to the -46- Borrowers), in which case it shall promptly notify such Obligor (through the Company) and the Agent thereof, provided that such Bank's failure to give such notice shall not affect the validity thereof. (b) If any Bank shall obtain from any Obligor payment of any principal of or interest on any Loan or Letter of Credit Liability owing to it or payment of any other amount under this Agreement or any other Basic Document through the exercise of any right of set-off, banker's lien or counterclaim or similar right or otherwise (other than from the Agent as provided herein), and, as a result of such payment, such Bank shall have received a greater percentage of the principal of or interest on the Loans or Letter of Credit Liabilities or such other amounts then due hereunder or thereunder by such Obligor to such Bank than the percentage received by any other Bank, it shall promptly purchase from such other Banks participations in (or, if and to the extent specified by such Bank, direct interests in) the Loans or Letter of Credit Liabilities or such other amounts, respectively, owing to such other Banks (or in interest due thereon, as the case may be) in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Banks shall share the benefit of such excess payment (net of any expenses that may be incurred by such Bank in obtaining or preserving such excess payment) pro rata in accordance with the unpaid principal of and/or interest on the Loans or Letter of Credit Liabilities or such other amounts, respectively, owing to each of the Banks, provided that if at the time of such payment the outstanding principal amount of the Loans shall not be held by the Banks pro rata in accordance with their respective Commitments in effect at the time such Loans were made (whether by reason of a failure of a Bank to make a Loan hereunder in the circumstances described in the last paragraph of Section 12.04 hereof or otherwise), then such purchases of participations and/or direct interests shall be made in such manner as will result, as nearly as is practicable, in the outstanding principal amount of the Loans being held by the Banks pro rata according to the amounts of such Commitments. To such end all the Banks shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. (c) The Borrowers agree that any Bank so purchasing such a participation (or direct interest) may exercise all rights of set-off, banker's lien, counterclaim or similar rights with respect to such participation as fully as if such Bank were a direct holder of Loans or other amounts (as the case may be) owing to such Bank in the amount of such participation. (d) Nothing contained herein shall require any Bank to exercise any such right or shall affect the right of any Bank to exercise, and retain the benefits of exercising, any such right -47- with respect to any other indebtedness or obligation of any Obligor. If, under any applicable bankruptcy, insolvency or other similar law, any Bank receives a secured claim in lieu of a set-off to which this Section 4.07 applies, such Bank shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Banks entitled under this Section 4.07 to share in the benefits of any recovery on such secured claim. Section 5. Yield Protection, Etc. 5.01 Additional Costs. (a) The Borrowers (jointly and severally) shall pay directly to each Bank from time to time such amounts as such Bank may determine to be necessary to compensate such Bank for any costs that such Bank determines are attributable to its making or maintaining of any Eurodollar Loans or its obligation to make any Eurodollar Loans hereunder, or any reduction in any amount receivable by such Bank hereunder in respect of any of such Loans or such obligation (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any Regulatory Change that: (i) changes the basis of taxation of any amounts payable to such Bank under this Agreement or its Notes in respect of any of such Loans (other than taxes imposed on or measured by the overall net income of such Bank or of its Applicable Lending Office for any of such Loans by the jurisdiction in which such Bank has its principal office or such Applicable Lending Office); or (ii) imposes or modifies any reserve, special deposit or similar requirements (other than the Reserve Requirement utilized in the determination of the Eurodollar Rate for such Loan) relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Bank (including, without limitation, any of such Loans or any deposits referred to in the definition of "Eurodollar Base Rate" in Section 1.01 hereof), or any commitment of such Bank (including, without limitation, either of the Commitments of such Bank hereunder); or (iii) imposes any other condition affecting this Agreement or its Note (or any of such extensions of credit or liabilities) or its Commitments. If any Bank requests compensation from the Borrowers under this Section 5.01(a), the Company may, by notice to such Bank (with a copy to the Agent), suspend the obligation of such Bank thereafter to make or Continue Eurodollar Loans, or to Convert -48- Prime Rate Loans into Eurodollar Loans, until the Regulatory Change giving rise to such request ceases to be in effect (in which case the provisions of Section 5.04 hereof shall be applicable), provided that such suspension shall not affect the right of such Bank to receive the compensation so requested. (b) Without limiting the effect of the provisions of paragraph (a) of this Section 5.01, in the event that, by reason of any Regulatory Change, any Bank either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Bank that includes deposits by reference to which the interest rate on Eurodollar Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Bank that includes Eurodollar Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets that it may hold, then, if such Bank so elects by notice to the Company (with a copy to the Agent), the obligation of such Bank to make or Continue, or to Convert Base Rate Loans into, Eurodollar Loans hereunder shall be suspended until such Regulatory Change ceases to be in effect (in which case the provisions of Section 5.04 hereof shall be applicable). (c) Without limiting the effect of the foregoing provisions of this Section 5.01 (but without duplication), the Borrowers (jointly and severally) shall pay directly to each Bank from time to time on request such amounts as such Bank may determine to be necessary to compensate such Bank (or, without duplication, the bank holding company of which such Bank is a subsidiary) for any costs that it determines are attributable to the maintenance by such Bank (or any Applicable Lending Office or such bank holding company), pursuant to any law or regulation or any interpretation, directive or request (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) of any court or governmental or monetary authority (i) following any Regulatory Change or (ii) imple menting any risk-based capital guideline or other requirement (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful) heretofore or hereafter issued by any government or governmental or supervisory authority implementing at the national level the Basel Accord (including, without limitation, the Final Risk-Based Capital Guidelines of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 208, Appendix A; 12 C.F.R. Part 225, Appendix A) and the Final Risk-Based Capital Guidelines of the Office of the Comptroller of the Currency (12 C.F.R. Part 3, Appendix A)), of capital in respect of its Commitment or Loans (such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of such Bank (or any Applicable Lending Office or such bank holding company) to a level below that which such Bank (or any -49- Applicable Lending Office or such bank holding company) could have achieved but for such law, regulation, interpretation, directive or request). For purposes of this Section 5.01(c) and Section 5.06 hereof, "Basel Accord" shall mean the proposals for risk-based capital framework described by the Basel Committee on Banking Regulations and Supervisory Practices in its paper entitled "International Convergence of Capital Measurement and Capital Standards" dated July 1988, as amended, modified and supplemented and in effect from time to time or any replacement thereof. (d) Each Bank shall notify the Company of any event occurring after the date of this Agreement entitling such Bank to compensation under paragraph (a) or (c) of this Section 5.01 as promptly as practicable, but in any event within 45 days, after such Bank obtains actual knowledge thereof; provided that (i) if any Bank fails to give such notice within 45 days after it obtains actual knowledge of such an event, such Bank shall, with respect to compensation payable pursuant to this Section 5.01 in respect of any costs resulting from such event, only be entitled to payment under this Section 5.01 for costs incurred from and after the date 45 days prior to the date that such Bank does give such notice and (ii) each Bank will designate a different Applicable Lending Office for the Loans of such Bank affected by such event if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Bank, be disadvantageous to such Bank, except that such Bank shall have no obligation to designate an Applicable Lending Office located in the United States of America. Each Bank will furnish to the Borrowers a certificate setting forth the basis and amount of each request by such Bank for compensation under paragraph (a) or (c) of this Section 5.01. Determinations and allocations by any Bank for purposes of this Section 5.01 of the effect of any Regulatory Change pursuant to paragraph (a) or (b) of this Section 5.01, or of the effect of capital maintained pursuant to paragraph (c) of this Section 5.01, on its costs or rate of return of maintaining Loans or its obligation to make Loans, or on amounts receivable by it in respect of Loans, and of the amounts required to compensate such Bank under this Section 5.01, shall be conclusive, provided that such determinations and allocations are made on a reasonable basis. 5.02 Limitation on Types of Loans. Anything herein to the contrary notwithstanding, if, on or prior to the determina tion of any Eurodollar Base Rate for any Interest Period: (a) the Agent determines, which determination shall be conclusive, that quotations of interest rates for the relevant deposits referred to in the definition of "Eurodollar Base Rate" in Section 1.01 hereof are not being provided in the relevant amounts or for the relevant -50- maturities for purposes of determining rates of interest for Eurodollar Loans as provided herein; or (b) the Majority Banks determine, which determination shall be conclusive, and notify the Agent that the relevant rates of interest referred to in the definition of "Eurodollar Base Rate" in Section 1.01 hereof upon the basis of which the rate of interest for Eurodollar Loans for such Interest Period is to be determined are not likely to be adequate to cover the cost to such Banks of making or maintaining Eurodollar Loans for such Interest Period; then the Agent shall give the Company and each Bank prompt notice thereof and, so long as such condition remains in effect, the Banks shall be under no obligation to make additional Eurodollar Loans, to Continue Eurodollar Loans or to Convert Base Rate Loans into Eurodollar Loans, and the Borrowers shall, on the last day(s) of the then current Interest Period(s) for the outstanding Eurodollar Loans, either prepay such Loans or Convert such Loans into Base Rate Loans in accordance with Section 2.09 hereof. 5.03 Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Bank or its Applicable Lending Office to honor its obligation to make or maintain Eurodollar Loans hereunder, then such Bank shall promptly notify the Company thereof (with a copy to the Agent) and such Bank's obligation to make or Continue, or to Convert Loans of any other Type into, Eurodollar Loans shall be suspended until such time as such Bank may again make and maintain Eurodollar Loans (in which case the provisions of Section 5.04 hereof shall be applicable). 5.04 Treatment of Affected Loans. If the obligation of any Bank to make Eurodollar Loans or to Continue, or to Convert Base Rate Loans into, Eurodollar Loans shall be suspended pursuant to Section 5.01 or 5.03 hereof, such Bank's Eurodollar Loans shall be automatically Converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) for Eurodollar Loans (or, in the case of a Conversion required by Section 5.01(b) or 5.03 hereof, on such earlier date as such Bank may specify to the Company with a copy to the Agent) and, unless and until such Bank gives notice as provided below that the circumstances specified in Section 5.01 or 5.03 hereof that gave rise to such Conversion no longer exist: (a) to the extent that such Bank's Eurodollar Loans have been so Converted, all payments and prepayments of principal that would otherwise be applied to such Bank's Eurodollar Loans shall be applied instead to its Base Rate Loans; and -51- (b) all Loans that would otherwise be made or Continued by such Bank as Eurodollar Loans shall be made or Continued instead as Base Rate Loans, and all Base Rate Loans of such Bank that would otherwise be Converted into Eurodollar Loans shall remain as Base Rate Loans. If such Bank gives notice to the Company with a copy to the Agent that the circumstances specified in Section 5.01 or 5.03 hereof that gave rise to the Conversion of such Bank's Eurodollar Loans pursuant to this Section 5.04 no longer exist (which such Bank agrees to do promptly upon such circumstances ceasing to exist) at a time when Eurodollar Loans made by other Banks are outstanding, such Bank's Base Rate Loans shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Eurodollar Loans, to the extent necessary so that, after giving effect thereto, all Loans held by the Banks holding Eurodollar Loans and by such Bank are held pro rata (as to principal amounts, Types and Interest Periods) in accordance with their respective Commitments. 5.05 Compensation. The Borrowers (jointly and severally) shall pay to the Agent for the account of each Bank, upon the request of such Bank through the Agent, such amount or amounts as shall be sufficient (in the reasonable opinion of such Bank) to compensate it for any loss, cost or expense that such Bank determines is attributable to: (a) any payment, mandatory or optional prepayment or Conversion of a Eurodollar Loan made by such Bank for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 10 hereof) on a date other than the last day of an Interest Period for such Loan; or (b) any failure by the Borrowers for any reason (including, without limitation, the failure of any of the conditions precedent specified in Section 7 hereof to be satisfied) to borrow a Eurodollar Loan from such Bank on the date for such borrowing specified in the relevant notice of borrowing given pursuant to Section 2.02 hereof. Without limiting the effect of the preceding sentence, such compensation shall include an amount equal to the excess, if any, of (i) the amount of interest that otherwise would have accrued on the principal amount so paid, prepaid or Converted or not borrowed for the period from the date of such payment, prepay ment, Conversion or failure to borrow to the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow, the Interest Period for such Loan that would have commenced on the date specified for such borrowing) at the applicable rate of interest for such Loan provided for herein over (ii) the amount of interest that otherwise would have accrued on such principal amount at a rate per annum equal to the -52- interest component of the amount such Bank would have bid in the London interbank market for Dollar deposits of leading banks in amounts comparable to such principal amount and with maturities comparable to such period (as reasonably determined by such Bank). 5.06 Additional Costs in Respect of Letters of Credit. Without limiting the obligations of the Borrowers under Section 5.01 hereof (but without duplication), if as a result of any Regulatory Change or any risk-based capital guideline or other requirement heretofore or hereafter issued by any govern ment or governmental or supervisory authority implementing at the national level the Basel Accord there shall be imposed, modified or deemed applicable any tax, reserve, special deposit, capital adequacy or similar requirement against or with respect to or measured by reference to Letters of Credit issued or to be issued hereunder and the result shall be to increase the cost to any Bank or Banks of issuing (or purchasing participations in) or maintaining its obligation hereunder to issue (or purchase participations in) any Letter of Credit hereunder or reduce any amount receivable by any Bank hereunder in respect of any Letter of Credit (which increases in cost, or reductions in amount receivable, shall be the result of such Bank's or Banks' reasonable allocation of the aggregate of such increases or reductions resulting from such event), then, upon demand by such Bank or Banks (through the Agent), the Borrowers (jointly and severally) shall pay immediately to the Agent for account of such Bank or Banks, from time to time as specified by such Bank or Banks (through the Agent), such additional amounts as shall be sufficient to compensate such Bank or Banks (through the Agent) for such increased costs or reductions in amount. A statement as to such increased costs or reductions in amount incurred by any such Bank or Banks, submitted by such Bank or Banks to the Company shall be conclusive in the absence of manifest error as to the amount thereof. Section 6. Guarantee. 6.01 Guarantee. The Subsidiary Guarantors hereby jointly and severally guarantee to each Bank and the Agent and their respective successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on the Loans made by the Banks to, and the Notes held by each Bank of, the Borrowers and all other amounts from time to time owing to the Banks or the Agent by the Borrowers under this Agreement and under the Notes and by any Obligor under any of the other Basic Documents, in each case strictly in accordance with the terms thereof (such obligations being herein collectively called the "Guaranteed Obligations"). The Subsidiary Guarantors hereby further jointly and severally agree that if the Borrowers shall fail to pay in full when due (whether at stated maturity, by acceleration or -53- otherwise) any of the Guaranteed Obligations, the Subsidiary Guarantors will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal. 6.02 Obligations Unconditional. The obligations of the Subsidiary Guarantors under Section 6.01 hereof are absolute and unconditional, joint and several, irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of any of the Borrowers under this Agreement, the Notes or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 6.02 that the obligations of the Subsidiary Guarantors hereunder shall be absolute and unconditional, joint and several, under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of the Subsidiary Guarantors hereunder which shall remain absolute and unconditional as described above: (i) at any time or from time to time, without notice to the Subsidiary Guarantors, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; (ii) any of the acts mentioned in any of the provisions of this Agreement or the Notes or any other agreement or instrument referred to herein or therein shall be done or omitted; (iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under this Agreement or the Notes or any other agreement or instrument referred to herein or therein shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; or (iv) any Lien granted to, or in favor of, the Agent or any Bank or Banks as security for any of the Guaranteed Obligations shall fail to be perfected. -54- Each of the Subsidiary Guarantors hereby expressly waive diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Agent or any Bank exhaust any right, power or remedy or proceed against any or all of the Borrowers and the other Subsidiary Guarantors under this Agreement or the Notes or any other agreement or instrument referred to herein or therein, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations. 6.03 Reinstatement. The obligations of the Subsidiary Guarantors under this Section 6 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of the Borrowers in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise and the Subsidiary Guarantors jointly and severally agree that they will indemnify the Agent and each Bank on demand for all reasonable costs and expenses (including, without limitation, fees of counsel) incurred by the Agent or such Bank in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. 6.04 Subrogation. Each Subsidiary Guarantor hereby waives all rights of subrogation or contribution, whether arising by contract or operation of law (including, without limitation, any such right arising under the Bankruptcy Code) or otherwise by reason of any payment by it pursuant to the provisions of this Section 6 and further agrees with the Borrowers for the benefit of each of its creditors (including, without limitation, each Bank and the Agent) that any such payment by it shall constitute a contribution of capital by such Subsidiary Guarantor to the Borrowers. 6.05 Remedies. The Subsidiary Guarantors jointly and severally agree that, as between the Subsidiary Guarantors and the Banks, the obligations of the Borrowers under this Agreement and the Notes may be declared to be forthwith due and payable as provided in Section 10 hereof (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section 10) for purposes of Section 6.01 hereof notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against the Borrowers and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by the Borrowers) shall forthwith become due and payable by the Subsidiary Guarantors for purposes of said Section 6.01. -55- 6.06 Continuing Guarantee. The guarantee in this Section 6 is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising. 6.07 Rights of Contribution. The Subsidiary Guarantors hereby agree, as between themselves, that if any Subsidiary Guarantor (an "Excess Funding Guarantor") shall pay Guaranteed Obligations in excess of the Excess Funding Guarantor's Pro Rata Share (as hereinafter defined) of such Guaranteed Obligations, the other Subsidiary Guarantors shall, on demand (but subject to the next sentence hereof), pay to the Excess Funding Guarantor an amount equal to their respective Pro Rata Shares of such Excess Funding Guarantor's payment. The payment obligation of any Subsidiary Guarantor to any Excess Funding Guarantor under this Section 6.07 shall be subordinate and subject in right of payment to the prior payment in full of the obligations of such Subsidiary Guarantor under the other provisions of this Section 6 and such Excess Funding Guarantor shall not exercise any right or remedy with respect to such excess until payment and satisfaction in full of all of such obligations. For the purposes hereof, "Pro Rata Share" shall mean, for any Subsidiary Guarantor, a percentage equal to the percentage that such Subsidiary Guarantor's Tangible Net Worth as of the Closing Date is of the aggregate Tangible Net Worth of all of the Subsidiary Guarantors as of the Closing Date. If any Subsidiary of the Company becomes a Subsidiary Guarantor hereunder subsequent to the Closing Date, then for purposes of this Section 6.07 such subsequent Subsidiary Guarantor shall be deemed to have been a Subsidiary Guarantor as of the Closing Date and the Tangible Net Worth of such Subsidiary Guarantor as of the Closing Date shall be deemed to be equal to such Tangible Net Worth on the date such Subsidiary Guarantor becomes a Subsidiary Guarantor hereunder. 6.08 Limitation on Guarantee Obligations. In any action or proceeding involving any state corporate law, or any state or Federal bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Subsidiary Guarantor under Section 6.01 hereof would otherwise, taking into account the provisions of Section 6.07 hereof, be held or determined to be void, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its liability under said Section 6.01, then, notwithstanding any other provision hereof to the contrary, the amount of such liability shall, without any further action by such Subsidiary Guarantor, any Bank, the Agent or any other Person, be automatically limited and reduced to the highest amount which is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding. -56- Section 7. Conditions Precedent. 7.01 Conditions to Effectiveness. The effectiveness of this Amended and Restated Credit Agreement is subject to the receipt by the Agent of the following documents and evidence, each of which shall be satisfactory to the Agent (and to the extent specified below, to the Majority Banks) in form and substance: (a) Corporate Documents. The following documents, each certified as indicated below: (i) for each Obligor, a copy of the charter, as amended and in effect, of such Obligor certified as of a recent date by the Secretary of State of its jurisdiction of incorporation, and a certificate from such Secretary of State dated as of a recent date as to the good standing of and charter documents filed by such Obligor; (ii) for each Obligor, a certificate of the Secretary or an Assistant Secretary of such Obligor, dated the date hereof and certifying (A) that the by- laws of such Obligor have not been amended since July 27, 1995, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the board of directors of such Obligor authorizing the execution, delivery and performance of such of the Basic Documents to which such Obligor is or is intended to be a party and the extensions of credit hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the charter of such Obligor has not been amended since August 1, 1995, and (D) as to the incumbency and specimen signature of each officer of such Obligor executing such of the Basic Documents to which such Obligor is intended to be a party and each other document to be delivered by such Obligor from time to time in connection therewith (and the Agent and each Bank may conclusively rely on such certificate until it receives notice in writing from such Obligor); and (iii) for each Obligor, a certificate of another officer of such Obligor as to the incumbency and specimen signature of the Secretary or Assistant Secretary, as the case may be, of such Obligor. (b) Officer's Certificate. A certificate of a senior officer of the Company, dated the date hereof, to the effect set forth in the first sentence of Section 7.02 hereof. -57- (c) Opinion of Counsel to the Obligors. An opinion, dated the date hereof, of Daniel McNamara, Esq., Counsel of each of the Obligors, substantially in the form of Exhibit C hereto and covering such other matters as the Agent or any Bank may reasonably request (and each Obligor hereby instructs such counsel to deliver such opinion to the Banks and the Agent). (d) Opinion of Special Counsel to Chase. An opinion, dated the date hereof, of Milbank, Tweed, Hadley & McCloy, special counsel to Chase, substantially in the form of Exhibit D hereto. (e) Notes. The Notes, duly completed and executed in exchange for the Original Notes. (f) Security Agreement. The Security Agreement, duly executed and delivered by the Obligors and the Agent. In addition, the Borrowers and the Subsidiary Guarantors shall have taken such other action (including, without limitation, delivering to the Agent, for filing, appropriately completed and duly executed copies of Uniform Commercial Code financing statements) as the Agent shall have requested in order to perfect the security interests created pursuant to the Security Agreement. (g) Pledge Agreement. The Pledge Agreement, duly executed and delivered by each of the Obligors, if any, required by the Majority Banks to execute and deliver the Pledge Agreement and the certificates identified in Section 3 thereof, accompanied by undated stock powers executed in blank. In addition, each of such Obligors, if any, shall have taken such other action (including, without limitation, delivering to the Agent, for filing, appropriately completed and duly executed copies of Uniform Commercial Code financing statements) as the Agent shall have requested in order to perfect the security interests created pursuant to the Pledge Agreement. (h) Mortgages. The Mortgage Amendments covering the Hydrocarbon Properties of the Borrowers located in Louisiana, Oklahoma, Texas and Wyoming, in each case duly executed and delivered by the Company in recordable form (in such number of copies as the Agent shall have requested). (i) Insurance. A certificate of an officer of the Company as to the existence of all insurance required to be maintained by the Obligors pursuant to Section 9.04 hereof. (j) Opinion of Local Counsel. A favorable opinion from each of Liskow & Lewis, Conner & Winters, Vinson & Elkins L.L.P. and Brown & Drew, special counsel to -58- the Banks in each of Louisiana, Oklahoma, Texas and Wyoming, respectively, dated the date hereof, for each such state and with respect to the properties covered by the Mortgages and located in such respective states, as to the following: (i) Compliance with all applicable state laws, including all applicable recording, filing and registration laws, of the Mortgages, the Mortgage Amendments and the Notes, and the form and manner of the authorization, execution, acknowledgment and delivery of each thereof; (ii) the legal, valid and binding nature of the Mortgages, the Mortgage Amendments and the Notes, and the enforceability thereof in accordance with their respective terms; (iii) the fact that, the Mortgages, as amended by the Mortgage Amendments, constitute a legal, valid and effective mortgage lien upon the mortgaged properties as security for the Indebtedness referred to therein; (iv) the absence of any requirement for any authorization or approval by any public regulatory body or authority, with regard to the valid execution and delivery of, and the validity, legality and effectiveness of, the Mortgages, the Mortgage Amendments and the Notes; (v) as to all recording, filing and registration procedures as shall be necessary under applicable state laws to constitute the Mortgages, as amended by the Mortgage Amendments, a mortgage, pledge and financing statement in accordance with the terms thereof and the intention of the parties thereto, and as to the necessity of any periodic or other rerecording or refiling of the Mortgages, or any other instrument in order to maintain the lien of the Mortgages; and (vi) as to such state or local mortgage recording taxes, stamp taxes, or other fees, taxes or governmental charges as shall be required to be paid in connection with the execution, delivery, filing for record or recording of the Mortgages and the Notes. (k) Equity Documents. Evidence that the Company has received net cash consideration (prior to the payment of any transaction expenses) of not less than $45,000,000 from Anschutz with respect to the investment by Anschutz in the Voting Stock of the Company. -59- (l) JEDI Amendments. The Agent shall have received copies of any amendment, modification or supplement to the JEDI Agreement executed in connection with the reduction of the current interest rate payable pursuant to the JEDI Agreement. (m) Other Documents. Such other documents as the Agent or any Bank or special New York counsel to Chase may reasonably request. The obligation of the Banks to make their initial extension of credit hereunder is also subject to the payment by the Borrowers of such fees as the Borrowers shall have agreed to pay or deliver to any Bank or the Agent in connection herewith, including, without limitation, the fees set forth in the Amendment Fee Letter and the Original Fee Letter, the reasonable fees and expenses of Milbank, Tweed, Hadley & McCloy, special New York counsel to Chase in connection with the negotiation, preparation, execution and delivery of this Agreement and the Notes and the other Basic Documents and the extensions of credit hereunder (to the extent that statements for such fees and expenses have been delivered to the Company). 7.02 Initial and Subsequent Extensions of Credit. The obligation of the Banks to make any Loans or otherwise extend credit to the Borrower upon the occasion of each borrowing or other extension of credit hereunder (including the initial extension of credit) is subject to the further conditions precedent that, both immediately prior to the making of such Loans or other extension of credit and also after giving effect thereto and to the intended use thereof: (a) no Default shall have occurred and be continuing; (b) the representations and warranties made by each of the Borrowers in Section 8 hereof, and by each Obligor in each of the other Basic Documents to which it is a party, shall be true and complete on and as of the date of the making of such Loans or other extension of credit with the same force and effect as if made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); and (c) the aggregate principal amount of Loans and Letter of Credit Liabilities shall not exceed the Borrowing Base as determined pursuant to Section 1.03 hereof. Each notice of borrowing or request for the issuance of a Letter of Credit by the Borrowers hereunder shall constitute a certification by the Borrowers to the effect set forth in the preceding sentence (both as of the date of such notice or request and, unless the Company otherwise notifies the Agent prior to the date of such borrowing or issuance, as of the date of such borrowing or issuance). -60- Section 8. Representations and Warranties. Each of the Borrowers represents and warrants to the Banks that: 8.01 Corporate Existence. Each of the Company and its Material Subsidiaries (including, without limitation, the Subsidiary Borrowers): (a) is a corporation, partnership or other entity duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its organization; (b) has all requisite corporate power, and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business and is in good standing in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify could have a Material Adverse Effect. 8.02 Financial Condition. The Company has heretofore furnished to each of the Banks the consolidated balance sheet of the Company and its Consolidated Subsidiaries as at December 31, 1994 and the related consolidated statements of income, retained earnings and cash flow of the Company and its Consolidated Subsidiaries for the fiscal year ended on said date, with the opinion thereon of KPMG Peat Marwick. All such financial statements are complete and correct and fairly present the consolidated financial condition of the Company and its Consolidated Subsidiaries as at said date and the consolidated results of operations for the fiscal year ended on said date, all in accordance with GAAP. Neither the Company nor any of its Subsidiaries has on the date hereof any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in said balance sheets as at said date. Since December 31, 1994 there has been no material adverse change in the consolidated financial condition, operations, business or prospects taken as a whole of the Company and its Consolidated Subsidiaries from that set forth in said financial statements as at said date. 8.03 Litigation. Except as disclosed to the Banks in writing prior to the date of this Agreement, there are no legal or arbitral proceedings, or any proceedings by or before any governmental or regulatory authority or agency, now pending or (to the knowledge of the Company or any of its Subsidiaries) threatened against the Company or any of its Subsidiaries which, if adversely determined could have a Material Adverse Effect. 8.04 No Breach. None of the execution and delivery of this Agreement and the Notes and the other Basic Documents, the consummation of the transactions herein and therein contemplated or compliance with the terms and provisions hereof and thereof -61- will conflict with or result in a breach of, or require any consent under, the charter or by-laws of any Obligor, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of them or any of their Property is bound or to which any of them is subject, or constitute a default under any such agreement or instrument, or (except for the Liens created pursuant to the Security Documents) result in the creation or imposition of any Lien upon any Property of the Company or any of its Subsidiaries pursuant to the terms of any such agreement or instrument. 8.05 Action. Each Obligor has all necessary corporate power, authority and legal right to execute, deliver and perform its obligations under each of the Basic Documents to which it is or is intended to be a party; the execution, delivery and performance by each Obligor of each of the Basic Documents to which it is or is intended to be a party have been duly authorized by all necessary corporate action on its part (including, without limitation, any required shareholder approvals); and this Agreement has been duly and validly executed and delivered by each Obligor and constitutes, and each of the Notes and the other Basic Documents to which it is a party when executed and delivered by such Obligor (in the case of the Notes, for value) will constitute, its legal, valid and binding obligation, enforceable against each Obligor in accordance with its terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors' rights and (b) the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 8.06 Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any governmental or regulatory authority or agency, or any securities exchange, are necessary for the execution, delivery or performance by any Obligor of the Basic Documents to which it is a party or for the legality, validity or enforceability hereof or thereof, except for filings and recordings in respect of the Liens created pursuant to the Security Documents. 8.07 Use of Credit. Neither the Company nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock, and no part of the proceeds of any extension of credit hereunder will be used to buy or carry any Margin Stock. -62- 8.08 ERISA. Each Plan, and, to the knowledge of the Company, each Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other Federal or State law, except where non- compliance will not have a Material Adverse Effect and no event or condition has occurred and is continuing as to which the Company would be under an obligation to furnish a report to the Banks under Section 9.01(e) hereof. 8.09 Taxes. The Company and its Subsidiaries are members of an affiliated group of corporations filing consolidated returns for Federal income tax purposes, of which the Company is the "common parent" (within the meaning of Section 1504 of the Code) of such group. The Company and its Subsidiaries have filed either directly or indirectly through the Company all Federal income tax returns and all other material tax returns that are required to be filed by them and have paid either directly or indirectly through the Company all taxes due pursuant to such returns or pursuant to any assessment received by the Company or any of its Subsidiaries. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of taxes and other governmental charges are, in the opinion of the Company, adequate. Except as disclosed to the Banks in writing, the Company has not given or been requested to give a waiver of the statute of limitations relating to the payment of Federal, state, local and foreign taxes or other impositions. 8.10 Investment Company Act. Neither the Company nor any of its Subsidiaries is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 8.11 Public Utility Holding Company Act. Neither the Company nor any of its Subsidiaries is a "holding company", or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 8.12 Material Agreements and Liens. (a) Part A of Schedule I hereto is a complete and correct list, as of the date of this Agreement, of each credit agreement, loan agreement, indenture, purchase agreement, guarantee, letter of credit or other arrangement providing for or otherwise relating to any Indebtedness or any extension of credit (or commitment for any extension of credit) to, or guarantee by, the Company or any of its Material Subsidiaries the aggregate principal or face amount of which equals or exceeds (or may equal or exceed) $1,000,000, and the aggregate principal or face amount -63- outstanding or that may become outstanding under each such arrangement is correctly described in Part A of said Schedule I. (b) Part B of Schedule I hereto is a complete and correct list, as of the date of this Agreement, of each Lien securing Indebtedness of any Person the aggregate principal or face amount of which equals or exceeds (or may equal or exceed) $1,000,000 and covering any Property of the Company or any of its Material Subsidiaries, and the aggregate Indebtedness secured (or which may be secured) by each such Lien and the Property covered by each such Lien is correctly described in Part B of said Schedule I. 8.13 Environmental Matters. Each of the Company and its Subsidiaries has obtained all environmental, health and safety permits, licenses and other authorizations required under all Environmental Laws to carry on its business as now being or as proposed to be conducted, except to the extent failure to have any such permit, license or authorization would not have a Material Adverse Effect. Each of such permits, licenses and authorizations is in full force and effect and each of the Company and its Subsidiaries is in compliance with the terms and conditions thereof, and is also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any applicable Environmental Law or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except to the extent failure to comply therewith would not have a Material Adverse Effect. In addition, except as set forth in Schedule II hereto: (a) No notice, notification, demand, request for information, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed and no investigation or review is pending or threatened by any governmental or other entity with respect to any alleged failure by the Company or any of its Subsidiaries to have any environmental, health or safety permit, license or other authorization required under any Environmental Law in connection with the conduct of the business of the Company or any of its Subsidiaries or with respect to any generation, treatment, storage, recycling, transportation, discharge or disposal, or any Release of any Hazardous Materials generated by the Company or any of its Subsidiaries. (b) Neither the Company nor any of its Subsidiaries owns, operates or leases a treatment, storage or disposal facility requiring a permit under the Resource Conservation -64- and Recovery Act of 1976, as amended, or under any comparable state or local statute; and (i) to the knowledge of the Company after due inquiry, no polychlorinated biphenyls (PCB's) are or have been present at any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries; (ii) to the knowledge of the Company after due inquiry, no asbestos or asbestos-containing materials is or has been present at any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries; (iii) to the knowledge of the Company after due inquiry, there are no underground storage tanks or surface impoundments for Hazardous Materials, active or abandoned, at any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries; (iv) to the knowledge of the Company after due inquiry, no Hazardous Materials have been Released at, on or under any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries in a reportable quantity established by statute, ordinance, rule, regulation or order; and (v) to the knowledge of the Company after due inquiry, no Hazardous Materials have been otherwise Released at, on or under any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries that would have a Material Adverse Effect. (c) Neither the Company nor any of its Subsidiaries has transported or arranged for the transportation of any Hazardous Material to any location that is listed on the National Priorities List ("NPL") under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), listed for possible inclusion on the NPL by the Environmental Protection Agency in the Comprehensive Environmental Response and Liability Information System, as provided for by 40 C.F.R. 300.5 ("CERCLIS"), or on any similar state or local list or that is the subject of Federal, state or local enforcement actions or other investigations that may lead to Environmental Claims against the Company or any of its Subsidiaries . -65- (d) No Hazardous Material generated by the Company or any of its Subsidiaries has been recycled, treated, stored, disposed of or Released by the Company or any of its Subsidiaries at any location other than those listed in Schedule II hereto. (e) No oral or written notification of a Release of a Hazardous Material has been filed by or on behalf of the Company or any of its Subsidiaries and no site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries is listed or proposed for listing on the NPL, CERCLIS or any similar state list of sites requiring investigation or clean-up. (f) No Liens have arisen under or pursuant to any Environmental Laws on any site or facility owned, operated or leased by the Company or any of its Subsidiaries , and no government action has been taken or is in process that could subject any such site or facility to such Liens and neither the Company nor any of its Subsidiaries would be required to place any notice or restriction relating to the presence of Hazardous Materials at any site or facility owned by it in any deed to the real property on which such site or facility is located. (g) There have been no environmental investigations, studies, audits, tests, reviews or other analyses conducted by or that are in the possession of the Company or any of its Subsidiaries in relation to any site or facility now or previously owned, operated or leased by the Company or any of its Subsidiaries which have not been made available to the Banks. 8.14 Subsidiaries, Etc. (a) Set forth in Part A of Schedule III hereto is a complete and correct list, as of the date of this Agreement, of all of the Subsidiaries of the Company, together with, for each such Subsidiary, (i) the jurisdiction of organization of such Subsidiary, (ii) each Person holding ownership interests in such Subsidiary and (iii) the nature of the ownership interests held by each such Person and the percentage of ownership of such Subsidiary represented by such ownership interests. Except as disclosed in Part A of Schedule III hereto, (x) each of the Company and its Subsidiaries owns, free and clear of Liens (other than Liens created pursuant to the Security Documents), and has the unencumbered right to vote, all outstanding ownership interests in each Person shown to be held by it in Part A of Schedule III hereto, (y) all of the issued and outstanding capital stock of each such Person organized as a corporation is validly issued, fully paid and nonassessable and (z) there are no outstanding Equity Rights with respect to such Person. -66- (b) Set forth in Part B of Schedule III hereto is a complete and correct list, as of the date of this Agreement, of all Investments (other than Investments disclosed in Part A of said Schedule III hereto and other than Permitted Investments) held by the Company or any of its Subsidiaries in any Person and, for each such Investment, (x) the identity of the Person or Persons holding such Investment and (y) the nature of such Investment. Except as disclosed in Part B of Schedule III hereto, each of the Company and its Subsidiaries owns, free and clear of all Liens (other than Liens created pursuant to the Security Documents), all such Investments. (c) None of the Restricted Subsidiaries of the Company, other than Forest I Development Company, is, on the date of this Agreement, subject to any indenture, agreement, instrument or other arrangement of the type described in the last sentence of 9.15 hereof. 8.15 True and Complete Disclosure. The information, reports, financial statements, exhibits and schedules furnished in writing by or on behalf of the Obligors to the Agent or any Bank in connection with the negotiation, preparation or delivery of this Agreement and the other Basic Documents or included herein or therein or delivered pursuant hereto or thereto, when taken as a whole do not contain any untrue statement of material fact or omit to state any material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading. All written information furnished after the date hereof by the Obligors to the Agent and the Banks in connection with this Agreement and the other Basic Documents and the transactions contemplated hereby and thereby will be true, complete and accurate in every material respect, or (in the case of projections) based on reasonable estimates, on the date as of which such information is stated or certified. There is no fact known to any Obligor that could have a Material Adverse Effect that has not been disclosed herein, in the other Basic Documents or in a report, financial statement, exhibit, schedule, disclosure letter or other writing furnished to the Banks for use in connection with the transactions contemplated hereby or thereby. Section 9. Covenants of the Obligors. Each Obligor covenants and agrees with the Banks and the Agent that, so long as any Commitment, Loan or Letter of Credit Liability is outstanding and until payment in full of all amounts payable by the Borrowers hereunder: -67- 9.01 Financial Statements Etc. The Company shall (for itself and on behalf of each of the other Obligors) deliver to the Agent and each of the Banks: (a) as soon as available and in any event within 60 days after the end of each quarterly fiscal period of each fiscal year of the Company, consolidated and, if prepared, or if the Company has designated any Subsidiary an Unrestricted Subsidiary, consolidating statements of income, retained earnings and cash flow of the Company and its Consolidated Subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated and, if prepared, or if the Company has designated any Subsidiary an Unrestricted Subsidiary, consolidating balance sheets of the Company and its Consolidated Subsidiaries as at the end of such period, setting forth in each case in comparative form the corresponding consolidated and, if prepared, or if the Company has designated any Subsidiary an Unrestricted Subsidiary, consolidating figures for the corresponding period in the preceding fiscal year, accompanied by a certificate of a senior financial officer of the Company, which certificate shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of the Company and its Consolidated Subsidiaries, and said consolidating financial statements are materially correct and reconcile to the consolidated financial statements of the Company and its Consolidated Subsidiaries, and that such consolidated financial statements have been prepared in accordance with GAAP, as at the end of, and for, such period (subject to normal year-end audit adjustments); (b) as soon as available and in any event within 100 days after the end of each fiscal year of the Company, consolidated and, if prepared, consolidating statements of income, retained earnings and cash flow of the Company and its Consolidated Subsidiaries for such fiscal year and the related consolidated and, if prepared, or if the Company has designated any Subsidiary an Unrestricted Subsidiary, consolidating balance sheets of the Company and its Consolidated Subsidiaries as at the end of such fiscal year, setting forth in each case in comparative form the corresponding consolidated and consolidating figures for the preceding fiscal year, and accompanied (i) in the case of said consolidated statements and balance sheet of the Company, by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of the Company and its Consolidated Subsidiaries as at the end of, and for, such -68- fiscal year in accordance with generally accepted accounting principles, and (ii) in the case of said consolidating statements and balance sheet, by a certificate of a senior financial officer of the Company, which certificate shall state that said consolidating financial statements are materially correct and reconcile to the consolidated financial statements of the Company and its Consolidated Subsidiaries, and that such consolidated financial statements have been prepared in accordance with GAAP, as at the end of, and for, such fiscal year; (c) promptly upon their becoming available, copies of all registration statements and regular periodic reports, if any, which the Company shall have filed with the Securities and Exchange Commission (or any governmental agency substituted therefor) or any national securities exchange; (d) promptly upon the mailing thereof to the shareholders of the Company generally or to holders of Subordinated Indebtedness generally, copies of all financial statements, reports and proxy statements so mailed; (e) as soon as possible, and in any event within ten days after the Company knows or has reason to believe that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan has occurred or exists, a statement signed by a senior financial officer of the Company setting forth details respecting such event or condition and the action, if any, that the Company or its ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by the Company or an ERISA Affiliate with respect to such event or condition): (i) any reportable event, as defined in Section 4043(b) of ERISA and the regulations issued thereunder, with respect to a Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event (provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA, including, without limitation, the failure to make on or before its due date a required installment under Section 412(m) of the Code or Section 302(e) of ERISA, shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code); and any request for a waiver under Section 412(d) of the Code for any Plan; (ii) the distribution under Section 4041(c) of ERISA of a notice of intent to terminate any Plan or -69- any action taken by the Company or an ERISA Affiliate to terminate any Plan (other than in connection with a standard termination under Section 4041(b) of ERISA); (iii) the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan; (iv) the complete or partial withdrawal from a Multiemployer Plan by the Company or any ERISA Affiliate that results in liability under Section 4201 or 4204 of ERISA (including the obligation to satisfy secondary liability as a result of a purchaser default) or the receipt by the Company or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA; (v) the institution of a proceeding by a fiduciary of any Multiemployer Plan against the Company or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; and (vi) the adoption of an amendment to any Plan that, pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA, would result in the loss of tax-exempt status of the trust of which such Plan is a part if the Company or an ERISA Affiliate fails to timely provide security to the Plan in accordance with the provisions of said Sections; (f) on or before each Report Delivery Date, a Reserve Evaluation Report; (g) promptly after the Company or any of its Subsidiaries knows or has reason to believe that any Default has occurred, a notice of such Default describing the same in reasonable detail and, together with such notice or as soon thereafter as possible, a description of the action that the Company or any of its Subsidiaries has taken or proposes to take with respect thereto; (h) within ten days after the Company or any of its Subsidiaries receives notice of any change in the schedule of payment or delivery of any Production Payment to which the Company or such Subsidiary is a party, the Company shall -70- give the Agent notice of such change, together with an explanation of the reason for such change; (i) as soon as available, and in any event no later than the day on which it is delivered to the JEDI Lender, the statement of the calculation of the Monthly Payment Amount (as defined in the JEDI Agreement) for such month delivered or to be delivered to the JEDI Lender, provided that if such statement is no longer required to be delivered to the JEDI Lender, a statement containing all of the information that is required to be delivered to the JEDI Lender pursuant to Section 4.01(g) of the JEDI Agreement as in effect as of December 28, 1993; and (j) from time to time such other information regarding the financial condition, operations, business, prospects or Properties of the Company or any of its Subsidiaries (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA) as any Bank or the Agent may reasonably request. The Company will furnish to each Bank, at the time it furnishes each set of financial statements pursuant to paragraph (a) or (b) above, a certificate of a senior financial officer of the Company (i) to the effect that no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail and describing the action that the Company has taken or proposes to take with respect thereto) and (ii) setting forth in reasonable detail the computations necessary to determine whether the Company is in compliance with Sections 9.06(k), 9.07(e) and (f), 9.08(g), 9.09, 9.10, 9.11 and 9.16 hereof as of the end of the respective quarterly fiscal period or fiscal year, which computations in respect of Sections 9.09, 9.10, 9.11 and 9.16 shall be in accordance with GAAP. 9.02 Litigation. The Company will promptly give to each Bank notice of all legal or arbitral proceedings, and of all proceedings by or before any governmental or regulatory authority or agency, and any material development in respect of such legal or other proceedings, affecting the Company or any of its Subsidiaries , except proceedings which, if adversely determined, would not have a Material Adverse Effect. Without limiting the generality of the foregoing, the Company will give to each Bank notice of the assertion of any Environmental Claim by any Person against, or with respect to the activities of, the Company or any of its Subsidiaries and notice of any alleged violation of or non-compliance with any Environmental Laws or any permits, licenses or authorizations, other than any Environmental Claim or alleged violation which, if adversely determined, would not have a Material Adverse Effect. -71- 9.03 Existence, Etc. The Company will, and will cause each of its Subsidiaries to: (a) preserve and maintain its legal existence and all of its material rights, privileges, licenses and franchises (provided that nothing in this Section 9.03 shall prohibit any transaction expressly permitted under Section 9.05 hereof); (b) comply with the requirements of all applicable laws, rules, regulations and orders of governmental or regulatory authorities if failure to comply with such requirements could have a Material Adverse Effect; (c) pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; (d) maintain all of its Properties used or useful in its business in good working order and condition, ordinary wear and tear excepted; (e) keep adequate records and books of account, in which complete entries will be made in accordance with generally accepted accounting principles consistently applied; and (f) permit representatives of any Bank or the Agent, at their own risk during normal business hours, to examine, copy and make extracts from its books and records, to inspect any of its Properties, and to discuss its business and affairs with its officers, all to the extent reasonably requested by such Bank or the Agent (as the case may be). 9.04 Insurance. The Company will, and will cause each of its Subsidiaries (including without limitation the Subsidiary Borrowers) to, keep insured by financially sound and reputable insurers all Property of a character usually insured by corpora tions engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such corporations and carry such other insurance as is usually carried by such corporations or as is required by law. 9.05 Prohibition of Fundamental Changes. The Company will not, and will not permit any of its Restricted Subsidiaries to, enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer -72- any liquidation or dissolution). The Company will not, and will not permit any of its Restricted Subsidiaries to, acquire any business or Property from, or capital stock of, or be a party to any acquisition of, any Person except for purchases of inventory and other Property to be sold or used in the ordinary course of business and Investments permitted under Section 9.08 hereof. The Company will not, and will not permit any of its Restricted Subsidiaries to, convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or a substantial part of its business or Property, whether now owned or hereafter acquired including, without limitation, receivables and leasehold interests, but excluding (i) obsolete or worn-out Property, tools or equipment no longer used or useful in its business so long as the amount thereof sold in any single fiscal year by the Company and its Subsidiaries shall not have a fair market value in excess of $1,000,000, (ii) any hydrocarbons produced or sold in the ordinary course of business and on ordinary business terms (excluding, with respect to Properties of the Company or any Restricted Subsidiary existing on the date hereof, and with respect to any Mortgaged Property, Production Payments or any other sale or lease of interests in hydrocarbons in the ground other than Production Payments entered into by the Company or any of its Restricted Subsidiaries prior to the date hereof), (iii) on and after the date hereof, other Properties of the Company and its Restricted Subsidiaries (other than Mortgaged Properties and Unrestricted Properties) provided that the aggregate fair market value of such other Properties conveyed, sold, leased, transferred or otherwise disposed of on or after the date hereof shall not exceed $10,000,000, provided, further, that such conveyance, sale, lease, transfer or other disposition shall not include any Accounts or Inventory (each as defined in the Security Agreement) of the Company or any of its Restricted Subsidiaries other than Accounts or Inventory (x) incidental to the sale of Hydrocarbon Properties and (y) created or produced from such Hydrocarbon Properties on or after the effective date of any such conveyance, sale, lease, transfer or other disposition of such Hydrocarbon Properties, (iv) the expiration of leases covering hydrocarbon producing properties and (v) Unrestricted Properties. Notwithstanding the foregoing provisions of this Section 9.05: (a) any Subsidiary of the Company may be merged or consolidated with or into: (i) the Company if the Company shall be the continuing or surviving corporation or (ii) any other such Subsidiary; provided that (x) if any such transaction shall be between a Subsidiary and a Wholly Owned Subsidiary, the Wholly Owned Subsidiary shall be the continuing or surviving corporation and (y) that if any such transaction shall be between a Subsidiary Guarantor and a Subsidiary not a Subsidiary Guarantor, and such Subsidiary Guarantor is not the continuing or surviving corporation, then the continuing or surviving corporation shall have -73- assumed all of the obligations of such Subsidiary Guarantor hereunder; (b) any Subsidiary of the Company may sell, lease, transfer or otherwise dispose of any or all of its Property (upon voluntary liquidation or otherwise) to the Company or a Wholly Owned Subsidiary of the Company; provided that if any such sale is by a Subsidiary Guarantor to a Subsidiary of the Company not a Subsidiary Guarantor, then such Subsidiary shall have assumed all of the obligations of such Subsidiary Guarantor hereunder; and (c) the Company or any Subsidiary of the Company may merge or consolidate with any other Person if (i) in the case of a merger or consolidation of the Company, the Company is the surviving corporation and, in any other case, the surviving corporation is a Wholly Owned Subsidiary of the Company and (ii) after giving effect thereto no Default would exist hereunder. 9.06 Limitation on Liens. The Company will not, nor will it permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of their Property, whether now owned or hereafter acquired, except: (a) Liens created pursuant to the Security Documents; (b) Liens in existence on the date hereof and listed in Part B of Schedule I hereto (excluding, however, following the making of the initial Loans hereunder, Liens securing Indebtedness to be repaid with the proceeds of such Loans, if any, indicated on said Schedule I); (c) Liens imposed by any governmental authority for taxes, assessments, charges or levies not yet due or which are being contested in good faith and by appropriate proceedings if, unless the amount thereof is not material with respect to it or its financial condition, adequate reserves with respect thereto are maintained on the books of the Company or the affected Subsidiaries, as the case may be, in accordance with GAAP; (d) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 45 days or which are being contested in good faith and by appropriate proceedings and Liens securing judgments (but only to the extent, for an amount and for a period not resulting in an Event of Default under Section 10(h) hereof); -74- (e) pledges or deposits under worker's compensation, unemployment insurance and other social security or similar legislation; (f) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety, stay, appeal and indemnity bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (g) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on the use of Property or minor imperfections in title thereto which, in the aggregate, are not material in amount, and which do not in any case materially detract from the value of the Property subject thereto or interfere with the ordinary conduct of the business of the Company or any of its Subsidiaries; (h) Liens on Property of any corporation which becomes a Subsidiary of the Company after the date of this Agreement, provided that such Liens are in existence at the time such corporation becomes a Subsidiary of the Company and were not created in anticipation thereof; (i) Liens upon real and/or tangible personal Property acquired after the date hereof (by purchase, construction or otherwise) by the Company or any of its Subsidiaries, each of which Liens either (A) existed on such Property before the time of its acquisition and was not created in anticipation thereof, or (B) was created solely for the purpose of securing Indebtedness representing, or incurred to finance, refinance or refund, the cost (including the cost of construction) of such Property; provided that (x) no such Lien shall extend to or cover any Property of a Borrower or a Subsidiary of the Company other than the Property so acquired and improvements thereon; (y) the principal amount of Indebtedness secured by any such Lien shall at no time exceed 80% of the fair market value (as determined in good faith by a senior financial officer of the applicable Borrower) of such Property at the time it was acquired (by purchase, construction or otherwise); provided that the obligations of the Company or any Subsidiary of the Company in respect of Capital Lease Obligations under a capital lease of Property other than Hydrocarbon Property entered into in the ordinary course of business may be secured by a Lien on the Property subject to such capital lease and (z) no such Lien shall be incurred in connection with any Production Payment unless the Company, as promptly as reasonably practicable, and in any event within 10 days after the creation of such Lien, provides the Agent with -75- information concerning the Production Payment which gave rise to such Lien and delivers to the Agent, promptly upon request, such additional information concerning such Production Payment or such Lien as the Agent or any Bank may reasonably request; (j) Liens for farm-in, farm-out, joint operating, area of mutual interest agreements or similar agreements entered into by the Borrowers in the ordinary course of business which the Borrowers determine in good faith to be necessary for or advantageous to the economic development of their Properties; provided any farm-out agreements covering any Mortgaged Property shall require the prior written consent of the Majority Banks; (k) additional Liens upon real and/or personal Property created after the date hereof, provided that the aggregate Indebtedness secured thereby and incurred on and after the date hereof shall not exceed $1,000,000 in the aggregate at any one time outstanding; (l) Liens created pursuant to any Commodity Hedging Agreement or Interest Rate Protection Agreement (i) with any Bank or any Affiliate of such Bank, provided that the Majority Banks consent to the creation of such Lien or (ii) with any other Person, provided that the aggregate Indebtedness secured by all such Liens permitted by this clause (ii) shall not exceed $2,000,000 in the aggregate at any one time outstanding and no such Liens shall extend to any Mortgaged Properties; (m) Liens securing Indebtedness of the Company or its Subsidiaries permitted pursuant to Section 9.07(g) hereof, provided that the Company will not and will not permit its Subsidiaries to create any such Liens on any Mortgaged Property; (n) Liens securing obligations of a Subsidiary of the Company to the Company or to any Restricted Subsidiary or any obligations of the Company to a Restricted Subsidiary provided that such Liens are not (i) on Mortgaged Properties existing on the date hereof or (ii) on Mortgaged Properties acquired after the date hereof that are not subject to any Lien prior to the Lien of the Mortgage; and (o) any extension, renewal or replacement of the foregoing, provided that the Liens permitted hereunder shall not be spread to cover any additional Indebtedness or Property (other than a substitution of like Property). 9.07 Indebtedness. The Company will not, and will not permit any of its Subsidiaries to, create, incur or suffer to exist any Indebtedness except: -76- (a) Indebtedness to the Banks hereunder; (b) Indebtedness outstanding on the date hereof and listed in Part A of Schedule I hereto (excluding, however, following the making of the initial Loans hereunder, the Indebtedness to be repaid with the proceeds of such Loans, if any, indicated on said Schedule I); (c) Subordinated Indebtedness; (d) Indebtedness of Subsidiaries of the Company to the Company or to other Subsidiaries of the Company; (e) Indebtedness of the Company and its Subsidiaries secured by Liens permitted by Section 9.06(j) hereof up to but not exceeding $500,000 at any one time outstanding; (f) additional Indebtedness of the Company up to but not exceeding $1,000,000 at any one time outstanding; (g) Non-Recourse Debt; (h) Indebtedness of the Company and its Subsidiaries secured by Liens permitted by Section 9.06(l) hereof; and (i) Indebtedness ("Refinancing Indebtedness") issued in exchange for or the proceeds of which are used to repay, refund, refinance or discharge or otherwise retire any Indebtedness ("Refinanced Indebtedness") specified in clause (b) above, such Refinancing Indebtedness not to exceed the principal amount of, accelerate the maturity of, or increase the interest rate applicable to, the Refinanced Indebtedness outstanding on the date of the issuance of the Refinancing Indebtedness. 9.08 Investments. The Company will not, and will not permit any of its Restricted Subsidiaries to, make or permit to remain outstanding any Investments except: (a) Investments outstanding on the date hereof and identified in Schedule III Part B hereto (excluding Investments in Unrestricted Subsidiaries); (b) operating deposit accounts with banks; (c) Permitted Investments; (d) Investments by the Company and its Subsidiaries in capital stock of Restricted Subsidiaries to the extent outstanding on the date of the financial statements of the Company and its Consolidated Subsidiaries referred to in Section 8.02 hereof and advances by the Company and its -77- Restricted Subsidiaries to Restricted Subsidiaries of the Company in the ordinary course of business; provided that the Company may make loans or other advances to any Restricted Subsidiary that is a Subsidiary Borrower; (e) Investments in the Capital Stock of any Wholly- Owned Subsidiary of the Company formed or acquired by the Company or any of its other Wholly-Owned Subsidiaries (other than Unrestricted Subsidiaries) after the date hereof (a "New Wholly-Owned Subsidiary"), provided that (i) such New Wholly-Owned Subsidiary is maintained as a separate Subsidiary of the Company (unless the Majority Banks consent to the merger of such New Wholly-Owned Subsidiary into the Company or into another Wholly-Owned Subsidiary of the Company, except that no such consent shall be required to merge such New Wholly-Owned Subsidiary into another Wholly- Owned Subsidiary of the Company established solely for the purpose of facilitating the acquisition of such New Wholly- Owned Subsidiary (which Wholly-Owned Subsidiary, following such merger, shall have no assets other than the assets of such New Wholly-Owned Subsidiary)), (ii) such New Wholly- Owned Subsidiary is engaged principally in the business of the acquisition and exploitation of, exploration for and/or development, production and processing of oil, gas or other hydrocarbons, (iii) immediately following the consummation of each such Investment, such New Wholly-Owned Subsidiary shall have no Indebtedness other than Non-Recourse Debt (provided such Indebtedness may have full recourse to the assets of such Wholly-Owned Subsidiary or any Unrestricted Subsidiary) and, if applicable, Indebtedness hereunder and (iv) the Company complies with Section 9.16 hereof with respect to such New Wholly-Owned Subsidiary immediately following the consummation of such Investment by the Company; (f) Investments permitted by Section 9.07(h) hereof; (g) additional Investments up to but not exceeding $5,000,000 (or the equivalent) in the aggregate, including, without limitation, Investments in Unrestricted Subsidiaries and JEDI Investments; provided that any cash dividends received by the Company or any Restricted Subsidiary from an Unrestricted Subsidiary, up to the amount of the Investments in such Unrestricted Subsidiary, shall reduce pro tanto the aggregate amount of the Investments in such Unrestricted Subsidiary for purposes of calculating compliance with such $5,000,000 limitation; and (h) undivided fractional interests in hydrocarbon reserves. -78- 9.09 Dividend Payments. The Company will not, nor will it permit any of its Subsidiaries to, declare or make any Dividend Payment at any time; provided that (i) any Wholly-Owned Subsidiaries of the Company may declare and make Dividend Payments to the Company and (ii) the Company or any Subsidiary may declare and make Dividend Payments in cash, subject to the satisfaction of each of the following conditions on the date of such Dividend Payment and after giving effect thereto: (i) no Default shall have occurred and be continuing or shall occur as a result of the making of such Dividend Payment; and (ii) immediately after giving effect to such Dividend Payment, the aggregate amount of Dividend Payments made during the period commencing on the date hereof through and including the date of such Dividend Payment shall not exceed an amount equal to the sum of (A) 50% of consolidated net income of the Company and its Consolidated Subsidiaries for the period commencing on October 1, 1993 through and including the last day of the fiscal quarter most recently ended prior to the date of such Dividend Payment (the "Tracking Period") (treated for these purposes as a single accounting period), minus 100% of consolidated net losses of the Company and its Consolidated Subsidiaries for the Tracking Period (treated for these purposes as a single accounting period), plus 50% of the net cash proceeds received by the Company during the Tracking Period from any Person other than a Subsidiary of the Company as a result of the issuance or sale of Capital Stock (other than Disqualified Capital Stock) of the Company (reduced by 100% of the amount of such net cash proceeds used or intended to be used to prepay, redeem or retire any Subordinated Indebtedness pursuant to Section 9.17 hereof); provided that no more than 10% of such net cash proceeds may be used to make any Dividend Payment during any fiscal year of the Company and (B) $3,000,000; provided that in no event will the amount determined pursuant to clause (A) hereof be less than zero. For the purpose of this paragraph 9.09(ii), consolidated net income or loss of the Company and its Consolidated Subsidiaries shall exclude the following non- cash items (provided that the same shall be included when they become cash items): (i) any impairment of Properties for accounting purposes under a ceiling test adjustment, (ii) any extraordinary item or (iii) any gain or loss attributable to a change in accounting method which, at the time of recognition in the financial statements of the Company and its Subsidiaries is not a cash item. To the extent future cash payments are made or received with respect to a change in accounting method and such payment is not otherwise included in the computation of consolidated net income or loss for such period, consolidated net income -79- or loss shall be reduced or increased by the amount of such cash payment or receipt. 9.10 Debt Coverage Ratio; Interest Coverage Ratio. (a) The Company will not permit the Debt Coverage Ratio for any period of two complete consecutive fiscal quarters (treated for this purpose as a single accounting period) following March 31, 1995, to be less than 1.5 to 1 as of the end of any fiscal quarter of the Company; and (b) The Company will not permit the Interest Coverage Ratio for any period of two complete consecutive fiscal quarters (treated for this purpose as a single accounting period) following March 31, 1995, to be less than the following respective ratios as of the end of any fiscal quarter of the Company during the following respective periods: For the fiscal quarter ending September 30, 1995 through the fiscal quarter ending March 31, 1996: 1.8 to 1 For the fiscal quarter ending June 30, 1996 and at all times thereafter: 2.0 to 1 9.11 Working Capital. The Company will not permit the current assets of the Company and its Consolidated Subsidiaries (determined on a consolidated basis in accordance with GAAP) to be equal to or less than the current liabilities of the Company and its Consolidated Subsidiaries (so determined). For purposes hereof, the terms "current assets" and "current liabilities" shall have the respective meanings assigned to them by GAAP, provided that in any event there shall be (i) included in current assets the aggregate amount of the unused Commitments (but only to the extent such unused Commitments could then be utilized as provided in Section 7.02 hereof), (ii) excluded from current liabilities all Indebtedness hereunder, (iii) excluded from current liabilities all Non-Recourse Debt and (iv) the current portion of any gas balancing liabilities. 9.12 Lines of Business. The Company will not, and will not permit any of its Subsidiaries to, engage to any substantial extent in any line or lines of business activity other than the business of the acquisition, exploration, development, production, processing, marketing, gathering and sale of hydrocarbons. -80- 9.13 Transactions with Affiliates. Except as expressly permitted by this Agreement, the Company will not, and will not permit any Restricted Subsidiaries to, directly or indirectly: (a) make any Investment in an Affiliate; (b) transfer, sell, lease, assign or otherwise dispose of any Property to an Affiliate; (c) merge into or consolidate with or purchase or acquire Property from an Affiliate; or (d) enter into any other transaction directly or indirectly with or for the benefit of an Affiliate (including, without limitation, guarantees and assumptions of obligations of an Affiliate); provided that (x) any Affiliate who is an individual may serve as a director, officer or employee of any of the Company and its Subsidiaries and receive reasonable compensation for his or her services in such capacity and (y) any of the Company and its Restricted Subsidiaries may enter into transactions with Affiliates (other than extensions of credit to Affiliates) providing for the leasing of Property, the rendering or receipt of services or the purchase or sale of inventory and other Property in the ordinary course of business if the monetary or business consideration arising therefrom would be substantially as advantageous to the Company and its Restricted Subsidiaries as the monetary or business consideration which would obtain in a comparable transaction with a Person not an Affiliate. 9.14 Use of Proceeds. The Borrowers will use the proceeds of the Loans hereunder and will use Letters of Credit issued hereunder solely for general corporate purposes (in compliance with all applicable legal and regulatory requirements); provided that neither the Agent nor any Bank shall have any responsibility as to the use of any of such proceeds. 9.15 Certain Obligations Respecting Subsidiaries. The Company will, and will cause each of its Restricted Subsidiaries to, take such action from time to time as shall be necessary to ensure that the Company and each of its Restricted Subsidiaries at all times own (subject only to the Lien of the Pledge Agreement) at least the same percentage of the issued and outstanding shares of each class of stock of each of such Restricted Subsidiaries the stock of which is subject to the Lien of the Pledge Agreement as is owned on the date hereof or, in the case of New Wholly-Owned Subsidiaries created or acquired after the date hereof, the stock of which are required to be subject to the Lien of the Pledge Agreement, 100% of each class of stock of each of such Subsidiaries (each of the Subsidiaries referred to above being herein called, a "Pledged Subsidiary"). Without limiting the generality of the foregoing, none of the Company and its Restricted Subsidiaries will sell, transfer or otherwise dispose of any shares of stock in any Pledged Subsidiary owned by it, nor permit any Pledged Subsidiary to issue any shares of stock of any class whatsoever to any Person (other than to the Company or another Obligor). In the event that any such additional shares of stock are issued by any Pledged Subsidiary, -81- the respective Obligor agrees forthwith to deliver to the Agent pursuant to the Pledge Agreement the certificates evidencing such shares of stock, accompanied by undated stock powers executed in blank and shall take such other action as the Agent shall request to perfect the security interest created therein pursuant to the Pledge Agreement. The Company will not and will not permit any of its Restricted Subsidiaries to enter into any indenture, agreement, instrument or other arrangement (other than the Indenture included in the Senior Subordinated Debt Documents as initially in effect) that, directly or indirectly, prohibits or restrains, or has the effect of prohibiting or restraining, or imposes materially adverse conditions upon, the incurrence or payment of Indebtedness of the Company and its Restricted Subsidiaries, the granting of Liens (other than Liens on Properties securing Non-Recourse Debt), the declaration or payment of dividends, the making of loans, advances or Investments or the sale, assignment, transfer or other disposition of Property. 9.16 Additional Borrowers and Subsidiary Guarantors. The Company will take such action, and will cause each of its Subsidiaries to take such action, including without limitation the action specified below in this Section 9.16 from time to time as shall be necessary to ensure that (i) each of such Subsidiaries (other than Unrestricted Subsidiaries and Forest I Development Company) with Tangible Net Worth of more than 5% of the Tangible Net Worth of the Company and its Consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP is a Subsidiary Borrower hereunder and (ii) all Subsidiaries that Guarantee the Company's obligations in respect of the Senior Subordinated Indebtedness are Subsidiary Guarantors and in each case, thereby, "Obligors" hereunder. Each Subsidiary of the Company that is required to become a Subsidiary Borrower after the date hereof shall execute such instruments and agreements, in form and substance satisfactory to, and as required by, the Agent to acknowledge that such Subsidiary has all of the rights and obligations of a Borrower under this Agreement. Each Subsidiary of the Company that is required to become a Subsidiary Guarantor after the date hereof shall execute such instruments and agreements, in form and substance satisfactory to, and as required by, the Agent to acknowledge that such Subsidiary has all of the obligations of a Subsidiary Guarantor pursuant to this Agreement. 9.17 Modifications and Payments of Subordinated Indebtedness and Non-Recourse Indebtedness. The Company will not, and will not permit any of its Subsidiaries to, (a) agree to any amendment, supplement or other modification of any of the Senior Subordinated Debt Documents or any other documents providing for or evidencing any Subordinated Indebtedness or Non- Recourse Debt or (b) pay, prepay, redeem, retire, purchase or otherwise acquire for value, or defease, any Subordinated -82- Indebtedness or Non-Recourse Debt except for (subject to the subordination provisions, if applicable, relating thereto) regularly scheduled payments of principal thereof and interest thereon or regularly scheduled redemptions thereof on the respective dates on which such payments or redemptions are required to be made; provided that the Company may (if no Default has occurred and is continuing or will result therefrom) (i) apply 30% of the net cash proceeds received by the Company from any Person other than a Subsidiary of the Company as a result of the issuance or sale of Capital Stock of the Company (other than Disqualified Capital Stock) to prepay, redeem or retire any Subordinated Indebtedness or Non-Recourse Debt; provided, however, the Company shall apply 100% of the net cash proceeds received by the Company from the exercise of the warrants granted in connection with the transactions contemplated by the Transaction Documents (as defined in the Purchase Agreement) to the JEDI Repayment and (ii) refinance such Senior Subordinated Debt or Non-Recourse Debt provided that (w) the subordination or non-recourse provisions, as the case may be, for such Indebtedness remain unchanged; (x) the interest rate applicable to such Indebtedness is not increased; (y) the final maturity of such Indebtedness is not accelerated and (z) the covenants and other provisions thereof are not modified in any respect determined by the Majority Banks to be materially adverse to the Company or the Banks. 9.18 Changes to Production Payments. The Company will not, and will not permit any Material Subsidiary to voluntarily change, agree or consent to any change in the delivery or payment schedule of any Production Payment or similar agreement without the prior written consent of the Majority Banks. 9.19 Unrestricted Subsidiaries. The Company: (a) will cause the management, business and affairs of each of the Company and its Subsidiaries to be conducted in such a manner (including, without limitation, by keeping separate books of account, furnishing separate financial statements of Unrestricted Subsidiaries to creditors and potential creditors thereof and by not permitting Properties of the Company and its respective Subsidiaries to be commingled) so that each Unrestricted Subsidiary that is a corporation will be treated as a corporate entity separate and distinct from the Company and the Restricted Subsidiaries; (b) will not, and will not permit any of the Restricted Subsidiaries to, incur, assume, Guarantee or be or become liable for any Indebtedness or other obligations of any of the Unrestricted Subsidiaries; and -83- (c) will not permit any Unrestricted Subsidiary to hold any capital stock of or other ownership interest in, or any Indebtedness of, any Restricted Subsidiary. 9.20 Amendments to Transactions Documents. The Company will not, and will not permit any Subsidiary to change, agree or consent to any amendment, modification or supplement to any of the Transaction Documents (as defined in the Purchase Agreement) without the prior written consent of the Majority Banks; provided, however, that the Company may, and may permit any Subsidiary, to change, agree or consent to any such amendment, modification or supplement without the prior written consent of the Agent or the Banks if such amendment, modification or supplement (i) does not materially change the benefits to be derived by the Company from the consummation of the transactions contemplated by the Transaction Documents as in effect as of May 15, 1995, (ii) does not expand in any material respect the circumstances under which Anschutz may assert any claim under the Transaction Documents with recourse to the Company (other than with respect to the Company's, Forest Oil of Canada Ltd.'s or 604228 Alberta Ltd.'s interest in the Anschutz Collateral) and (iii) could not reasonably be expected to have an adverse effect on the Banks or the Agent. Section 10. Events of Default. If one or more of the following events (herein called "Events of Default") shall occur and be continuing: (a) The Borrowers shall default in the payment when due (whether at stated maturity or upon mandatory or optional prepayment) of any principal of or interest on any Loan or any Reimbursement Obligation, any fee or any other amount payable by it hereunder or under any other Basic Document; or (b) The Company or any of its Material Subsidiaries shall default in the payment when due of any principal of or interest on any of its other Indebtedness aggregating $500,000 or more, or in the payment when due of $100,000 or more under any Interest Rate Protection Agreement; or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Indebtedness or any event specified in any Interest Rate Protection Agreement shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness to become due, or to be prepaid in full (whether by redemption, purchase, offer to purchase or otherwise), prior to its stated maturity or to have the interest rate thereon reset to a level so that securities evidencing such Indebtedness trade at a level -84- specified in relation to the par value thereof or, in the case of an Interest Rate Protection Agreement, to permit the payments owing under such Interest Rate Protection Agreement to be liquidated; provided that (i) a default under the JEDI Agreement shall not be an Event of Default under this Section 10(b) unless such a default has occurred and a claim in excess of $1,000,000 is made against the Company by or through the JEDI Lender seeking any recourse against the Company other than with respect to the Company's interest in the JEDI Collateral and (ii) a default under the Participation Agreement shall not be an Event of Default under this Section 10(b) unless such a default has occurred and a claim is made against the Company by or through First Chicago seeking recourse against the Company other than with respect to the Company's interest in the First Chicago Collateral; or (c) Any representation, warranty or certification made or deemed made herein or in any other Basic Document (or in any modification or supplement hereto or thereto) by any Obligor, or any certificate furnished to any Bank or the Agent pursuant to the provisions hereof or thereof, shall prove to have been false or misleading as of the time made or furnished in any material respect; or (d) The Company shall default in the performance of any of its obligations under any of Sections 9.01(g), 9.05, 9.06, 9.07, 9.08, 9.09, 9.10, 9.11, 9.12, 9.14, 9.15 or 9.17 hereof or any Obligor shall default in the performance of any of its obligations under Section 4.02 or 5.02 of the Security Agreement; or any Obligor shall default in the performance of any of its other obligations in this Agreement or any other Basic Document and such default shall continue unremedied for a period of 30 days after notice thereof to the Company by the Agent or any Bank (through the Agent); or (e) The Company or any of its Material Subsidiaries shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or (f) The Company or any of its Material Subsidiaries shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, examiner or liquidator of itself or of all or a substantial part of its Property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code, (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate -85- manner, or acquiesce in writing to, any petition filed against it in an involuntary case under the Bankruptcy Code or (vi) take any corporate action for the purpose of effecting any of the foregoing; or (g) A proceeding or case shall be commenced, without the application or consent of the Company or any of its Material Subsidiaries, in any court of competent jurisdiction, seeking (i) its reorganization, liquidation, dissolution, arrangement or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a receiver, custodian, trustee, examiner, liquidator or the like of the Company or such Subsidiary or of all or any substantial part of its Property, or (iii) similar relief in respect of the Company or such Subsidiary under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days; or an order for relief against the Company or such Subsidiary shall be entered in an involuntary case under the Bankruptcy Code; or (h) A final judgment or judgments for the payment of money in excess of $1,000,000 in the aggregate (exclusive of judgment amounts fully covered by insurance where the insurer(s) has or have admitted liability in respect of the full amount of such judgment(s) in excess of $1,000,000 and in respect of which the Majority Banks believe such insurer(s) has or have the financial ability to satisfy the full amount of such judgment(s)) shall be rendered by a one or more courts, administrative tribunals or other bodies having jurisdiction against the Company or any of its Material Subsidiaries and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 60 days from the date of entry thereof and the Company or the relevant Subsidiary shall not, within said period of 60 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (i) An event or condition specified in Section 9.01(e) hereof shall occur or exist with respect to any Plan or Multiemployer Plan and, as a result of such event or condition, together with all other such events or conditions, the Company or any ERISA Affiliate shall incur or in the opinion of the Majority Banks shall be reasonably likely to incur a liability to a Plan, a Multiemployer Plan or PBGC (or any combination of the foregoing) which would -86- constitute, in the determination of the Majority Banks, a Material Adverse Effect; or (j) Any Governmental Authority shall assert claims against the Company or any of its Subsidiaries, or any other Person shall commence any proceeding against the Company or any of its Subsidiaries before any court, administrative tribunal or other body having jurisdiction over the Company or any of its Subsidiaries, in either such case based on or arising from the generation, storage, transport, handling or disposal of Hazardous Materials by the Company or any of its Subsidiaries or Affiliates, or any predecessor in interest of the Company or any of its Subsidiaries or Affiliates, or relating to any site or facility owned, operated or leased by the Company or any of its Subsidiaries or Affiliates, which claims or liabilities (insofar as they are payable by the Company or any of its Subsidiaries but after deducting any portion thereof which is reasonably expected to be paid by other creditworthy Persons jointly and severally liable therefor), and the amount thereof is, singly or in the aggregate, reasonably anticipated to have a Material Adverse Effect and such claim is not withdrawn or such proceeding is not withdrawn or dismissed, as the case may be, within 45 days after the assertion or commencement thereof, as applicable; or (k) A Change of Control; or (l) Except for expiration in accordance with its terms, any of the Security Documents shall be terminated or shall cease to be in full force and effect, for whatever reason; THEREUPON: (1) in the case of an Event of Default other than one referred to in clause (f) or (g) of this Section 10 with respect to any Obligor, the Agent may and, upon request of the Majority Banks, shall, by notice to the Company, terminate the Commitments and/or declare the principal amount then outstanding of, and the accrued interest on, the Loans, the Reimbursement Obligations and all other amounts payable by the Obligors hereunder and under the Notes (including, without limitation, any amounts payable under Section 5.05 or 5.06 hereof) to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by each Obligor; and (2) in the case of the occurrence of an Event of Default referred to in clause (f) or (g) of this Section 10 with respect to any Obligor, the Commitments shall automatically be terminated and the principal amount then outstanding of, and the accrued interest on, the Loans, the Reimbursement Obligations and all other amounts payable by the Obligors hereunder and under the Notes (including, without limitation, any amounts payable under -87- Section 5.05 or 5.06 hereof) shall automatically become immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by each Obligor. In addition, upon the occurrence and during the continuance of any Event of Default (if the Agent has declared the principal amount then outstanding of, and accrued interest on, the Loans and all other amounts payable by the Borrowers hereunder and under the Notes to be due and payable), the Borrowers jointly and severally agree that they shall, if requested by the Agent or the Majority Banks through the Agent (and, in the case of any Event of Default referred to in clause (f) or (g) of this Section 10 with respect to the Company, forthwith, without any demand or the taking of any other action by the Agent or such Banks) provide cover for the Letter of Credit Liabilities by paying to the Agent immediately available funds in an amount equal to the then aggregate undrawn face amount of all Letters of Credit, which funds shall be held by the Agent in the Collateral Account as collateral security in the first instance for the Letter of Credit Liabilities and be subject to withdrawal only as therein provided. Section 11. The Agent. 11.01 Appointment, Powers and Immunities. Each Bank hereby irrevocably appoints and authorizes the Agent to act as its agent hereunder and under the other Basic Documents with such powers as are specifically delegated to the Agent by the terms of this Agreement and of the other Basic Documents, together with such other powers as are reasonably incidental thereto. The Agent (which term as used in this sentence and in Section 11.05 and the first sentence of Section 11.06 hereof shall include reference to its affiliates and its own and its affiliates' officers, directors, employees and agents): (a) shall have no duties or responsibilities except those expressly set forth in this Agreement and in the other Basic Documents, and shall not by reason of this Agreement or any other Basic Document be a trustee for any Bank; (b) shall not be responsible to the Banks for any recitals, statements, representations or warranties contained in this Agreement or in any other Basic Document, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Basic Document, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of any collateral security provided for by any of the Security Documents, or of this Agreement, any Note or any other Basic Document or any other document referred to or provided for herein or therein, or for any failure by the Borrowers or any other Person to perform any of its obligations hereunder or thereunder; (c) shall not be required to initiate or conduct any litigation or collection proceedings hereunder or under any other Basic Document; and (d) shall not be responsible for any action taken or omitted to be taken by it hereunder or -88- under any other Basic Document or under any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith, except for its own gross negligence or willful misconduct. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. The Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until a notice of the assignment or transfer thereof shall have been filed with the Agent, together with the consent of the Borrowers to such assignment or transfer (to the extent provided in Section 12.06(b) hereof). 11.02 Reliance by Agent. The Agent shall be entitled to rely upon any certification, notice or other communication (including, without limitation, any thereof by telephone, telecopy, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agent. As to any matters not expressly provided for by this Agreement or any other Basic Document, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder or thereunder in accordance with instructions given by the Majority Banks, and such instructions of the Majority Banks and any action taken or failure to act pursuant thereto shall be binding on all of the Banks. 11.03 Defaults. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Default (other than the non-payment of principal of or interest on Loans, Reimburse ment Obligations or of commitment fees) unless the Agent has received notice from a Bank or the Company specifying such Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default, the Agent shall give prompt notice thereof to the Banks (and shall give each Bank prompt notice of each such non-payment). The Agent shall (subject to Section 11.07 hereof) take such action with respect to such Default as shall be directed by the Majority Banks, provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interest of the Banks except to the extent that this Agreement expressly requires that such action be taken, or not be taken, only with the consent or upon the authorization of the Majority Banks or all of the Banks. -89- 11.04 Rights as a Bank. With respect to its Commitment and the Loans made by it, Chase (and any successor acting as Agent) in its capacity as a Bank hereunder shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not acting as the Agent, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include the Agent in its individual capacity. Chase (and any successor acting as Agent) and its affiliates may (without having to account therefor to any Bank) accept deposits from, lend money to, make investments in and generally engage in any kind of banking, trust or other business with the Obligors (and any of their Subsidiaries or Affiliates) as if it were not acting as the Agent, and Chase and its affiliates may accept fees and other consideration from the Obligors for services in connection with this Agreement or otherwise without having to account for the same to the Banks. 11.05 Indemnification. The Banks agree to indemnify the Agent (to the extent not reimbursed under Sections 12.03 and 12.07 hereof, but without limiting the obligations of the Company under said Sections 12.03 and 12.07, and including in any event any payments under any indemnity that the Agent is required to issue to any bank referred to in Section 4.02 of the Security Agreement to which remittances in respect of Accounts, as defined therein, are to be made) ratably in accordance with the aggregate principal amount of the Loans and Reimbursement Obligations held by the Banks (or, if no Loans or Reimbursement Obligations are at the time outstanding, ratably in accordance with their respective Commitments or, if no Loans, Reimbursement Obligations or Commit ments are at the time outstanding or in effect, ratably in accordance with their respective Commitments as most recently in effect), for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever that may be imposed on, incurred by or asserted against the Agent (including by any Bank) arising out of or by reason of any investigation in or in any way relating to or arising out of this Agreement or any other Basic Document or any other documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby (including, without limitation, the costs and expenses that the Borrowers are obligated to pay under Sections 12.03 and 12.07 hereof, and including also any payments under any indemnity that the Agent is required to issue to any bank referred to in Section 4.02 of the Security Agreement to which remittances in respect of Accounts, as defined therein, are to be made, but excluding, unless a Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents, provided that no Bank shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified. -90- 11.06 Non-Reliance on Agent and Other Banks. Each Bank agrees that it has, independently and without reliance on the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Company and its Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement. The Agent shall not be required to keep itself informed as to the performance or observance by any Obligor of this Agreement or any of the other Basic Documents or any other document referred to or provided for herein or therein or to inspect the Properties or books of the Company or any of its Subsidiaries. Except for notices, reports and other documents and information expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the affairs, financial condition or business of the Company or any of its Subsidiaries (or any of their Affiliates) that may come into the possession of the Agent or any of its affiliates. 11.07 Failure to Act. Except for action expressly required of the Agent hereunder and under the other Basic Documents, the Agent shall in all cases be fully justified in failing or refusing to act hereunder and thereunder unless it shall receive further assurances to its satisfaction from the Banks of their indemnification obligations under Section 11.05 hereof against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. 11.08 Resignation or Removal of Agent. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving notice thereof to the Banks and the Company, and the Agent may be removed at any time with or without cause by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Majority Banks and shall have accepted such appointment within 30 days after the retiring Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, that shall be a bank which has an office in New York, New York with a combined capital and surplus of at least $1,000,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resigna -91- tion or removal hereunder as Agent, the provisions of this Section 11 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent. 11.09 Consents under Other Basic Documents. The Agent may, with the prior consent of the Majority Banks (but not otherwise), consent to any modification, supplement or waiver under any of the Basic Documents other than this Agreement, provided that, without the prior consent of each Bank, the Agent shall not (except as provided herein or in the Security Documents) release any collateral or otherwise terminate any Lien under any Basic Document providing for collateral security, or agree to additional obligations being secured by such collateral security (unless the Lien for such additional obligations shall be junior to the Lien in favor of the other obligations secured by such Basic Document), except that no such consent shall be required, and the Agent is hereby authorized, to release any Lien covering Property which is the subject of a disposition of Property permitted hereunder. Notwithstanding any provision of this Agreement to the contrary, the Agent shall, in connection with any disposition by an Obligor of any Properties, other than Mortgaged Properties, to the extent such Properties are disposed of in accordance with the limitations set forth in Section 9.05(iii) hereof, release such Properties from the Lien of each of the Security Documents, without the consent of any Bank, upon the receipt by the Agent of a certificate from the Obligor seeking such release which certificate shall state (i) that no Default or Event of Default has occurred and is continuing and (ii) that the disposition of such Property in the manner contemplated by such Obligor is permitted pursuant to the terms of this Agreement provided that such release shall not extend to (A) any equipment located on, proceeds from sale of, or production of hydrocarbons from, such Hydrocarbon Properties that are retained by the Company after any farmout or similar agreement and (B) any Inventory or Equipment (as defined in the Security Agreement) that is the subject of such farmout or similar agreement (the "Farmout Interest") and that is or may be utilized for the exploration, production or marketing of Hydrocarbons attributable to (x) the Farmout Interest and (y) other properties of the Company that are (i) Mortgaged Properties or (ii) described in the Security Documents and intended to be Mortgaged Properties. 11.10 Collateral Sub-Agents. Each Bank by its execution and delivery of this Agreement agrees, as contemplated by Section 4.03 of the Security Agreement, that, in the event it shall hold any Permitted Investments referred to therein, such Permitted Investments shall be held in the name and under the control of such Bank, and such Bank shall hold such Permitted Investments as a collateral sub-agent for the Agent thereunder. -92- The Company by its execution and delivery of this Agreement hereby consents to the foregoing. Section 12. Miscellaneous. 12.01 Waiver. No failure on the part of the Agent or any Bank to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement or any Note shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement or any Note preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 12.02 Notices. All notices, requests and other communications provided for herein and under the Security Documents (including, without limitation, any modifications of, or waivers or consents under, this Agreement) shall be given or made in writing (including, without limitation, by telex or telecopy) delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof (below the name of the Company, in the case of any Subsidiary Borrower or any Subsidiary Guarantor); or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telex or telecopier or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. 12.03 Expenses. The Borrowers hereby jointly and severally agree to pay or reimburse each of the Banks and the Agent for paying: (a) all reasonable out-of-pocket costs and expenses of the Agent (including, without limitation, the reasonable fees and expenses of (i) Milbank, Tweed, Hadley & McCloy, special New York counsel to Chase and (ii) each of the special counsel to the Banks set forth in Section 7.01(j) hereof), in connection with (i) the negotiation, preparation, execution and delivery of this Agreement and the other Basic Documents and the extensions of credit hereunder and (ii) any modification, supplement or waiver of any of the terms of this Agreement or any of the other Basic Documents; (b) all reasonable out-of-pocket costs and expenses of the Banks and the Agent (including, without limitation, reasonable counsels' fees) in connection with (i) any Default and any enforcement or collection proceedings resulting therefrom or in connection with the negotiation of any restructuring or "work-out" (whether or not consummated), or the obligations of the Borrowers hereunder and (ii) the enforcement of this Section 12.03 or Section 12.07; and (c) all transfer, stamp, documentary or other similar taxes, -93- assessments or charges levied by any governmental or revenue authority in respect of this Agreement or any of the other Basic Documents or any other document referred to herein or therein and all costs, expenses, taxes, assessments and other charges incurred in connection with any filing, registration, recording or perfection of any security interest contemplated by any Basic Document or any other document referred to therein. 12.04 Amendments, Etc. Except as otherwise expressly provided in this Agreement, any provision of this Agreement may be modified or supplemented only by an instrument in writing signed by the Obligors, the Agent and the Majority Banks, or by the Obligors and the Agent acting with the consent of the Majority Banks, and any provision of this Agreement may be waived by the Majority Banks or by the Agent acting with the consent of the Majority Banks; provided that: no modification, supplement or waiver shall, unless by an instrument signed by all of the Banks or by the Agent acting with the consent of all of the Banks whose rights or interests are affected thereby: (i) increase, or extend the term of any of the Commitments, or extend the time or waive any requirement for the reduction or termination of any of the Commitments, (ii) extend the date fixed for the payment of principal of or interest on the Loans, the Reimbursement Obligations or any fee hereunder, (iii) reduce the amount of any such payment of principal, (iv) reduce the rate at which interest is payable thereon or any fee is payable hereunder, (v) alter the rights or obligations of the Company to prepay Loans, (vi) alter the terms of this Section 12.04 or (vii) modify the definition of the term "Majority Banks" or modify in any other manner the number or percentage of the Banks required to make any determinations or waive any rights hereunder or to modify any provision hereof, any modification or supplement of this Agreement that increases any of the obligations or reduces or impairs any of the rights of, or otherwise adversely affects the interests of, the Agent or the Issuing Bank under this Agreement or any of the other Basic Documents shall require the consent of the Agent or the Issuing Bank (as the case may be). Anything in this Agreement to the contrary notwithstanding, if: (x) at a time when the conditions precedent set forth in Section 7 hereof to any Loans or other extension of credit hereunder are, in the opinion of the Majority Banks satisfied, any Bank shall fail to fulfill its obligations to make the Loan to be made by it; or (y) any Bank shall fail to pay to the Agent for the account of the Issuing Bank the amount of such Bank's Commitment Percentage of the Commitments of any payment under a Letter of Credit pursuant to Section 2.04(e) hereof; -94- then, for so long as such failure shall continue, such Bank shall (unless the Majority Banks, determined as if such Bank were not a "Bank" hereunder, shall otherwise consent in writing) be deemed for all purposes relating to amendments, modifications, waivers or consents under this Agreement or any of the other Basic Documents (including, without limitation, under this Section 12.04 and under Section 11.09 hereof) to have no Loans, Letter of Credit Liabilities or Commitments, shall not be treated as a "Bank" hereunder when performing the computation of Majority Banks and shall have no rights under the preceding paragraph of this Section 12.04 or under Section 11.09 hereof; provided that any action taken by the other Banks with respect to the matters referred to in the preceding paragraph shall not be effective as against such Bank. 12.05 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 12.06 Assignments and Participations. (a) No Obligor may assign any of its rights or obligations hereunder or under the Notes without the prior consent of the Majority Banks and the Agent. (b) Each Bank may assign any of its Loans, its Note, its Commitment, and its Letter of Credit Interest (but only with the consent of, in the case of an outstanding Commitment, the Company and the Agent and, in the case of a Commitment or a Letter of Credit Interest, the Issuing Bank (which consent, in the case of the Company, shall not be unreasonably withheld)); provided that (i) no such consent by the Company or the Agent or the Issuing Bank, if applicable, shall be required in the case of any assignment to another Bank; (ii) any such partial assignment shall be in an amount at least equal to $3,000,000; and (iii) each such assignment by a Bank of any of its Loans, Notes, Commitments or Letter of Credit Interests shall be made in such manner so that the same portion of its Loans, Notes, Commitments and Letter of Credit Interests is assigned to the respective assignee. Upon execution and delivery by the assignee to Company, the Agent and the Issuing Bank of an instrument in writing pursuant to which such assignee agrees to become a "Bank" hereunder (if not already a Bank) having the Commitments, Loans, and, if applicable, Letter of Credit Interests specified in such instrument, and upon the consent thereto by the Company, the Agent and the Issuing Bank, to the extent required above, the assignee shall have, to the extent of such assignment (unless otherwise provided in such assignment with the consent of the Company, the Agent and the Issuing Bank), the obligations, rights and benefits of a Bank hereunder holding the Commitments, Loans and, if applicable, Letter of Credit Interests (or portions thereof) assigned to it (in addition to the Commitments, Loans -95- and Letter of Credit Interests, if any, theretofore held by such assignee) and the assigning Bank shall, to the extent of such assignment, be released from the Commitments (or portion thereof) so assigned. Upon each such assignment the assigning Bank shall pay the Agent an assignment fee of $50,000. (c) Each Bank may sell or agree to sell to one or more other Persons a participation in not more than 75% of its rights and obligations under this Agreement (including, without limitation, not more than 75% of its Commitment and the Loans and/or Letter of Credit Interest held by it), in which event each purchaser of a participation (a "Participant") shall be entitled to the rights and benefits of the provisions of Section 9.01(h) hereof with respect to its participation in such Loans, Letter of Credit Interests and Commitments as if (and the Borrowers shall be directly obligated to such Participant under such provisions as if) such Participant were a "Bank" for purposes of said Section, but, except as otherwise provided in Section 4.07(c) hereof, shall not have any other rights or benefits under this Agreement or any Note or any other Basic Document (the Participant's rights against such Bank in respect of such participation to be those set forth in the agreements executed by such Bank in favor of the Participant). All amounts payable by the Borrowers to any Bank under Section 5 hereof in respect of Loans, Letter of Credit Interests held by it, and its Commitment, shall be determined as if such Bank had not sold or agreed to sell any participations in such Loans, Letter of Credit Interest and Commitment, and as if such Bank were funding each of such Loans, Letter of Credit Interests and Commitment in the same way that it is funding the portion of such Loans, Letter of Credit Interests and Commitment in which no participations have been sold. In no event shall a Bank that sells a participation agree with the Participant to take or refrain from taking any action hereunder or under any other Basic Document except that such Bank may agree with the Participant that it will not, without the consent of the Participant, agree to any of the following (to the extent the rights or interest of the Participant are adversely affected thereby): (i) increase or extend the term, or extend the time or waive any requirement for the reduction or termination, of such Bank's Commitment, (ii) extend the date fixed for the payment of principal of or interest on the related Loan or Loans, Reimbursement Obligations or any portion of any fee hereunder payable to the Participant, (iii) reduce the amount of any such payment of principal, (iv) reduce the rate at which interest is payable thereon, or any fee hereunder payable to the Participant, to a level below the rate at which the Participant is entitled to receive such interest or fee, (v) alter the rights or obligations of the Borrowers to prepay the related Loans or (vi) consent to any other modification, supplement or waiver hereof or of any of the other Basic Documents to the extent that the same, under Section 11.09 or 12.04 hereof, requires the consent of each Bank. -96- (d) In addition to the assignments and participations permitted under the foregoing provisions of this Section 12.06, including, without limitation, Section 12.06(c) hereof, any Bank may assign and pledge all or any portion of its Loans and its Notes to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Bank from its obligations hereunder. (e) A Bank may furnish any information concerning the Company or any of its Subsidiaries in the possession of such Bank from time to time to assignees and participants (including prospective assignees and participants), subject, however, to the provisions of Section 12.13(b) hereof. (f) Anything in this Section 12.06 to the contrary notwithstanding, no Bank may assign or participate any interest in any Loan or Reimbursement Obligation held by it hereunder to the Borrowers or any of their Affiliates or Subsidiaries without the prior written consent of each Bank. 12.07 Indemnification. The Borrowers hereby jointly and severally agree (i) to indemnify the Agent and each Bank and their respective directors, officers, employees, attorneys and agents from, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses incurred by any of them (including, without limitation, any and all losses, liabilities, claims, damages or expenses incurred by the Agent to any Bank, whether or not the Agent or any Bank is a party thereto) arising out of or by reason of any investigation or litigation or other proceedings (including any threatened investigation or litigation or other proceedings) relating to the extensions of credit hereunder or any actual or proposed use by the Company or any of its Subsidiaries of the proceeds of any of the extensions of credit hereunder, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or litigation or other proceedings (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified) and (ii) not to assert any claim against the Agent, any Bank, any of their affiliates, or any of their respective directors, officers, employees, attorneys and agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to any of the transactions contemplated herein or in any other Basic Document; provided that the Borrowers may enforce the obligations, if applicable, of the Banks hereunder. Without limiting the generality of the foregoing, the Borrowers will (x) indemnify the Agent for any payments that the Agent is required to make under any indemnity issued to any bank referred to in Section 4.02 of the Security Agreement to which remittances in respect to -97- Accounts, as defined therein, are to be made and (y) indemnify the Agent and each Bank from, and hold the Agent and each Bank harmless against, any losses, liabilities, claims, damages or expenses described in the preceding sentence (but excluding, as provided in the preceding sentence, any loss, liability, claim, damage or expense incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified) arising under any Environmental Law as a result of the past, present or future operations of the Company or any of its Subsidiaries (or any predecessor in interest to the Company or any of its Subsidiaries), or the past, present or future condition of any site or facility owned, operated or leased by the Company or any of its Subsidiaries (or any such predecessor in interest), or any Release or threatened Release of any Hazardous Materials from any such site or facility, including any such Release or threatened Release which shall occur during any period when the Agent or any Bank shall be in possession of any such site or facility following the exercise by the Agent or any Bank of any of its rights and remedies hereunder or under any of the Security Documents. 12.08 Survival. The obligations of the Borrowers under Sections 5.01, 5.05, 5.06, 5.07, 12.03 and 12.07 hereof and the obligations of the Banks under Section 11.05 hereof shall survive the repayment of the Loans and Reimbursement Obligations and the termination of the Commitments. In addition, each representation and warranty made, or deemed to be made by a notice of any extension of credit (whether by means of a Loan or a Letter of Credit), herein or pursuant hereto shall survive the making of such representation and warranty, and no Bank shall be deemed to have waived, by reason of making any extension of credit hereunder (whether by means of a Loan or a Letter of Credit), any Default which may arise by reason of such representation or warranty proving to have been false or misleading, notwithstanding that such Bank or the Agent may have had notice or knowledge or reason to believe that such representation or warranty was false or misleading at the time such extension of credit was made. 12.09 Captions. The table of contents and captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 12.10 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 12.11 Governing Law; Submission to Jurisdiction. This Agreement and the Notes shall be governed by, and construed in -98- accordance with, the law of the State of New York. Each Obligor hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York state court sitting in New York City for the purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. Each Obligor irrevocably waives, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. 12.12 Waiver of Jury Trial. EACH OF THE OBLIGORS, THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 12.13 Treatment of Certain Information. (a) The Company acknowledges that from time to time financial advisory, investment banking and other services may be offered or provided to the Company or one or more of its Subsidiaries (in connection with this Agreement or otherwise) by any Bank or by one or more subsidiaries or affiliates of such Bank and the Company, subject to Section 12.13(b) hereof, hereby authorizes each Bank to share any information delivered to such Bank by the Company and its Subsidiaries pursuant to this Agreement, or in connection with the decision of such Bank to enter into this Agreement, to any such subsidiary or affiliate. (b) Each Bank and the Agent agrees (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to use reasonable precautions to keep confidential, in accordance with their customary procedures for handling confidential information of the same nature and in accordance with safe and sound banking practices, any non-public information supplied by the Company or any of its Subsidiaries pursuant to this Agreement which is identified by such Person as being confidential at the time the same is delivered to such Bank or the Agent, provided that nothing herein shall limit the disclosure of any such information (i) to the extent required by statute, rule, regulation or judicial process, (ii) to counsel for any of the Banks or the Agent, (iii) to bank examiners, auditors or accountants, (iv) to the Agent or any other Bank, (v) in connection with any litigation to which any one or more of the Banks or the Agent is a party, (vi) to a subsidiary or affiliate of such Bank as provided in clause (a) above (provided that neither the Agent nor any Bank shall disclose any non-public information delivered by the Company or any of its Subsidiaries pursuant to this Agreement to any subsidiary or affiliate of the Agent or any such Bank, as the case may be, which is generally -99- engaged in the securities business other than in connection with (x) Commodity Hedging Agreements or Interest Rate Protection Agreements permitted pursuant to Section 9.07(h) hereof or (y) the syndication or participation of the Commitments, Loans or Letter of Credit Interests under this Agreement, without the prior written consent of the Company) or (vii) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) first executes and delivers to the respective Bank a Confidentiality Agreement substantially in the form of Exhibit G hereto. -100- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. FOREST OIL CORPORATION By Kenton Scroggs -------------------------------- Title: Address for Notices: 1500 Colorado National Building 950 17th Street Denver, Colorado 80202 Attention: Kenton Scroggs Telecopier No.: (303) 592-2414 Telephone No.: (303) 592-2602 -101- BANKS THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION) Commitment $30,000,000 By_________________________ Title: Lending Office for all Loans: The Chase Manhattan Bank (National Association) 1 Chase Manhattan Plaza 3rd Floor New York, New York 10081 Address for Notices: The Chase Manhattan Bank (National Association) 1 Chase Manhattan Plaza 3rd Floor New York, New York 10081 Attention: Patricia Quinn Telecopier No.: (212) 552-1687 Telephone No.: (212) 552-4753 -102- CHRISTIANA BANK (NEW YORK BRANCH) Commitment $20,000,000 By_________________________ Title: By_________________________ Title: Address for Notices: Christiana Bank (New York Branch) Attention: Telecopier No.: Telephone No.: -103- THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Agent By_________________________ Title: Address for Notices to Chase as Agent: The Chase Manhattan Bank (National Association) 4 Chase Metrotech Center 13th Floor Brooklyn, New York 11245 Attention: New York Agency Telecopier No.:(718) 242-6910 Telephone No.: (718) 242-7979 with copies to: The Chase Manhattan Bank (National Association) 1 Chase Manhattan Plaza New York, NY 10081 Attn: SCHEDULE I Material Agreements and Liens (Sections 8.12 and 9.07(b)) [To be inserted] SCHEDULE II Hazardous Materials (Section 8.13) [To be inserted] SCHEDULE III Subsidiaries and Investments (Sections 8.15 and 9.08(a)) [To be inserted] SCHEDULE IV JEDI Collateral (Leases) [To be inserted] EX-11 3 CALCULATION OF EARNINGS Exhibit 11 FOREST OIL CORPORATION Calculation of Loss Per Share of Common Stock (Unaudited)
Three Months Ended Nine Months Ended ---------------------------- ---------------------------- September 30, September 30, September 30, September 30, ------------- ------------- ------------- ------------- 1995 1994 1995 1994 ------- ------- ------- ------- (In Thousands Except Per Share Amounts) PRIMARY LOSS PER SHARE: Net loss $(6,574) (32,873) (14,533) (46,892) Less dividends payable on $.75 Convertible Preferred Stock (540) (541) (1,620) (1,621) ------- ------- ------- ------- Net loss attributable to common stock for primary loss per share calculation $(7,114) (33,414) (16,153) (48,513) ======= ======= ======= ======= Weighted average number of common shares outstanding 42,312 28,135 33,057 28,072 ======= ======= ======= ======= Primary loss per share of common stock $ (.17) (1.19) (.49) (1.73) ======= ======= ======= ======= FULLY DILUTED LOSS PER SHARE: Net loss attributable to common stock, as above $(7,114) (33,414) (16,153) (48,513) Add: Dividend requirements on: $.75 Convertible Preferred Stock 540 541 1,620 1,621 ------- ------- ------- ------- Loss applicable to fully diluted calculation $(6,574) (32,873) (14,533) (46,892) ======= ======= ======= ======= Common shares applicable to fully diluted calculation: Weighted average number of common shares outstanding, as above 42,312 28,135 33,057 28,072 Add: Weighted average number of shares issuable upon assumed conversion of Convertible Preferred Stock 10,081 10,084 10,082 10,083 ------- ------- ------- ------- Common shares applicable to fully diluted calculation 52,393 38,219 43,139 38,155 ======= ======= ======= ======= Fully diluted loss per share* $ (.13) (.86) (.34) (1.23) ======= ======= ======= =======
*The fully diluted loss per share is not presented in the Company's financial statements because the effects of assumed exercises and conversions were anti-dilutive. EX-27 4 FDS
5 This schedule contains summary financial information extracted from the condensed consolidated balance sheets and condensed consolidated statements of income on pages 1 and 2 of the Company's Form 10-Q for the quarterly period ending September 30, 1995, and is qualified in its entirety by reference to such financial statements. 9-MOS DEC-31-1995 SEP-30-1995 3,417 0 15,299 0 0 22,215 1,202,447 941,701 304,743 30,974 181,959 4,775 0 24,356 15,256 304,743 60,154 60,528 16,576 22,337 33,631 0 19,100 (14,540) (7) (14,533) 0 0 0 (14,533) (.49) (.49)
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